Mortgage Banking Update - September 5, 2019
In this issue:
- Amanda Phillips Joins Mortgage Banking Group at Ballard Spahr
- An Exclusive Interview with Nicholas Smyth, Leader of the Pennsylvania Office of Attorney General’s Consumer Financial Protection Unit
- Podcast: Electronic Disclosures and Communications Under CFPB’s Proposed Debt Collection Rule
- Podcast: A Look at the FDIC’s First Consumer Compliance Supervisory Highlights
- CFPB’s First Remittance Transfer Rule Enforcement Action
- CSBS Launches Three Online Tools for the Financial Services Industry
- 2018 HMDA Data Released
- HUD Announces Updates to FHA Loss Mitigation Options in Disaster Areas
- Did You Know?
- Looking Ahead
Amanda Phillips, an attorney with more than a decade of experience as in-house counsel for a leading mortgage origination software platform and a national mortgage lender, has joined the Mortgage Banking Group at Ballard Spahr.
Mandy advises clients on a variety of federal and state regulatory requirements governing mortgage lending, including business processes and practices, software, and documentation. She helps clients establish scalable compliance policies, develops strategies to identify compliance risk, and leads internal compliance programs. Mandy also provides compliance guidance in product development, sales, contract negotiations, and implementation. Learn more about her in the press release here.
Pennsylvania has one of the most active Attorney General offices when it comes to bringing cases against financial companies. This is due to the office’s Consumer Financial Protection Unit, which was formed by Attorney General Josh Shapiro in 2017 because of the expectation that the CFPB would become less potent in protecting consumers. The Unit is led by Nicholas Smyth, a former CFPB enforcement lawyer.
Alan Kaplinsky, the Chair of our Consumer Financial Services Group, interviewed Mr. Smyth in a September 4 webinar. Chris Willis presented an industry perspective during the webinar.
In this podcast, we discuss in detail certain provisions of the CFPB’s Proposed Debt Collection Rule that create the possibility of a collector providing disclosures to consumers by means of electronic communications. Among other things, we detail the scope, requirements, and limitations related to such electronic communications, review the logistical challenges the Rule poses as to electronic communications, and compare and contrast these requirements to those of the ESIGN Act.
Click here to listen to the podcast.
In this podcast, we discuss the FDIC’s observations about its “most salient” consumer compliance exam findings during 2018, including issues relating to Overdraft Programs, Real Estate Settlement Procedures Act (RESPA) Section 8, Regulation E, “Skip-A-Payment” or Deferment Loan Programs, and Lines of Credit.
The CFPB recently announced a consent order with Maxitransfers Corporation, a remittance transfer provider that allows consumers to electronically transfer funds to people or companies in foreign countries. As the Bureau noted in its press release announcing the settlement, this is the Bureau’s first enforcement action based on violations of the Remittance Transfer Rule, 12 C.F.R. § 1005.30 et seq., which implements the Electronic Fund Transfer Act (EFTA), and went into effect on October 28, 2013.
Within the consent order, the Bureau alleges that Maxitransfers:
- Failed to maintain error-resolution policies and procedures. Section 1005.33(g)(1) of the Remittance Transfer Rule requires remittance-transfer providers to develop and maintain written policies and procedures that are designed to ensure compliance with the error-resolution requirements under the rule. Maxitransfers reportedly did not have any written policies and procedures addressing any Remittance Transfer Rule requirements between October 2013 and November 2016. In November 2016, the company “developed a ‘CFPB Policy’ that consisted of 1.5 pages of general Remittance Transfer Rule information copied directly from the Bureau’s website,” but which failed to meet the regulatory requirements because the document did not address what constitutes an “error” under the rule, what constitutes a notice of error from a consumer, what investigation is required, how investigation results should be provided to consumers, or the time limits for an investigation.
- Failed to properly report the results of error investigations and failed to notify consumers of their rights after an investigation of error. Sections 1005.33(c)(1) and (d)(1) of the Remittance Transfer Rule require remittance-transfer providers to promptly investigate a notice of error from a sender, to determine whether an error occurred within 90 days, to report the results to the sender including notice of any remedies available for correcting any identified error, and to follow certain procedures if the company determines that no error occurred or if a different error occurred than the error identified by the sender.
- Failed to use specified or substantially similar terms in its remittance disclosures. Maxitransfers reportedly did not use the terms “Transfer Amount” or “Total to Recipient,” or substantially similar terms in pre-payment disclosures as required by sections 1005.31(b)(1)(i) and (b)(1)(vii) of the Remittance Transfer Rule.
- Failed to treat its international bill-pay services as remittances. Such international bill-pay services can be remittance transfers covered by the EFTA and Remittance Transfer Rule, and Maxitransfers did not provide consumers with all of the required disclosures or protections.
- Made deceptive misrepresentations. Maxitransfers asserted within its “terms and conditions” that the company “is not responsible for errors made by banks or payment agents, or for any other reasons out of our control.” The Bureau noted this is deceptive because the EFTA and Remittance Transfer Rule specifically provide that remittance-transfer providers are responsible for errors (as defined by the Remittance Transfer Rule) by their agents.
The consent order directs Maxitransfers to (1) pay a civil money penalty of $500,000; (2) refrain from deceptive representations that it will not be responsible for errors made by its payment agents; and (3) improve its compliance management system to prevent future violations of the EFTA, the Remittance Transfer Rule, and the Consumer Financial Protection Act. Notably, the Bureau did not require Maxitransfers to provide any redress to consumers.
While it’s the first consent order alleging violations of the Remittance Transfer Rule, the Bureau published a Remittance Rule Assessment Report in October 2018, which we summarized here.
