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CFPB releases annual HMDA and TILA adjustments
On December 23, the CFPB announced final rules adjusting the asset-size thresholds under HMDA (Regulation C) and TILA (Regulation Z). Both rules took effect January 1, 2022. Under HMDA, institutions with assets below certain dollar thresholds are exempt from the collection and reporting requirements. The final rule increases the asset-size exemption threshold for banks, savings associations, and credit unions from $48 million to $50 million, thereby exempting institutions with assets of $50 million or less as of December 31, 2021, from collecting and reporting HMDA data in 2022. TILA, likewise, exempts certain entities from the requirement to establish escrow accounts when originating higher-priced mortgage loans (HPMLs), including entities with assets below the asset-size threshold established by the CFPB. The final rule increases this asset-size exemption threshold from $2.230 billion to $2.336 billion, thereby exempting creditors with assets of $2.336 billion or less as of December 31, 2021, from the requirement to establish escrow accounts for HPMLs in 2022.
States say FHA must require servicers to comply with Covid-19 loss mitigation options
On December 21, a coalition of attorneys general from 20 states and the District of Columbia sent a letter to the FHA urging the agency to address mortgage servicers’ alleged failure to adequately implement Covid-19 recovery loss mitigation options for eligible borrowers. As previously covered by InfoBytes, FHA issued Mortgagee Letter 2021-18 in July, which required mortgage servicers to offer a zero-interest subordinate lien option to eligible homeowners who can resume their existing mortgage payments under the “COVID-19 Recovery Standalone Partial Claim” option. For borrowers that are unable to resume their monthly mortgage payments, FHA established the “COVID-19 Recovery Modification” option, which extended the term of a mortgage to 360 months at market rate and targeted a 25 percent principal and interest reduction for all eligible borrowers. At the time, FHA informed servicers that they could start offering the options as soon as operationally feasible but were required to use the new options within 90 days.
The AGs alleged in their letter that several servicers of FHA-insured loans are reportedly failing to adequately implement these Covid-19 relief programs, and are instead “routinely sending borrowers letters that fail to include the Covid-19 Recovery Modification as an available option, are requiring paperwork and imposing qualifications that are not necessary under the FHA’s guidelines, and are instructing borrowers during customer-service phone calls that this option does not exist.” The AGs expressed deep concerns over these reports and requested that FHA take immediate action to ensure that FHA’s loss mitigation options, including the Covid-19 Recovery Modification, are fully implemented, and that borrowers receive accurate, up-to-date information. The AGs asked that FHA-approved lenders and servicers be required to demonstrate that they are taking affirmative actions to implement these Covid-19 relief options and requested training for all customer service staff to ensure borrowers receive the necessary information.
5th Circuit says bank and mortgage servicer did not engage in “dual tracking”
On December 15, the U.S. Court of Appeals for the Fifth Circuit affirmed summary judgment in favor of defendants in a mortgage foreclosure action. According to the opinion, after the plaintiff fell behind on his mortgage payments, the defendant bank’s mortgage servicer approved him for a trial loan modification plan that required timely reduced payments for a period of three months. The plaintiff stated that he complied with the trial plan but that the defendant bank nevertheless foreclosed on his property and sold the property to a third defendant. The plaintiff further claimed that he did not learn about the sale of his property until two months after it happened when the third defendant sought to evict him. The plaintiff sued the bank and mortgage servicer for violating RESPA and the Texas Debt Collection Act (TDCA), and sued the purchaser of the property “asserting claims to quiet title and for trespass to try title.” All defendants moved for summary judgment, which the district court granted based on evidence that refuted each allegation. The plaintiff appealed.
On appeal, the 5th Circuit first reviewed, among other claims, the plaintiff’s RESPA claim, which alleged the bank and mortgage servicer engaged in “dual tracking” by initiating foreclosure proceedings while the plaintiff’s trial modification plan was purportedly still active. According to the court, dual tracking occurs when “the lender actively pursues foreclosure while simultaneously considering the borrower for loss mitigation options.” The appellate court agreed with the district court’s conclusion that summary judgment was appropriate because the plaintiff did not submit his first payment by the deadline established under the trial modification plan, and thus “did not timely accept the Trial Modification Plan.” As such, the bank and mortgage servicer did not engage in “dual tracking” because there was no obligation to notify the plaintiff of any denial of a permanent loan modification or to provide an opportunity to appeal, and accordingly was not considering the plaintiff for loss mitigation options. The court also found deficiencies in the plaintiff’s Texas law and TDCA claims.
