Legal Alert

Mortgage Banking Update - November 7, 2019

November 7, 2019
In this issue:


Inside the Beltway: Impeachment Inquiry Fuels Gridlock

The prospect of the U.S. Congress acting on housing reform this year remains unlikely. The House Democrats’ determination to formalize the impeachment inquiry into President Trump’s involvement with Ukraine and begin public hearings has further fueled a partisan divide in Congress. It threatens to foreclose any legislative action other than “must pass” items for the remainder of this Congress.

Notwithstanding the chaos around impeachment, there has been some activity around housing reform, including the House Financial Services Committee hearing on October 22, “The End of Affordable Housing? A Review of the Trump Administration’s Plans to Change Housing Finance in America.” Secretary Steven Mnuchin, Secretary Ben Carson, and Director Mark Calabria all testified. The timeline and conditions the GSEs would have to meet to end conservatorship as well as how much capital the GSEs will need were topics of the hearing. In Chairwoman Waters’ opening statement, she said the Trump Administration’s proposal to end the conservatorship of the GSEs without an explicit government guarantee would “create turmoil in the housing market, prevent many Americans from obtaining 30-year fixed rate mortgages, and block families across the country from attaining the American dream.”

The decisions on capital and conditions around exiting conservatorship are at the core of reform, and finding bipartisan solutions will be a challenge going forward. As we noted earlier, the U.S. Treasury Department and the Federal Housing Finance Agency (FHFA) have reached an agreement to modify the Preferred Stock Purchase Agreements allowing Fannie Mae and Freddie Mac to retain $25 billion and $20 billion, respectively, in capital reserves. This is an important first step for GSEs to begin the process of exiting conservatorship. At the hearing, Director Calabria also noted that a decision is imminent on whether FHFA will reissue a capital rule that had been proposed in June 2018 outlining a framework for capital requirements for the GSEs once they have exited conservatorship.

In addition to the House Financial Services Committee hearing, the FHFA released its 2019 Strategic Plan for Fannie Mae and Freddie Mac and a new 2020 Scorecard for Fannie Mae, Freddie Mac and Common Securitization Solutions on October 28, 2019. The strategic plan outlines the steps that FHFA, as conservator of the GSEs, intends to take to strengthen the housing finance system and prepare for bringing conservatorship of the GSEs to an end. Similarly, the scorecard “aligns tactical priorities and execution at the Enterprises to the Strategic Plan and serves as an essential tool in holding the Enterprises accountable for its effective implementation.”

With limited legislative days left in the year, we expect the impeachment inquiry to remain at the forefront of the congressional agenda and for issues such as GSE reform to be pushed to the backburner. We will continue to track and report on updates related to housing reform as they occur.

- Sherry Harper Widicus and Timothy Jenkins

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Podcast: Website Accessibility: What Are the Risks and How to Address Them?

In this podcast, we discuss the obligation of businesses to make websites accessible to persons with disabilities under federal and state law; enforcement, private litigation, and other risks of non-compliance; strategies used by advocacy groups and plaintiffs’ firms to assert claims; litigation trends, including the targeting of mobile apps and video/audio website content; and the use of privileged reviews and other best practices to reduce the risk of litigation in an increasingly litigious climate or limit exposure when defending a lawsuit.

Presented by Alan S. Kaplinsky, Christopher J. Willis, and Olabisi Ladeji Okubadejo

Click here to listen to the podcast.

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CFPB Publishes Blog on LIBOR Elimination

The CFPB recently published a blog post to advise consumers that LIBOR is expected to be eliminated sometime after 2021 and that the change would affect some adjustable-rate loans and lines of credit.

In 2017, the United Kingdom’s Financial Conduct Authority (the regulator that oversees the LIBOR panel) announced that it would discontinue the index. As we reported, earlier this year the Federal Reserve Bank of New York began publishing a new index named the Secured Overnight Financing Rate (SOFR). The CFPB’s blog post indicates that the working group convened by the Federal Reserve Board to address the transition from LIBOR has recommended the use of SOFR to take the place of LIBOR.

Creditors currently using LIBOR are advised to consult with counsel as to how best to proceed in replacing LIBOR in their agreements.

- John L. Culhane, Jr.

