Special Edition Compliance Newsletter, January 2013

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New Final Rules from the Consumer Financial Protection Bureau

In the past three weeks the Consumer Financial Protection Bureau (CFPB) have issued eight new, final rules, most having effective dates in 2014, there are a few requirements with a 2013 effective date. This special edition of the Compliance Newsletter provides a brief summary of each. The list is expansive, with wide ranging impacts:

1)       CFPB Procedural Rule on Publishing Final Rules and Authority

2)       HMDA (Regulation C) – Increase in Asset-Size Institutional Exemption Threshold

3)       TILA (Regulation Z) – Ability to Repay and Qualified Mortgage Standards

4)       TILA (Regulation Z) – Escrow Requirements

5)       TILA (Regulation Z) and RESPA (Regulation X) – High-Cost Mortgage and Homeownership Counseling Amendments

6)       TILA (Regulation Z) – Appraisals for Higher-Risk Mortgages

7)       TILA (Regulation Z) Loan Originator Compensation Requirements

8)       RESPA (Regulation X) and TILA (Regulation Z) 2013 Mortgage Servicing Final Rules

9)       ECOA (Regulation B) – Disclosure and Delivery Requirements for Copies of Appraisals and Other Written Valuations

Number 1: CFPB Procedural Rule on Publishing Final Rules and Authority
The CFPB has adopted a procedural rule that affirms its commitment to using modern technology to facilitate the Bureau’s performance of its functions, through the manner in which the Bureau regularly posts final rules on its Web site. The CFPB will post a final rule on its Website and on the same day submit the document to the Office of the Federal Register for publishing. After a period of time that depends on the length of the document and other factors, the Office of the Federal Register will then make the document available for public inspection and then publish it in the Federal Register. The Bureau does not believe that delaying issuance until the rule is published in the Federal Register is necessary or in the public interest. Accordingly, this rule provides that when a final rule, including interim final rules, are posted on the Bureau’s Web site before it is published in the Federal Register, the posting on the Web site shall constitute the official issuance of the rule, effective on December 28, 2012.
The CFPB issued a final rule adjusting the asset-size exemption threshold for banks, savings associations, and credit unions under Regulation C, which implements the Home Mortgage Disclosure Act (HMDA). Based on the adjustments announced on 12/28/12, the asset-size exemption for banks, savings associations, and credit unions will increase to $42 million. HMDA and Regulation C require most mortgage lenders located in metropolitan areas to collect and report data about applications for, and originations and purchases of, home loans and refinance transactions, which the CFPB reviews to identify potential discriminatory lending patterns and to evaluate, if and to the extent of which, financial institutions are serving the housing needs of their respective communities. Effective immediately, banks, savings associations, and credit unions with assets of $42 million or less as of December 31, 2012, are exempt from collecting HMDA data in 2013. As a result, these institutions with assets of $42 million or less as of December 31, 2012, are exempt from collecting HMDA data in 2013. PLEASE NOTE: This exemption from collecting data in 2013 does not affect an exempt institution’s responsibility to report the data that it was previously required to collect in 2012.
Number 3: TILA (Regulation Z) – Ability to Repay and Qualified Mortgage Standards
This final rule amends Regulation Z by implementing sections 1411 and 1412 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act), which generally require creditors to make a reasonable, good faith determination of a consumer’s ability to repay any consumer credit transaction secured by a dwelling (excluding an open-end credit plan, timeshare plan, reverse mortgage, or temporary loan) and establishes certain protections from liability under this requirement for “qualified mortgages.” The final rule also implements section 1414 of the Dodd-Frank Act, which limits prepayment penalties. Finally, the final rule requires creditors to retain evidence of compliance with the rule for three years after a covered loan is consummated.
This rule is effective January 10, 2014.
Number 4: TILA (Regulation Z) – Escrow Requirements
This final rule amends the current Regulation Z requirement that creditors establish escrow accounts for higher-priced mortgage loans secured by a first lien on a principal dwelling, by lengthening the time for which a mandatory escrow account established for a higher-priced mortgage loan must be maintained. The rule also exempts certain transactions from the statute’s escrow requirement. The primary exemption applies to mortgage transactions extended by creditors that operate predominantly in rural or underserved areas, originate a limited number of first-lien covered transactions, have assets below a certain threshold, and do not maintain escrow accounts on mortgage obligations they currently service.
This rule is effective June 1, 2013.
Number 5: TILA (Regulation Z) and RESPA (Regulation X) – High-Cost Mortgage and Homeownership Counseling Amendments
This final rule amends Regulation Z by expanding the types of mortgage loans that are subject to the protections of the Home Ownership and Equity Protections Act of 1994 (HOEPA), revising and expanding the tests for coverage under HOEPA by extending to purchase money, Home Equity Lines (Closed-end), and Home Equity Loans (Open-end) and Home Equity Lines of Credit (Open-end), while exempting Reverse Mortgages, Construction Loans (initial construction of a dwelling), loans originated and financed by Housing Finance Agencies, and loans originated through the United States Department of Agriculture’s (USDA) Rural Housing Service section 502 Direct Loan Program. This amendment also imposes additional restrictions on mortgages that are covered by HOEPA, including a pre-loan counseling requirement and certain other requirements related to homeownership counseling, including a requirement that consumers receive information about homeownership counseling providers.
This rule is effective January 10, 2014.
Number 6: TILA (Regulation Z) – Appraisals for Higher-Risk Mortgages
This final rule amends Regulation Z, as a joint effort between the CFPB, FRB, FDIC, FHFA, NCUA, and OCC. The revisions to Regulation Z implement a new provision requiring appraisals for “higher-risk mortgages”, specifically, mortgages with an annual percentage rate that exceeds the average prime offer rate (APOR) by a specified percentage, the final rule requires creditors to obtain an appraisal or appraisals meeting certain specified standards, provide applicants with a notification regarding the use of the appraisals, and give applicants a copy of the written appraisals used.
This rule is effecive January 18, 2014.
Number 7: TILA (Regulation Z) – Loan Originator Compensation Requirements
This final rule amends Regulation Z to implement requirements and restrictions concerning loan originator compensation; qualifications of, and registration or licensing of loan originators; compliance procedures for depository institutions; mandatory arbitration; and the financing of single-premium credit insurance. The final rule revises or provides additional commentary on restrictions on loan originator compensation, including application of these restrictions to prohibitions on dual compensation and compensation based on a term of a transaction or a proxy for a term of a transaction, and to recordkeeping requirements. The final rule also establishes tests for when loan originators can be compensated through certain profits-based compensation arrangements.
The amendments to the mandatory arbitration agreements [§ 1026.36(h)] and financing of certain single-premium credit insurance products [§ 1026.36(i)] are effective on June 1, 2013. All other provisions of the rule are effective on January 10, 2014.
Number 8: RESPA (Regulation X) and TILA (Regulation Z) 2013 Mortgage Servicing Final Rules
The CFPB has amended Regulation X (added official commentary), and amended Regulation Z (amended the commentary).These rules are effective January 10, 2014.
The Regulation X final rule creates obligations on a servicer to:
1)   correct errors asserted by mortgage loan borrowers;
2)   provide protections to such borrowers in connection with force-placed insurance;
3)   servicers’ obligations provide certain information requested by such borrowers;
4)   establish reasonable policies and procedures to achieve certain delineated objectives;
5)   educate delinquent borrowers about mortgage loss mitigation options;
6)   establish policies and procedures for providing delinquent borrowers with continuity of contact with servicer personnel capable of performing certain functions; and,
7)   evaluate borrowers’ applications for available loss mitigation options.
The Regulation Z final rule addresses:
1)   initial rate adjustment notices for adjustable-rate mortgages;
2)   periodic statements for residential mortgage loans;
3)   prompt crediting of mortgage payments;
4)   responses to requests for payoff amounts; and,
5)   the scope, timing, content, and format of disclosures to consumers regarding the interest rate adjustments of their variable-rate transactions
This final rule amends § 1002.14 of Regulation B to provide for the following in connection with applications for credit to be secured by a first lien on a dwelling:
a)   Require creditors to notify applicants within three business days of receiving an application of their right to receive a copy of appraisals developed.
b)   Require creditors to provide applicants a copy of each appraisal and other written valuation promptly upon its completion or three business days before consummation (for closed-end credit) or account opening (for open-end credit), whichever is earlier.
c)    Permit applicants to waive the timing requirement for providing these copies. However, applicants who waive the timing requirement must be given a copy of all appraisals and other written valuations at or prior to consummation or account opening, or, if the transaction is not consummated or the account is not opened, no later than 30 days after the creditor determines the transaction will not be consummated or the account will not be opened.
d)   Prohibit creditors from charging for the copy of appraisals and other written valuations, but permit creditors to charge applicants reasonable fees for the cost of the appraisals or other written valuations unless applicable law provides otherwise.
This final rule becomes effective on January 18, 2014 and applies to mortgage transactions to be secured by a first lien on a dwelling for which the creditor receives an application on or after January 18, 2014.
Compliance has never been more critical than in today’s dynamic lending environment. This blog’s pledge is to keep you informed, and to engineer compliant solutions.
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CFPB Mortgage Policy Field Hearing, January 10, 2013

