Mortgage Banking Update
In this issue:
- Kraninger Outlines Approach to CFPB Authority in Bipartisan Policy Center Remarks
- CFPB Issues 2018 Consumer Response Annual Report
- PLI 24th Annual Consumer Financial Services Institute, Chicago Session – 25% discount available
- This Week’s Podcast: A Close Look at The CFPB’s Mortgage Loan Servicing Exam Findings in Winter 2018 Supervisory Highlights
- New HUD Requirements for Down Payment Assistance Provided by Government Entities
- HUD Extends Effective Date of New Requirements for Down Payment Assistance Provided by Government Entities
- This Week’s Podcast: A Look at the FTC’s Proposed GLBA Rules
- CFPB to Provide More Specific Notifications of Purpose in Civil Investigative Demands
- CFPB to Hold Town Hall in Philadelphia
- Did You Know?
- Looking Ahead
In remarks recently at the Bipartisan Policy Center (BPC), CFPB Director Kathy Kraninger outlined how she plans to use the various “tools” available to the CFPB. While consistent with her recent testimony to House and Senate committees, her BPC remarks provide a more detailed view of the approach she plans to take in wielding the CFPB’s authority.
Director Kraninger began her remarks by indicating once again that the CFPB’s focus under her leadership will be on the prevention of harm to consumers. She then provided the following outline of how the CFPB would use its four “tools” (education, rulemaking, supervision, and enforcement) to prevent consumer harm:
- Education. The CFPB will pursue education initiatives intended to empower consumers to make financial decisions that best suit their individual needs. She noted as an example the CFPB’s savings initiative that is intended to help consumers increase their savings, particularly savings for emergency needs.
- Rulemaking. The CFPB will no longer engage in rulemaking through enforcement and will pursue rulemaking “deliberately and transparently” using the APA rulemaking process. She indicated that rulemaking would be used to provide “clear rules of the road” to regulated entities and that the Bureau “must acknowledge” that compliance costs impact consumer access to and the availability of credit.
- Supervision. CFPB examiners will look for a “culture of compliance” at supervised entities and seek to use examinations to “head off trouble.” Director Kraninger suggested that the CFPB would take a favorable view of companies that self-report and take corrective action to remedy consumer harm. She indicated that in her role as FFIEC Chairman, she would seek to strengthen coordination between federal and state regulators.
- Enforcement. The CFPB will engage in “careful and purposeful enforcement” where “bad actors” have violated clear rules or where the CFPB believes a public enforcement action is needed “to send a clear message” to deter wrongful behavior. Director Kraninger indicated that the CFPB will move expeditiously in deciding whether or not to pursue an enforcement action.
With regard to the CFPB’s highly anticipated debt collection proposed rule, Director Kraninger indicated that the proposal will be issued “in the coming weeks” and include limits on the number of calls collectors can make on a weekly basis, address communications by email and text, and require new disclosures at the beginning of the collection process.
She also announced that the CFPB will be launching a series of symposiums on topics related to the CFPB’s mission, with the first symposium to look at clarifying the meaning of “abusive acts or practices” in the Dodd-Frank Act. In its Fall 2018 rulemaking agenda, the CFPB announced that it was considering whether it should engage in rulemaking to clarify the meaning of “abusive.” Director Kraninger indicated that the symposium, which would include experts and stakeholders, would help to inform the CFPB’s decision on such rulemaking.
In response to questions from audience members, Director Kraninger indicated that:
- she agreed with former Acting Director Mulvaney’s philosophy that the CFPB should go no further than what its statutory authority expressly provides;
- while “there’s a place” for CFPB guidance, she would need to look carefully at what the Bureau could address through guidance and that rulemaking, rather than guidance, would be appropriate for something that the CFPB wanted “to hold institutions to;” and
- she is looking at staffing levels but has no goal of increasing or decreasing the number of CFPB staff members.
The CFPB has issued its Consumer Response Annual Report, which analyzes the approximately 329,800 complaints received by the CFPB between January 1 and December 31, 2018. The report details the trends in consumer complaints across various categories and provides information about the CFPB’s process for handling complaints.
Of the 329,800 complaints received in 2018, the CFPB sent approximately 80% of the complaints to companies for review and response, referred 14% to other regulatory agencies, and found 4% to be incomplete. At the end of the reporting period, approximately 0.4% of complaints were pending with the consumer, while 1% were pending with the CFPB.
