Mortgage Banking Update
In This Issue:
- Ballard Spahr Launches National Tracking Services for Financial Institutions
- This Week’s Podcast: California’s New Consumer Financial Protection Law (CFPL): a Look at the California Department of Financial Protection and Innovation’s (DFPI’s) Implementation Plans
- Fannie Mae and Freddie Mac Extend COVID-19 Policies
- HUD Extends Effective Date for FHA Loan COVID-19 Guidance
- TCFPB Announces No Change in HPML Appraisal Exemption Threshold
- CFPB Updates HMDA Guide for 2021 Data
- CFPB Issues Report on Furnishing of Actual Payment Data to Consumer Reporting Agencies
- Ninth Circuit Hears Oral Argument in Seila Law on Remand From SCOTUS
- Did You Know?
- Looking Ahead
For the latest updates on the Coronavirus COVID-19 pandemic visit the Ballard Spahr COVID-19 Resource Center
For our financial services clients interested in monitoring important federal and state legal developments, Ballard Spahr has launched a comprehensive, national tracking service designed to serve the needs of specific segments of the consumer financial services industry.
Beginning January 2, 2021, Ballard will offer three new federal and state trackers. They are available as a package or individually, depending on your financial institution’s needs:
- Collections Tracker – providing expanded coverage of relevant federal and state legislative and regulatory developments impacting consumer collection activities; this will still include our current COVID-19-related coverage, but the tracker will be expanded to include new and evolving federal and state collection legislative and regulatory initiatives.
- Credit Reporting Tracker – covering applicable federal and state legislative and regulatory developments impacting credit reporting activities and requirements, as well as substantive developments in federal FCRA court decisions to assist in identifying and tracking emerging FCRA litigation trends relating to the CARES Act, specific furnishing activities, end user obligations, and the FCRA more broadly.
- Privacy and Data Security Tracker – covering relevant federal and state legislative and regulatory developments relating to the collection, use, disclosure, and protection of personal information.
Each week, tracker subscribers will receive a tailored electronic digest updating and highlighting noteworthy federal and state developments for financial institutions. These weekly digest updates will be supplemented by monthly roundtable calls with subscribers, during which a member of the Ballard team will discuss developments over the past month, provide analysis, identify evolving trends, and answer subscriber questions. These monthly calls will be specific to each tracker.
Subscribers also will be enrolled in an interactive, searchable, online database that enables subscribers to have 24-hour access to our information and analysis. Information will be displayed in a variety of formats, including through an interactive map of the United States through our Ballard 360 Client Connect platform, as well as through various search functions that will allow information to be sorted by topic, jurisdiction, date, and for the FCRA tracker, by federal court and counsel for plaintiffs.
In launching these new tracking services, our goal is to provide members of the consumer financial services industry with practical insights and guidance into these critical areas that will keep you apprised of the real-time legal developments you need to know in order to make informed and effective decisions.
Subscribers will have the option to subscribe to any individual tracker for a cost of $2,000/month. If you would like to subscribe to all three trackers, the total cost will be $5,000/month. Monthly subscription fees will bill at the beginning of the month, and subscribers can cancel any or all of their subscriptions at any time. Such cancellation will be effective as of the end of the month in which the subscription was cancelled.
We are joined by Bret Ladine, the DFPI’s General Counsel. We discuss the DFPI’s plans for adding new staff, promoting innovation through the new Financial Technology Innovation Office, providing guidance on CFPL exemptions, and handling complaints. Other topics include the DFPI’s approach to its new authority regarding UDAAPs (which covers small business financing), registration of covered persons, and civil penalties.
Click here to listen to the podcast.
Fannie Mae and Freddie Mac extended certain loan origination flexibilities due to COVID-19 from November 30, 2020, to December 31, 2020. The changes occurred November 13, 2020, through Fannie Mae updates to Lender Letter 2020-03 and Lender Letter 2020-04 and Freddie Mac’s Bulletin 2020-44.
The extension applies to loans with application dates on or before December 31, 2020. The flexibilities relate to alternative appraisals on purchase and rate and term refinance loans, alternative methods for documenting income and verifying employment before closing, and the expanded use of powers of attorney to assist with loan closings.
Additionally, Fannie Mae in an update to Lender Letter 2020-06 and Freddie Mac in Bulletin 2020-44 announced the extension of the purchase of eligible loans in a COVID-19 forbearance to those with note dates through December 31, 2020. They also updated the applicable delivery and settlement dates.
In Mortgagee Letter 2020-40, the U.S. Department of Housing and Urban Development (HUD) extended the effective date for certain guidance related to the COVID-19 national emergency from November 30, 2020, to December 31, 2020.
Specifically, the guidance regarding the verification of business operations for self-employed borrowers and the use of rental income for qualification purposes now applies to loans for which case numbers are assigned on or before December 31, 2020, and the guidance regarding rehabilitation escrow accounts in connection with 203(k) loans now applies to open escrow accounts through December 31, 2020.
In Mortgagee Letter 2020-39, HUD extended the guidance for the endorsement of mortgage loans when the borrower has been granted a COVID-19 forbearance to December 31, 2020.
