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FDIC announces Missouri disaster relief
On August 12, the FDIC issued FIL-39-2022 to provide regulatory relief to financial institutions and help facilitate recovery in areas of Missouri affected by severe storms and flooding from July 25-28. The FDIC acknowledged the unusual circumstances faced by institutions affected by the storms and suggested that institutions work with impacted borrowers to, among other things: (i) extend repayment terms; (ii) restructure existing loans; or (iii) ease terms for new loans to those affected by the severe weather, provided the measures are done “in a manner consistent with sound banking practices.” Additionally, the FDIC noted that institutions “may receive favorable Community Reinvestment Act consideration for community development loans, investments, and services in support of disaster recovery.” The FDIC will also consider regulatory relief from certain filing and publishing requirements.
FHFA to require servicers to maintain fair lending data
On August 10, the FHFA announced that Fannie Mae and Freddie Mac will start requiring servicers to obtain and maintain borrowers’ fair lending data on their loans. Data must transfer with servicing throughout the mortgage term, the announcement states, adding that beginning March 1, 2023, servicers will be required to collect borrower data including age, race, ethnicity, gender, and preferred language. The update follows an announcement issued in May (covered by InfoBytes here), which requires lenders to collect information on the borrower’s language preference, and on any homebuyer education or housing counseling that the borrower received, so that lenders can increase their understanding of borrowers’ needs throughout the home buying process. To facilitate the upcoming changes, Freddie Mac issued servicing Bulletin 2022-17, which outlines servicing requirements and notes that data elements must be stored in a format that can be searched, queried, and transferred. Simultaneously, Fannie Mae issued SVC-2022-06 to incorporate the new fair lending data requirements into its Servicing Guide. “Having fair lending data travel with servicing will help servicers do the important work of providing assistance to borrowers in need, helping to further a sustainable and equitable housing finance system,” FHFA Director Sandra Thompson said, adding that this need arose from the foreclosure crisis and Covid-19 response.
Fannie releases selling guide
On August 3, Fannie Mae issued its Selling Guide for Single Families. According to the guide, Fannie Mae will begin to buy mortgage loans with lender-funded grants, including down payment assistance, closing costs, or financial reserves. Specifically, the guidance noted that: (i) the loan must be a HomeReady loan used for a purchase transaction; (ii) “[t]he borrower(s) must make a 3% contribution from their own funds, other eligible sources of funds as described in Chapter B3-4, Asset Assessment, or through a Community Seconds loan”; and (iii) “[t]he lender must have a documented program that provides grants for low- to moderate-income borrowers, community development, equitable housing initiatives, or similar initiatives.”
FDIC, OCC announce disaster relief
On August 3, the FDIC issued FIL-38-2022 to provide regulatory relief to financial institutions and help facilitate recovery in areas of Kentucky affected by severe storms, flooding, landslides and mudslides that began July 26 and is ongoing. The FDIC acknowledged the unusual circumstances faced by institutions affected by the storms and suggested that institutions work with impacted borrowers to, among other things: (i) extend repayment terms; (ii) restructure existing loans; or (iii) ease terms for new loans to those affected by the severe weather, provided the measures are done “in a manner consistent with sound banking practices.” The FDIC noted that institutions may receive favorable Community Reinvestment Act consideration for community development loans, investments, and services in support of disaster recovery. The agency will also consider relief from certain reporting and publishing requirements.
The same week the OCC issued a proclamation permitting OCC-regulated institutions, at their discretion, to close offices affected by flooding in Kentucky “for as long as deemed necessary for bank operation or public safety.” The proclamation directed institutions to OCC Bulletin 2012-28 for further guidance on actions they should take in response to natural disasters and other emergency conditions. According to the 2012 Bulletin, only bank offices directly affected by potentially unsafe conditions should close, and institutions should make every effort to reopen as quickly as possible to address customers’ banking needs.
