CFPB Finalizes Black Hole Fix under TRID Rule

The Consumer Financial Protection Bureau (CFPB) published the long-awaited final rule to address the so-called "black hole" issue under the TILA/RESPA Integrated Disclosure (TRID) rule. The CFPB also issued an Executive Summary of the final rule. The final rule will become effective 30 days after publication in the Federal Register.

Under the TRID rule, a Loan Estimate is the disclosure primarily used to reset tolerances. Because the final revised Loan Estimate must be received by the consumer no later than four business days before consummation, the Commentary to the TRID rule includes a provision under which a creditor may use a Closing Disclosure to reset tolerances if "there are less than four business days between the time' a revised Loan Estimate would need to be provided and consummation. Because of the four-business-day timing element, in various cases when a creditor learns of a change, the creditor is not able to use a Closing Disclosure to reset tolerances. This situation is what the industry termed the "black hole." The industry repeatedly asked the CFPB to address the black hole issue. As previously reported in Mortgage Banking Update, when the CFPB finalized various amendments to the TRID rule last summer, it punted on a prior proposal to address the black hole issue and proposed another rule to address the issue. The CFPB has now finalized the second proposal.

In the final rule, the CFPB removes the four-business-day timing element, and makes clear that either an initial or a revised Closing Disclosure can be used to reset tolerances. Consistent with the requirements for the Loan Estimate, when the TRID rule permits a creditor to use a Closing Disclosure to revise expenses, the creditor must provide the Closing Disclosure within three business days of receiving information sufficient to establish that a changed circumstance or other event triggering a change has occurred.

When proposing the amendment last summer, the CFPB requested comments on whether it should impose additional limits on the ability of a creditor to reset tolerances with a Closing Disclosure, such as allowing a reset of tolerances only in certain of the circumstances currently permitted by the TRID rule. The CFPB decided not to impose additional limits.

- Richard J. Andreano, Jr.


Continuing Developments in Nevada HOA Lien Litigation

Recently, in Nationstar Mortgage, LLC, vs. Saticoy Bay LLC Series 2227 Shadow Canyon, the Nevada Supreme Court issued a decision following a line of cases stemming from the analysis in SFR Investments Pool, LLC vs. U.S. Bank N.A., which holds that non-judicial foreclosures by homeowner associations (HOAs) can extinguish a first deed of trust. In this latest decision, the court declines to adopt a portion of the Restatement (Third) of Property: Mortgages.

Respondent Saticoy Bay LLC Series 2227 Shadow Canyon (Saticoy Bay) purchased property at an HOA foreclosure sale for $35,000 and subsequently filed an action for quiet title and a declaration from the court that Saticoy Bay acquired the property unencumbered from the first deed of trust. Nationstar, the beneficiary of the deed of trust, filed a motion for summary judgment in which Nationstar argued that the $35,000 purchase price when compared to the $335,000 value of the property was inadequate under Restatement (Third) of Property: Mortgages, Section 8.3, cmt. b. This comment contains a bright line rule that a foreclosures sale that is below 20 percent of the fair market value is considered grossly inadequate and this inadequacy is a stand-alone basis to invalidate a foreclosure sale. Nationstar further argued that the Nevada Supreme Court adopted the 20-percent standard in a footnote citation to Section 8.3's comment b in Shadow Wood HOA v. N.Y. Cmty. Bancorp..

The district court sided with Saticoy Bay's argument that price alone is not to invalidate an HOA foreclosure. After considering both Nationstar's arguments regarding the interpretation of the Restatement and the application of Section 8.3 in the Shadow Wood decision, the Nevada Supreme Court affirmed the district court. It held that the district court did not adopt the 20-percent standard in Shadow Wood when it cited to comment b in Section 8.3. Rather, the Court held the standard articulated in Golden v. Tomiyasu applies, which requires a showing of fraud, unfairness or oppression.

However, despite its rejection of Section 8.3's 20-percent standard, the Supreme Court went on to explain that the purchase price at an HOA foreclosure is not ""wholly irrelevant,"" suggesting that only "slight evidence of fraud, unfairness or oppression" is required in cases where there is a great disparity between the purchase price and the fair market value of the property.