Companies responded to the vast majority of complaints sent to them for review. Approximately 4% of such complaints were closed with monetary relief; 12% were closed with non-monetary relief (e.g., mortgage foreclosure alternatives, stopping unwanted calls from debt collectors, correcting information in a consumer report, etc.); 74% were closed with explanation (i.e., the response substantively meets the consumer’s desired resolution or explains why no action was taken); 3% resulted in an administrative response requiring further review by the CFPB; 5% are still being reviewed by the company; and, 2% did not receive a timely response.
According to the CFPB’s breakdown by category, complaints regarding credit reporting (126,300 or 38%), debt collection (81,500 or 25%), mortgages (30,100 or 9%), credit cards (28,700 or 9%), and checking or savings (25,900 or 8%) accounted for approximately 89% of the 329,800 total complaints. Servicemembers submitted complaints at similar rates as non-servicemembers. Older consumers, in contrast, complained less often about credit reporting, debt collection, and student loans and more often about mortgage, credit card, and checking and savings issues than consumers under 62 years old.
Several complaint categories saw considerable change from 2017. Complaints decreased from 2017 numbers in the categories of student loans (-48%), payday loans (-20%), personal loans (-19%), and mortgages (-19%). Complaints increased in 2018 most significantly for credit repair (+33%), money transfers/virtual currency (+31%), and credit reporting (+27%).
Notably, the CFPB recognizes that market information, such as product or service market size and company share, is often necessary to put the number of consumer complaints (including the number of complaints involving a specific company) into context. However, it “has not yet identified an approach to contextualize multiple products, services, and markets without imposing a significant burden on companies to provide data” and “continues to welcome suggestions and best practices about how to publish information about complaints.”
Since complaints continue to play a role in the Bureau’s use of its supervisory and enforcement authority, minimizing the number of consumer complaints submitted to the CFPB remains a key step to avoid ending up on the regulator’s radar.
The second presentation of PLI’s 24th Annual Consumer Financial Services Institute will take place in Chicago on May 20-21, 2019. The Institute is considered the country’s premier consumer financial services CLE program and this year’s Institute will once again explore in detail important developments in consumer financial services regulation and litigation. I am again co-chairing the event, as I have for the past 23 years. Approximately 400 people attended the first presentation in NYC, live and on the web, on March 25-26, 2019.
The leadership of the CFPB, OCC, FDIC, and FTC is now firmly under Republican control. While this has altered these agencies’ priorities, all continue to be very active in enforcing consumer financial laws and the CFPB’s supervisory activities remain substantially unchanged. At the same time, state attorneys general and regulators are increasing their regulatory and enforcement activity to fill any void created at the federal level. In addition, the improved economy, the deregulated federal environment, and the rapid increase in technological innovation has resulted in new entrants into the consumer financial services industry and the offering of new products and services by existing players.
I will co-moderate the morning sessions on the first day, which will feature two panel discussions focusing on federal regulatory, enforcement, and supervisory developments. The first panel will include discussion among CFPB and FTC representatives. The second panel will include discussion among OCC and FDIC representatives. I am very pleased that the Chicago program will feature the following attorneys from these agencies:
- Thomas Pahl, CFPB, Policy Associate Director, Division of Research, Markets & Regulations
- Allison Brown, CFPB, Deputy Assistant Director for Servicing, Office of Supervision
- Cara Petersen, CFPB, Principal Deputy Enforcement Director
- Leonard Chanin, FDIC, Deputy to the Chairman
- Ian Campbell, OCC, Counsel
My partner Chris Willis will participate in two panel discussions featured in the afternoon session of the first day. One of those panels is titled “Fair Credit Reporting Act/Debt Collection Issues” and will include a discussion of the CFPB’s debt collection rulemaking, FCRA litigation trends, and state activity. The other panel, which I will moderate, is titled “The Rapidly Evolving Landscape for FinTech” and will examine the intersection between new technologies and products and as well as existing regulatory frameworks, such as Big Data and the use of Artificial Intelligence (AI) and Blockchain (including virtual currency).
The Institute will also focus on a variety of other cutting-edge issues and developments, including:
- Privacy and data security issues
- TCPA developments
- Class action and litigation developments
- State regulatory and enforcement developments
- Consumer advocates’/plaintiff lawyers’ perspectives on current regulatory and litigation issues
We hope you can join us for this informative and valuable program. PLI has made a special 25 percent discounted registration fee available to those who register using the following priority code: RDH9 CHAIR. To register and view a complete description of PLI’s 24th Annual Consumer Financial Services Institute, click here.