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I was in attendance at the CFPB Mortgage Policy Baltimore Field Hearing on January 10, 2013.  CFPB Director Richard Cordray presented the QM to the industry, “[o]ur goal with the Ability-to-Repay rule is to make sure that people who work hard to buy their own home can be assured of not only greater consumer protections but also reasonable access to credit so they can get a sustainable mortgage”.   With the opening commentary elected officials Sen. Ben Cardin (D-MD), Congressman Elijah Cummings (D-MD 7th) and City of Baltimore Mayor Stephanie Rawlings-Blake, each official embraced the role of the CFPB and the beneficial impact upon their individual and collective constituency.  Next was the panel with a painfully orchestrated Q&A with:

CFPB Representatives: Director Cordray and Deputy Director Date;

Industry Representatives:  David Moskowitz, Deputy General Counsel, Wells Fargo & Company; Karen Thomas, Senior Executive Vice President of Government Relations and Public Policy, Independent Community Bankers of America (ICBA); and Susan Wachter, Professor of Real Estate & Finance The Wharton School, University of Pennsylvania;

Consumer Advocacy/Academic:  Michael Calhoun, President, Center for Responsible Lending; Alys Cohen, Staff Attorney, National Consumer Law Center; Lisa Rice, Vice President, National Fair Housing Alliance.

Following the panel, testimony was given by local consumer groups and members of the public, that focused not on the QM specifically, but addressed individual concerns surrounding the affordability of mortgages following the QM, the veracity of the CFPB Compliant Center, individual plight as a result of Adjustable Rate Mortgage products, and  generally insuring underserved markets have the necessary access to credit to purchase the homes in the neighborhoods that were negatively impacted by the mortgage financial crisis.   An especially poignant perspective was offered by Marceline White, Executive Director of the Maryland Consumer Rights Coalition. http://www.c-spanvideo.org/clip/4315236

What was taken away from the Policy Meeting is that the QM is firmly believed to be a solid foundation that the mortgage lending industry looks to build upon to reignite banks confidence in their ability to lend, ultimately starting with the notion of creating a uniform understanding of “ability to repay” is a fair start.  The industry attendees obtained no real additional clarification or better understanding from the hearing that was mostly a verbatim read of the prior days pre-released prepared remarks, and the comments of the local consumer groups and members of the public clearly identified the gap between the release of the QM and the need for underserved markets to obtain access to the credit necessary to take back their homes and neighborhoods that have been decimated by the financial crisis. There was relief in finally seeing the elements to the QM, as it was clear that the months of anticipation of this rule had permitted those firmly against regulation of the financial markets, to create a crippling level of fear through speculation, effectively holding back any organic easing of the credit markets during this period.

The additional Final Regulations, beyond that of the QM,  that have been published since 1/10/13, and prior to their January 21, 2013 regulation deadline, are the servicing requirements, loan originator compensation, appraisal-related requirements, escrow requirements for higher-priced mortgage loans, and new provisions for high-cost (HOEPA) loans… of which I will address in the very near future.

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December 2012 – Compliance Newsletter

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CFPB

CFPB and FTC Issue Warning and Investigations Triggered by False Mortgage Advertisements

November 19, 2012 The CFPB and Federal Trade Commission (FTC) have issued approximately thirty-six warning letters to entities in the mortgage lending industry placing them on notice that they must comply with the 2011 Mortgage Acts and Practices-Advertising Rule (Regulation N) and other applicable law.  The CFPB indicated that warning letters to about a dozen mortgage lenders and brokers were sent, and has begun formal investigations of six companies whose violations may be more serious.  The FTC indicated that it sent warning letters to twenty business entities, including Home Builders, Real Estate Agents, and lead generation companies, and the FTC has given notice that it also has opened its own investigations.

Examples of the types of problems the CFPB and FTC identified in the alleged deceptive ads included:

  • Advertisements making potentially misleading statements concerning the costs of reverse mortgages.
  • Advertisements containing statements, images, symbols, and abbreviations suggesting that an advertiser is affiliated with a government agency.
  • Advertisements offering a very low “fixed” mortgage rate, without discussing significant loan terms.
  • Advertisements “guaranteeing” approval and offering very low monthly payments, without discussing significant conditions on these offers.