- Holly A. Priest and Stefanie H. Jackman


Bill to Require Issuance of Guidance by CFPB Introduced in House

A recent bill introduced in the U.S. House of Representatives would require the Consumer Financial Protection Bureau (CFPB) to issue guidance on federal consumer financial laws, and also provide a framework for civil money penalties. H.R. 5534 would create the Give Useful Information to Define Effective Compliance Act or GUIDE Compliance Act. The bill was introduced by Representative Sean Duffy (R-WI) and is co-sponsored by Representative Ed Perlmutter (D-CO).

The Act would require the CFPB Director to "issue guidance that is necessary or appropriate to enable the Bureau to carry out Federal consumer financial law, including facilitating compliance with such law." For purposes of the Act, "guidance" is defined as "any written interpretive or legislative rule, interim final rule, bulletin, statement of policy, letter, examination manual, frequently asked question, or other document issued by the Bureau regarding compliance with a Federal consumer financial law that is exempt from notice and comment rulemaking requirements under section 553(b) of [the Administrative Procedure Act,] title 5, United States Code." The Act does not provide any parameters on specific laws or issues that the CFPB should address, or the nature of the guidance provided. The Act would require that a proposed rule be published within one year of the date the Act becomes law, with a final rule being published within 18 months of that date. The Act also would provide that no person could be held liable for any act done or omitted in good faith in conformity with CFPB guidance.

At least some of the guidance that the Act would require would trigger the ability of Congress to consider the guidance under the Congressional Review Act (CRA). We previously addressed the ability of Congress under the CRA to address not only federal agency actions structured as rules, but also guidance issued by such agencies that rises to the level of a rule within the purview of the CRA.

The Act also would require the CFPB to publish, within 18 months of the date the Act becomes law, a proposed rule establishing guidelines for determining the size of any civil monetary penalties issued by the CFPB "based on the severity of the actionable conduct in violation of a Federal consumer financial law and the level of culpability." The final rule would need to, "to the fullest extent possible, align with any chart, matrix, rule, or guideline published by the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, or the Board of Governors of the Federal Reserve System."

The Act would address calls from various industry members that the CFPB issue authoritative guidance on rules and provide a framework for civil monetary penalties. While the Act would require that the framework for civil monetary penalties conform with the framework of the federal banking agencies, as noted above, there are no parameters set forth for any guidance on consumer financial laws that is issued by the CFPB. To some this evokes the adage, "Be careful what you wish for; you may get it."

- Richard J. Andreano, Jr.


Did You Know?

Substitute House Bill No. 5490 Proposes Changes to Connecticut Banking Law

Substitute House Bill No. 5490, an Act Concerning Consumer Credit Licenses, proposes to make changes to the Banking Law in Connecticut that would expand the banking commissioner's existing authority in the mortgage arena to apply to other consumer credit license types and would standardize requirements across mortgage and non-mortgage license types. The bill also codifies existing orders of the Commissioner requiring use of the NMLS.

Among other things, the bill prohibits persons from conducting activity subject to licensure by the Commissioner at an office located outside the United States, requires designation of a qualifying individual and branch manager who is responsible for the actions of the licensee, and establishes advance change notice and approval requirements for any change of any control person.

As it relates specifically to mortgage, the bill:

  • Requires the qualified individual and branch manager to demonstrate that they (1) live within 100 miles of the main or branch office, respectively, or (2) are otherwise capable of providing full-time, in-person supervision. It provides specified conditions that would permit waiver of this requirement (and certain other requirements).

  • Requires mortgage loan originators to live within the 100 mile radius of the office unless able to demonstrate supervision by a qualified individual or branch manager;

  • Makes changes to the duration of bona fide nonprofit organization exemptions from licensure and establishes certain examination and record-keeping requirements related thereto;

  • Establishes a 15 day requirement for reportable events and expands the scope of reportable events;

  • Makes changes to the scope of the Commissioner's remedies under the surety bond and makes technical changes to the statutes in the event electronic surety bonds are utilized;

  • Requires the unique identifier for company licensees on all solicitations or advertisements, including business cards or website, and in all audio solicitations or advertisements, and requires the unique identifier of a licensed individuals on the same in certain circumstances; and

  • Establishes a two-year record retention period for advertising.

-Stacey L. Valerio


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