CFPB gets $29.2 million judgment in mortgage relief suit
On August 1, the U.S District Court for the Western District of Wisconsin granted over $29.2 million to the CFPB, revising a $59 million judgment that was thrown out by the U.S. Court of Appeals for the Seventh Circuit last year. As previously covered by InfoBytes, in July 2021, the 7th Circuit vacated a 2019 restitution award in an action brought by the CFPB against two former mortgage-assistance relief companies and their principals (collectively, “defendants”) for violations of Regulation O. In 2014, the CFPB, FTC, and 15 state authorities took action against several foreclosure relief companies and associated individuals, including the defendants, alleging they made misrepresentations about their services, failed to make mandatory disclosures, and collected unlawful advance fees (covered by InfoBytes here). The district court’s 2019 order (covered by InfoBytes here) held one company and its principals jointly and severally liable for over $18 million in restitution, while another company and its principals were held jointly and severally liable for nearly $3 million in restitution. Additionally, the court ordered civil penalties totaling over $37 million against company two and four principals.
According to the recent opinion and order, the district court concluded that it would be “appropriate” to characterize the redress as legal restitution because the “plaintiff’s claim is against defendants generally and not one, identifiable fund or asset,” calling it “valid and necessary” for consumers to be compensated for the advance fees they paid. Instead of ordering “complete restitution,” the district court noted it would require the defendants to “refund 50% of the moneys paid, which plaintiff shall return directly to the injured parties to the extent practical,” because the 7th Circuit “found that defendants' conduct was not the product of reckless disregard of the CFPA, but rather a failure to fit themselves under an exception for the delivery of legal services.”
Senate Republicans urge FHFA to “abandon” equitable finance plans
On July 19, twelve Republican Senators wrote a letter to FHFA Director Sandra Thompson expressing their “many significant concerns” about “race-based housing subsidies” in the recently released Equitable Housing Finance Plans for Fannie Mae and Freddie Mac (GSEs). As previously covered by InfoBytes, in June, the GSEs released their Equitable Housing Finance Plans for 2022-2024 (available here and here), affirming their commitment to addressing racial and ethnic disparities in homeownership and wealth. The plans were developed following FHFA’s September 2021 request for public input, which invited comments to help the GSEs prepare their first plans and to aid FHFA in overseeing the plans (covered by InfoBytes here). In the letter, the Senators argued that the plans “raise significant legal concerns,” adding that “no law authorizes FHFA to use a GSE’s assets to pursue affirmative action in housing.” The Senators also wrote that the Biden administration “is conscripting the GSEs as instrumentalities of its progressive racial equity agenda to achieve outcomes it cannot achieve legislatively or even legally.” The Senators urged Thompson to “abandon” the plans and, “in anticipation of litigation challenging the legality” of them, requested that the GSEs “retain all correspondence with FHFA and other records relating to these plans.”
Louisiana appellate court affirms district court’s decision in SCRA case
On June 29, the Court of Appeal for the Second District of Louisiana affirmed a trial court’s grant of summary judgment in favor of a national bank in an SCRA case. According to the opinion, an active duty servicemember and his wife filed for bankruptcy after purchasing a mortgage on a property from a national bank (defendant). The defendant appeared in the bankruptcy proceedings and moved to abandon the property for purposes of eventual foreclosure. The plaintiffs moved out of the state and were granted a discharge under Chapter 7 bankruptcy laws. The defendant has not foreclosed on the property, asserting that the mortgage account remains subject to the protections of the federal SCRA. The plaintiffs filed suit, claiming ownership of the property due to the defendant’s failure to foreclose against them within five years of the abandonment of the property in the bankruptcy, asserting that their obligations under the mortgage are prescribed.
The appellate court agreed that the mortgage account is subject to the protections of the SCRA, which tolls any state prescriptive period for the duration of one’s active-duty military service. According to the opinion, despite “no evidence of repayment” to the bank of any of the underlying mortgage debt, the plaintiffs claimed ownership of the subject property because the bank failed to “foreclose against them within five years of the abandonment of the property in the bankruptcy.” Agreeing with the bank that the mortgage account still remained subject to the protections of the SCRA, the court determined that: (i) the servicemember and his wife “cannot point to any law or jurisprudence that would provide an exception to the mandatory tolling provision of the SCRA [50 U.S.C. § 3936] in these circumstances;” (ii) the couple “never executed a waiver of rights form”; (iii) the “five-year prescriptive period [under Louisiana law] has been tolled on the mortgage” for the entirety of the servicemember’s active-duty military service; and (iv) the bank’s time to foreclose on the subject property “has not prescribed, as the prescriptive period has not started to run.” The appellate court concluded that the couple’s “obligations on the mortgage have not been extinguished, and they are not the owners of the subject property.”
