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CFPB handled nearly 1 million consumer complaints in 2021
On March 31, the CFPB published its Consumer Response Annual Report for 2021, providing an overview of consumer complaints received by the agency between January 1 and December 31, 2021. According to the report, the Bureau handled approximately 994,000 consumer complaints last year. Among other trends, the agency found that complaints about credit or consumer reporting continue to increase, accounting for more than 70 percent of all complaints received last year. Debt collection complaints are also increasing, accounting for more than 10 percent of all complaints. Consumers also reported difficulties with financial institutions failing to adequately address consumer complaints, giving consumers the runaround, and described issues with reaching companies to raise concerns about digital assets, mobile wallets, and buy-now-pay-later credit. The Bureau noted that during the second year of the Covid-19 pandemic, complaint data showed that the volume of complaints from consumers struggling to pay their mortgages is increasing as borrower protections have expired. While complaints related to vehicle loans have also increased, the Bureau reported that student loan complaints remain lower than pre-Covid levels due to the implementation of temporary relief programs. The top products and services—representing approximately 94 percent of all complaints—were credit or consumer reporting, debt collection, credit cards, checking or savings accounts, and mortgages. The Bureau also received complaints related to money transfers and virtual currency; vehicle finance; prepaid cards; student, personal, and payday loans; credit repair; and title loans.
HUD offers disaster relief for homeowners in Puerto Rico
On March 29, HUD announced disaster assistance for certain areas in Puerto Rico impacted by a severe storm, flooding, and landslides from February 4 to February 6. The disaster assistance follows President Biden’s major disaster declarations on March 29. According to the announcements, HUD is providing an automatic 90-day moratorium on foreclosures of FHA-insured home mortgages for covered properties and is making FHA insurance available to victims whose homes were destroyed or severely damaged, such that “reconstruction or replacement is necessary.” HUD’s Section 203(k) loan program enables individuals who have lost homes to finance a home purchase or to refinance a home to include repair costs through a single mortgage. The program also allows homeowners with damaged property to finance the repair of their existing single-family homes. Furthermore, HUD is allowing administrative flexibilities to community planning and development grantees, as well as to public housing agencies.
Arizona and Utah modify various licensing provisions
On March 24, the Arizona governor signed HB 2612, which eliminates requirements for there to be a finding on whether an applicant is law abiding, honest, trustworthy, and of good moral character in order to be eligible for a license, permit, or certification. This applies to bank or in-state financial institution acquisitions, banking, consumer lenders, trust companies, escrow agents, mortgage brokers, mortgage bankers, commercial mortgage brokers, loan originators, financial institution holding companies, premium finance companies, real estate appraisers and appraisal management companies, among others. The bill also makes other technical and conforming changes and takes effect 90 days after adjournment of the legislature.
Earlier, on March 23, the Utah governor signed HB 69, which modifies various licensing provisions under the state’s Residential Mortgage Practices and Licensing Act. The bill also makes various amendments under the Real Estate Licensing and Practices Act related to licensing, fees, and disciplinary actions. Among other things, the bill amends the general qualifications of licensure to make residential mortgage loans, including provisions related to mandatory education requirements for both state applicants and applicants licensed in other states and criminal background checks. Specifically, the bill removes a provision that states a “license is immediately and automatically revoked if the criminal background check discloses the applicant fails to accurately disclose a criminal history involving: (A) the real estate industry; or (B) a felony conviction on the basis of an allegation of fraud, misrepresentation, or deceit.” Additional amendments authorize the commission to impose sanctions against licensees and unregistered persons that were found to be in violation of a provision of the act; discuss the process for filing a written request for the vacation of a license revocation; address pending transactions should the death of a principal broker occur; and remove provisions regarding the payment of certain expenses and costs. The bill takes effect 60 days after adjournment of the legislature.
New York Court of Appeals narrows trust’s RMBS repurchase action
On March 17, the New York Court of Appeals majority narrowed the scope of a 2013 repurchase action brought by the trustee of a residential mortgage-backed securities trust (trustee) against the trust’s sponsor (sponsor). The trustee filed suit after flagging roughly 1,204 nonconforming loans that were allegedly “in breach of the representations and warranties based on, among other things, borrower misrepresentation of income and occupancy status, miscalculations of borrowers’ debt to income ratios, and the charging of high-cost interest on the loans.” The trustee demanded that the sponsor buy back the defective loans as contractually promised. A separate, smaller set of loans was eventually added to the suit after being identified as defective during the discovery phase. The trustee contended that the original repurchase demands were sufficient under the repurchase protocol to satisfy the notice requirement for all allegedly problematic loans in the trust, including loans flagged after litigation had begun.
