CFPB Issues Technical Reports on National Mortgage Database and National Survey of Mortgage Borrowers

The CFPB issued two Technical Reports on August 27, 2015—one on the National Mortgage Database (NMDB) and the other on the National Survey of Mortgage Borrowers (NSMB).

The NMDB project is a joint undertaking by the FHFA and CFPB and is designed to give information about the U.S. mortgage market based on a 5 percent sample of residential mortgages. The project has two components, the NMDB, and the quarterly NSMB. The NMDB will enable the FHFA to meet its statutory requirements to collect data on the characteristics of mortgages and on the creditworthiness of borrowers. For the CFPB, the project will support policymaking and market monitoring.

Technical Report 15-01 National Mortgage Database

  • The report is designed to provide users of the NMDB data with background on development of the database as well as an assessment on the quality of data.
  • The core data in the NMBD are drawn from a random 1-in-20 sample of all closed-end first-lien mortgage files outstanding at any time between January 1998 and June 2012 in the files of Experian, one of the three national credit repositories. The random sample of mortgages newly reported to Experian is added each quarter and they are followed in the database until they terminate through prepayment (including refinancing), foreclosure or maturity. Information from the credit repository files on each borrower associated with the mortgages in the NMDB sample is collected from at least one year prior to origination to one year after termination of the mortgage. The information on borrowers and loans in the NMDB does not include any directly identifying information.
  • The report discusses the development of the contract with Experian; outlines the process of selecting the initial historical sample; describes how the initial sample data were processed; how the data is updated; and how administrative date is merged into the NMBD. The final section evaluates the NMBD sample frame.

Technical Report 15-02 National Survey of Mortgage Borrowers

  • The NSMB component of the NMDB project is designed to provide de-identified data for analyzing housing mortgage related public policy, improving lending practices, and the mortgage process.
  • The voluntary survey is conducted by mail and supplements the NMDB by providing information that is not in the database. One example is information related to mortgage shopping.
  • The survey sample is derived from mortgages that are part of the NMDB and targets newly originated closed-end first-lien residential mortgages.
  • For the NSMB, a random sample of about 6,000 loans per quarter is drawn from loans newly added to the NMDB.
  • The report provides background data on how the NSMB was developed, discusses the development of the survey questionnaire, the survey sample frame, and the logistics of conducting the survey. In addition, the report analyzes survey responses for four waves, discusses how the usable population for analysis is derived, and describes the processes to refine the usable survey dataset and sampling error of the survey.
  • The survey cover letter and NSMB questionnaire are included as an appendix to the report.

Please refer to the Technical Reports for more detailed information.

Federal Appeals Court Confirms FTC Authority To Regulate Cybersecurity Policies and Procedures

Banks and other companies subject to the CFPB’s jurisdiction face the possibility that the CFPB could begin using its authority under the Dodd-Frank Act (which proscribes unfair, deceptive or abusive acts or practices) to regulate cybersecurity policies and procedures. For companies also subject to the FTC’s jurisdiction, however, the threat of FTC regulation of their cybersecurity policies and procedures is significantly more imminent in view of a recent decision of the U.S. Court of Appeals for the Third Circuit.

In FTC v. Wyndham Worldwide Corporation, a case of first impression, the Third Circuit ruled that the FTC can regulate cybersecurity policies and procedures as “unfair” acts or practices under Section 5 of the FTC Act. For a discussion of the decision, see our legal alert.

- Barbara S. Mishkin

11th, 6th Circuits Rule on TCPA Consent for Autodialed Calls to Cell Phones

The U.S. Courts of Appeals for the 11th and Sixth Circuits recently issued two rulings regarding when a consumer has given “prior express consent” under the Telephone Consumer Protection Act (TCPA) to receive text messages or cell phone calls from the entity to which the number was given. The TCPA provides that it is unlawful to make autodialed or pre-recorded non-emergency calls to a cell phone number unless the call is made with “the prior express consent of the called party.” This issue is generating numerous TCPA lawsuits.

In the 11th Circuit case, Murphy v. DCI Biologicals Orlando, LLC, et al., the plaintiff had provided his cell phone number to a blood collection center on a donor information sheet in connection with making a paid blood donation. He later received an initial text message from the defendant, a company with a controlling ownership interest in the center, notifying him that unless he replied to stop them, he would receive further text messages. After the plaintiff allegedly failed to reply, he received a second text message offering him a payment for another blood donation.

At issue in Murphy was the effect of a 1992 Federal Communications Commission (FCC) order in which the FCC ruled that “persons who knowingly release their phone numbers have in effect given their invitation or permission to be called at the number which they have given, absent instructions to the contrary.” The plaintiff had argued that the FCC’s interpretation of “express consent,” because it allowed implied consent to suffice, was inconsistent with the TCPA’s plain meaning and that provision of his cell phone number only constituted implied consent. In dismissing the plaintiff’s TCPA claim, a Florida district court had determined that the FCC’s ruling was binding under the Hobbs Act, which gives exclusive jurisdiction to the federal courts of appeals to review the validity of FCC rulings.