The CFPB recently announced that it, along with the Comptroller of the Currency and Federal Reserve Board, issued a final rule that will maintain the current exemption threshold to the appraisal requirement for higher priced mortgage loans (HPML). The initial exemption threshold was $25,000, and the threshold is subject to annual adjustment based on changes in the Consumer Price Index for Urban Wage Earners and Clerical Workers. Currently transactions of $27,200 or less are exempt from the HPML appraisal requirement, and based on the final rule that dollar exemption threshold also will apply for calendar year 2021.
As previously reported, in August 2020 the CFPB released the Home Mortgage Disclosure Act (HMDA) Filing Instruction Guide (FIG) for data that must be collected in 2021 and reported in 2022. Recently, the CFPB released an update to the FIG. Edits Q656 and Q657 that were in Table 8: Macro Quality Edits for Loan/Application Register of the prior version of the FIG have been reclassified and moved to Table 7: Quality Edits for Loan/Application Register in the updated version of the FIG. A macro quality edit checks whether the submitted loan/application register as a whole conforms to expected values. A quality edit checks whether entries in the individual data fields or combinations of data fields conform to expected values.
The CFPB has issued a report titled “Payment Amount Furnishing & Consumer Reporting” that highlights changes since 2012 in the furnishing of actual payment data to consumer reporting agencies.
The report indicates that:
- Since 2012, the share of auto, student loan, and mortgage tradelines with actual payment data has generally trended upward. The share of mortgage tradelines with actual payment data increased from less than 70 percent in 2012 to 95 percent in 2020. By March 2020, student loan, mortgage, and auto loans contained actual payment information in more than 90 percent of tradelines.
- During the same period, the share of retail revolving and credit card loans with actual payment information significantly declined. While 95 percent of retail revolving tradelines contained actual payment data in 2015, the share declined to 71 percent in 2020. For credit cards, the share of credit card tradelines containing actual payment data declined from 88 percent in 2013 to 40 percent in 2020.
The report states that the decline in revolving and credit card tradelines with actual payment data may be attributable to concerns about poaching of consumers by other lenders. As the report notes, the unsecured revolving lending industry distinguishes between consumers who pay their balance in full each cycle and consumers who pay a portion of the balance in the current cycle and carry the remaining portion to be paid in future cycles. Since the industry markets services to these two groups differently, lenders may view the furnishing of actual payment data as creating a competitive disadvantage.
The report observes that reductions in available actual payment data could have implications for credit markets and consumers. For example, a lender’s analysis of such data has the potential to provide complementary value to a consumer’s most recent consumer report and enable a more informed assessment of risk. Also, limited access to such data could make it more difficult for lenders to market credit products and price credit for consumers.
The report notes the FCRA requirements concerning furnishing accurate information and for furnishers to establish and implement reasonable written policies and procedures regarding the accuracy and integrity of furnished information. While it does not directly suggest that the FCRA requires financial institutions that furnish to consumer reporting agencies to include actual payment data, the report could presage scrutiny by CFPB examiners of a financial institution’s practices regarding furnishing actual payment data.
It is believed that concerns about customer poaching also caused many credit card issuers not to furnish credit limit amounts. That ultimately led to a statement in the Interagency Guidelines Concerning the Accuracy and Integrity of Information Furnished to Consumer Reporting Agencies to the effect that furnishing information “with integrity” requires including the credit limit, if applicable and in the furnisher’s possession.
On remand from the U.S. Supreme Court, the U.S. Court of Appeals for the Ninth Circuit heard oral argument in Seila Law. The members of the three-judge panel were Judge Susan Graber and Judge Paul Watford from the Ninth Circuit and Judge Jack Zouhary from the U.S. District Court for the Northern District of Ohio. Judge Graber was appointed by President Clinton, Judge Watford was appointed by President Obama, and Judge Zouhary was appointed by President George W. Bush.
After ruling that the CFPB’s structure was unconstitutional because its Director could only be removed by the President “for cause,” the Supreme Court remanded the case to the Ninth Circuit to consider the CFPB’s argument that former Acting Director Mulvaney’s ratification of the CID issued to Seila Law cured any constitutional deficiency. Because it had ruled that the CFPB’s leadership structure was constitutional, the Ninth Circuit had not previously considered the CFPB’s ratification argument. Following the Supreme Court’s decision, the CFPB filed a declaration with the Ninth Circuit in which Director Kraninger stated that she had ratified the Bureau’s decisions to: issue the CID to Seila Law, deny Seila Law’s request to modify or set aside the CID, and file a petition in federal district court to enforce the CID.
