Mortgage Banking Update - January 5, 2018
Fair Credit Reporting Act (FCRA) litigation has increased in 2017 and shows little sign of slowing. While a plaintiff’s actual damages may be minimal, the statute’s award of reasonable attorney’s fees and costs for a prevailing plaintiff undoubtedly incentivizes the plaintiffs’ bar to develop new legal theories of inaccurate or misleading reporting. Fortunately, such legal theories may be susceptible to early motions to dismiss.
Recently, in Leones v. Rushmore Loan Management Services, LLC (Rushmore), 2017 WL 6343622 (S.D. Fla. Dec. 11, 2017), the plaintiff defaulted on her mortgage loan. Rushmore’s predecessor accelerated the loan and filed a separate mortgage foreclosure action. Rushmore subsequently took over servicing and reported, for six consecutive months, that plaintiff’s mortgage loan was delinquent by 120 days or more. Rushmore’s reporting also noted that foreclosure proceedings had been initiated. Plaintiff disputed Rushmore’s reporting to two consumer reporting agencies that, in turn, notified Rushmore about the dispute. Rushmore did not materially change its reporting.
In response, plaintiff filed suit. She claimed that Rushmore violated the FCRA by failing to properly investigate and correct its allegedly inaccurate or misleading reporting. Rushmore moved to dismiss. Significantly, plaintiff had not alleged that she had, in fact, made payments for the time periods reported as delinquent. Rather, her FCRA claim rested on the contention that Rushmore’s reporting was “incomplete” because the mortgage foreclosure action accelerated the mortgage so that plaintiff had neither the ability—nor the obligation—to make monthly payments.
The district court rejected plaintiff’s novel theory and dismissed the action with prejudice. The court recognized that, while an omission can create a misleading impression that is actionable under the FCRA, Rushmore’s reporting of delinquencies and a pending foreclosure was accurate and complete according to the complaint’s allegations. It further noted that plaintiff alleged, at most, a non-actionable legal defense to the debt, rather than an actionable factual inaccuracy. And since the reporting was factually accurate, Rushmore had no duty to investigate. Thus, as Leones illustrates, a motion to dismiss may be an effective defense to FCRA claims premised on novel legal theories, rather than on allegations of inaccurate facts.
The CFPB has launched a new online “Digital Check Tool” to be used by companies reporting HMDA data starting January 1, 2018.
More specifically, the new tool supports the Universal Loan Identifier (ULI) requirements of the revised HMDA rule. The CFPB states on its website that the new tool can be used for two functions. The first function is to generate a two-character check digit when a company enters a Legal Entity Identifier and loan or application ID. The second function is to validate that a check digit is calculated correctly for any complete ULI a company enters.
The CFPB also made its rate spread calculator available for use with applications on which the final action occurred on or after January 1, 2018.
In notices published in the Federal Register, the CFPB adjusted the thresholds of the asset-size exemptions for collecting HMDA data and establishing an escrow account for certain mortgage loans under TILA.
Pursuant to Regulation C, which implements HMDA, depository institutions with assets below an annually adjusted threshold are exempt from HMDA data collection requirements. In its notice, the CFPB increased the 2017 threshold of $44 million to $45 million for 2018. Thus, depository institutions with assets of $45 million or less as of December 31, 2017 will be exempt from collecting HMDA data in 2018. (An institution’s exemption from collecting data in 2018 does not affect its duty to report data it was required to collect in 2017.)
Regulation Z, which implements TILA, requires creditors to establish an escrow account to pay property taxes and insurance premiums for certain first-lien higher-priced mortgages. The rule contains an exemption for creditors that operate predominantly in rural or underserved areas that meet certain other criteria, including an annually adjusted asset-size threshold. In its notice, the CFPB increased the 2017 threshold from $2.069 billion to $2.112 billion for 2018. Thus, loans made by creditors with assets of less than $2.112 billion on December 31, 2017 that operate predominantly in rural or underserved areas and meet the other exemption criteria will be exempt in 2018 from the TILA escrow account requirement for higher-priced mortgage loans. The adjustment will increase the similar Regulation Z threshold for small-creditor portfolio and balloon-payment qualified mortgages.
The CFPB has announced that, with regard to the collection in 2018 of the expanded data fields under the revised Home Mortgage Disclosure Act (HMDA) rules, it does not intend to require data resubmission unless data errors are material and it does not intend to assess penalties with respect to errors in the data collected in 2018.