CFPB Example Warning Letter for Reverse Lenders allegedly targeting Older Americans:  HERE.

CFPB Example Warning Letter for those who allegedly targeting Veterans and Service members:  HERE.

Finale Rule Delaying Disclosure Implementation

November 16, 2012 The CFPB issued a final rule announcing an extension of the 1/21/13 deadline to provide certain new, albeit minor, disclosure enhancements required under the Dodd-Frank Wall Street Reform and Consumer Protection Act.   This act of kindness is illusory, as the changes to the existing disclosures would have been a de minimis effort by Document Vendors, and had very little if any impact on the mortgage origination process and workflow.

The Dodd-Frank Act required that the CFPB integrate certain disclosures from the Truth in Lending Act (TILA) and the Real Estate Settlement Procedures Act (RESPA). For decades, TILA and RESPA have required lenders and settlement agents to give borrowers different, but overlapping disclosure forms in connection with applying for and closing most mortgages loans. This duplication has long been recognized as inefficient and confusing for consumers and the industry. In July, the CFPB proposed new Loan Estimate and Closing Disclosure forms after months of qualitative testing and the Bureau’s Know Before You Owe mortgage initiative.

In addition to requiring the new TILA-RESPA disclosures (Loan Estimate and Closing Disclosure) that the CFPB had developed through its Know Before You Owe initiative, the Dodd-Frank Act also requires the additional minor enhancements to the existing mortgage disclosures which would have taken effect on 1/21/13. These new requirements include disclosures on cancellation of escrow accounts, on a consumers’ liability for debt payment after foreclosure, and on the creditor’s policy for accepting partial payment. As a result of this extension granted by the CFPB, these new requirements were integrated into the Bureau’s proposed Loan Estimate and Closing Disclosure forms that were released in July 2012, and in their subsequent iterations.

Through a final rule issued on 11/16/2012, the Bureau is effectively allowing more time to provide the new disclosures by giving a temporary exemption from the requirements, so that the entire TILA-RESPA disclosure integration regime can go into effect at once. Existing disclosures would not be required to be enhanced to meet this 1/21/13 deadline, and also bear the burden of dealing with new disclosures once the TILA-RESPA revamp occurs, still with a final rule pending the effective date remains TBD.  Don’t be surprised by the potential of gift in the form of a final Regulation from the CFPB around the holidays regarding the TILA-RESPA disclosure revamp.

Establishes Dollar Amount Threshold for HOEPA for 2013

November 21, 2012 The Bureau of Consumer Financial Protection (CFPB) published a final rule amending the official interpretations for Regulation Z (Truth in Lending). The Bureau is required to adjust annually the dollar amount that triggers requirements for certain home mortgage loans bearing fees above a certain amount. The Home Ownership and Equity Protection Act of 1994 (HOEPA) sets forth rules for home-secured loans in which the total points and fees payable by the consumer at or before loan consummation exceed the greater of $400 or 8 percent of the total loan amount. In keeping with the statute, the Bureau has adjusted the $400 amount based on the annual percentage change reflected in the Consumer Price Index as reported on June 1, 2012. The adjusted dollar amount for 2013 is $625.

Supervisory Highlights Fall 2012, Appeals Policy for Supervised Entities, and the Updated CFPB Supervision and Examination Manual (v2).

August 31, 2012 The CFPB released its first Supervisory Highlights Report, Fall 2012, highlighting problems CFPB examiners discovered through the agency’s supervision process. The Bureau has also released an appeals policy for supervised institutions as well as an updated version of the CFPB Supervision and Examination Manual, a field guide used by examiners.

With regard to Mortgage Lending, the Supervisory Highlights specifically addressed the CFPB found violations of federal consumer financial law by financial institutions. These violations include failure to provide borrowers with clear and timely disclosures regarding the nature and costs of the real estate settlement process, such as through inaccurate Good Faith Estimates or HUD-1 forms. Violations also included failure to provide accurate disclosures of interest rates, payment amounts, and payment schedules.

The CFPB also released its appeals policy for supervised entities. Financial service providers under the CFPB’s jurisdiction may request a review of a less than satisfactory compliance rating or any underlying adverse finding set forth in the relevant examination report, or adverse findings conveyed in a supervisory letter. Appeals will be handled by a committee that includes management at CFPB headquarters in Washington, D.C. and representatives of regional offices that were not involved in the matter under review.

Finally, The CFPB published the second version of the CFPB Supervision and Examination Manual. The updated manual incorporates procedures released for such markets as mortgage origination and servicing, payday lending, consumer reporting, and consumer debt collection. The manual has also been revised to reflect the renumbering republication in the Code of Federal Regulations of those regulations that fall under the Bureau’s rulemaking authority, among other updates

Credit Unions

NCUA Issues Final Rule Regarding Technical Amendments to Regulations

November 29, 2012 The National Credit Union Administration (NCUA) is making a number of technical amendments to NCUA’s regulations to conform them to the changes required by the Dodd-Frank Act and based on NCUA’s rolling, three-year regulatory review. This rule is effective on November 29, 2012.

NCUA Releases New National Supervision Policy Manual

November 2, 2012 The NCUA released a public version of its new National Supervision Policy Manual, which describes the agency’s internal operations and procedures for supervisory staff. Certain sensitive portions of the Manual remain confidential. The release completes a two-year process to create uniform national procedures for NCUA’s supervisory staff that are expected to improve examination consistency. National Credit Union Administration National Supervision Policy Manual (2012)

HUD/FHA

FHA Extends Waiver Period for Property Flipping

November 29, 2012 The Federal Housing Administration (FHA) is extending the waiver of its regulation that prohibits the use of FHA financing to purchase single family properties that are being resold within 90 days of the previous acquisition, until December 31, 2014. This extension is effective from January 1, 2013 through December 31, 2014.

Federal Register  – Vol. 77, No. 230

Revised Requirements for Project Capital Needs Assessments, Estimated Reserves for Replacements and Remedies for Accessibility Deficiencies

November 21, 2012 Mortgagee letter 2012-25 clarifies portions of Risk Mitigation guidance (Mortgagee Letter 2010-21 and Housing Notice 2010-11) concerning Project Capital Needs Assessment (PCNA) reports and requirements for sizing initial and annual contributions to Reserves for Replacements. Appendix 5G of the MAP Guide2 is modified to implement risk mitigation measures and to align PCNA guidance for the multifamily insurance programs. A single scope of work is defined for PCNA reports for all applications under Sections 223(a)(7) and 223(f), for 10 year PCNA updates and for other Office of Multifamily Housing uses of PCNA reports. Accessibility requirements are clarified and re-emphasized.