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SCOTUS Sets Briefing Schedule in Seila Law

The U.S. Supreme Court has set a briefing schedule in Seila Law, in which the questions before the Court are whether the CFPB’s structure is constitutional, and if it is not, whether the Court can sever the provision in the Dodd-Frank Act that only allows the President to remove the CFPB Director “for cause.”

Seila Law and the CFPB filed a joint motion to extend the time for filing merits briefs and suggested a briefing schedule that “would enable this case to be heard during the Court’s February 2020 sitting.” The Supreme Court granted the motion and accepted the suggested schedule.

The joint appendix, Seila Law’s brief on the merits, and the CFPB’s brief on the merits must be filed by December 9, 2019. Paul D. Clement, who was appointed amicus curiae by the Supreme Court to defend the U.S. Court of Appeals for the Ninth Circuit’s judgment, must file his brief on the merits by January 15, 2020. Court rules allow 30 days for the filing of reply briefs.

Other amicus curiae briefs, on both or either question before the court, must be filed within 7 days after the party supported files its merits brief.

A decision from the Supreme Court is expected by the end of its term in June 2020.

- Barbara S. Mishkin

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SCOTUS Decision in Seila Law Holding CFPB Structure Unconstitutional Would Not Impact OCC or HUD

The constitutional question that the U.S. Supreme Court has agreed to decide in Seila Law is whether the CFPB’s single-director-removable-only-for-cause structure violates separation of powers. A ruling by the Supreme Court that separation of powers requires the President to be able to remove the CFPB Director without cause would not impact either the OCC or the U.S. Department of Housing and Urban Development (HUD).

The National Bank Act contains no “for cause” limit on the President’s ability to remove the Comptroller of the Currency. 12 U.S.C. § 2 provides:

The Comptroller of the Currency shall be appointed by the President, by and with the advice and consent of the Senate, and shall hold his office for a term of five years unless sooner removed by the President, upon reasons to be communicated by him to the Senate.

The Department of Housing and Urban Development Act, which created HUD, does not address the President’s authority to remove HUD’s Secretary. 42 U.S.C. § 3532 provides only that:

There shall be at the head of the Department a Secretary of Housing and Urban Development…who shall be appointed by the President by and with the advice and consent of the Senate.

Because HUD’s Secretary is a member of the President’s Cabinet, however, it appears the Secretary can be removed by the President without cause. In its en banc decision holding that the CFPB’s structure is constitutional, the D.C. Circuit stated:

Our decision to sustain the challenged for-cause provision cannot reasonably be taken to invite Congress to make all federal agencies (or various combinations thereof) independent of the President. The President’s plenary authority over his cabinet and most executive agencies is obvious and remains untouched by our decision.

- Alan S. Kaplinsky

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Fifth Circuit Sets Dec. 4 Oral Argument Date in All American Check Cashing

All American Check Cashing’s interlocutory appeal from the district court’s ruling upholding the CFPB’s constitutionality has been calendared for oral argument before a U.S. Court of Appeals for the Fifth Circuit panel on December 4, 2019. Since the case was previously argued in March 2019, it is unclear why a second oral argument has been scheduled. Last month, the parties were directed to submit letter briefs regarding what action the panel should take in light of the en banc Fifth Circuit’s decision in Collins v. Mnuchin that held the FHFA’s structure is unconstitutional.

Rather than wait for a decision from the Fifth Circuit, All American filed a Petition for a Writ of Certiorari Before Judgment with the U.S. Supreme Court. All American argued in its petition that its case was a better vehicle for deciding the question of the CFPB’s constitutionality than Seila Law. It made the alternative argument that the Supreme Court should grant its petition as a companion case to Seila Law in the event it granted Seila Law’s petition. The CFPB has not yet responded to All American’s petition. In my view, the Supreme Court is likely to either deny All American’s petition (based on the fact that the Fifth Circuit has not yet had an opportunity to review the case) or grant certiorari and hold All American pending the outcome in Seila Law.