After first determining that the district court had correctly refused to entertain the plaintiff’s arguments regarding the 1992 ruling’s validity, the 11th Circuit concluded that it was bound to follow the ruling in the absence of direct appeal to review the FCC’s interpretation of “prior express consent.” The 11th Circuit found that by providing his cell phone number on the donor information sheet, which did not specifically request a cell phone number or indicate that providing a cell phone number was a prerequisite for blood donations, the plaintiff had given prior express consent to receive autodialed calls. The Court also noted that federal law did not require provision of a cell phone number for blood donations. (One of the Murphy text messages could be considered a telemarketing call. However, because it was sent in 2012, it was not subject to the current FCC rule requiring prior express written consent for autodialed or prerecorded telemarketing calls to cell phone numbers in the form of an agreement that meets specified requirements.)

In the Sixth Circuit case, Hill v. Homeward Residential, Inc., the plaintiff had provided his cell phone number to the assignee of his mortgage loan before and after falling behind on his mortgage payments. He first gave his cell phone number to the assignee after it acquired his loan to replace his home phone number on its records. He then provided his cell phone number on a loan modification agreement after falling behind on his loan payments and on other forms in connection with attempts to mitigate his losses after the modification failed. The assignee allegedly made numerous collection calls to the plaintiff’s cell phone number.

At issue in Hill was a 2005 FCC ruling which stated that a person provides express consent to receive autodialed debt collection calls by providing his or her cellular telephone number “to a creditor in connection with an existing debt” and that “prior express consent [to receive such calls] is deemed to be granted only if the wireless number was provided by the consumer to the creditor, and that such number was provided during the transaction that resulted in the debt owed.” The district court had instructed the jury that autodialed calls are made with the called party’s prior express consent if they are made to a wireless number “provided by the called party to a creditor in connection with an existing debt.” The jury ruled against plaintiff.

On appeal, the plaintiff argued that the jury instruction was inadequate because it did not inform jurors that prior express consent requires the wireless number to be provided during the “initial transaction” that resulted in the debt owed. Observing that the FCC never used the word “initial” before “transaction” in its 2005 ruling, the Sixth Circuit concluded that the FCC’s use of the phrase “during the transaction” was intended to ensure “that a debtor who gives his number outside the context of the debt has not given his consent to be called regarding the debt.”

The Sixth Circuit ruled that since prior express consent for autodialed collection calls only requires the wireless number to be provided by the called party in connection with an existing debt, the jury instruction adequately informed the jury of the law. According to the Sixth Circuit, a debtor does not have to provide his cell phone number at the beginning of a debtor-creditor relationship (such as in a credit application) for the number to be given “in connection with an existing debt” and that “a person gives his ‘prior express consent’ under the statute if he gives a company his number before it calls him.” The Sixth Circuit also stated that a debtor’s general consent for cell phone calls is sufficient to provide prior express consent for autodialed collection calls without the need for specific consent to autodialed calls.

- John L. Culhane, Jr., Mark J. Furletti, and Daniel JT McKenna

NY Amends Debt Collection Regulations, Issues More Guidance

The New York Department of Financial Services (DFS) has amended several provisions of its Third-Party Debt Collector and Debt Buyer Regulations and issued additional guidance in the form of new frequently asked questions (FAQs). The regulations are now fully effective. Certain provisions were effective March 3, 2015, and the remainder became effective on August 30, 2015. The amendments will be effective upon their publication in the New York Register on September 9, 2015.

The DFS regulations cover debts arising from consumer loans and exclude credit that a seller of goods or services provides in order for a consumer to purchase goods or services directly from the seller. The regulations also do not cover the collection of debt through litigation or when enforcing a money judgment.

The amendments revise three sections of the regulations:

  • Section 1.2(a)(2) dealing with initial disclosures is amended to clarify that the notice regarding exempt income does not have to be in writing if it is contained in the initial communication or the consumer has paid the debt.
  • Section 1.4(c) dealing with the requirement to substantiate charged-off debts is amended to remove language which allowed a copy of a judgment against the consumer to be used to substantiate a debt.
  • Section 1.5(a)(2) dealing with the notice of exempt income which must be provided within five days of agreeing to a debt payment schedule or other agreement to settle a debt is amended to clarify that the types of income listed “may” be exempt.

The DFS also added 13 new FAQs to the existing 17 FAQs. The new FAQs, which were released over the past several months, include the following:

  • Three new FAQs deal with the substantiation requirement. They clarify that a debt collector that fails to provide the required information within 60 days of receipt of a substantiation request can avoid a violation of the regulations by extinguishing the debt within the 60-day period; cannot satisfy the obligation to substantiate a debt by returning it to the creditor; and can have the original creditor provide the required information but remains responsible for ensuring that the information is provided within the 60-day period.
  • A new FAQ clarifies that a bank that acquires another bank and its debts remains the “original creditor” for purposes of the regulations but a bank that simply acquires debts may not be the “original creditor” and, depending on the circumstances, could be a “debt collector.”
  • A new FAQ clarifies that a disclosure required by the New York regulations can be combined with disclosures required by the Fair Debt Collection Practices Act (FDCPA) as long as the New York disclosures are provided within the required timeframe and, taking into account other information being provided, are presented in a clear and conspicuous manner.