On remand, Seila Law argued that the appropriate remedy is for the Ninth Circuit to reverse the district court and deny the CFPB’s petition to enforce the CID. Seila Law urged the Ninth Circuit to conclude that because of its structural constitutional defect, the CFPB lacked the authority to issue and enforce the CID, its actions in doing so were void, and the ratifications of the CID by former Acting Director Mulvaney and Director Kraninger were invalid. Relying on U.S. Supreme Court precedent, Seila Law argued that for a valid ratification to occur, the party ratifying must be able to do the act ratified both at the time the act was done and at the time of ratification. According to Seila Law, the CFPB could not satisfy either requirement because, as principal, the CFPB did not have the authority to issue the CID at the time it was issued and as a result, ratification was unavailable to its agent, the CFPB Director. Seila Law also asserted that the CID was invalid because the applicable three-year statute of limitations for bringing an enforcement action against Seila Law for the alleged violations to which the CID relates had expired by the date of Director Kraninger’s ratification.
Seila Law’s arguments encountered considerable skepticism from all three panel members. With regard to Seila Law’s argument that denying enforcement of the CID was necessary to provide it with meaningful relief, Judge Graber observed that a constitutional violation will not entitle a defendant to reversal of a criminal conviction where no harm or prejudice is found to have resulted from the violation.
With regard to Seila Law’s argument that there could not be a valid ratification of the CID, the questions asked by both Judge Watford and Judge Zouhary suggested that they were not persuaded that the cited Supreme Court precedent necessarily supported Seila Law. Judge Zouhary commented that the Supreme Court had implicitly rejected Seila Law’s argument, citing to the following language in Chief Justice Robert’s opinion: “If [Seila Law] is correct [that the removal provision cannot be severed], and the offending removal provision means that the agency is unconstitutional and powerless to act, then a remand would be pointless.”
With regard to Seila Law’s argument that the three-year SOL for bringing an enforcement action barred the CFPB from ratifying the CID, Judges Graber and Watford both pressed Seila Law’s to explain the SOL’s relevancy in the context of a petition to enforce a CID and why it would make the CID invalid. Seila Law’s counsel asserted that because the potential violations sought to be investigated through the CID related to Seila Law’s involvement with Morgan Drexen in 2015 and earlier, an enforcement action based on that activity would have been time-barred as of the date the CID was ratified. The judges highlighted the investigatory purpose of CIDs and suggested that the CID might reveal other violations as to which the CFPB could still bring an enforcement action.
The CFPB’s counsel did not face as rigorous questioning as did Seila Law’s counsel. In countering Seila Law’s argument that the CFPB did not have the authority to issue the CID due to the constitutional violation, the CFPB’s counsel highlighted language in Chief Justice Robert’s opinion stating that “[t]he provisions of the Dodd-Frank Act bearing on the CFPB’s structure and duties remain fully operative without the offending tenure restriction.” According to the CFPB’s counsel, because the CFPB, as principal, had the authority to conduct investigations at the time the CID was issued despite the constitutional violation and Director Kraninger was removable at will by the President when she ratified the CID, the CID was validly ratified and remains enforceable.
In responding to Seila Law’s SOL argument, the CFPB’s counsel contended that the SOL had no application outside of an enforcement action, the CFPB had not alleged any specific violations by Seila Law, and it would be premature to adjudicate the application of the SOL. He asserted that even if the CFPB could not bring an enforcement action now for Seila Law’s 2015 conduct, it would still be entitled to gather information about Seila Law’s conduct going back to that time, which might shed light on subsequent developments and still could be relevant to the CFPB’s investigation.
The CFPB’s counsel also argued that the Ninth Circuit should follow its decision in CFPB v. Gordon that involved former Director Cordray’s ratification of the CFPB’s enforcement action against Gordon. Director Cordray ratified the action after his recess appointment was called into question by the U.S. Supreme Court’s Canning decision and he was reappointed and confirmed by the Senate. In that case, the Ninth Circuit ruled that the enforcement action was validly ratified by Director Cordray. Seila Law’s counsel argued that Gordon was not controlling because it did not involve a “structural” constitutional violation and instead only involved the authority of an agent to act on behalf of the principal.
In response, the CFPB’s counsel asserted that Seila Law’s emphasis on the “structural” nature of the violation in Gordon was merely a label and missed that the Supreme Court’s problem with the removal provision was that it put the Director outside the President’s ability to supervise. According to the CFPB’s counsel, both Seila Law and Gordon called into question the authority of an agent who first authorized a CFPB action because of an Article II problem—insufficient accountability to the President in Seila Law and an improper appointment in Gordon. As a result, both constitutional defects could be cured through ratification of the challenged action by a Director not subject to the original Article II problem.
Given the strong headwinds faced by Seila Law’s counsel during the oral argument, we would be surprised if Seila Law prevails in its efforts to invalidate the CID.
NMLS Annual Renewal Licensing Deadline Coming Soon
The 2021 Nationwide Multistate Licensing System (NMLS) annual renewal period began on November 1, 2020, and ends December 31, 2020. Individuals and businesses are encouraged to renew their licenses early to ensure that there is no impact to their business in 2021. Note that states may have a renewal deadline other than December 31. For complete renewal information, the Annual Renewal webpage on the NMLS Resource Center is available here. The webpage includes a chart that provides information on renewal deadlines, requirements, and fees; it is also available here.
Webinar | December 8, 2020
Moderator: John D. Socknat
Online Only | January 12-13, 2021
Speaker: Richard J. Andreano, Jr.
Copyright © 2020 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.