- Alan S. Kaplinsky

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Fifth Circuit Clarifies Scope of Dec. 4 Oral Argument in All American Check Cashing

With the Fifth Circuit having already heard oral argument in March 2019 in All American Check Cashing’s interlocutory appeal from the district court’s ruling upholding the CFPB’s constitutionality, it is not surprising that All American and the CFPB submitted a joint letter to the court requesting “clarification regarding the scope of the issues to be addressed at the December 4 oral argument.”

Last month, after the en banc Fifth Circuit ruled in Collins v. Mnuchin that the FHFA’s structure is unconstitutional, the parties were directed to submit letter briefs regarding what action the Fifth Circuit panel should take in All American in light of Collins. In their letter seeking clarification, the parties asked whether the oral argument would be limited to the issues addressed in their letter briefs regarding the impact of Collins or whether the panel was also interested in addressing the merits of the constitutionality of the CFPB’s structure.

In response to the parties’ letter, the Fifth Circuit has issued a directive that states:

The court is allowing 30 minutes per side so that all of the issues still remaining in light of (1) Collins v. Mnuchin (en banc) and (2) the CFPB’s change of position can be addressed. Although the court has ready access to the oral arguments presented in March 2019, the attorneys should argue their entire case without reliance on the March presentation (but mindful that no issue that has been briefed or is jurisdictional is waived). The attorneys should assume that the grant of certiorari in Seila Law has no effect on the scope of the matters to be presented on December 4, although either side is free to recommend that this case be postponed awaiting a decision in Seila Law.

As we reported, the CFPB has asked the U.S. Court of Appeals for the Second Circuit to adjourn the oral argument in RD Legal that is currently scheduled for November 21, 2019, until the Supreme Court decides Seila Law. (RD Legal has opposed that request.) The Fifth Circuit’s directive appears to indicate that the panel intends to hold the December 4 oral argument despite the grant of certiorari in Seila Law but would entertain a request to postpone its ruling pending a decision in Seila Law. (As we also reported, the Ninth Circuit has entered an order withdrawing the submission of CashCall’s appeal from the district court judgment in favor of the CFPB and staying all further proceedings until the Supreme Court’s decision in Seila Law.)

In the joint letter requesting clarification, All American noted that it has filed a Petition for a Writ of Certiorari Before Judgment with the U.S. Supreme Court. Presumably, regardless of whether it decides to postpone its ruling pending a decision in Seila Law, the Fifth Circuit will wait to see if the Supreme Court grants All American’s Petition for a Writ of Certiorari Before Judgment before taking any further action.

- Alan S. Kaplinsky

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Ballard Spahr Launches Ballard360 Insider

We are pleased to share with our readers that Ballard Spahr has launched a new blog, Ballard360 Insider.

The firm’s new blog explores trends and best practices in legal operations and innovation. It provides timely, practical insights, keeping pace with the latest developments, challenges, and opportunities in technology, matter management, strategic pricing, and client value.

Contributors to Ballard360 Insider are legal, technology, and business professionals who work in the trenches day in and day out in direct collaboration with clients. They appreciate the important issues facing in-house counsel during this period of rapid evolution. The blog is a place for our legal operations professionals to examine what works—and what doesn’t.

Ballard360 Insider will explain and explore the latest about topics such as:

  • Artificial Intelligence
  • Design Thinking
  • Legal Project Management
  • Legal Practice Technology
  • Strategic Pricing.

The blog is a new initiative of the firm’s Client Value and Innovation Program which strives to provide the highest value through collaboration with clients and other business partners to drive innovation in the delivery of legal services and client relationship management. Click here to access Ballard360 Insider and subscribe.

- Barbara S. Mishkin

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House Financial Services Subcommittee on Oversight and Investigations Held Oct. 29 Hearing on LGBTQ+ Discrimination in Lending and Housing

The Subcommittee on Oversight and Investigations of the House Committee on Financial Services held a hearing, “Financial Services and the LGBTQ+ Community: A Review of Discrimination in Lending and Housing,” on October 29. The memo from the Committee’s Majority Staff to Committee Members stated that the hearing “will focus on the extent and effects of discrimination against persons who identify as lesbian, gay, bisexual, transgender or queer (“LGBTQ+”) when seeking housing or credit in the United States.”