OCC updates HMDA examination procedures
On December 17, the OCC released revised interagency HMDA examination procedures for HMDA compliance. The revised examination procedures address changes made to the effective dates for banks meeting or exceeding either the closed-end mortgage loans or the open-end lines of credit loan-volume threshold in each of the two preceding calendar years. Effective July 1, 2020, a bank that “originated at least 100 closed-end mortgage loans in each of the two preceding calendar years, or originated at least 500 open-end lines of credit in each of the two preceding calendar years meets or exceeds the loan-volume threshold.” Effective January 1, 2022, the temporary 500 open-end lines of credit provision expires, and a bank that “originated at least 100 closed-end mortgage loans in each of the two preceding calendar years, or originated at least 200 open-end lines of credit in each of the two preceding calendar years” will now meet or exceed the loan-volume threshold. The revised examination procedures also outline changes to partial exemptions for an application or covered loan. A partial exemption applies to: (i) applications for originations of, and purchases of closed-end mortgage loans when the bank originated fewer than 500 closed-end mortgage loans in each of the two preceding calendar years, and (ii) applications for originations of, and purchases of open-end lines of credit provided the bank originated fewer than 500 open-end lines of credit in each of the two preceding calendar years.
Bulletin 2021-63 rescinds OCC Bulletin 2010-8, “Compliance Policy: Revised Home Mortgage Disclosure Act Examination Procedures,” as well as OCC Bulletin 2019-19, “Home Mortgage Disclosure Act: Revised Interagency Examination Procedures.”
FDIC updates videos on the mortgage servicing rules
On December 17, the FDIC announced that it updated the technical assistance videos on the mortgage servicing rules. According to the announcement, the information in the five videos provides a high-level overview, which is intended to help FDIC-supervised institutions understand and comply with the mortgage servicing rules. The announcement also noted that the videos incorporate the 2016 Mortgage Servicing Rule and the 2016 Fair Debt Collection and Practices Act Interpretive Rule, and that the video series generally focus on the small servicer, as defined in Regulation Z. Highlights of each video include, among other things: (i) an overview of mortgage servicing and information for determining whether a servicer qualifies as a small servicer under Regulation Z (Video 1); (ii) key provisions for which small servicers do not have an exception (Video 2); (iii) an overview of some of the requirements that apply to large servicers and not small servicers (Video 3); (iv) information regarding successors in interest (Video 4); and (v) information and examples related to developing a compliance management system (Video 5).
CFPB, DOJ remind on servicemember protections
On December 20, the CFPB and the DOJ issued two joint letters reminding mortgage servicers and landlords to ensure that military homeowners and tenants are safeguarded during the Covid-19 pandemic and benefit equally as the U.S. economically recovers. One letter was sent to landlords and other housing providers on protections for military tenants, reminding property owners of the critical housing protections for military tenants, some of whom may have had to make alterations to their housing arrangements in response to the pandemic. The other letter was sent to mortgage servicers regarding military borrowers who have exited or will be exiting Covid-19 mortgage forbearance programs. The letter comes in response to complaints from military families and veterans on possible mortgage servicing violations, which include, among other things, inaccurate credit reporting and misleading communications to borrowers. According to the second letter, the CFPB and the DOJ warned, “[s]uch actions, if true, may be in violation of the legal protections under the CARES Act or contrary to administrative guidance issued by federal housing agencies,” and that the Bureau “is currently reviewing these complaints to determine if further investigation is warranted.” The announcement also reminded landlord and servicers that “[s]ervicemembers have several legal protections under the SCRA that are designed to enable them to devote their entire energy to the national defense,” which include, among other things, “a prohibition on foreclosing on certain servicemembers’ mortgages without court orders, the ability for military families to terminate residential leases early, and without penalty, upon receipt of military orders, and a prohibition on evicting military families from their homes without court orders. In addition, under the CARES Act and Regulation X, servicemembers and veterans have the same protections available to all mortgage borrowers.” The announcement also noted that approximately 7.6 million homeowners entered forbearance during the Covid-19 pandemic and 1.25 million borrowers, many of whom are military borrowers, are still currently in forbearance programs that will expire at the end of the year.