The purpose of this Mortgagee Letter (ML) is to clarify that HUD deems Section 115 entities to be “instrumentalities of government” for the purpose of providing secondary financing under single family FHA programs.  Entities providing proof of Section 115 status, as described below, need not meet the instrumentality of government test otherwise required by ML 1994- 02, and need not be included on HUD’s Nonprofit Organization Roster, as  originally provided in ML 2009-38, which was later superseded by ML 2011- 38.

This ML supersedes guidance on Section 115 entities stated in ML 2011-38, except for the waiver of the voluntary board requirements as described in the ML, which waiver remains in place.

Secondary Financing Eligibility Requirements for Internal Revenue Code (IRC) Section 115 Entities

November 21, 2012 Mortgagee letter 2012-24 clarifies that HUD deems Section 115 entities to be “instrumentalities of government” for the purpose of providing secondary financing under single family FHA programs. Entities providing proof of Section 115 status, as described below, need not meet the instrumentality of government test otherwise required by ML 1994-02, and need not be included on HUD’s Nonprofit Organization Roster, as originally provided in ML 2009-38, which was later superseded by ML 2011-38.

Guidance for FHA-Approved Mortgagees Originating and Servicing Mortgages in Presidentially-Declared Major Disaster Areas 

November 16, 2012 MORTGAGEE LETTER 2012-23

Revisions to FHA’s Loss Mitigation Home Retention Options

November 16, 2012 Mortgagee letter 2012-22 details the specific changes to FHA’s existing Loss Mitigation options including the following:

  • Eliminating the FHA-HAMP maximum Back End Debt-to-Income Ratio requirement of 55 percent;
  • Eliminating the 12-month restriction on the amount of principal, interest, taxes and insurance (PITI) that may be included in an FHA-HAMP Partial Claim;
  • Eliminating the FHA-HAMP eligibility requirement that the FHA-insured mortgage be no more than 12 full payments past due;
  • Streamlining FHA’s Loss Mitigation Home Retention Option priority order by replacing its current 4-tier incentive structure with a 3-tier incentive  structure, consisting of Special Forbearances, Loan Modifications, and FHA-HAMP;
  • Redefining “Special Forbearance” to apply only in cases where the mortgagors are unemployed;
  • Permitting mortgagors to receive a Loan Modification or FHA-HAMP only once in a 24-month period;
  • Expanding FHA-HAMP so that it now consists of a stand-alone Modification, stand-alone Partial Claim, or a combination of a Loan Modification and Partial Claim;
  • Permitting those mortgagors who were initially unsuccessful in completing Trial Payment Plans to re-apply for standard loan modifications or FHA-HAMP if their financial circumstances have changed since their initial application for assistance; and
  • Defining “surplus income percentage” as surplus income divided by net income (i.e., net take-home income).

Fannie Mae Updates

Disaster Policy and Updates to DU Refi Plus™ and Refi Plus™ Property Policies

November 1, 2012 When disasters occur, Fannie Mae typically issues a lender letter with temporary guidance to lenders about how to proceed with mortgage loans secured by properties located in areas impacted by the disaster that the lenders intend to sell to Fannie Mae. With this Announcement, Fannie Mae is establishing permanent selling policy pertaining to mortgages impacted by a disaster, such as Hurricane Sandy.

Fannie Mae is also updating certain existing policies that pertain to DU Refi Plus and Refi Plus property fieldwork requirements, including the requirements that pertain to disasters.  As a result of these changes, a lender is not required to determine if an additional inspection or updated appraisal is needed for any DU Refi Plus or Refi Plus transaction. In addition, Fannie Mae is removing the option for lenders to use the original appraisal for Refi Plus transactions.

SELLING GUIDE 2012-12

Confirmation of Conventional Loan Limits for 2013

November 29, 2012 Lender Letter 2012-11 is the publication of Fannie Mae’s loan limits for 2013 for all conventional mortgage loans.  The Federal Housing Finance Agency (FHFA) has issued the maximum loan limits that will apply to conventional loans to be acquired by Fannie Mae in 2013. All loan limits for 2013 remain unchanged from 2012. The first mortgage loan limits are defined in terms of general loan limits and high-cost area loan limits.

Freddie Mac Updates

Standard Deed-in-Lieu of Foreclosure

November 15, 2012 Bulletin 2012-27 announces the Freddie Mac Standard Deed-in-Lieu of Foreclosure (SDLF), for evaluations conducted on or after March 1, 2013, the SDLF is part of the Servicing Alignment Initiative (SAI) developed under the direction of the Federal Housing Finance Agency, and is designed to serve as a workout option for Borrowers for whom neither a home retention alternative to foreclosure nor a Freddie Mac Standard Short Sale is a workable solution. The SDLF provides Servicers delegated authority to approve a deed-in-lieu of foreclosure (DIL) in accordance with the requirements of Guide Chapter B65, Workout Options. In addition, it revises the non-delegated DIL workout option in Chapter B65. This Bulletin also addresses increasing the Servicer incentive for completing a deed-in-lieu of foreclosure and revising requirements for foreclosure sale postponement.

Servicing Requirements Related to Properties Affected by Hurricane Sandy and Other Disaster-Related Requirements

November 13, 2012 Bulletin 2012-26 implements temporary requirements to enable Servicers to provide greater levels of assistance to Borrowers impacted by Hurricane Sandy by providing more flexible short-term forbearance requirements for Borrowers whose Mortgaged Premises or place of employment is located in an eligible Disaster Area.  An eligible Disaster Area, for purposes of this Bulletin, is an area comprised of counties or municipalities that have been declared by the President of the United States to be Major Disaster Areas where federal aid in the form of individual assistance is being made available. These areas are published by the Federal Emergency Management Agency (FEMA) on its web site at http://www.fema.gov/disasters

Servicer Selection, Retention and Management of Law Firms

November 9, 2012 Bulletin 2012-25 announces new requirements with respect to the management of law firms for bankruptcies and default-related legal matters, which include foreclosures, loss mitigation (e.g., deed-in-lieu of foreclosure) and related litigation involving Freddie Mac-owned or guaranteed Mortgages (“Freddie Mac Default Legal Matters”). These requirements are being initiated jointly with Fannie Mae at the direction of our regulator, the Federal Housing Finance Agency (FHFA).

Effective 6/1/13, all new referrals for Freddie Mac Default Legal Matters must be sent to law firms  that Servicers have selected and engaged under the requirements in new Guide Chapter 69, Selection, Retention and Management of Law Firms for Freddie Mac Default Legal Matters. Servicers may no longer send foreclosure referrals directly to trustees.

