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Arkansas Amends Fair Mortgage Lending Act Regulations
On January 10, the Arkansas Securities Department finalized amendments to certain sections of the rules that implement the Fair Mortgage Lending Act. The regulations were adopted as proposed. The regulations were amended to expand disclosure requirements for new and transferred loans to include: (i) any notice required under federal law; (ii) a schedule of the ranges and categories of the servicer’s costs and fees for its servicing-related activities; and (iii) a notice that the servicer is licensed in the state and that complaints can be submitted to the Securities Department. The rule also prohibits advertising that indicates a consumer’s ability or likelihood to obtain any new mortgage credit product or term, or a refinancing or modification, has been preapproved or guaranteed. Finally, the rule, among other things, (i) expands payment processing requirements to include payments made via electronic transfer; and (ii) amends record keeping rules to require licensees to maintain records in a format compatible with electronic examination software, and to expand the types of documents servicers must maintain. The new rules take effect February 9, 2014.
Northern District of California Decision Highlights Growing Divide Within Ninth Circuit Over HOLA Preemption
On January 14, the U.S. District Court for the Northern District of California held that the federal Home Owners’ Loan Act (HOLA) preempts all of a borrower’s state law claims related to a loan originated by a thrift but held by a national bank at the time the suit was filed. Kenery v. Wells Fargo, N.A., No. 13-2411, 2014 WL 129262 (N.D. Cal. Jan. 14, 2014). In this case, a delinquent borrower sued a national bank loan servicer after the bank allegedly wrongly denied the borrower’s loan modification application and moved to foreclose on the property. The servicer argued that all of the borrower’s state law claims were preempted by HOLA, which provides for preemption of state laws purporting to impose requirements regarding the terms of credit of a loan and the processing, origination, sale, or servicing of mortgages. The borrower asserted that HOLA preempts state laws only with regard to thrifts and does not apply to the activities of the current note holder national bank, notwithstanding that the loan was originated by a thrift. The court explained that the Ninth Circuit has yet to provide clear guidance on the issue, and district courts within the circuit have diverged, holding that (i) HOLA preemption applies to all conduct related to the loan, whether by a federal thrift or a national bank, (ii) HOLA preemption does not apply to national banks, or (iii) HOLA preemption depends on whether the action at issue was taken by the federal thrift or the national bank, with only claims deriving from thrift actions subject to federal preemption. Here, the court, based on prior Northern District of California decisions, held that HOLA preemption applies to all conduct related to a loan originated by a thrift and dismissed the borrowers state law claims, with leave to amend certain of those claims.
CFPB Updates Mandatory Mortgage Publications
On January 10, 2014, the CFPB published a notice in the Federal Register that three mortgage publications lenders are required to provide to borrowers have been revised to reflect certain mortgage rules that went into effect on that date. These publications, which are available on the CFPB’s “Learn More” web page, are: (i) the What You Should Know About Home Equity Lines of Credit (HELOC) Brochure; (ii) the Consumer Handbook on Adjustable-Rate Mortgages (CHARM) Booklet; and (iii) the Shopping for Your Home Loan: Settlement Cost Booklet (sometimes called the RESPA Booklet).
- HELOC Brochure – The CFPB states that this brochure was revised to add a reference to the requirement that lenders must provide borrowers with a list of housing counselors in their area, CFPB contact information, and updates to other Federal agency contact information. It also adds CFPB resources for consumers, including information about how consumers can submit a complaint to the Bureau, a link to the Bureau’s online ‘‘Ask CFPB’’ tool to find answers to questions about mortgages and other financial topics, and a link to an online tool to find local HUD-approved housing counseling agencies.
- CHARM Booklet – According to the CFPB, these revisions: (i) remove references to certain fees and product types that are no longer permitted, such as prepayment penalties on adjustable-rate mortgages; (ii) add information about the lender’s obligation to consider the borrower’s ability to repay the loan, provide disclosure of interest rate adjustments, and ensure a borrower has received homeownership counseling before making a negative amortization loan; and (iii) add CFPB contact information and resources for consumers and updates to other federal agency contact information.