The sponsor moved for partial summary judgment on the trustee’s claims, arguing that the trustee could not pursue recovery for loans “not specifically identified in the pre-suit letters to the extent that the trustee relied on a notice, rather than an independent discovery, theory.” The sponsor also sought summary judgment with respect to the method of calculation of the repurchase price. The New York Supreme Court denied the sponsor’s motion for partial summary judgment, concluding, among other things, that “‘because the repurchase letters identified some timely claims, the later identified claims relate back to the original filing.’” The appellate division affirmed, stating that the trustee’s December 2011 letter timely informed the sponsor “that a substantial number of identified loans were in breach, and that the pool of loans remained under scrutiny, with the possibility that additional nonconforming loans might be identified.” The appellate division also agreed “that ‘interest could be calculated on liquidated loans, at the applicable mortgage rate, up until the repurchase date.’”
In narrowing the scope of the loans subject to repurchase, the Court of Appeals majority held that it would be “inconsistent” with the contractual language of the repurchase protocol to conclude that loan-specific notice is not required, adding that the trustee could not rely on the relation back doctrine “to avoid the consequences of its failure to comply with the contractual condition precedent with respect to the loans in question prior to commencing this action.” “The parties agreed to a limited remedy for the inclusion of nonconforming loans in the trust and made that remedy available only if the trustee first complied with certain loan-specific notice requirements, providing the sponsor an opportunity to cure or repurchase the identified loans,” the majority wrote. “We cannot rewrite the contract by substituting a different, post-suit notice procedure in place of the one chosen by the parties.” The majority further concluded that under the parties’ agreement, interest recoverable on liquidated loans was limited to interest that accrued prior to liquidation.
The dissenting judge disagreed, stating that “[i]t could not have been the intent of the parties to provide a remedy for a few defective loans but allow for systemwide breaches affecting thousands of loans in the pool—allegedly 80% here—or to permit the sponsor to escape the contractual cure and repurchase obligations simply because [the sponsor] was informed there was a significant problem with its securitization but not given the corresponding number for every loan it allegedly failed to properly vet.”
CFPB announces 2021 HMDA-modified LAR availability
On March 23, the CFPB announced that the HMDA modified loan/application register (LAR) is available on the Federal Financial Institutions Examination Council’s HMDA Platform for approximately 4,316 HMDA filers. According to the announcement, the modified LARs provide each financial institution's loan-level HMDA data, as modified to protect applicant and borrower privacy in accordance with the CFPB’s final policy guidance on the disclosure of HMDA data. Additionally, the 2021 HMDA data will be available later this year in other forms to provide users insights into the data, which will include: (i) a nationwide loan-level dataset with all publicly available data for all HMDA reporters; (ii) aggregate and disclosure reports with summary information by geography and lender; and (iii) the HMDA Data Browser to allow users to customize datasets, reports, and data maps. Additionally, the FFIEC released an updated version of “A Guide To HMDA Reporting: Getting It Right!," which is designed to be an "easy-to-use summary of certain key requirements" of Regulation C.
CFPB reports cover mortgage challenges, emergency savings
On March 23, the CFPB released two reports, New Data on the Characteristics of Mortgage Borrowers During the COVID-19 Pandemic and Emergency Savings and Financial Security: Insights from the Making Ends Meet Survey and Consumer Credit Panel. As previously covered by InfoBytes, the CFPB first released Characteristics of Mortgage Borrowers During the COVID-19 Pandemic in May 2021, which analyzed mortgage borrowers’ challenges due to the ongoing Covid-19 pandemic. The recently released report explores the characteristics of borrowers who are delinquent or in forbearance based a sample of more than 2 million loans for owner-occupied properties. The report shows, among other things, that Black and Hispanic borrowers are more at risk of poor outcomes than others, as they comprised 31.2 percent of borrowers in forbearance while only constituting 18.2 percent of the overall sample of mortgage borrowers. The report also found that single borrower loans were approximately 1.6 times more likely to be in forbearance through January 2022, compared to loans with a co-borrower, which is an increase relative to March 2021, where single borrowers were only 1.4 times more likely to be in forbearance compared to co-borrowers.