New York AG warns mortgage servicers of obligation to help homeowners affected by Covid-19
On December 13, New York Attorney General Letitia James sent a letter warning mortgage servicers operating in the state of their obligation to help homeowners impacted by the Covid-19 pandemic. The letter, which was also sent to mortgage industry trade associations, reiterated that mortgage servicers are expected to comply with New York law and federal regulations and guidelines when providing long-term relief to affected homeowners. James also announced “that the Office of the Attorney General’s (OAG) Mortgage Enforcement Unit (MEU) will be helping to oversee the distribution of New York state’s Homeowner Assistance Fund (HAF) announced last week by New York Governor Kathy Hochul.” According to the letter, HAF funds “may be used to pay off arrears or reduce mortgage principal so that homeowners can qualify for an affordable loan modification.” However, James stressed that these funds “must supplement rather than replace the mortgage industry’s own efforts,” adding that mortgage servicers must “play their part by offering homeowners all available loss mitigation options before that homeowner seeks an outside HAF grant, in order to help the program save as many homes as possible.” MEU will contact the mortgage industry, including New York legal services and housing counseling agencies, to provide additional information on the HAF application process. MEU will also be responsible for reviewing HAF applications to determine whether homeowners have been presented all available and affordable loan modification options.
James’ announcement stated that mortgages servicers are also expected to comply with streamlined modification programs offered by various federal agencies, Fannie Mae, and Freddie Mac, and must also “provide comparable relief (pursuant to New York state Banking Law § 9-x and New York’s mortgage servicing regulations) to homeowners whose mortgages are owned by private investors through private label securities or by banks in their own portfolios.” Mortgage servicers should also prepare for surges in requests for assistance, and will be held responsible for staffing shortages and poor customer communications, James warned. She noted in her letter that the OAG is “currently investigating whether certain servicers of privately-owned mortgages have failed to offer homeowners the forbearance relief and post-forbearance modifications required by New York Banking Law § 9-x,” and emphasized that the OAG “will continue to monitor compliance and initiate enforcement actions against individual mortgage servicers as needed to protect New York homeowners.”
OCC reports on mortgage performance
On December 10, the OCC reported that 95.6 percent of first-lien mortgages were current and performing at the end of the third quarter of 2021—an increase from 92.5 percent at the end of the third quarter of 2020. According to the report, seriously delinquent mortgages declined from 3.8 percent in the prior quarter (5.8 percent a year ago) to 3.1 percent. In the third quarter of 2021, servicers initiated 925 new foreclosures, which is a 56.3 percent increase from the previous quarter and an increase of 150.7 percent compared to a year ago. The OCC noted that events related to the pandemic, such as foreclosure moratoriums, “significantly affected these metrics.” Additionally, mortgage modifications decreased 14.8 percent from the prior quarter. Of the reported 33,721 mortgage modifications, 59.6 percent reduced borrowers’ pre-modification monthly payments, while 98.3 percent were “combination modifications” that “included multiple actions affecting affordability and sustainability of the loan, such as an interest rate reduction and a term extension.”
CFPB supervisory highlights cover wide range of violations
On December 8, the CFPB released its fall 2021 Supervisory Highlights, which details its supervisory and enforcement actions in the areas of credit card account management, debt collection, deposits, fair lending, mortgage servicing, payday lending, prepaid accounts, and remittance transfers. The report’s findings cover examinations that were completed between January and June of 2021 in addition to prior supervisory findings that led to public enforcement actions in the first half of 2021. Highlights of the examination findings include:
- Credit Card Account Management. Bureau examiners identified violations of Regulation Z related to billing error resolution, including instances where creditors failed to (i) resolve disputes within two complete billing cycles after receiving a billing error notice; (ii) reimburse late fees after determining a missed payment was not credited to a consumer’s account; and (iii) conduct reasonable investigations into billing error notices concerning missed payments and unauthorized transactions. Examiners also identified deceptive acts or practices related to credit card issuers’ advertising practices.