Requirements Related to Properties Affected by Disasters

November 2, 2012 Bulletin  2012-24 details how as a result of Hurricane Sandy, Freddie Mac announced revisions to the selling requirements, which included revised property valuation requirements for Freddie Mac Relief Refinance Mortgages secured by properties that were damaged as a result of a disaster and revised age of documentation requirements for Mortgages secured by properties affected by Hurricane Sandy.

Forward Lending

Pennsylvania Enacts Package of Bills to Modernize Banking Law

October 24, 2012 Pennsylvania enacted three bills that make numerous substantive and technical changes to upgrade and modernize the state’s banking code, each have an effect date of December 23, 2012.

HB 2368 updates commercial, mortgage, and consumer lending provisions of the code by, among other things, removing conflicting and outdated lending provisions, and reflecting current lending interest rates and fees. This bill also (i) adds provisions required by the Dodd-Frank Act with regard to lending limits that require state financial regulators to consider credit exposure to derivative transactions, (ii) increases penalties for unlawful lending and trust activities to a felony and a $10,000 to $500,000 fine, and (iii) removes the current two-person cap on the number of individuals who can be beneficiaries of deposit accounts.

HB 2369 provides for greater public disclosure and enforcement by the Department of Banking, and clarifies the Department’s examination authority over bank subsidiaries. It also allows the Department to assess civil money penalties against individuals and institutions for conduct that causes the institution to suffer substantial financial loss, is willful, flagrant or evidences bad faith, involves an insider who benefits in a substantial way, or does not comply with previous supervisory actions involving violations. The bill allows the Department to publicly disclose enforcement actions against depository institutions and their employees, and expands the Department’s authority to remove officers and employees from bank management and boards whenever such individuals violate any law or Department order. HB 2369 also requires any state or local government agency that proposes civil enforcement of a law or ordinance against a bank to consult with and receive approval from the Department prior to enforcement.

HB 2370 repeals certain sections of the state’s general usury law that duplicate TILA’s variable rate mortgage loan disclosures. It also adds savings banks to the list of institutions subject to maximum interest rate provisions and clarifies that the maximum rate is the rate authorized by federal or state law.

 

Vermont – Clarification of Declared Rate for 9 V.S.A. §104 (High Rate Loans) and Reg. B-98-2 (High Rate, High Point Notices for Residential Real Estate Loans)

November 1, 2012 The Vermont Department of Financial Regulation issued BANKING BULLETIN  #38 clarifying the declared rate for purposes relative to high rate, high point loans. The declared rate for 2013 is 3.6% (reduced from 4.8% in 2012). This declared rate is applicable for 2013.

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Residential Mortgage Lending – Fall 2012 Supervisory Highlights

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Residential Mortgage Lending – Fall 2012 Supervisory Highlights

On October 31st, in support of its policy of transparency to inform the public of its supervisory goals, work, and accomplishments, the Bureau of Consumer Financial Protection (CFPB) released a report detailing issues that CFPB examiners have discovered through the agency’s supervision process. Under the Dodd-Frank Act, the CFPB has the authority to supervise bank and nonbank financial institutions to determine whether they are complying with federal consumer financial law, to assess supervised institutions’ compliance systems, and to detect and assess risks to consumers. As you might suspect, through an assessment of mortgage lending institutions’ efforts to develop and maintain effective compliance management systems, the CFPB has found clear violations relating to mortgage lending practices.

Under RESPA (Regulation X) and TILA (Regulation Z), lenders must provide consumers with clear and timely disclosures regarding the nature and costs of the real estate settlement process. The CFPB’s Fall 2012 Supervisory Highlights point directly to difficulties Lenders have meeting these obligations, citing three specific areas of non-compliance, the first of which is the accurate disclosure of payments to loan originators.  Payments based on the terms or conditions of the loan other than the amount of credit extended are strictly prohibited. While that much is clear, significant misunderstanding remains on how to manage the controls necessary to ensure these obligations are met. Failure to accurately meet the GFE and HUD-1 disclosure obligations lead to instances requiring re-disclosure and potential reimbursement, costly exercises that tax not only Lenders’ reputations, but also their bottom lines.

The second area of non-compliance cited in Highlights is the ability to control the proper disclosure of fees to Consumers, highlighted by a recent example we were presented with as it pertains to the timely disclosure of mortgage insurance premiums when appraisals return at a value lower than anticipated.  The problem arises where the resulting loan-to-value ratio suddenly exceeds 80%, triggering the strict re-disclosure obligations prompted by the timing of the receipt of the appraisal, leading to very short windows to re-disclose, potentially resulting in a situation where the mortgage lender has to determine a proper cure. This is a very time-sensitive process that can easily create a circumstance where, if not managed and controlled properly, the Lender may be obligated to cover the cost of the mortgage insurance premium or present a cure to reduce the LTV ratio.

The third main area noted by the CFPB is the projection of title insurance and settlement and escrow fees, arguably one of the most difficult and onerous RESPA requirements.  Accurately projecting these fees is challenging for all lenders, especially those lending nationwide, because state, county and municipal tax and recording fees change often, at times without notice, even during the origination period of a loan.  The combined fear of overlooking a specific service necessary to fulfill a lender’s collateral requirements such as pest or septic inspections, let alone guessing the costs for services and considering how these fees may be different by state and region, while attempting to only work with reputable service provider presents a considerable challenge.  Couple this GFE fee and timing accuracy obligation with the additional obligation of “oversight” all vendors within your already overwhelming vendor management program, and it is clear that manual processes and controls leave too much room for institutional risk.

During examinations, the CFPB has noted instances of significant non-compliance with these statutes. Violations under RESPA have included failures to make proper and complete disclosures to consumers of costs and other terms of a transaction due to inadequate or improper completion of the Good Faith Estimate and the HUD-1 settlement statement. – CFPB Supervisory Highlights: Fall 2012

Based upon the CFPB’s acknowledgment of Lenders inability to meet RESPA and TILA obligations with regard to the issuance of GFE’s and content of HUD-1, Lenders have been provided notice that the CFPB, and as a likely result, all regulatory bodies that have oversight authority, shall be looking at not only the loan’s originated by a Lender for compliance, but to the Lender’s policies, procedures, and ability to monitor and control these obligations through locked down processes.

The CFPB will periodically issue Supervisory Highlights, through which it will apprise the public and the financial services industry about its examination program, including particular information that it finds relevant as garnered during the course of its Supervisory program.  We will continue to closely monitor Highlights, and based upon the results, will work diligently with customers to establish the requisite processes, controls, and risk protections to ensure that the loans originated meet the strict Federal requirements, but the Institution also meet strict policy and practice expectations as determined by the CFPB.

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April 2012 – Compliance Newsletter

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CFPB

CFPB Bulletin 2012-02:  Guidance on Loan Originator Compensation.

