Minnesota Escrow Depository License.

Fannie Mae and Freddie Mac Publish Redesigned Uniform Residential Loan Application Form and Dataset

Fannie Mae and Freddie Mac have announced that they have published redesigned versions of their Uniform Residential Loan Application Form (URLA), the first substantial revision to the form in more than 20 years. The update to the standardized form used by borrowers to apply for mortgage loans may be used starting January 1, 2018, but will not become required until sometime thereafter. This substantial lead-up time was expressly designed to permit lenders to become acclimated with the redesigned URLA's features. The updated form will feature a redesigned format, new and updated fields, simplified instructions, and MISMO® v3.4 Reference Model compatibility.

Fannie Mae and Freddie Mac also published the Uniform Loan Application Dataset (ULAD) Mapping Document. The Document provides a cross reference from every field on the revised URLA to the equivalent data point(s) in the Mortgage Industry Standards Maintenance Organization® (MISMO®) v3.4 Reference Model.

Fannie Mae and Freddie Mac have indicated that the update is the result of collaboration with stakeholders, including lenders, technology solution providers, mortgage insurers, trade associations, housing advocates, borrower groups, and other government agencies like the CFPB, VA, and FHA. This collaboration has led to coordination with the substantial changes in the implementing regulations of the Home Mortgage Disclosure Act (HMDA) that have been, and will be, implemented over the next few years. Specifically, the redesigned form and data sets are meant to assist with the HMDA amendments that become effective January 1, 2018. The expanded HMDA demographic data collection required by lenders was designed into the URLA's additional data fields. The update also eliminates data fields that are no longer needed.

In an announcement published by Fannie Mae and Freddie Mac simultaneously with the press release, the two GSEs outline the new documents being published, data mapping information, and the to-be-published dynamic URLA. 

The current version of the URLA was adopted as model application form under Regulation B, the implementing regulation for the Equal Credit Opportunity Act. The appropriate use of the URLA constitutes compliance with certain Regulation B information collection restrictions. Fannie Mae and Freddie Mac advise the CFPB is reviewing the revised URLA with regard to Regulation B, and that this review may result in additional revisions to the URLA.

- Richard J. Andreano, Jr. and Matthew R. Smith


Director Cordray Responds To Letter from Senators Seeking Tailored Rulemaking for Community Banks and Credit Unions

Last month, a bipartisan group of 70 senators were signatories to a letter sent to Consumer Financial Protection Bureau (CFPB) Director Richard Cordray urging the CFPB to “carefully tailor its regulations to match the unique nature of community banks and credit unions.” In their letter, the senators referenced Dodd Frank Section 1022(b)(3)(A) which allows the CFPB to create exemptions from its rules for any class of covered persons, service providers, or consumer financial products or services as the CFPB “determines necessary or appropriate to carry out the purposes and objectives” of the Consumer Financial Protection Act after taking into consideration certain specified factors. The senators stated that they “believe the CFPB has robust tailoring authority and ask that you act accordingly to prevent any unintended consequences that negatively impact community banks and credit unions or unnecessarily limit their ability to serve consumers.”

In a letter sent last week responding to the senators, Director Cordray acknowledged the CFPB’s exemption authority under Section 1022.  However, to the extent the senators were suggesting that the CFPB create wide-scale exemptions for community banks and credit unions, Director Cordray did not appear to be receptive to that concept. He stated only that “[a]s I have expressed in the past, the Bureau recognizes that community banks and credit unions did not cause the financial crisis. For that reason, the Bureau is committed to ensuring that the regulations that we promulgate are well-tailored and effective.”

Most of Director Cordray’s letter consisted of a list of various actions the CFPB has taken as part of its “commitment to achieving tailored and effective regulations.” For example, he described the small creditor safe harbor in its qualified mortgage loan (QM) rule, the exemption for small creditors in rural and underserved areas from certain requirements applicable to QMs and HOEPA loans, exemptions for small mortgage servicers from certain TILA and RESPA requirements, and HMDA exemptions for lower-volume depository institutions. He also noted the CFPB’s obligation to conduct SBREFA panels for rules that will have a significant impact on a substantial number of small entities and referenced various CFPB resources to help financial institutions understand CFPB rules.