The Emergency Savings and Financial Security Insights from the Making Ends Meet Survey and Consumer Credit Panel report examines how consumers’ financial profiles vary by levels of emergency savings. Using the Making Ends Meet survey and pairing it with credit bureau data from our Consumer Credit Panel, the report found that, among other things: (i) approximately 24 percent of consumers do not have savings set aside for emergencies, “while 39 percent have less than a month of income saved for emergencies and 37 percent have at least a month of income saved for emergencies,” and (ii) “41 percent of consumers with no more than a high school or vocational degree have no emergency savings, [while] the share is 6 percent for those with a college degree.”
OCC applies heightened risk governance standards to mortgage servicer
Recently, the OCC published Interpretive Letter #1180 addressing the application of heightened risk governance standards under 12 C.F.R. Part 30, Appendix D, OCC Guidelines Establishing Heightened Standards (Guidelines) to a supervised bank. Specifically, the OCC determined that the bank’s operations were highly complex and presented a heightened risk. This determination was based on information provided by the Supervisory Office, which concluded that the bank’s operations, including significant mortgage servicing activities, warranted application of the Guidelines to the bank. “The Guidelines provide that a covered institution should establish and adhere to a written risk governance framework to manage and control its risk-taking activities,” the OCC stated, adding that the Guidelines “also provide minimum standards for an institution’s board of directors to oversee the risk governance framework.” In the interpretive letter, the OCC stated that it had notified the bank last December that it was considering exercising its reservation of authority to apply the Guidelines; however, the bank responded that application of the Guidelines was not appropriate at that time. The bank is expected to comply with the Guidelines by February 29, 2024.
As previously covered by InfoBytes, last October the OCC issued a consent order against the bank for allegedly maintaining inadequate risk management controls related to its servicing and default servicing activities. The OCC asserted that the bank had previously been informed about the alleged risk management deficiencies and did not take timely corrective action. Under the terms of the consent order, the bank was required to take comprehensive corrective measures, including developing and implementing internal controls that are “commensurate with the types and complexity of risks associated with all transactions the [b]ank executes.”
District Court dismisses time-barred mortgage discrimination claims
On March 17, the U.S. District Court for the Northern District of Georgia agreed that claims against a group of mortgage lenders for conduct arising prior to November 2013 were barred under the two-year statute of limitations of the Fair Housing Act (FHA). Plaintiffs Cobb County, DeKalb County, and Fulton County, Georgia (collectively, “Counties”) alleged that the defendants “engaged in, and continue to engage in, discriminatory schemes that expose borrowers to unreasonable levels of risk; needlessly inflate interest rates, penalties, and fees; generate unauthorized and inflated charges for default related services; and lead to higher foreclosure rates among minority borrowers.” According to the Counties, these alleged practices have caused them to incur financial injury, including foreclosure-related costs, loss of property tax revenue, increased segregation, and organizational harm to County departments and authorities due to the forced reallocation of funds to address harms caused by the defendants’ actions. The Counties filed a complaint on November 20, 2015, asserting three counts related to disparate impact and disparate treatment theories under the FHA. Defendants moved for partial summary judgment on statute-of-limitations grounds, arguing that the Counties’ allegations are time-barred because they are based on allegedly discriminatory conduct occurring before November 20, 2013. Defendants further contended that the Counties could not “allege a ‘continuing violation’ that tolls the statute of limitations for each allegedly discriminatory act until the continuing violation ends because [a plaintiff’s] knowledge of a claim, or reason to have knowledge of a claim, cuts off equitable tolling of the statute of limitations for claims based on a continuing violation, and the Counties knew or should have known of their FHA claims at least as of May 2011.”
The court agreed with the defendants, pointing out that, among other things, there is “copious circumstantial evidence” that the Counties knew or should have known of their claims prior to May 2011, including well publicized allegations against the same defendants for similar conduct, and their retention of outside counsel in 2010 to investigate potential discrimination claims. According to the court, while a reasonable jury could find that the Counties themselves did not know of their claims, the record left no doubt that the outside counsel “knew of the claims prior to the statutory period, or would have known of the claims if he conducted himself with reasonable prudence.” Because the outside counsel’s “knowledge is imputed to his clients, no reasonable jury could find in the Counties’ favor on the statute-of-limitations issue.”
