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5th Circuit remands nonjudicial foreclosure suit back to state court
On June 16, the U.S. Court of Appeals for the Fifth Circuit held that a plaintiff borrower’s requested damages in a foreclosure lawsuit did not exceed the federal jurisdictional threshold amount of $75,000, and sent the case back to Texas state court. The plaintiff sued the financial institution in state court after it sought a nonjudicial foreclosure on his house, asserting violations of the Texas Debt Collection Act, breach of the common-law duty of cooperation, fraud, and negligent misrepresentation. The suit was removed to the U.S. District Court for the Northern District of Texas, with the defendant arguing that the suit automatically stayed its nonjudicial foreclosure sale, thus putting the value of the house ($427,662) as the amount in dispute, instead of the plaintiff’s requested relief of $74,500. The plaintiff moved to remand the case to state court on the premise “that the amount in controversy could not exceed the stipulated maximum of $74,500.” The district court denied the plaintiff’s motion, ruling that it “had to measure the amount in controversy ‘by the value of the object of the litigation,’” and not by what the plaintiff’s complaint says the damages were not to exceed.
In reversing and remanding the case to state court, the 5th Circuit concluded that, because the defendant did not show that the automatic stay brought the house’s value into controversy, it “failed to establish by a preponderance of the evidence that the amount in controversy exceeded $75,000.” The appellate court agreed with the plaintiff’s assertion that the house was simply collateral and “thus irrelevant to the amount in controversy,” writing that “[i]t is well-settled that neither the collateral effect of a suit nor the collateral effect of a judgment may count toward the amount in controversy.” The 5th Circuit also determined that the plaintiff expressly stipulated in both his original state-court petition and in a declaration “that he is seeking total damages not to exceed $74,500,” and that this stipulation is legally binding.
5th Circuit says loan contract containing grace period should be enforced
On June 16, the U.S. Court of Appeals for the Fifth Circuit reversed a district court’s summary judgment ruling in favor of a defendant lender, holding that a deadline accompanied by a grace period in a loan modification trial plan should be enforced. The plaintiff defaulted on his loan and sought a loan modification. The defendant provided the plaintiff an opportunity to participate in a trial period plan, which required three monthly payments due by January 1, February 1, and March 1, 2019. The trial period plan (TPP) also specified that a payment would be considered timely provided it was made within the month in which it was due. According to the opinion, even though the plaintiff “effectively accepted the terms of the TPP when he made the first trial period payment” within the grace period, the defendant informed him “he was ‘ineligible’ for the loan modification because he failed to comply with the terms of the TPP” and posted his property for foreclosure. The plaintiff sued the defendant for breach of contract, but the district court granted summary judgment to the defendant, declining to “give force to the grace period provisions” and concluding that the plaintiff did not comply with the payment deadlines.
On appeal, the 5th Circuit held that it will enforce a grace period included in a valid, binding contract. “If a lender sets a deadline for payment, but allows the borrower to make that payment anytime ‘in the month in which it is due,’ then the borrower may make that payment anytime in the month in which it is due,” the appellate court wrote. “That’s exactly what [the defendant] offered the borrower here—a deadline accompanied by a grace period. Yet [the defendant] nevertheless contends that we should ignore the grace period.” The 5th Circuit also rejected the defendant’s argument that the trial period plan was not a valid binding contract, pointing out that the text of the TPP made it clear that the defendant intended to be bound by its terms upon the plaintiff’s performance. Deadlines and grace periods co-exist by design, the appellate court explained, noting that “[g]race periods facilitate contractual relationships by making clear which deadlines are aspirational and which are mission-critical.”
CFPB revising its rulemaking approach
On June 17, CFPB Director Rohit Chopra announced in a blog post that the agency plans to move away from overly complicated and tailored rules. “Complexity creates unintended loopholes, but it also gives companies the ability to claim there is a loophole with creative lawyering,” Chopra said. The Bureau’s plan to implement simple, durable bright-line guidance and rules will better communicate the agency’s expectations and will provide numerous other benefits, he added.
With regards to traditional rulemaking, the Bureau outlined several priorities, which include focusing on implementing longstanding Congressional directives related to consumer access to financial records, increased transparency in the small business lending marketplace, and quality control standards for automated valuation models under Sections 1033, 1071, and 1473(q) of the Dodd-Frank Act. Additionally, the Bureau stated it will assess whether it should use Congressional authority to register certain nonbank financial companies to identify potential violators of federal consumer financial laws.
Chopra also announced that the Bureau is reviewing a “host of rules” that it inherited from other agencies such as the FTC and the Federal Reserve. “Many of these rules have now been tested in the marketplace for many years and are in need of a fresh look,” Chopra said. Specifically, the Bureau will (i) review rules originated by the Fed under the 2009 Credit CARD Act (including areas related to “enforcement immunity and inflation provisions when imposing penalties on customers”); (ii) review rules inherited from the FTC for implementing the FCRA to identify possible enhancements and changes in business practices; and (iii) review its own Qualified Mortgage Rules to assess aspects of the “seasoning provisions” (covered by a Buckley Special Alert) and explore ways “to spur streamlined modification and refinancing in the mortgage market.”
