California Amends RMLA: Federal Agency Approval Not Required For Processing and Underwriting Companies

Effective January 1, 2017, the definition of lender under the California Residential Mortgage Lending Act (RMLA) will be amended to include third-party processors and/or underwriters who do not solicit loan applicants, originate mortgage loans, or fund mortgage loans. Under the current definition, the term lender is limited to an entity that is an approved lender for Federal Housing Administration (FHA), VA, Farmer Mac, GNMA, Fannie Mae, or Freddie Mac, thereby precluding entities that do not have such an approval from obtaining a license under the Act. Holding a license under the Act provides certain advantages over being licensed under either the California Finance Lenders Law or the Real Estate Law.

The Act also was amended to permit the Commissioner to require a licensee who is engaged in the processing or underwriting of residential mortgage loans to continuously maintain a minimum tangible net worth in an amount that is greater than $250,000, but that does not exceed the net worth required of an approved lender under the FHA.

- John D. Socknat

FHFA Announces Increases in Maximum Conforming Loan Limits for Fannie Mae and Freddie Mac for First Time in 10 Years

The Federal Housing Finance Agency (FHFA) has announced that the maximum conforming loan limits for mortgages acquired by Fannie Mae and Freddie Mac in 2017 will increase to $424,100 from $417,000. While the increase is modest, it is the first increase in the baseline loan limit since 2006. In high-cost areas, which are areas where 115 percent of the local median home value exceeds the baseline loan limit, the loan limit has increased to $636,150 for properties in the contiguous United States. Special local loan limits apply in Alaska, Hawaii, Guam, and the U.S. Virgin Islands. While the baseline loan limit in such areas will be $636,150, that actual limit may be higher in some specific locations. The limits noted above are for one-unit properties, and higher limits apply for two- to four-unit properties.

Adjustments to the baseline loan limit are required to be made each year to reflect changes in the national average home price by the Housing and Economic Recovery Act of 2008 (HERA). However, HERA precluded raising the baseline loan limit until the average U.S. home price returned to the level before the recent housing crisis. The third quarter 2016 House Price Index published by FHFA demonstrates that house prices are now higher than their level in the third quarter of 2007.

- Matthew R. Smith

CFPB Posts 2017 Final Lists of Rural and Rural or Underserved Counties

The CFPB has posted its 2017 final lists of Rural and Rural or Underserved Counties on its website. The CFPB has previously posted lists of such counties for calendar years 2011-2016.

The lists are relevant to exemptions in several CFPB mortgage rules, including the CFPB’s rule requiring creditors to establish escrow accounts for certain first-lien higher-priced mortgage loans.

- Richard J. Andreano, Jr.

FTC Seeks Information on Class Action Claims Rates

The Federal Trade Commission (FTC) has announced that to study the effectiveness of various class action settlement notice programs, it has issued orders to eight claims administrators requiring them to provide information on their procedures for notifying class members about settlements and the response rates for various methods of notification. It is anticipated that such information will demonstrate that only a very small fraction of class members who must file claims to participate in a settlement fund actually do so.

The orders are part of the FTC's "Class Action Fairness Project," through which the agency "strives to ensure that class action settlements in consumer protection and competition matters provide appropriate benefits to consumers." Actions taken by the FTC as part of the program include monitoring class actions and filing amicus briefs or intervening in appropriate cases; coordinating with state, federal, and private groups on important class action issues; and monitoring the progress of legislation and class action rule changes.

In 2015, as part of the program, the FTC sought comments on its plans to conduct two studies. One is an internet-based research study to "examine whether respondents receiving class action notices understand the process and implications for opting out of a settlement, the process for participating in a settlement, and the implications of doing nothing." The other study is intended "to determine what factors influence a consumer's decision to participate in a class action settlement, opt out of a class action settlement, or object to the settlement." To conduct this study, the FTC plans to directly contact recipients of nationwide class action settlement notices.

The response rate data provided to the FTC by the claims administrators is expected to show extremely low response rates (i.e., less than 5 percent) in most cases. Such information might cause judges to give more consideration to response rates before giving final approval to class action settlements. It would also provide support for critics of the Consumer Financial Protection Bureau's (CFPB) proposed rule that would prohibit providers of certain consumer financial products and services from using a pre-dispute arbitration agreement that contains a class action waiver. Underlying the proposed rule is the CFPB's view that consumers obtain more meaningful relief through class actions than in arbitration. Low average response rates would be further evidence that the CFPB's premise is incorrect and arbitration is more beneficial to consumers than class actions.

Indeed, the CFPB's own arbitration study included data showing that even class members entitled to benefits frequently fail to obtain them. The study found that in "claims made" class action settlements, the unweighted average claims rate was 21 percent and median was 8 percent. The weighted average claim rate was only 4 percent. Moreover, claims rates fell nearly 90 percent if documentary proof was required. Presumably, the funds not distributed to the class members either reverted to the company or were used for a cy pres distribution.

- the Consumer Financial Services Group

D.C. Circuit Orders PHH to Respond to CFPB’s Petition for Rehearing En Banc; Invites Response from Solicitor General

The D.C. Circuit has entered an order directing PHH Corporation to file a response to the CFPB’s petition for rehearing en banc in CFPB v. PHH Corporation.

The order, filed November 23, 2016, requires PHH to file its response within 15 days. It also invites the Solicitor General to file a response to the petition for rehearing en banc, expressing the views of the United States, but does not set a date by which the Solicitor General must file any response. We expect the Solicitor General to support the CFPB’s petition and given the impending change in Administrations, to file a response promptly.

The order states that absent further order of the court, the court will not accept a reply to the responses.

- Barbara S. Mishkin

CFPB Issues Report on Servicemember Complaints

A new CFPB report, “A snapshot of servicemember complaints,” focuses on issues related to VA mortgage refinancing.

The report indicates that as of November 1, 2016, the CFPB had received over 12,500 mortgage complaints from servicemembers, veterans, and their dependents. The CFPB determined based on a key word search of complaint narratives that approximately 18 percent (about 1,800) of those complaints concern refinance issues.

According to the report, the issues raised in the complaints involve aggressive solicitations, misleading advertisements, and “failed promises” due to processing delays that caused rate locks to expire or otherwise resulted in less favorable terms than expected; a lack of clarity regarding underwriting requirements to obtain a loan; and poor communications causing consumer confusion about changes to monthly payments and escrows.

- Barbara S. Mishkin

Did you know?

Arkansas Adopting SAFE MILO TEST

by Wendy Tran

Effective January 1, 2017, the Arkansas Securities Department will adopt the National SAFE MILO Test Component with Uniform State Content. Arkansas will become the 54th state agency that no longer requires mortgage loan originators seeking licensure to take a second state-specific test component. More information about the Uniform State Test (UST) can be found here.

North Carolina Adopting MSB Call Report

The North Carolina Office of the Commissioner of Banks will adopt the NMLS Money Services Business (MSB) Call Report beginning with Q1 2017 reporting, totaling 17 state agencies adopting the MSB Call Report in NMLS in the first quarter of 2017. The initial report will be due 45 days after the first quarter end (May 15, 2017). More information 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.