4/2/12 –  The CFPB has issued Bulletin 2012-02, in response to questions it has received from loan originators and their firms seeking to comply with compensation rules issued under Regulation Z. The Bulletin states that employers of loan originators may make contributions to employees’ qualified profit sharing, 401(k), and stock ownership plans (qualified plans) out of a profit pool derived from loan originations. This Bulletin expands the ability of lenders to contribute to their employees’ qualified plans, but does not provide guidance about other types of profit-sharing arrangements, noting that such issues are “fact-specific.” The CFPB plans to address these and other loan originator compensation issues in more detail in a proposed rule, which it expects release in the “near future.” Under the Dodd-Frank Act, the CFPB is required to finalize loan originator compensation rules by January 21, 2013, and these rules must take effect by January 21, 2014.

CFPB Notice:  Notice Regarding Allowable Charges for Disclosures under FCRA

4/03/2012 – The CFPB has announced that, effective 4/3/12, the ceiling on allowable charges under Section 612(f) of the FCRA will increase from $11.00 to $11.50 effective April 3, 2012. The CFPB is required to increase the $8.00 amount referred to in Section 612(f)(1)(A)(i) of the FCRA on January 1 of each year based proportionally on changes in the CPI. This increase in the CPI, and the requirement that any increase be rounded to the nearest fifty cents, results in a maximum allowable charge of $11.50.

CFPB Bulletin 2012-03: Supervision of Service Providers

4/13/12 – The CFPB has issued Bulletin 2012-03 that states supervised banks and nonbanks shall have an effective process for managing the risks of all service provider relationships.  The CFPB promised to “take a close look at service providers’ interactions with consumers” and “hold all appropriate companies accountable when legal violations occur.” Per Bulletin 2012-03, the CFPB expects supervised institutions to (1) conduct thorough due diligence to verify that a service provider understands and is capable of complying with the law, (2) request and review a service provider’s policies, procedures, internal controls, and training materials to ensure that the service provider conducts appropriate training and oversight of employees or agents that have consumer contact or compliance responsibilities, (3) include in the contract with a service provider clear expectations about compliance, as well as appropriate and enforceable consequences for violating any compliance-related responsibilities; (4) establish internal controls and on-going monitoring to determine whether a service provider is complying with the law, and (5) take prompt action to address fully any problems identified through the monitoring process.

CFPB Litigation:  Briefs Filed in Three TILA Actions

4/13/12 – The CFPB has filed amicus briefs in several TILA cases pending in the Third, Fourth, and Eighth Circuits. As it did in the brief filed in the Tenth Circuit, the CPFB argued that borrowers who do not receive the material disclosures required by TILA are not required to file suit within the three-year rescission period.  The CFPB has taken the position that a borrower can rescind the transaction as long as they provide notice to the lender of the cancellation within three years of consummation.

CFPB Bulletin 2012-04: Fair Lending and Discriminatory Lending Practices

4/18/12 – The CFPB has put all consumer lenders on notice that it “will use all available legal avenues, including disparate impact, to pursue lenders whose practices discriminate against consumers.” The CFPB intends to employ disparate impact analysis when examining auto lenders, credit card issuers, student lenders, mortgage lenders, and other providers of consumer credit, allowing the CFPB to claim an institution has engaged in discriminatory lending based on the effect of and not the intent of the lending practices. Bulletin 2012-04 was published to specifically reaffirm the CFPB commitment to applying disparate impact analysis when conducting supervision and flexing its’ examination powers under the Equal Credit Opportunity Act (ECOA) and the implementing regulation, Regulation B. In support of this position, the CFPB has cited what is referred to as the “consensus approach” outlined by the published 1994 interagency Policy Statement on Discrimination in Lending, which recites court findings that discriminatory lending in violation of ECOA can be established through (1) overt evidence of discrimination, (2) evidence of disparate treatment, and (3) evidence of disparate impact. The CFPB holds that the ECOA legislative history, as characterized in the original Regulation B adopted by the Federal Reserve Board, supports application of the disparate impact doctrine.

CFPB Bulletin 2012-05: Transitional Licensing for Mortgage Loan Originators

4/19/12 – Bulletin 2012-05 has been issued in order to clarify specific issues related to the transitional licensing of mortgage loan originators under the SAFE Act and Regulation H.   Pursuant to the Bulletin, (1) states are allowed to provide a transitional license to an individual with a valid license from another state, but (2) states are prohibited from providing a transitional license for a registered loan originator who leaves a federally regulated financial institution to act as a loan originator while pursuing a state license.

CFPB Public InquiryRequest for Comment – Scope of Arbitration Agreements

4/24/12 – As required by the Dodd-Frank Act, the CFPB is intending to conduct a study of the impact of arbitration clauses in consumer financial services agreement and shall report said findings to Congress.   The request for information invites the public to provide information on the prevalence of use of arbitration clauses, specifically consumers claims against financial services companies, if financial service companies bring claims against consumers, and the impact arbitration has upon consumers.  This request of specific commentary from the public is intended to assist the CFPB in identifying the appropriate scope, methodology and sources of data for conducting the study. All comments shall be submitted prior to June 24, 2012.

Forward Lending

State Specific

Alabama

Alabama HB 507 Enacts Changes in Recording of Documents in Monroe County

4/26/2012 – HB 507, effective 7/1/12, has added provisions specific to Monroe County regarding the recording of documents. These provisions provide for; the installation and maintenance of an improved system of recording, archiving, and retrieving documents affecting the title to property and other documents recorded in the office of the judge of probate; provides for the collection and disposition of a special recording fee; provides that the system shall constitute official and permanent records in Monroe County; provides for the collection and disposition of a special transaction fee.

Arizona

HB 2079 Makes Changes to Mortgage Banker and Broker Licensing

4/05/2012 – HB 2079, effective 7/04/12 (90 days from legislature adjournment), has modified provisions regarding mortgage banker and broker licensing. The majority of the changes are minor, with the most relevant being the net worth requirement for mortgage bankers was reduced from $250,000 to $100,000.

Kentucky

HB 409 Revises Provisions Relative to Mortgage Licensing Exemptions

4/12/2012 – Through HB 409, KRS 286.8 – 020 has been amended to remove certain exemptions from mortgage licensing. The amendments state that, effective 7/10/12, all mortgage loan companies and brokers whom make in the aggregate more than 4 mortgage loans within a calendar year with their own funds and secured by residential real property owned by the person making the mortgage loan, where the mortgage loan is made without the intent to resell the mortgage loan, and where the person does not hold itself out to the public as being primarily in the mortgage loan business, need not be licensed as a mortgage loan company or mortgage broker.