The Bureau noted that it also plans to increase its interpretation of existing laws through its Advisory Opinion program and will continue to issue Consumer Financial Protection Circulars to provide additional clarity and encourage consistent enforcement of consumer financial laws among government agencies (covered by InfoBytes here and here).
FFIEC releases 2021 HMDA data
On June 16, the Federal Financial Institutions Examinations Council (FFIEC) released the 2021 HMDA data on mortgage lending transactions at 4,338 covered institutions (a decline from the 4,475 reporting institutions in 2020). Available data products include: (i) the Snapshot National Loan-Level Dataset, which contains national HMDA datasets as of May 1, 2022; (ii) the HMDA Dynamic National Loan-Level Dataset, which is updated on a weekly basis to reflect late submissions and resubmissions; (iii) the Aggregate and Disclosure Reports, which provide summaries on individual institutions and geographies; (vi) the HMDA Data Browser where users can customize tables and download datasets for further analysis; and (v) the Modified Loan/Application Register for filers of 2021 HMDA data.
The 2021 data includes information on 23.3 million home loan applications, of which 21.1 million were closed-end and 1.8 million were open-end. The Snapshot revealed that an additional 350,000 records were from financial institutions making use of the Economic Growth, Regulatory Relief, and Consumer Protection Act’s partial exemptions that did not designate whether the records were closed-end or open-end. Observations from the data relative to the prior year include: (i) the percentage of mortgages originated by non-depository, independent mortgage companies increased, accounting for “63.9 percent of first lien, one- to four-family, site-built, owner-occupied home-purchase loans, up from 60.7 percent in 2020”; (ii) the percentage of closed-end home purchase loans for first lien, one- to four-family, site-built, owner-occupied properties made to Black or African American borrowers increased from 7.3 percent in 2020 to 7.9 percent in 2021, while the share of these loans made to Hispanic-White borrowers increased slightly from 9.1 percent to 9.2 percent and the share made to Asian borrowers jumped from 5.5 percent to 7.1 percent; and (iii) “Black or African American and Hispanic-White applicants experienced denial rates for first lien, one- to four-family, site-built, owner-occupied conventional, closed-end home purchase loans of 15.7 percent and 9.8 percent respectively, while the denial rates for Asian and non-Hispanic-White applicants were 7.5 percent and 5.6 percent respectively.”
Massachusetts amends mortgage lender/broker licensing provisions
Recently, the Massachusetts Office of Consumer Affairs and Business Regulation, Division of Banks announced final amendments effective May 27 to certain provisions of Regulation 209 CMR 42.00, which establishes procedures and requirements for the licensing and supervision of mortgage lenders under M.G.L. c. 255E. (See also redlined version of the final amendments here.) Specifically, the amendments:
- Add and amend certain definitions. The amendments add new terms such as “Bona Fide Nonprofit Affordable Homeownership Organization” and “Instrumentality Created by the United States or Any State,” and amend “Mortgage Broker” to also include a “person who collects and transmits information regarding a prospective mortgage loan borrower to a third party” that conducts any one or more of the following activities: (i) collects a prospective borrower’s Social Security number; (ii) views a prospective borrower’s credit report; (iii) obtains a prospective borrower’s authorization to access or view the borrower’s credit report or credit score; (iv) accepts an application; or (v) issues a prequalification letter.
- Add licensing exemptions. The amendments provide a list of persons that are not required to be licensed in the state as a mortgage broker or mortgage lender. These include: (i) lenders making less than five mortgage loans and persons acting as mortgage brokers fewer than five times within a 12 consecutive-month period; (ii) banks, national banking associations, federally chartered credit unions, federal savings banks, or any subsidiary or affiliate of the above; (iii) banks, trust companies, savings banks, and credit unions “organized under the laws of any other state; provided, however, that such provisions shall apply to any subsidiary or affiliate, as described in 209 CMR 42.0”; (iv) nonprofit, public, or independent post-secondary institutions; (v) charitable organizations; (vi) certain real estate brokers or salesmen; and (vii) persons whose activities are “exclusively limited to collecting and transmitting” certain quantities of specified information regarding a prospective borrower to a third party.
The amendments also specifically provide that “a person who collects and transmits any information regarding a prospective mortgage loan borrower to a third party and who receives compensation or gain, or expects to receive compensation or gain, that is contingent upon whether the prospective mortgage loan borrower in fact obtains a mortgage loan from the third party or any subsequent transferee of such information, is required to be licensed as a mortgage broker.”
CFPB releases guide for accessing HMDA lending patterns
On June 13, the CFPB published a guide to assist a range of stakeholders accessing publicly available HMDA data on lending patterns that may result in racial and economic inequality due to redlining practices or other “unjustified disparities.” Through the Beginner’s Guide to Accessing and Using Home Mortgage Disclosure Act Data, stakeholders can better understand the sources and meanings of various HMDA data types as well as the financial institutions that are required to maintain, report, and publicly disclose loan-level information about mortgage applications and loans. According to the Bureau, HMDA data can provide insights on whether lenders are serving the housing needs of their communities and help guide policy decisions.
