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State Attorneys General Seek to Intervene in PHH v. CFPB Case
On January 23, the Attorneys General of 16 states and the District of Columbia (the State Attorneys General) filed a motion requesting the permission of the D.C. Circuit to intervene in the CFPB’s petition for en banc reconsideration in PHH Corp. v. CFPB. In the motion, the State Attorneys General argue that they have a vital interest in the matter because the October 2016 panel decision subjecting the CFPB Director to “at will” removal by the President “threatens to undermine the ability of the State Attorneys General [to work with the CFPB] to bring effective civil enforcement and coordinated regulatory actions free from political influence and interference.”
Noting the possibility that President Trump may seek to remove CFPB Director Cordray before the petition for rehearing is resolved or refuse to pursue an appeal to the Supreme Court if the panel decision stands, the State Attorneys General raise the concern that “[t]he incoming administration … may not continue an effective defense of the statutory for-cause protection of the CFPB director.” Therefore, because “[a] significant probability exists that the pending petition for rehearing will be withdrawn, or the case otherwise rendered moot,” the State Attorneys General argue that the D.C. Circuit should allow them to intervene to protect their interests.
In addition to the District of Columbia, the motion was filed on behalf of the Attorneys General for the following states: Connecticut, Delaware, Hawaii, Illinois, Iowa, Maine, Maryland, Massachusetts, Mississippi, New Mexico, New York, North Carolina, Oregon, Rhode Island, Vermont, and Washington. The filing of the motion was announced by Connecticut Attorney General George Jepsen, whose office prepared the initial draft.
Senate Banking Committee Announces Subcommittee Assignments for 115th Congress
On January 17, the Senate Committee on Banking, Housing and Urban Affairs Chairman Mike Crapo (R-Idaho) and Ranking Member Sherrod Brown (D-Ohio), announced subcommittee assignments for the 115th Congress. The Senators named to head each subcommittee are listed below:
- Dean Heller of Nevada will be the new chairman of the Securities, Insurance and Investment subcommittee. Sen. Mark Warner of Virginia will continue to serve as ranking member.
- Pat Toomey of Pennsylvania will remain chairman of the Financial Institutions and Consumer Protection subcommittee. Sen. Elizabeth Warren of Massachusetts will be the new ranking member.
- Tom Cotton of Arkansas will become chairman of the Economic Policy subcommittee. Sen. Heidi Heitkamp of North Dakota will be the new ranking member.
- Ben Sasse of Nebraska will chair the National Security and International Trade and Finance subcommittee. Sen. Joe Donnelly of Indiana will serve as ranking member.
Sen. Tim Scott of South Carolina will continue to chair the Housing, Transportation and Community Development subcommittee. Sen. Robert Menendez of New Jersey will remain ranking member.
Misleading Mortgage Investors Costs Germany's Largest Bank $7.2 Billion
On January 17, the Department of Justice (DOJ) announced a $7.2 billion settlement with Germany’s largest lender, resolving federal civil claims that a German global bank misled investors in the packaging, securitization, marketing, sale and issuance of residential mortgage-backed securities (RMBS) between 2006 and 2007. Under the terms of the settlement agreement, the bank must pay a $3.1 billion civil penalty under the Financial Institutions Reform, Recovery and Enforcement Act (FIRREA), and must provide $4.1 billion in consumer relief. The DOJ described the settlement as “one of the largest FIRREA penalties ever paid.”
As a part of the settlement, the bank acknowledged misleading investors in the packaging, securitization, marketing, sale, and issuance of RMBS. Pursuant to the agreement, an independent monitor will determine whether the bank has satisfied its consumer relief obligations. In connection with the settlement, the DOJ released an appendix containing credit and compliance due diligence results from a selection of the bank’s RMBS, along with a list of the RMBS at issue. The settlement— described by the DOJ as “one of the largest FIRREA penalties ever paid”—does not release any individuals from potential criminal or civil liability. The bank has agreed to fully cooperate with investigations related to the conduct covered by the agreement.
D.C. Circuit Grants PHH Request to Respond to Solicitor General's Brief
Over the objections of the CFPB, the D.C. Circuit today granted the request of PHH Corp. to file a supplemental brief responding to arguments in support of en banc review that were raised for the first time in a brief filed by the U.S. Solicitor General on the December 22, 2016. PHH’s supplemental brief is due on or before January 27, 2017. For additional background, please see our summaries of the panel decision, the CFPB’s petition for rehearing, and the D.C. Circuit’s order directing PHH to respond and the Solicitor General to provide views.
GAO Issues Report on TARP Housing Programs
On January 11, the GAO announced the release of its report providing an update on the status and condition of Treasury’s TARP-funded housing programs as of October 31, 2016. According to the report, Treasury had disbursed nearly 60 percent or $22.6 billion of the $37.51 billion assigned to TARP for the purpose of helping struggling homeowners avoid foreclosure. The report also notes that the GAO’s latest review yielded no new recommendations and that only five of the 29 recommendations GAO has previously made related to the TARP-funded housing programs remain open or not fully implemented. The report states that the GAO will continue to monitor and assess the status of these recommendations.