We previously blogged about an en banc Second Circuit decision now before the U.S. Supreme Court that held the prohibition on employment discrimination on the basis of sex in Title VII of the Civil Rights Act includes discrimination based on sexual orientation. As we observed, the decision could have implications for whether the ECOA’s prohibition against credit-related discrimination on the basis of “sex” also includes discrimination based on sexual orientation.

The hearing was webcast live.

- Alan S. Kaplinsky

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Ballard Spahr Partner Stefanie Jackman Appointed to the Consumer Relations Consortium’s New Legal Advisory Board

Ballard Spahr Partner Stefanie Jackman, who leads the firm’s Debt Collection Team, has been appointed to the new Legal Advisory Board (LAB) that the Consumer Relation Consortium (CRC) is launching in 2020. The LAB is an exclusive group of not more than 10 outside counsel with expertise in the accounts receivable industry who have each pledged their time and resources to support the CRC’s mission.

The CRC is an organization comprised of more than 60 national companies representing the diverse ecosystem of debt collection, including creditors, data/technology providers, and compliance-oriented debt collectors that are larger market participants. Established in 2013, CRC brings together a wide range of stakeholders—including consumer advocates, federal and state regulators, academic and industry thought leaders, creditors, and debt collectors—to work on the development of ways to improve the consumer experience. The LAB will serve as a legal resource to the CRC’s members and assist in fulfilling the CRC’s mission of promoting forward-thinking approaches to the issues raised by regulatory policy and technology innovation in the accounts receivable industry.

- Barbara S. Mishkin

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SEC Seeks Input on Asset-Level Disclosure Requirements for RMBS

Securities and Exchange Commission Chairman Jay Clayton issued a public statement October 30, 2019, seeking market input on the asset-level disclosure requirements for U.S. Securities and Exchange Commission (SEC)–registered residential mortgage-backed securities (RMBS) offerings. This SEC public statement is in response to the recent housing reform plan issued by the U.S. Department of the Treasury that specifically recommended the SEC review the RMBS asset-level disclosure requirements to assess the number of required reporting fields and to clarify the defined terms for SEC-registered private label securitization issuances. The asset-level disclosure obligations that occurred as part of the 2014 revisions to the rules and amendments under the Securities Act and the Exchange Act adopted in 2004 were in direct response to the financial crisis and apply specifically to registered asset-backed securities (ABS) offerings of certain asset classes, including RMBS.

The SEC appears concerned that the asset-level disclosure obligations imposed on the issuer at the time of issuance and ongoing disclosure obligations—specifically the 270 data points required for each asset (i.e., each mortgage)—may be a contributing factor to the massive decline in SEC-registered RMBS offerings. For purposes of comparison, any RMBS offerings by Fannie Mae and Freddie Mac have approximately 100 data points for each mortgage. Of note, since the SEC issued the 2014 revisions, there has not been a single SEC-registered RMBS offering. By comparison, over the same time period, Fannie Mae and Freddie Mac have issued an aggregate of approximately $4.47 trillion in RMBS.

Clearly, a number of factors have contributed to the decline in SEC-registered RMBS offerings, and it appears that the SEC wants to make sure that the 2014 revisions to the ABS regulations are not the primary reason, or what may be deemed a significant contributing factor. The questions for consideration posed by the SEC and detailed below focus on “The State of the RMBS Market,” general questions surrounding “The RMBS Asset-Level Disclosure Requirements,” existing requirements, and privacy considerations of the 2-digit zip code.

The State of the RMBS Market

  • Considering the state of the post-crisis RMBS market, and the housing market more generally, why have there been no SEC-registered RMBS offerings since 2013?
  • To what extent, if any, are the asset-level disclosure requirements adopted in 2014 a contributing factor to the lack of SEC-registered RMBS issuances?
  • To what extent have other factors contributed to the absence of any SEC-registered RMBS offerings? These factors include the dominance of Freddie Mac, Fannie Mae, Ginnie Mae, and other governmental entities and government-sponsored enterprises in the residential mortgage securitization market, the risk retention requirements, and/or other filing requirements for registration.