- RESPA Booklet – The CFPB explains that this booklet was revised to also add contact information and consumer resources, along with information about new servicing protections for borrowers, including servicer obligations to: (i) respond promptly to consumer requests for information and notices of errors; (ii) provide mortgage payoff statements and monthly billing information; and (iii) contact delinquent consumers regarding options to avoid foreclosure.
The notices states that “[t]hose who provide these publications may, at their option, immediately begin using the revised HELOC Brochure, CHARM Booklet, or Settlement Cost Booklet, or suitable substitutes to comply with the requirements in Regulations X and Z. The Bureau understands, however, that some may wish to use their existing stock of publications. Therefore, those who provide these publications may use earlier versions of these publications until existing supplies are exhausted. When reprinting these publications, the most recent version should be used.”
New FHFA Director Takes Immediate Action To Halt G-Fee Increases, Announces Senior Staff Appointments
On January 6, former Congressman Mel Watt was sworn in as director of the FHFA. Two days later, on January 8, the FHFA halted previously announced plans to increase the base guarantee fee (g-fee) for all mortgages by 10 basis points, update the up-front g-fee grid, and eliminate the up-front 25 basis point adverse market fee except in certain states. Those changes were scheduled to take effect for (i) all loans exchanged for mortgage-backed securities with settlements starting April 1, 2014, and (ii) all loans sold for cash with commitments starting March 1, 2014. The move by FHFA Director Watt formalized a promise he made shortly after being confirmed for the position to delay the g-fee changes pending further review of their impact on mortgage credit availability and Fannie Mae and Freddie Mac’s risk exposure. The delay is opposed by, among others, several Republican members of Congress, who on January 8 sent Mr. Watt a letter urging the Director to implement the g-fee changes as originally announced.
On January 10, the FHFA announced several senior staff appointments. Bob Ryan, Senior Vice President of capital markets at Wells Fargo Home Mortgage and former adviser to HUD Secretary Shaun Donovan, will serve as Special Advisor – Industry. Eric Stein will leave the Center for Responsible Lending to serve as acting chief of staff before transitioning to Special Advisor – Consumer. Mr. Stein previously served as Deputy Assistant Secretary for Consumer Protection at the Treasury Department. Mario Ugoletti, who has served as a Special Advisor to the Acting Director of the FHFA since 2009, and has been appointed Special Advisor - Agency. Finally, Megan Moore will join the FHFA as Special Advisor – Intergovernmental. She most recently served in the Treasury Department’s Office of Legislative Affairs as Deputy Assistant Secretary for Housing, Small Business and TARP.
Utah Federal Court Holds Model TILA Rescission Notice Not "Clear And Conspicuous"
On January 6, the U.S. District Court for the District of Utah held that the model TILA rescission disclosure, form H-8, does not clearly and conspicuously disclose the three business day rescission period. Simmons v. Citimortgage Inc., No. 11-171, 2014 WL 37623 (D. Utah Jan. 6, 2014). In this case, two borrowers sued their lender, claiming that the lender improperly refused to rescind the borrowers’ loan within the statutory three-day rescission period. The borrowers, who closed on a Wednesday and sought rescission the following Monday, claimed that their rescission attempt fell within the three business day window granted by TILA. The lender countered that Regulation Z defines Saturday as a business day and therefore the borrowers’ request was untimely. On summary judgment, the court determined that the rescission disclosure the lender provided to the borrowers, model disclosure form H-8, did not clearly and conspicuously disclose the date the rescission period expired. The court explained that the model disclosure is subject to more than one sensible reading and required the borrowers to conduct further research into the meaning of “business day.” The court reasoned that the fact that the borrowers were required to do anything to understand the notice is sufficient to disqualify the notice from being “clear and conspicuous.” The court granted partial summary judgment to the individual borrowers, holding that the borrowers are entitled to the three-year rescission period, and invited further briefing as to whether the borrowers have otherwise met their rescission burden.