PAVE task force delivers plan on appraisal bias
On March 23, HUD delivered the Interagency Task Force on Property Appraisal and Valuation Equity (PAVE) Action Plan to President Biden. Created in June 2021 to address racial bias in home lending and appraisals and establish actions to root out inequity, PAVE Task Force members include HUD Secretary Marcia L. Fudge and White House Domestic Policy Advisor Susan Rice, the U.S. Attorney General, the Secretaries of Agriculture, Labor, and Veterans Affairs, the Comptroller of the Currency, the Chairmen of the Federal Reserve Board, FDIC, NCUA, Directors of the CFPB and FHFA, and the Executive Director of the Appraisal Subcommittee of the FFIEC.
According to the announcement, the Action Plan to Advance Property Appraisal and Valuation Equity (the Plan) will represent “the most wide-ranging set of reforms ever put forward to advance equity in the home appraisal process.” According to the Task Force’s executive summary, “[o]n average, homes in majority-Black neighborhoods are valued at less than half of those in neighborhoods with few or no Black residents.” The summary also reports that the impact of undervaluation on homebuyers, sellers, and communities can sometimes result in higher down payments for home buyers, often causing sales to fall through, while low valuations in a refinance transaction can reduce the cash-out available and sometimes affect the refinance interest rate and mortgage insurance premiums paid by the homeowner. The Task Force further notes that since the Fair Housing Act was passed more than 50 years ago, “the racial wealth gap is wider than ever: in 2021, the Black homeownership rate reached only 44 percent, while the white homeownership rate reached 74 percent.”
The Plan will focus primarily on actions to substantially reduce racial bias in home appraisals, as well as steps federal agencies can “take using their existing authorities to enhance oversight and accountability of the appraisal industry and empower homeowners and homebuyers to take action when they receive a valuation that is lower than expected.” Among other things, the Plan states that Task Force members will exercise broad oversight and compliance authority to strengthen “guardrails against unlawful discrimination in all stages of residential valuation.” Agencies will also issue guidance on FHA and ECOA’s application to the appraisal industry and update appraisal-specific policies to “ensure that appraisers or regulated institutions’ use of appraisals are directly included in supervisory [FHA] and ECOA compliance requirements, and are considered in every review of relevant existing and future policies and guidance.” Relevant agencies have also committed to addressing potential bias in the use of technology-based valuation tools through a rulemaking related to automated valuation models (AVMs), including the addition of a nondiscrimination quality control standard in the proposed rule. In consultation with Congress, Task Force members will also pursue legislation to modernize the governance structure of the appraisal industry.
In the coming months, the Task Force will assess: (i) the “expanded use of alternatives to traditional appraisals as a means of reducing the prevalence and impact of appraisal bias”; (ii) the use of “range-of-value estimates instead of point estimates as a means of reducing the impact of racial or ethnic bias in appraisals”; (iii) the “potential use of alternatives and modifications to the sales comparison approach that may yield more accurate and equitable home valuation”; and (iv) “public sharing of a subset of historical appraisal data to foster development of unbiased valuation methods.”
CFPB Director Rohit Chopra stated that the Bureau will take an active leadership role in the Appraisal Subcommittee and will work “to implement a dormant authority in federal law to ensure that algorithmic valuations are fair and accurate.”
Acting Comptroller of the Currency Michael J. Hsu also announced that the OCC plans to enhance its supervisory methods for identifying discrimination in property valuations and will take steps to ensure consumers are aware of their rights regarding appraisals. The agency also intends to “support research that may lead to new ways to address the undervaluation of housing in communities of color caused by decades of discrimination.”
Additionally, acting FDIC Chairman Martin J. Gruenberg noted that the agency is committed to taking several concrete actions, including collaborating with Task Force members to exercise authorities “to support a more equitable state appraisal certification and licensing system.”
OCC releases 2021 4Q mortgage performance results
On March 22, the OCC announced the release of the OCC Mortgage Metrics Report, Fourth Quarter 2021, its quarterly report of the performance of seven national bank mortgage servicers representing 22 percent of all outstanding residential mortgages. As explained in the report, servicers initiated 1,294 new foreclosures in the fourth quarter of 2021—a 39.9 percent increase from the previous quarter and a 64 percent increase from a year ago. The impact of Covid-19, including foreclosure moratoriums, significantly affected these metrics, the OCC stated. Servicers also completed 47,488 mortgage modifications in the fourth quarter, up 40.8 percent from the previous quarter. Of these modifications, “70.5 percent reduced borrowers’ monthly payments, and 46,475, or 97.9 percent, were ‘combination modifications’—modifications that included multiple actions affecting the affordability and sustainability of the loan, such as an interest rate reduction and a term extension,” the OCC reported.