As we reported in October 2015, the CFPB adopted significant changes to the HMDA rules that significantly expanded the amount of information that must be collected and reported and the institutions that are required to collect and report data. Most of the data collection changes are effective January 1, 2018. In announcing the approach to enforcement, the CFPB acknowledged the significant systems and operational challenges faced by the industry in implementing the changes.
The CFPB also noted that any examinations of 2018 HMDA data will be diagnostic to help institutions identify compliance weaknesses, and indicated that it will credit good faith compliance efforts. This approach was expected by the industry, as it is consistent with the approach taken by the CFPB with the implementation of other significant mortgage rules. The FDIC and OCC also issued similar statements.
Significantly, the CFPB also announced that it intends to engage in a rulemaking to reconsider various aspects of the revised HMDA rules, such as the institutions that are subject to the rules, including the related transactional coverage tests and the discretionary data points that were added to the statutory data points by the CFPB. While the industry has pressed for a reconsideration of various requirements, and the Trump administration has signaled it was receptive to considering changes, this is the first public announcement by the CFPB that it will reconsider the revisions made to the HMDA rules.
Ballard Spahr is pleased to announce that Stacey L. Valerio, a regulatory attorney whose more than 20 years' experience include nearly a decade in-house at a state government banking agency, has joined the firm as of counsel in its Washington, D.C., office.
Ms. Valerio's experience with mortgage banking industry licensing and enforcement matters includes more than nine years in the Consumer Credit Division of the State of Connecticut Department of Banking. In that role, she counseled the Consumer Credit Division, served as an administrative hearing officer, and drafted legislation, legal opinions, and rulings. The position also involved working with other state and federal agencies, including the state Office of the Attorney General, the FBI, and the CFPB.
Ms. Valerio has experience counseling clients on a wide variety of regulatory matters at the federal and state levels. In addition to licensing and regulatory compliance, she has significant experience with legislative initiatives, contract drafting, and the Nationwide Multistate Licensing System & Registry (NMLS).
Ms. Valerio is a member of Ballard Spahr's Business and Finance Department and its Mortgage Banking and Consumer Financial Services Groups. Her addition provides further depth to the firm's already-robust mortgage banking practice in Washington, an important strategic location for Ballard Spahr's national consumer finance platform. Clients include major national bank and nonbank mortgage lenders, servicers, and investors.
Ballard Spahr Chair Mark Stewart joined a panel of executives to discuss diversity and inclusion at the opening session of the MBA's Summit on Diversity and Inclusion.
The face of our nation has evolved and the real estate finance industry is no exception. A diverse and inclusive workforce leads to growth in lending to expanding markets. MBA's Summit on Diversity and Inclusion brings together industry leaders for in-depth and productive discussions on this seminal topic.Read coverage of the event featuring remarks by Mark Stewart
The Reinstatement Period on NMLS started on January 1 and ends on February 28. For more information on reinstating licenses, review the requirements here.
Starting on February 1, 2018, the Alaska Department of Commerce, Community & Economic Development, Division of Banking & Securities will start accepting applications for the Money Transmitter License on NMLS. The checklist for the license will be available here shortly. Current licensees must submit a license transition request through NMLS by April 1, 2018.
In addition, the Department will start using the new Electronic Surety Bonds (ESB) through NMLS for the Money Transmitter License. More information on the ESB is available here.
The Michigan Department of Insurance and Financial Services will start using the NMLS Uniform Authorized Agent Reporting functionality to fulfill agent reporting requirements. By February 15, 2018, licensees must upload Michigan-located agents in NMLS.
Pennsylvania is adding a requirement that a Mortgage Servicer License is required to engage in the mortgage loan business as a mortgage servicer. As such, the definition of “mortgage loan business” has been amended to include the business of servicing mortgage loans. In addition, the definition of “mortgage servicer” has been added and defined as “[a] person who engages in the mortgage loan business by directly or indirectly servicing a mortgage loan.”
Exempt from licensure is a mortgage lender who acts as a mortgage servicer for mortgage loans the mortgage lender has originated, negotiated, and owns. A person who services less than four mortgage loans in a calendar year, unless determined to be engaged in the mortgage loan business by the department, is also exempt.
Additional mortgage servicer requirements related to the application for a license, net worth, fidelity bond coverage, qualified individuals, licensee fees, licensee requirements, and regulations have been added as well.
Effective immediately, the department must promulgate regulations to implement the new mortgage servicer requirements. The new requirements will take effect as determined by these regulations.
- Wendy T. Novotne
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