DOJ: $4.5 million judgment in case targeting Hispanic homeowners
On June 10, the DOJ announced that the U.S. District Court for the Middle District of Florida entered a consent order against several defendants accused of violating the Fair Housing Act by targeting Hispanic homeowners for predatory mortgage loan modification services. After several Hispanic homeowners filed discrimination complaints with HUD, the agency conducted an investigation, issued charges of discrimination, and referred the matter to the DOJ for litigation. According to the DOJ’s complaint, the defendants targeted Hispanic homeowners with deceptive Spanish-language advertising “that falsely promised to cut their mortgage payments in half” and guaranteed “lower payments in a specific timeframe in exchange for thousands of dollars of upfront fees and continuing monthly fees of as much as $550, which defendants claimed were ‘non-refundable.’” The DOJ further contended that many of the targeted Hispanic homeowners (who had limited English proficiency) were told not to communicate with their lenders and were instructed to stop making monthly mortgage payments; however, the defendants allegedly “did little or nothing to obtain the promised loan modifications,” leading to defaults and foreclosures.
The consent order, reached in partnership with the Civil Rights Division’s Housing Section, enters a nearly $4.6 million judgment (which is mostly suspended) against the defendants to compensate harmed homeowners. Of this amount, $95,000 in total will go to three individuals who intervened as plaintiffs in the DOJ’s lawsuit. Defendants must also pay a $5,000 civil penalty. In addition to monetary relief, the consent order permanently enjoins defendants “from providing any mortgage relief assistance services, including, but not limited to, mortgage loan modification, foreclosure rescue, or foreclosure defense services.” The consent order also imposes training and reporting/recordkeeping requirements for defendants’ other real-estate activities.
CFPB releases HAF flyers in multiple languages
On June 9, the CFPB released Homeowner Assistance Fund (HAF) informational flyers in English, Spanish, Chinese, Vietnamese, Korean, Tagalog, and Arabic. As previously covered by InfoBytes, the HAF program was created to provide direct assistance to consumers for mortgage payments, property insurance, utilities, and other housing-related costs to help prevent delinquencies, defaults, and foreclosures after January 21, 2020 related to the Covid-19 pandemic. Mortgage servicers may voluntarily provide these flyers to their borrowers and are advised that the flyer is not required by regulation. Additional HAF program information is available in multiple languages on the Bureau’s website.
GSEs issue Equitable Housing Finance Plans
On June 8, Fannie Mae and Freddie Mac (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). Among other things, the plans (which will be updated annually) include activities to (i) address future consumer education initiatives for renters and homeowners; (ii) help tenants build credit profiles and enable better access to financial services; (iii) expand counseling services to support housing stability; (iv) launch technology to increase access to sustainable credit and fair home appraisals; and (v) deploy Special Purpose Credit Programs to address barriers to sustainable homeownership, focusing particularly on consumers living in formerly redlined and underserved areas with majority Black populations. FHFA’s press release also announced the establishment of a new pilot transparency framework for the GSEs, which will require Fannie and Freddie to publish and maintain a list of pilot programs and “test-and-learn activities” on their public websites to help FHFA determine whether such activities address disparities identified in the plans.
Earlier in the week, FHFA released its inaugural Mission Report describing housing finance activities taken in 2021 by the GSEs and Federal Home Loan Banks related to targeted economic development and affordable, equitable, and sustainable housing. The report highlighted, among other things, that the gap between mortgage acceptance rates for minority and white borrowers “remains persistent,” with Black and Latino borrowers representing 6.3 percent and 14.2 percent of all mortgages purchased by the GSEs, respectively, in the fourth quarter of 2021. The report also discussed fair lending geographical trends as well as data on multifamily and single-family loan acquisitions.
HUD announces $65,000 payment for FHA violations
On June 2, HUD announced a conciliation agreement with a mortgage lender to resolve allegations that it engaged in discriminatory lending practices based on race and national origin, in violation of the Fair Housing Act (FHA). The agreement arises from a complaint filed with HUD by the National Community Reinvestment Coalition (NCRC), which alleged that testing in the Seattle-Tacoma area revealed that Black and Hispanic testers were treated differently than White testers who sought housing loans. While the respondent denied that it provided less favorable treatment to testers based on race or national origin, it has agreed to pay $65,000 to NCRC and will “contribute an additional $10,000 to a Seattle-area non-profit organization specializing in providing financial literacy and housing education and counseling for persons in majority-minority census tracts in the Seattle-Tacoma-Bellevue metropolitan area.” The respondent will also conduct an event in the Seattle metro area to improve homeownership rates of Black homebuyers and will provide additional fair lending training to employees. The conciliation agreement does not constitute an admission by respondent or evidence of a finding by HUD of a violation of the FHA.