- Debt Collection. The Bureau found instances of FDCPA violations where debt collectors represented to consumers that their creditworthiness would improve upon final payment under a repayment plan and the deletion of the tradeline. Because credit worthiness is impacted by numerous factors, examiners found “that such representations could lead the least sophisticated consumer to conclude that deleting derogatory information would result in improved creditworthiness, thereby creating the risk of a false representation or deceptive means to collect or attempt to collect a debt in violation of Section 807(10).”
- Deposits. The Bureau discussed violations related to Regulation E, including error resolution violations related to misdirected payment transfers and failure to investigate error notices where consumers alleged funds were sent via a person-to-person payment network but the intended recipient did not receive the funds.
- Fair Lending. The report noted instances where examiners cited violations of ECOA and Regulation B by lenders "discriminating against African American and female borrowers in the granting of pricing exceptions based upon competitive offers from other institutions,” which led to observed pricing disparities, specifically as compared to similarly situated non-Hispanic white and male borrowers. Among other things, examiners also observed that lenders’ policies and procedures contributed to pricing discrimination, and that lenders improperly inquired about small business applicants’ religion and considered religion in the credit decision process.
- Mortgage Servicing. The Bureau noted that it is prioritizing mortgage servicing supervision attributed to the increase in borrowers needing loss mitigation assistance due to the Covid-19 pandemic. Examiners found violations of Regulations Z and X, as well as unfair and deceptive acts and practices. Unfair acts or practices included those related to (i) charging delinquency-related fees to borrowers in CARES Act forbearances; (ii) failing to terminate preauthorized EFTs; and (iii) assessing fees for services exceeding the actual cost of the performed services. Deceptive acts or practices found by examiners related to mortgage servicers included incorrectly disclosed transaction and payment information in a borrower’s online mortgage loan account. Mortgage servicers also allegedly failed to evaluate complete loss mitigation applications within 30 days, incorrectly handled partial payments, and failed to automatically terminate PMI in a timely manner. The Bureau noted in its press release that it is “actively working to support an inclusive and equitable economic recovery, which means ensuring all mortgage servicers meet their homeowner protection obligations under applicable consumer protection laws,” and will continue to work with the Federal Reserve Board, FDIC, NCUA, OCC, and state financial regulators to address any compliance failures (covered by InfoBytes here).
- Payday Lending. The report identified unfair and deceptive acts or practices related to payday lenders erroneously debiting consumers’ loan balances after a consumer applied and received confirmation for a loan extension, misrepresenting that consumers would only pay extension fees on the original due dates of their loans, and failing to honor loan extensions. Examiners also found instances where lenders debited or attempted one or more duplicate unauthorized debits from a consumer’s bank account. Lenders also violated Regulation E by failing “to retain, for a period of not less than two years, evidence of compliance with the requirements imposed by EFTA.”
- Prepaid Accounts. Bureau examiners found violations of Regulation E and EFTA related to stop-payment waivers at financial institutions, which, among other things, failed to honor stop-payment requests received at least three business days before the scheduled date of the transfer. Examiners also observed instances where service providers improperly required consumers to contact the merchant before processing a stop-payment request or failed to process stop-payment requests due to system limitations even if a consumer had contacted the merchant. The report cited additional findings where financial institutions failed to properly conduct error investigations.
- Remittance Transfers. Bureau examiners identified violations of Regulation E related to the Remittance Rule, in which providers “received notices of errors alleging that remitted funds had not been made available to the designated recipient by the disclosed date of availability” and then failed to “investigate whether a deduction imposed by a foreign recipient bank constituted a fee that the institutions were required to refund to the sender, and subsequently did not refund that fee to the sender.”
The report also highlights recent supervisory program developments and enforcement actions.
FHA extends partial waiver of face-to-face borrower interviews
On December 2, FHA announced an extension to its temporary partial waiver of the face-to-face borrower interviews with borrowers as part of FHA’s early default intervention requirements under 24 C.F.R. § 203.604. The waiver was first published in March 2020 in response to the Covid-19 pandemic (covered by InfoBytes here). The temporary waiver, now effective through December 31, 2022, allows mortgagees to establish contact with borrowers by alternative methods, such as phone, email, or video calling services.