Special Inspector General for TARP Issues Report on "Hardest Hit Fund"
On January 12, the Special Inspector General for the Troubled Asset Relief Program (SIGTARP) announced the release of its report on TARP’s “Hardest Hit Fund” (HHF). Created in 2010, the HHF provides a temporary safety net to help save the homes of unemployed and underemployed Americans in 19 states deemed to be the hardest-hit areas of the country. Among other things, the report noted that a majority of the more than 160,000 people denied funds through the program earned less than $30,000. The report notes that SIGTARP is unable to determine why denial rates for homeowners making less than $30,000 are so high, in part, because state agencies' records are non-existent, missing, or incomplete. Indeed, according to the report, some state agencies were unable to provide “even basic aggregate information about why homeowners were denied, let alone a specific reason for each person turned away.” The report emphasized, among other things, the need for all such records-related deficiencies be “immediately remedied.” The report also recommended that state agencies “remove unnecessary restrictions for participation in the program.”
London-based Bank Agrees to $32 Million Settlement with OCC Concerning Faulty Foreclosure Claims
On January 11, the OCC reported that it has ordered a large London-based bank to pay $32.5 million to settle claims that the bank failed to properly follow the regulator’s orders to improve mortgage foreclosure practices that led to borrowers being harmed after the 2008 credit crisis. Specifically, the OCC had accused the bank in 2015 of failing to meet the demands it had agreed to, and the agency imposed certain additional restrictions on the company’s mortgage-servicing abilities until it fixed the alleged shortcomings. The regulator also noted that the bank had failed to properly file documents in certain bankruptcy cases after the orders (for which it was ordered to pay $3.5 million in remediation to borrowers). The OCC confirmed, however, that the bank is now in compliance with all OCC orders related to the alleged foreclosure practices.
Two GOP Senators Urge Incoming Administration to Remove Director Cordray
On January 9, two GOP lawmakers sent a letter to Vice President-elect Mike Pence urging the incoming administration to remove CFPB Director Richard Cordray “promptly after [President Trump’s] inauguration.” Stating that “[i]t’s time to fire King Richard,” Sen. Ben Sasse, a member of the Senate Banking Committee, and Sen. Mike Lee cited the D.C. Circuit’s October 2016 decision in CFPB v. PHH to argue that, once in office, President Trump has the constitutional authority to remove Director Cordray immediately. In pushing for Director Cordray’s ouster, the Senators noted, among other things, the CFPB’s decision to move ahead in the lame-duck session with regulations of arbitration clauses and payday loans, which they consider costly and “radically opposed to the Trump administration’s pro-growth agenda.”
As previously covered by InfoBytes, a majority of a panel of U.S. Circuit Court for District of Columbia concluded in October 2016 that the CFPB’s governance structure was unconstitutional, and, as a corrective measure, authorized the President to fire the Bureau’s sole Director at will—a ruling for which the Bureau now seeks rehearing en banc. In addressing this pending appeal, the Senators’ January 9 letter suggests in a footnote that, if the rehearing moves forward, the Justice Department should refrain from defending the CFPB.
CFPB Releases Annual Report to Congress on Transparency, Accountability in 2016
On January 3, the CFPB announced the release of its annual report to the Senate and House Committees on Appropriations for 2016. The report—which covers October 1, 2015 through September 30, 2016—identifies the specific responsibilities that the Dodd-Frank Act tasked to the CFPB and explains how the Bureau has attempted to meet those responsibilities. Among other things, the report describes Bureau regulations and guidance related to the Dodd-Frank Act including, but not limited to: (i) a proposed rule on arbitration; (ii) a proposed rule related to payday loans, vehicle title loans, and other similar credit products; (iii) a final rule to amend various provisions of the mortgage servicing rules implementing the Real Estate Settlement Procedures Act and the Truth in Lending Act; and (iv) a final rule amending Regulation C, implementing the Home Mortgage Disclosure Act. The report also includes descriptions of the Bureau’s supervisory activities and enforcement actions undertaken by in the 2016 fiscal year.
Kentucky Regulator Announces New Licensing Requirement for Mortgage Servicers
On December 22, the Kentucky Department of Financial Institutions (the “Department”) issued a memorandum stating that master servicers and sub servicers are required to be licensed as mortgage loan companies under the Kentucky Mortgage Licensing and Regulation Act, unless they can document to the Department in writing that an exemption applies to them. The memorandum defines “master servicer” as “any entity or individual that owns the right to perform servicing of a mortgage loan. A master servicer typically reserves the legal right to either perform the servicing itself or to do so through a sub servicer.” The memorandum specifies that “[a] sub servicer does not own the right to perform mortgage servicing, but performs servicing on behalf of a master servicer, generally premised upon duties enumerated in a contract between the sub servicer and master servicer.” The licensing requirement is effective March 1, 2017.