On August 21, 2019 the Conference of State Bank Supervisors (CSBS) launched three new online tools designed to help non-bank financial services companies navigate state regulations and protect against cyber security risks: a State Regulatory Guidance Portal, a State Survey Map of Money Transmission Laws, and Cybersecurity 101: A Resource Guide for Financial Sector Executives. Each of these initiatives provides valuable new resources for both banks and non-banks to stay apprised of changing state regulatory systems and technological advances that impact the financial services industry.
The first of these tools, the State Regulatory Guidance Portal, provides a vault of state regulatory guidance documents, including opinion letters, orders, advisory notices and FAQs that have been issued by various state regulatory entities. These documents are categorized by state, license, and topic, including virtual currency, correspondence to mortgage broker, lender and originator licensees, money transmission, mortgage underwriting and processing, third-party payment processing, mobile home lending, and mortgage servicing. The creation of this portal allows financial service industry regulators across the country to compile regulatory guidance in one centralized location, making it easier for both regulators and the industry to identify and maintain best practices in their businesses. State regulators are encouraged to provide copies of pertinent guidance documents they issue for inclusion in this repository. A link to the State Regulatory Guidance Portal is here.
The second tool is a virtual map of the United States that identifies which states do not require a money transmitter license for receiving a payment on behalf of a third party. Color-coding identifies which states’ money transmission laws include an agent of the payee exemption, and whether the exemption is available always, or case-by-case. A “yes” state is colored green, “case-by-case” states are colored blue, and the remaining states are colored gray. The map allows users to click on each state that provides for the exemption, which opens a new window that lists the source of the exemption, a link to the legislative reference for the exemption, a description of the standard to qualify for the exemption, and whether predetermination is required for the exemption. States continue to modify their money transmission licensing requirements as technology continues to expand the possibilities for money transfer. This map provides a catalogue to help the financial services industry navigate these changing laws. A link to the State Survey Map of Money Transmission Laws is here.
The third tool is a printable guide created to help executives and board members of financial institutions understand and prepare for cyber risks faced by their companies. The document is non-technical and provides a broad overview of the tools and resources available to help financial institutions identify the threats and vulnerabilities they face, and employ best practices to reduce cyber risk. A link to Cybersecurity 101: A Resource Guide for Financial Sector Executives is available here.
We applaud CSBS for making these valuable resources available to the public. They should be particularly helpful to non-bank FinTech start-up companies that are seeking an overview of potential licensing issues. However, they are not a substitute for doing thorough research and seeking advice from a consumer financial services lawyer.
The Federal Financial Institutions Examination Counsel (FFIEC) recently announced the release of 2018 Home Mortgage Disclosure Act (HMDA) data. Calendar year 2018 is the first year that financial institutions reported mortgage loan information based on the significantly expanded HMDA data categories.
In addition to the data, two articles were released. One article addresses the new and revised data points in the 2018 HMDA data, and provides initial observations about the nation’s mortgage market in 2018 based on the new or revised data points. The other article is the second in an annual series of CFPB data point articles describing mortgage market activity over time based on data reported under HMDA. The article summarizes the historical data points in the 2018 HMDA data, as well as recent trends in mortgage and housing markets.
As previously reported, the CFPB extended to October 15, 2019 the comment period for a proposal to modify the HMDA reporting thresholds for closed-end loans and open-end lines of credit, based on comments from stakeholders that they would like to provide comments on the proposal after reviewing the 2018 HMDA data. In agreeing to extend the comment deadline, the CFPB stated it “believes that it would be useful to have public comment on the 2018 HMDA Data in considering where to set the permanent coverage thresholds for closed-end mortgage loans and open-end lines of credit. For example, the new data may shed light on the number of institutions and percentage of market activity covered at different potential coverage thresholds and the value of the data that would not be reported if the thresholds were increased.”
The U.S. Department of Housing and Urban Development (HUD) recently issued Mortgagee Letter 2019-14 to announce updates to loss mitigation options for borrowers with Federal Housing Administration (FHA) insured loans if the borrower’s home or place of employment is located in a Presidentially-Declared Major Disaster Area. The policy updates apply to all FHA Title II forward mortgages.
Mortgagees may begin using the new procedures in the policy updates immediately but must implement the procedures no later than November 30, 2019. The policy updates will be incorporated into HUD Handbook 4000.1. HUD invites feedback on the policy updates for a period of 30 days from the Mortgagee Letter date, which is August 29, 2019.
CT Law Requires CT Attorney to Conduct Certain Mortgage Closings
Public Act No. 19-88 requires an attorney admitted in Connecticut in good standing to “conduct” a “real estate closing.” It takes effect October 1, 2019. The term “conduct” is not defined. A “real estate closing” includes a closing for a mortgage loan transaction, other than a home equity line of credit transaction or any other loan transaction that does not involve the issuance of a lender’s or a mortgagee’s policy of title insurance in connection with such transaction, to be secured by real property in Connecticut. “Real estate closings” also include closings for any transaction wherein consideration is paid by a party to such transaction to effectuate a change in the ownership of real property in Connecticut.
Violations of the law constitute a violation of subdivision 8 of subsection (a) of section 51-88 of the Connecticut General Statutes, subjecting an individual to criminal penalties set forth in section 51-88(b) of the Connecticut General Statutes for the unauthorized practice of law.
GLBA Safeguard Rule - FTC Proposed Amendments
RESPRO 2019 Fall Seminar | Charleston, S.C. | September 11-12, 2019
MBA’s Regulatory Compliance Conference 2019
Washington, D.C. | September 22-24, 2019
Speaker: Richard J. Andreano, Jr.
Speaker: Kim Phan
Speaker: Daniel JT McKenna
Speaker: Reid F. Herlihy
Speaker: Stacey L. Valerio
Speaker: John D. Socknat
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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.