Iowa

Iowa Senate Bill 2265 Revised Uniform Law on Notarial Acts

SB 2265, effective 1/01/13, has amended Notarial Acts in Iowa have the applicable following new requirements:

Physical Incapacity to Sign: If an individual is physically unable to sign a record, the individual may direct an individual other than the notarial officer to sign the individual’s name on the record. The notarial officer shall insert “Signature affixed by (name of other individual) at the direction of (name of individual)” or words of similar import.

Official Stamp Elements:  The Notarial Stamp must contain specific minimum elements to comply with this section, including the notary public’s name, the words “Notarial Seal” and “Iowa”, the words “Commission Number” followed by a number assigned to the notary public by the secretary of state, the words “My Commission Expires” followed either by the date that the notary public’s term would ordinarily expire as provided in the Act or a blank line, and other information required by the secretary of state.

Iowa Secretary of State Modifies Provisions Relating to Notarial Seals

4/19/2012 – The Iowa Secretary of State, pursuant to the authority of Iowa Code sections 9E.3 and 9E.7,  effective 3/19/12, Chapter 43, “Notarial Acts,” Iowa Administrative Code has been amended regarding Notarial stamps or seals. See here

Maryland

SB 302 Amends Statutes Regarding Mortgage Lender and Broker Licensing

4/12/2012 – SB 302, effective 1/01/13, revises provisions that had exempted from licensing lender and brokers. The revisions include; the scope of existing law that prohibits the Commissioner from exercising specified investigative and enforcement powers in connection with affiliates of specified financial institutions; repeals exemptions from the Maryland Mortgage Lender Law for a person that makes or brokers a specified number of mortgage loans in a calendar year and for subsidiaries and affiliates of specified federal financial institutions.

HB 774 Revises Statutes Regarding Statutory Powers of Attorney

4/12/2012 – HB 774, effective 10/1/12, revises provisions regarding powers of attorney. The revisions include clarification of the form of document that may be used to create a statutory power of attorney, requires specified co-agents to act together unanimously unless otherwise provided, and provides for the designation of co-agents in power of attorney forms.

Massachusetts

Massachusetts Regulation Modifies Right to Cure Mortgage Default Notice

4/06/2012 – The Massachusetts Division of Banks, through the revision of the relevant section of Chapter 209 CMR 56.00, has modified the right to cure a mortgage default notice provided to mortgagors. The effective date is March 2, 2012 (filed as register number 1205 on March 30, 2012). See here

Nebraska

The Nebraska Department of Banking and Finance has issued binding Interpretive Opinions on Mortgage Lending Licensing requirements.

Effective April 16, 2012, the Nebraska Department of Banking and Finance has issued interpretive opinions relating to MLO Licensure Activities, Independent Loan Processing Companies, and Financial Responsibility and Use of Unique Identifier. For mortgage loan originator licensing, one opinion provides examples of activities or situations that would and would not require licensure as a mortgage loan originator. A separate opinion identifies the factors and documentation the Department will consider when evaluating the “financial responsibility” of a person seeking a mortgage loan originator license. Additional separate guidance (1) clarifies the licensing responsibilities of clerical employees of licensed or registered mortgage bankers or installment loan companies, (2) asserts that loan processing and underwriting activities are essential to origination and therefore entities performing those services must register as mortgage bankers, and (3) establishes requirements pertaining to the use of the NMLS unique identifier on solicitations and advertisements.

Nebraska Enacts Uniform Power of Attorney Act  -LB 1113 (2012)

4/13/2012 – The state of Nebraska has adopted, effective on January 1, 2013, the state Uniform Power of Attorney Act, which provides that a durable power of attorney shall not be terminated by the principal’s incapacity.

Ohio

Amends Ability to Repay Mortgage Rules

3/30/12 – The Ohio Attorney General’s office, through its rule making authority, has finalized amendments to the Ohio “ability to repay” regulations adopted under the Ohio Consumer Sales Practices Act (“OCSPA”).   The Act’s two new rules (Rules: 109:4-3-19 and 109:4-3-27), effective March 30, 2012, provide for a safe harbor for specific loans. A consumer will be considered to have an ability to repay and to have a reasonable probability of payment if the lender is offering a fully-amortizing fixed-rate refinance loan that (1) has the same or lesser interest rate as the rate of the consumer’s current loan, (2) has the same or lesser principal amount as the consumer’s current loan, and (3) does not extend the payoff date of the consumer’s current loan.

Tennessee

SB 2961 Amends Provisions Regarding Placement of Prepared By Statements on Instruments

4/12/2012 – Effective 4/11/12, SB 2961 by emergency measure, repealed provisions of Tennessee Code Annotated, Section 66-24-115(a)(1) requiring prepared by statements on the first page of the instrument to anywhere within the instrument.

Vermont

HB 565 – Adjustment to the Mortgage Licensing Law

4/20/12 -Vermont enacted HB 565, which is effective immediately (4/20/12), and in relevant part, amends definitions and exceptions related to the licensing of mortgage loan originators, mortgage brokers, and other consumer lenders to (1) permit owner financing without obtaining a license, (2) expand the types of properties that can be sold and financed by the owner without having to obtain a license, and (3) expand exceptions applicable to practicing attorneys.

Virginia

Virginia Revises Provisions Regarding Recordation Taxes

4/27/2012 – HB 509, effective 7/01/12, has amended laws regarding recordation taxes for deed of trust. The amendments eliminate the recordation tax exemption for certain deeds of trust securing a refinanced obligation and establishes a reduced tax for all refinancing deeds of trust or mortgages.

West Virginia

Revisions to the Mortgage Lending Statutes.

West Virginia recently enacted several bills to amend statutes related to mortgage licensing and servicing and consumer lender licensing:

HB 4271, effective 6/08/12, amends existing reporting requirements for licensed residential mortgage lenders and brokers to direct lenders and brokers to submit reports through the Nationwide Mortgage Licensing System and Registry for periods established by the NMLS. The law allows the Commissioner of the Division of Banking to require direct reporting, preserves the confidentiality of the reports, and alters certain public reporting obligations of the Commissioner.

HB 4274, effective 6/07/12, authorizes the Commissioner of the Division of Banking to fine regulated consumer lenders required to be licensed up to $2,000 for violating applicable statutory and regulatory requirements. Each day that a consumer lender engages in covered conduct without being licensed is considered a separate violation subject to a separate fine.

SB 336, effective 6/08/12, eliminates an exemption under the state’s residential mortgage licensing requirement.   Prior to SB 336, mortgage lenders and brokers operating under the regular supervision and examination for consumer compliance by an agency of the federal government were exempt from having to obtain a state license. Those previous exempt, now must obtain a license and comply with related state laws. Federally insured depository institutions remain exempt from the licensing requirements.