CFPB Announces Mortgage Servicing Rule Training Event, Releases Borrower Resources
This Friday, January 10, the CFPB will host a training event in Phoenix, Arizona for housing counselors, legal aid attorneys, and other advocates about the new mortgage servicing rules taking effect on that date. The event—which will include an in-depth training presentation and feature remarks from CFPB Director Richard Cordray—follows the CFPB’s release of new resources intended to boost awareness of and educate the public about the new consumer protections provided by the rules. The new consumer resources include:
- Sample letters for consumer use related to topics such as information requests and error corrections;
- Mortgage tips for homebuyers, homeowners, and borrowers facing foreclosure;
- A database of answers to mortgage-related questions generated through AskCFPB, an interactive online tool for consumers;
- Online tools for consumers to locate housing counseling agencies in their area and to submit complaints online;
- Factsheets covering new consumer protections provided for under the rules and access to foreclosure avoidance options; and
- A reference guide for housing counselors and others that interact with consumers entitled to new federal protections.
A live broadcast of the event—Protecting Homeowners: New Tools for Empowering Consumers and Advocates—will be available on consumerfinance.gov at 1:00 PM EST.
CFPB Seeks Information On Mortgage Closing "Pain Points"
On January 2, the CFPB issued a request for information about “key consumer ‘pain points’ associated with mortgage closing and how those pain points might be addressed by market innovations and technology.” The request includes 17 specific questions about the closing process, common errors at closing, the role of “other parties” at closing, and closing documents. The CFPB stated that the request is part of the next phase of its Know Before You Owe initiative in which the CFPB will “encourage interventions that increase consumer knowledge, understanding, and confidence at closing.” In particular, the CFPB seeks to promote “the development of a more streamlined, efficient, and educational closing process as the mortgage industry increases its usage of technology, electronic signatures, and paperless processes.” The CFPB first announced this initiative in November 2013 in conjunction with the release of the final rule combining mortgage disclosures under TILA and RESPA. Responses to the request are due by February 7, 2014.
New York Extends Emergency Regulations Regarding Determination of Subprime Home Loans
On December 29, the New York State Department of Financial Services advised supervised institutions that it readopted expiring emergency regulations used to determine if a home loan qualifies as a subprime home loan under Section 6-m of the New York Banking Law. The latest emergency regulations are identical to those initially adopted in September 2013. Without further action, the readopted emergency regulations will expire March 29, 2014.
CFPB Adjusts CARD Act, HOEPA Thresholds
On December 16, the CFPB published a final rule to review and adjust provisions of Regulation Z that implement amendments to TILA under the CARD Act and HOEPA. Specifically, the CFPB is required to adjust, as appropriate based on the annual percentage change reflected in the Consumer Price Index in effect on June 1, 2013, (i) the threshold amount that triggers requirements for the disclosure of minimum interest charges and (ii) the maximum penalty fee card issuers can impose for violating account terms without violating the restrictions on penalty fees established by the CARD Act. For 2014, the minimum interest charge disclosure threshold will remain unchanged, while the permissible penalty fees will increase to $26 for a first late payment and $37 for each subsequent violation within the following six months. Similarly, the CFPB is required to adjust the combined points and fees threshold that triggers compliance with HOEPA. Effective January 1, 2014, that threshold will be $632.
FHFA Proposes Decreased Loan Purchase Limits
On December 16, the FHFA requested public comment on a plan gradually to reduce the maximum size of loans purchased by Fannie Mae and Freddie Mac. The FHFA bases the plan on the uncertain future of Fannie Mae and Freddie Mac and “the desire for private capital to re-enter the market.” The FHFA states that it is considering starting the gradual decrease with approximately a four percent reduction in the maximum loan limit for one-unit properties—for example, from $417,000 to $400,000 in most locations, and from $625,000 to $600,000 for the highest-cost areas. The lower purchase limits would, at the earliest, apply to loans originated after October 1, 2014. The FHFA seeks specific comments on (i) the appropriate advance notice period for any final changes; (ii) the timing of any subsequent adjustments; (iii) whether any such subsequent adjustments should be announced in a multi-year schedule, and, if so, whether they should be based on specific dollar amount reductions or percent changes per year; (iv) whether reductions to the limit for areas that fall between the baseline limit and the high-cost limit should continue to be tied to median house prices or should be proportional to reductions in the baseline limit; and (v) whether loan limits should be set at even multiples of either $1,000 or some other dollar amount. Comments are due no later than March 20, 2014.