The RMBS Asset-Level Disclosure Requirements

  • Have circumstances in the RMBS market changed since both the lead-up to the 2008 financial crisis and the adoption of the rule revisions in 2014? If so, how?
  • In light of any such changes in the market, should the asset-level disclosure requirements adopted in 2014 be reconsidered?
  • Should the asset-level disclosure requirements be conformed to the practices of private-label RMBS issuers offering securities in the Rule 144A exempt markets?
  • Recognizing that there are differences in the structure of the securities being offered and the nature of the markets, how should the SEC consider the asset-level disclosures provided in RMBS offerings by Fannie Mae and Freddie Mac?
  • Are there other standards that should be considered as benchmarks for RMBS asset-level disclosure requirements? If so, which ones and why? For example, should one or more asset-level data points be revised to better align with MISMO standards? If so, how should they be revised and why?

Request for Feedback on Existing Requirements

  • Should one or more data points be revised? If so, which specific data points should be revised and why?
  • Should any data points be eliminated? If so, why? Does the SEC’s rationale for adopting certain data points articulated in the 2014 Adopting Release remain valid in today’s market? Should the revision or elimination of certain data points be time related? For example, should the SEC identify a set of data points that could be eliminated or subject to a “provide-or-explain” process after the asset has been outstanding for more than one year, is performing, and has not been non-performing since origination?
  • Would the elimination of any of the data points be reasonably expected to adversely affect investors’ ability to analyze the quality and performance of the underlying assets? If so, which specific data points should be retained and why?
  • Are there any specific data points that are unclear or confusing? If so, how should they be revised? Is there any interpretive guidance that the SEC or staff could provide to help clarify these issues?
  • Are the responses to these questions different for the data provided in initial filings at the time of the offering versus the data provided in ongoing filings (i.e., at the time of filing each Form 10-D)?

Available Asset-Level Data and Individual Privacy Concerns

One of the data points the SEC rules require is the 2-digit zip code for the mortgaged property. The SEC adopted the 2-digit zip code requirement in an attempt to give investors the ability to assess specific market risk while respecting the prohibition on disclosure of Non-Public Personal Information.

  • Are issuers foregoing SEC-registered RMBS offerings because they are unable to provide more granular zip code information to investors due to privacy concerns that such information would be made publicly available on the Electronic Data Gathering, Analysis, and Retrieval (EDGAR) database?
  • What level of geographic information do investors believe is necessary to perform adequate risk and return analysis on the underlying assets and the securities offered? What level of geographic information do investors receive in unregistered transactions? Is this level of information sufficient to ensure that investors receive all asset level information that would reasonably be expected to affect an investment decision in the securities offered?
  • Are there alternative ways to present this information that would minimize re-identification risk yet still satisfy investors’ needs, such as using other geographic indicators or providing aggregated data or ranges? If so, how should the data be aggregated? And why would those groupings or ranges be appropriate?

To facilitate the SEC’s assessment, an online form and email box are now available for the public to provide input on these issues.

Our Mortgage Banking Group looks forward to working with our clients to provide meaningful feedback that may assist the SEC in assessing the potential for any enhancements to the 2014 revisions to the rules and amendments under the Securities Act and the Exchange Act adopted in 2004.

- John V. Levonick

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Did You Know?

NMLS Renewal Underway and Renewal Changes for Nevada Licensees

The NMLS renewal period for licensees began last week on November 1 and continues through December 31. For Nevada licensees, according to an update from the Nevada Division of Mortgage Lending, Mortgage Agents should renew using the instructions on the NMLS for a mortgage loan originator, and Nevada Mortgage Banker and/or Mortgage Broker licensees should renew as a mortgage company in order to comply with the 2017 amendments to the licensing statutes which become effective on January 1, 2020.

- Aileen Ng

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Looking Ahead

MBA’s Accounting & Financial Management Conference

San Diego, CA | November 19–21, 2019

Loan Originator Compensation


Financial Management and Accounting – Unplugged Session 1

Speaker: Richard J. Andreano, Jr.


California MBA’s Legal Issues and Regulatory Compliance Conference

Newport Beach, CA | December 2–3, 2019

Hot Topics in Labor Law and LO Comp

Speaker: Richard J. Andreano, Jr.

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Copyright © 2019 by Ballard Spahr LLP.
(No claim to original U.S. government material.)

All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, including electronic, mechanical, photocopying, recording, or otherwise, without prior written permission of the author and publisher.

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.

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