- Justin Angelo

FHA Solicits Public Comment on Proposed Information Collection for Its “Loan-Level” and “Lender-Level” Certifications

The Federal Housing Administration (FHA) published two notices soliciting public comment on proposed information collection for its Single Family Loan Level Certification and Annual Certification on September 1, 2015. According to the U.S. Department of Housing and Urban Development (HUD), the proposals were intended to update these documents, provide clarity, and improve HUD’s enforcement capabilities.

In its 60-Day Notice of Proposed Information Collection: FHA Lender Approval, Annual Renewal, Periodic Updates and Required Reports by FHA-Approved Lenders (“lender-level”), one significant certification addition has been proposed to the Annual Certification for FHA-approved lenders and mortgagees. The proposal requires lenders to certify the following:

  • They have not been Debarred, Suspended, Proposed for Debarment, declared ineligible, or voluntarily excluded from covered transactions suspended by any Federal department or agency;
  • Within a three-year period preceding the certification, they have not been convicted of or had a civil judgment committed rendered against them for  commission of fraud or a criminal offense in connection with obtaining, attempting to obtain, or performing a public transaction or contract under a public transaction or contract under a public transaction; or violation of Federal or State antitrust statutes or commission of embezzlement, theft, forgery, bribery, falsification or destruction of records, making false statements, or receiving stolen property; They were not indicted for or otherwise criminally or civilly charged by a governmental entity  with commission of any of the offenses enumerated; and
  • Within a three-year period preceding this certification, they have not had one or more public transactions terminated for cause or default, except for those occurrences, if any, the Mortgagee reported to HUD during the Certification Period and for which the Mortgagee received explicit clearance from HUD to continue with the certification process. 

The Online Application Lender Approval (previously HUD-92001-A) would include a similar certification statement with minor technical differences due to the format of the Online Application. This certification will apply at the lender level instead of the loan level, and thus, any related noncompliance is subject to the procedures of the Mortgagee Review Board.  Comments are due on November 2, 2015. 

In addition, effective September 14, 2015, other technical revisions have been made, including the renumbering of statements, minor language changes for consistency between certification versions, terminology updates to reflect the new Single Family Housing Handbook 4000.1, and the removal of ambiguous terms that are captured in requirements or other well-defined terms found in Handbook 4000.1.

In its 30-Day Notice of Proposed Information Collection (“loan-level”), further proposals have been made to the Application for FHA Insured Mortgages (Form HUD-92900-A), FHA/VA Addendum to Uniform Residential Loan Application, which was subject to 60 days of public comment on May 15, 2015. The new proposed revisions add language to the loan-level certification that the lender has not participated in certain prohibited activity. Lenders also must certify at the loan level that they have reviewed the mortgage documents, closing statements, application for insurance endorsement, and all accompanying documents and found it eligible for FHA insurance.

Additional proposed revisions remove references to HUD Handbooks no longer in use by the Office of the Single Family Housing, update language regarding acceptable sources of funds, provide updated non-discrimination language, and update terminology to reflect the new Single Family Housing Handbook 4000.1. Comments are due by October 1, 2015. 

The proposed revisions to FHA’s “loan-level” and “lender-level” certifications can be found at this link.

- Wendy Tran

Texas Adopts New Provisions Regarding Denial, Suspension, or Revocation Based on Criminal History for Residential Mortgage Loan Originators

Texas has adopted provisions that specify the criminal history information collected by the Office of Consumer Credit Commissioner (OCCC) and outline factors the OCCC will consider when reviewing criminal history information. The provisions also describe grounds for denial, suspension, and revocation of a residential mortgage loan originator (RMLO) license.

The provisions provide that after an applicant discloses all criminal history information required to complete an application and submits it to the NMLS, the OCCC will investigate the applicant by obtaining criminal history record information. In addition, the provisions permit the OCCC to deny a license application or suspend or revoke a license if the applicant or licensee has been convicted of an offense that relates to financial responsibility, character, or general fitness to hold a RMLO license (e.g., fraud, misrepresentation, deception, or forgery), or based on any other ground authorized by statute. A license will be revoked on the licensee’s imprisonment following a felony conviction, felony community supervision revocation, revocation of parole, or revocation of mandatory supervision.

The provisions became effective on September 10, 2015. 

- Wendy Tran

Copyright © 2015 by Ballard Spahr LLP.
(No claim to original U.S. government material.)

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This alert is a periodic publication of Ballard Spahr LLP and is intended to notify recipients of new developments in the law. It should not be construed as legal advice or legal opinion on any specific facts or circumstances. The contents are intended for general informational purposes only, and you are urged to consult your own attorney concerning your situation and specific legal questions you have.

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