- Barbara S. Mishkin


California Federal Court Dismisses TCPA Claims for Lack of Article III Standing

A plaintiff did not have Article III standing to assert claims under the Telephone Consumer Protection Act (TCPA) for alleged autodialed calls made to her without her consent, a California federal district court recently ruled.

In Romero v. Department Stores National Bank, et al., the plaintiff alleged that she received more than 290 collection calls to her cellular phone from the defendants that were made with an automated telephone dialing system (ATDS) after she had revoked her consent to such calls. Previously, in Spokeo, Inc. v. Robins, the U.S. Supreme Court held that, to satisfy the "injury in fact" requirement under Article III, a plaintiff must show that he or she suffered "an invasion of a legally protected interest" that is both "concrete" and "particularized." The district court determined that, because the plaintiff was seeking TCPA statutory damages of $500 for each call, she needed to show "evidence of an injury in fact specific to each call, and not in the aggregate based on the total quantity of calls."

According to the court, while the plaintiff’s alleged receipt of calls in violation of the TCPA may have satisfied the "particularized" requirement for Article III standing, she still needed to establish concrete injury caused by the violations. Although the court indicated that the lost time, aggravation, and distress allegedly suffered by the plaintiff "could possibly be" an injury in fact for standing purposes, it stated that invasion of privacy was not an injury in fact sufficient for standing.

To evaluate whether the plaintiff suffered concrete injury, the court divided the calls into three categories which it analyzed as follows:

  • Calls the plaintiff did not hear ring. The court observed that for the plaintiff to have suffered any injury from such calls (such as lost time, aggravation, and distress) "she must, at the very least, have been aware of the call when it occurred." The court ruled the plaintiff lacked standing to assert a TCPA violation based on any such calls because she "has not, and likely could not, present evidence of an injury in fact as a result of calls placed by Defendants…of which [she] was unaware."

  • Calls the plaintiff heard ring but did not answer. The court observed that "[v]iewing each call in isolation," no such call could have caused the plaintiff a concrete injury because "[n]o reasonable juror could find that one unanswered telephone call could cause lost time, aggravation, distress, or any injury sufficient to establish standing."

  • Calls the plaintiff answered. As to the two answered calls on which the plaintiff based TCPA claims, the court observed that the plaintiff "does not offer any evidence demonstrating that Defendants’ use of an ATDS to dial her number caused her greater lost time, aggravation, and distress than she would have suffered had the calls she answered been dialed manually, which would not have violated the TCPA." The court found that because the plaintiff did not suffer an injury in fact traceable to the alleged TCPA violations, she lacked standing to make a TCPA claim for any calls she answered.

The court also observed that "the specific facts of this case reveal that any harm suffered by Plaintiff is unconnected to the alleged TCPA violations." It stated that "[a]lthough these calls seeking to collect debts may have been stressful, aggravating, and occupied Plaintiff’s time, that injury is completely unrelated to Defendants’ use of an ATDS to dial her number. Plaintiff would have been no better off had Defendants dialed her number manually."

While other courts that have so far addressed the application of Spokeo to TCPA claims have concluded that a consumer’s receipt of unwanted autodialed cell phone calls and the resulting invasion of privacy are sufficient to confer Article III standing, we believe Romero is correctly decided for three reasons. First, Romero explains that standing has to be established for each alleged violation and has to be connected to the alleged harm (for example, showing that use of an ATDS was more invasive than manually dialed calls). Second, the decision recognizes that invasion of privacy is not a harm in itself. Third, the ruling recognizes that even if invasion of privacy was a harm, simply receiving an unwanted phone call, or, more critically, receiving a call without knowing it was made or not answering a call, could not invade a consumer’s privacy.