For assistance with registration, contact PLI Customer Service at 800-260-4PLI.
Mortgage servicing continues to be a CFPB supervisory focus. In this week’s podcast, we take a close look at the CFPB’s findings involving late fees, PMI cancellation requests, handling of loss mitigation applications, and notices to successors of deceased reverse mortgage borrowers regarding foreclosure avoidance; share observations on what the findings indicate about the CPPB’s approach to these issues; and discuss the findings’ compliance implications.
Click here to listen to the podcast.
On April 18, 2019, the U.S. Department of Housing and Urban Development (HUD) issued Mortgagee Letter 2019-06 setting forth new documentation requirements for down payment assistance provided by government entities to be used in connection with Federal Housing Administration (FHA)-insured mortgage loans. Significantly, the new requirements are effective for case numbers assigned on or after April 18, 2019.
The new requirements apply when funds from a government entity will be used to pay a portion or all of the borrowers 3.5% minimum required investment (MRI) in the home purchase transaction. FHA mortgagees must document that the borrower’s MRI was provided by a government entity as either a gift or through secondary financing in a manner consistent with the National Housing Act and HUD Handbook 4000.1. Specifically, the new documentation requirements provide in part that mortgagees must obtain:
- For federal, state or local government agencies, a copy of documentation from a jurisdiction in which the property is located, which granted governmental authority to the entity;
- A legal opinion signed and dated within two years of closing of the transaction by attorneys for the governmental entity stating:
- the attorney has reviewed the governmental entity’s down payment assistance program; and
- the governmental entity is considered within the jurisdiction in which the property is located to be either a federal, state (as defined in Section 201(d) of the National Housing Act (12 U.S.C. §1707(d)), or local government or agency or instrumentality thereof, as provided in Section 528 of the National Housing Act (12 U.S.C §1735f-6), and 24 CFR 203.32(b) and further clarified in the Handbook 4000.1;
- the governmental entity is a federally recognized Indian Tribe operating on tribal land in which the property is located or to enrolled members of the tribe; or
- the governmental entity is a Federal Home Loan Bank;
- Evidence that the down payment assistance is being provided by the governmental entity by collecting either:
- a letter from the governmental entity, signed by an authorized government official, establishing that the funds provided towards the borrower’s MRI were provided in the governmental entity’s governmental capacity in the jurisdiction in which the property is located consistent with its down payment assistance program and that the provision of such funds is not contingent upon any future transfer of the insured mortgage to a specific entity, and a canceled check, evidence of wire transfer or other draw request showing that prior to or at the time of closing the governmental entity had authorized a draw of the funds provided towards the borrower’s MRI from the governmental entity’s account; or
- a letter from the governmental entity, signed by an authorized official, establishing that the funds provided towards the borrower’s MRI were funds legally belonging to the governmental entity and were provided in the governmental entity’s governmental capacity in the jurisdiction in which the property is located or for the federally recognized Indian Tribe’s enrolled member, consistent with its down payment assistance program, at or before closing. The letter must make clear that the provision of the down payment assistance is not contingent upon any future transfer of the insured mortgage.
The new requirements further specify that mortgagees must either document the actual transfer of funds in satisfaction of the obligation or liability by the governmental entity prior to the submission of the mortgage for insurance or obtain documentation of the satisfaction of the obligation or liability by the governmental entity after submission and maintain such documentation in the mortgagee’s files.
The immediate effective date of the new requirements will affect many transactions in progress, and in various cases may require a change of down payment assistance programs or other changes for the transaction to move forward. Government housing finance agencies and other government agencies that provide down payment assistance will need to assess the effect of the new requirements on their respective programs.
The new requirements will be incorporated into HUD Handbook 4000.1.
As previously reported, on April 18, 2019, the U.S. Department of Housing and Urban Development (HUD) issued Mortgagee Letter 2019-06 setting forth new documentation requirements for down payment assistance provided by government entities to be used in connection with Federal Housing Administration (FHA) loans. The requirements were effective for case numbers assigned on or after April 18, 2019. The immediate effective date affected many transactions already in process.
On April 25, 2019 HUD issued Mortgagee Letter 2019-07, which extends the effective date of the new requirements to July 23, 2019. The new requirements will apply to case numbers issued on and after such date. HUD advised it extended the effective date to allow time for governmental entities to prepare the documentation described in Mortgagee Letter 2019-06.