FHFA launches Office of Financial Technology
On July 18, FHFA announced the establishment of the Office of Financial Technology to help address emerging fintech risks and priorities. The new office will support the agency in: (i) developing strategies for FHFA-regulated entities to advance safe, responsible, and equitable fintech innovation; (ii) sharing best practices related to fintech in housing finance; (iii) establishing outreach through regulated entities to promote awareness and understanding of fintech innovation; (iv) facilitating interagency collaboration and partnerships with other regulators; and (v) providing resources on innovation, general trends, and emerging risks in housing finance. The new office will also help develop strategies for Fannie Mae, Freddie Mac, and the Federal Home Loan Banks to advance fintech in a responsible manner.
The agency also issued a request for information (RFI) on the role of financial technology in housing finance and the risks and opportunities presented by technology throughout the mortgage lifecycle. Among other things, the RFI seeks feedback on ways the agency can “constructively interact with other stakeholders to facilitate responsible innovation, including the identification of any barriers to or challenges in implementing fintech in the housing finance ecosystem, while also focusing on supporting equity in the housing finance landscape for both homeowners and renters.” FHFA stated it also has an interest in understanding ways technology might automate and increase the effectiveness of compliance and regulatory processes (broadly referred to as “regtech”), commenting that “[r]egtech provides an opportunity to enhance transparency, consistency, and standardization of those processes, while reducing compliance costs.” Comments are due by October 16.
New Jersey warns licensed “teams” about violating state real estate statute
On July 12, the New Jersey Department of Banking and Insurance issued Bulletin No. 22-07 to remind real estate licensees (particularly licensees operating as a “team”), and brokers of record who are responsible for managing and supervising teams, of the requirement to ensure compliance with the Real Estate Broker and Salesperson Act and related regulations. Explaining that real estate “teams” are a growing trend in the industry, the Bulletin warned that while a team may “appear to operate independent of the brokerage firm through which they are licensed,” the team is not actually a separate brokerage, and “teams, their team leaders, team members and their supervising brokers must comply with the act and regulations.” The Bulletin continued that “[l]icensees can only accept compensation, including commissions, from their employing broker, and not a member of their team or their team leader. . . . Further, teams may not operate out of a separate, satellite office, unless such location is properly licensed with the New Jersey Real Estate Commission and maintained and supervised in accordance with the act and regulations.” The Bulletin also addressed advertising and webpage requirements for licensees.
Licensees who fail to comply with the regulations may be subject to fines, potential license suspension or revocation. Brokers who fail to supervise licensees or team members are subject to these penalties as well.
4th Circuit: Borrower must return loans proceeds to rescind reverse mortgage
On July 14, the U.S. Court of Appeals for the Fourth Circuit held that a borrower has three years to rescind a reverse mortgage loan if a lender fails to provide required TILA disclosures, but that in order for the cancellation of the loan to be complete the proceeds must be returned. The borrower attempted to rescind a reverse mortgage she took out on her home after discovering the lender allegedly did not provide required TILA disclosures at closing. She notified the lender seeking to rescind the mortgage, but later sued after the lender failed to honor her rescission rights as required by Section 1635(b) of TILA. At trial, a jury sided with the lender, finding that it did not fail to honor the borrower’s attempt to rescind the loan. However, the district court issued judgment as a matter of law for the borrower, holding that the lender violated TILA’s requirements following the borrower’s notice of rescission, and ruling that because of this failure, the borrower was not required to return $60,000 in loan proceeds. The lender appealed.
In vacating the district court’s order granting judgment as a matter of law, the appellate court held that the district court’s ruling violated TILA’s recission provisions, which are intended to return all parties to their status prior to the loan agreement. “To decide otherwise would bestow a remarkable windfall on a borrower and penalty on the lender divorced from the text of TILA and the entire purpose of rescission,” the Fourth Circuit wrote. Moreover, the appellate court concluded that while a lender’s obligations in response to a rescission notice are mandatory, nothing in Section 1635(b) “specifies that if the lender fails to take these actions, it loses its right to the monies it loaned to the borrower.”