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


Liens Recorded Between Foreclosure, Sale Date Ruled Valid by Florida Appellate Court

In a case of first impression among the Florida appellate courts, the Fourth District Court of Appeal held that liens recorded between the foreclosure judgment and the sale date are valid and enforceable against the property so long as the violations underlying the liens occurred after the foreclosure judgment. 

More specifically, in Ober v. Town of Lauderdale-by-the-Sea, a bank recorded a lis pendens on real property prior to commencing a foreclosure action in November 2007. On September 22, 2008, the bank obtained a final judgment of foreclosure. Between July and October of 2011, the defendant town recorded seven liens on the property as a result of code violations that occurred after the foreclosure judgment. On September 27, 2012, the plaintiff purchased the subject property at a foreclosure sale. Subsequently, the town imposed three more liens on the property.

The purchaser then filed a quiet title action to strike the liens, while the town counterclaimed to foreclose on its liens. In Florida, the recording of a lis pendens bars enforcement of any interests and liens that were not recorded before the notice. However, as the statute (Fla. Stat. § 48.23) does not provide an end date, there was doubt as to when a lis pendens expires. The property owner argued the lis pendens expired as of the date of a judicial sale. The town countered that the lis pendens precludes only liens existing or accruing prior to the date of a final judgment.

The Fourth District Court of Appeal held that the lis pendens terminates when the lawsuit ends, which occurs when the judgment becomes final. To reach this interpretation, the court explained that the lawsuit itself is the true lis pendens, not the recorded notice. Therefore, as the action terminates within 30 days of the entry of final judgment, the lis pendens does as well.   

Because the lis pendens at issue in Ober terminated 30 days after the judgment of foreclosure, the liens recorded by the town—both those recorded between the judgment and judicial sale and those recorded after the sale—were valid. 

Companies planning either to foreclose on real property in Florida or to acquire properties at Florida foreclosure sales should review property records between the date of a judgment of foreclosure and scheduled foreclosure sales. Because liens accruing or recorded after the judgment continue to encumber the property after the sale, foreclosure sales may not convey marketable title. Companies should consider either establishing procedures for resolving such liens or adjusting bidding practices to account for the impact of liens on the value of the property. The decision also illustrates the risks inherent in allowing a property to languish on the docket following entry of a foreclosure judgment. 

- Justin Angelo and David Mooers-Putzer


Northern Texas District Court Dismisses Fair Housing Disparate Impact Claim

A federal court in Texas recently dismissed a housing discrimination claim that was based on alleged disparate impact under the Fair Housing Act (FHA), the latest in a series of decisions applying landmark U.S. Supreme Court guidance.

The U.S. District Court for the Northern District of Texas dismissed claims filed against the Texas Department of Housing and Community Affairs (TDHCA) in the fair housing case, The Inclusive Communities Project, Inc. v. The Texas Department of Housing and Community Affairs. The August 26, 2016, decision represents the culmination of several years of litigation, including last year's U.S. Supreme Court decision that found that disparate impact is a cognizable claim under the FHA.

As discussed in prior Ballard Spahr alerts, The Inclusive Communities Project (ICP) originally filed a disparate impact claim under the FHA, alleging that the allocation process used by TDHCA to award low-income housing tax credits (LIHTC) had a disparate impact on racial minorities. The district court initially ruled in favor of ICP, finding that ICP made a prima facie showing that TDHCA's policy violated the FHA. Following the district court's original opinion, the U.S. Department of Housing and Urban Development (HUD) issued regulations establishing a three-step burden-shifting approach for disparate impact claims brought under the FHA. On appeal, the Fifth Circuit Court of Appeals adopted HUD's approach and reversed the district court decision, remanding the case to the district court to apply HUD's burden-shifting framework to ICP's claims and TDHCA's defenses.

After granting certiorari, the U.S. Supreme Court in June 2015 held that disparate impact claims were cognizable under the FHA, but did not rule on the merits of ICP's claims. Following the burden-shifting analysis of the HUD regulations, the Supreme Court also emphasized that to successfully assert a disparate impact claim, plaintiffs must demonstrate a robust causality between the challenged practice and the disparity.