In this podcast, we explore the implications of the FTC’s proposed amendments to the GLBA Privacy Rule, which is limited to motor vehicle dealers, and the GLBA Safeguards Rule, which applies more broadly to all non-bank financial institutions subject to the FTC’s jurisdiction. We will take a closer look at the FTC’s shift away from a flexible approach to data security toward a more prescriptive approach mandating specific elements for information security programs. We will discuss the potential impact of this shift as well as opportunities for companies to influence the final rules.
Click here to listen to the podcast.
On April 23, 2019, the CFPB announced that it will provide more transparency to recipients of Civil Investigative Demands (“CIDs”) on what the investigation is about. The CFPB’s press release stated that “CIDs will provide more information about the potentially applicable provisions of law that may have been violated. CIDs will also typically specify the business activities subject to the Bureau’s authority.”
This change brings the CFPB’s CID policy more in line with what is required by the Consumer Financial Protection Act of 2010, which requires CFPB CIDs to “state the nature of the conduct constituting the alleged violation which is under investigation and the provision of law applicable to such violation.”
As the CFPB acknowledged in its press release, the updated policy also addresses at least two adverse rulings the CFPB received on the adequacy of its notifications of purpose as well as an Office of Inspector General finding that the CFPB needed to improve its notifications of purpose. The CFPB also noted that the policy comes, in part, as a result of responses it received to requests for information on the CFPB’s CIDs, to which Ballard Spahr submitted extensive comments.
In an interview with Law360, Ballard Spahr’s own Alan Kaplinsky reminded the industry that this move towards transparency is not an indication that the CFPB’s enforcement efforts are dormant. “While the number of investigations has declined, they are still happening and we are defending many new investigations brought by the CFPB under Mulvaney and Kraninger.”
The CFPB has announced that it will hold a Town Hall to take place in Philadelphia, Pennsylvania beginning at Noon on May 8, 2019. The event will feature remarks from Director Kraninger as well as comments from community groups, industry representatives, and members of the public.
Although the CFPB did not indicate the purpose of the Town Hall, I strongly believe that the CFPB will use the occasion to issue its Notice of Proposed Rulemaking (the “NPRM”) regarding third-party debt collection. This makes sense in light of Director Kraninger’s recent announcement at the Bipartisan Policy Institute that the NPRM will be released “in the coming weeks.” We will be closely covering the Town Hall and the issuance of the NPRM.
Georgia Amends Mortgage Broker Definition
Effective July 1, 2019, the definition of “mortgage broker” is revised to exclude certain retailer or retail brokers of a manufactured or mobile home or a residential industrialized building, as those terms are further defined.
Such exempt retailer or retail brokers are those:
- whose residential mortgage loan activities are limited to compiling and transmitting residential mortgage loan applications along with related supporting documentation to mortgage lenders who are licensed or exempt from licensing or communicating with residential mortgage loan applicants as necessary to obtain additional documents that complete the residential mortgage loan application to those licensed or exempt mortgage lenders; and
- who do not receive any payment or fee from any person for assisting the applicant to apply for or obtain financing to purchase the manufactured home, mobile home, or residential industrialized building.
Maryland Amends Mortgage Lender Law Effective October 1, 2019
Among other things, Maryland has amended its mortgage lender law as follows:
Tangible Net Worth required by activity
- Mortgage broker: $25,000
- Mortgage servicer operating as an approved servicer for a GSE: the largest amount required by the standards of the GSE
- Mortgage servicer not operating as an approved servicer for a GSE: 100,000 to $1 million, based on size of servicing portfolio.
- Mortgage lender: $25,000 to $250,000 based on loan volume in preceding 12 months.
Licensee change of place of business:
- Removes the requirement to file a new application upon failure to give timely notice of a change of place of business.
Licensee Record Retention:
- Increased from 25 months to 61 months.
Changes to Commissioner’s Licensee Examination Schedule:
- New licensees within 18 months after license issuance; and
- Each licensee shall be examined at least once during any 60-month period (changed from 36 months).
New Orleans, LA | May 5-8, 2019
Speaker: Meredith S. Dante
Speaker: Daniel JT McKenna
Speaker: Richard J. Andreano, Jr.
Speaker: John D. Socknat
Speaker: Reid F. Herlihy
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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.