On remand, the district court reconsidered whether ICP indeed made a prima facie showing of disparate impact in light of the guidance from the Supreme Court decision. The district court last week held that ICP’s claims of disparate impact failed under the current standards for a number of reasons.

First, the court ruled, ICP failed to identify a specific, facially neutral policy that caused the disparate racial impact, as required by the first prong of the burden-shifting analysis. ICP challenged TDHCA's exercise of discretion in its LIHTC awards, but the court held that it could not rely on a generalized policy of discretion (even when considered cumulatively) to prove disparate impact. Absent a specific TDHCA policy, the court could not determine whether the practice actually created a barrier to fair housing or devise an adequate race-neutral remedy to alleviate the alleged disparities.

Next, the district court held that ICP's claim failed because it was, in essence, a complaint for disparate treatment, despite the disparate impact language. Relying on prior case law, the court found that because ICP challenged the results of TDHCA's subjective discretion rather than the existence of the discretion itself, the claim should be dismissed.

Lastly, the district court found that ICP's claim failed to show a robust causal connection between TDHCA's use of discretion in awarding LIHTCs and statistical disparities between LIHTC awards in different areas. ICP could not prove that TDHCA's use of discretion, and not other factors such as federal legislative action, actually caused the statistical disparities throughout the years evaluated.

The outcome of this case reflects an ongoing trend in federal and state court decisions applying the new Supreme Court "safeguards" against "abusive disparate impact claims." Almost all plaintiffs have experienced multiple difficulties making a prima facie case of disparate impact liability under the FHA and have seen their claims dismissed.

 - Amy M. Glassman, Michael W. Skojec, and Shanellah Verna


Did you know?

by Wendy Tran

Massachusetts Modifies Licensing Requirements for MLOs, Mortgage Lenders, Mortgage Brokers

The Massachusetts Office of Consumer Affairs and Business Regulations, Division of Banks, amended provisions relating to licensing requirements for mortgage lenders, mortgage brokers, and mortgage loan originators. Changes include, but are not limited to, the following:

  •  The definition of “Nationwide Multi-State Licensing System & Registry” has been amended to mean “a multistate licensing system owned and operated by the State Regulatory Registry LLC (SRR), a wholly owned subsidiary of the Conference of State Bank Supervisors (CSBS), an association of state financial services regulators.”
  • The surety bond of the employing entity may now be used to satisfy the Applicant's surety bond requirement.
  • Written examination: The state component of the qualified written test has been removed from the written examination requirements for MLO applicants. An applicant must pass with a test score of not less than 75 percent correct answers to questions, as opposed to each component with such a score. In addition, an applicant may retake the qualified examination three consecutive times with each consecutive taking occurring at least 30 days after the preceding examination. Upon failing three consecutive written examinations, a person shall not be eligible to sit for another written examination for a period of at least six months instead of 180 days.
  • It is now a prohibited act or practice for a Mortgage Loan Originator to fail to maintain accurate and up-to-date information in his or her NMLS license record.
  • The application procedure for mortgage brokers has been updated. Each applicant must submit an application via NMLS instead of written applications.
  • For all applications, the Commissioner may be guided by or rely upon the standards set forth in the CSBS/American Association of Residential Mortgage Regulators NMLS Policy Guidebook, as published by the SRR.

These provisions are effective immediately.

Minnesota Licenses Added to NMLS

On September 1, 2016, NMLS will start accepting applications for the following licenses:

  • Minnesota Currency Exchange License;
  • Minnesota Currency Exchange Registration;
  • Minnesota Currency Exchange Branch License;
  • Minnesota Accelerated Mortgage Payment Provider License; and
  • Minnesota Escrow Depository License.

NMLS Release 2016.3

NMLS Release 2016.3 is targeted for September 12, 2016, and contains system enhancements, such as surety bond tracking, licensing form changes to the MU1, MU2/MU4, and MU3, individual upload capability, and criminal background check functionality for MU Individuals. A summary of the complete changes can be found here.

Copyright © 2016 by Ballard Spahr LLP.
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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.