On 4/2/12, effectively retroactive to January 1, 2012, SB 551 creates an exemption to mortgage loan limitations to allow for modification or refinancing loans made between January 1, 2012 and January 15, 2015 as part of the federal Home Affordable Modification Program or any other federal or state program or litigation settlement.

Reverse Lending

State Specific

Alabama

Alabama HB 507 Enacts Provisions Affecting Recording of Documents in Monroe County

4/26/2012 – HB 507, effective 7/1/12, has added provisions specific to Monroe County regarding the recording of documents. These provisions provide for; the installation and maintenance of an improved system of recording, archiving, and retrieving documents affecting the title to property and other documents recorded in the office of the judge of probate; provides for the collection and disposition of a special recording fee; provides that the system shall constitute official and permanent records in Monroe County; provides for the collection and disposition of a special transaction fee.

Arizona

HB 2079 Makes Changes to Mortgage Banker and Broker Licensing

4/05/2012 – HB 2079, effective 7/04/12 (90 days from legislature adjournment), has modified provisions regarding mortgage banker and broker licensing. The majority of the changes are minor, with the most relevant being the net worth requirement for mortgage bankers was reduced from $250,000 to $100,000.

Maryland

SB 302 Amends Statutes Regarding Mortgage Lender and Broker Licensing

4/12/2012 – SB 302, effective 1/01/13, revises provisions that had exempted from licensing lender and brokers. The revisions include; the scope of existing law that prohibits the Commissioner from exercising specified investigative and enforcement powers in connection with affiliates of specified financial institutions; repeals exemptions from the Maryland Mortgage Lender Law for a person that makes or brokers a specified number of mortgage loans in a calendar year and for subsidiaries and affiliates of specified federal financial institutions.

HB 774 Revises Statutes Regarding Statutory Powers of Attorney

4/12/2012 – HB 774, effective 10/1/12, revises provisions regarding powers of attorney. The revisions include clarification of the form of document that may be used to create a statutory power of attorney, requires specified co-agents to act together unanimously unless otherwise provided, and provides for the designation of co-agents in power of attorney forms.

Nebraska

LB 1113 – Uniform Power of Attorney Act 

4/13/2012 – LB 1113, effective 1/01/12, has enacted the Uniform Power of Attorney Act, which provides that a durable power of attorney shall not be terminated by the principal’s incapacity.

 

Tennessee

SB 2961 Amends Provisions Regarding Placement of Prepared By Statements on Instruments

4/12/2012 – Effective 4/11/12, SB 2961 by emergency measure, repealed provisions of Tennessee Code Annotated, Section 66-24-115(a)(1) requiring prepared by statements on the first page of the instrument to anywhere within the instrument.

Vermont

HB 565 – Adjustment to the Mortgage Licensing Law

4/20/12 – HB 565, which effective immediately (4/20/12), and in relevant part, amends definitions and exceptions related to the licensing of mortgage loan originators, mortgage brokers, and other consumer lenders to (1) permit owner financing without obtaining a license, (2) expand the types of properties that can be sold and financed by the owner without having to obtain a license, and (3) expand exceptions applicable to practicing attorneys.

Virginia

Virginia Revises Provisions Regarding Recordation Taxes

4/27/2012 – HB 509, effective 7/01/12 has amended laws regarding recordation taxes for deed of trust. The amendments eliminate the recordation tax exemption for certain deeds of trust securing a refinanced obligation and establishes a reduced tax for all refinancing deeds of trust or mortgages.

West Virginia

Revisions to the Mortgage Lending Statutes.

West Virginia recently enacted several bills to amend statutes related to mortgage licensing and servicing and consumer lender licensing:

HB 4271, effective 6/08/12, amends existing reporting requirements for licensed residential mortgage lenders and brokers to direct lenders and brokers to submit reports through the Nationwide Mortgage Licensing System and Registry for periods established by the NMLS. The law allows the Commissioner of the Division of Banking to require direct reporting, preserves the confidentiality of the reports, and alters certain public reporting obligations of the Commissioner.

HB 4274, effective 6/07/12, authorizes the Commissioner of the Division of Banking to fine regulated consumer lenders required to be licensed up to $2,000 for violating applicable statutory and regulatory requirements. Each day that a consumer lender engages in covered conduct without being licensed is considered a separate violation subject to a separate fine.

SB 336, effective 6/08/12, eliminates an exemption under the state’s residential mortgage licensing requirement.   Prior to SB 336, mortgage lenders and brokers operating under the regular supervision and examination for consumer compliance by an agency of the federal government were exempt from having to obtain a state license. Those previous exempt, now must obtain a license and comply with related state laws. Federally insured depository institutions remain exempt from the licensing requirements.

On 4/2/12, effectively retroactive to January 1, 2012, SB 551 creates an exemption to mortgage loan limitations to allow for modification or refinancing loans made between January 1, 2012 and January 15, 2015 as part of the federal Home Affordable Modification Program or any other federal or state program or litigation settlement.

Servicing – Loss Mitigation

CFPB – Servicing

Preview of Mortgage Servicing Rules

4/09/12 – The CFPB has previewed its upcoming mortgage servicing rules, which likely will be proposed this summer and finalized in January 2013. The key elements of the proposal relate to (1) monthly mortgage statements, (2) ARM adjustment disclosures, (3) force-placed insurance, (4) payment crediting, (5) error resolution and borrower inquiries, and (6) borrower outreach and borrower information. The majority of the details were provided in an outline prepared for a Small Business Regulatory Enforcement Fairness Act (SBREFA) panel, which will consider the potential impact of the planned rules on small businesses. The outline includes model forms related to periodic statements, ARM reset notices, and force-placed insurance notices, which the CFPB has been testing in recent months. The CFPB release also included questions directed to the small entity representatives in order to assist the SBREFA panel in understanding the potential economic impacts of the particular proposals under consideration by the CFPB. Generally, the servicing proposals incorporate statutory changes imposed by the Dodd-Frank Act, which would go into effect in January 2013 unless final rules are issued on or before that date. The concepts in the proposal that do not address specific Dodd-Frank requirements are consistent with servicing requirements imposed by recent mortgage servicing consent orders and/or recent requirements for servicing delinquent loans owned by or serviced on behalf of Fannie Mae or Freddie Mac (i.e. Federal Reserve Board Consent Orders and Fannie Mae Ann. SVC 2011-08R).

Federal Reserve – Servicing

Federal Reserve Issues Policy Statement on Rental of Residential Other Real Estate Owned

4/06/2012- The Federal Reserve issued a policy statement regarding rentals of other real estate owned. The policy statement reminds banking organizations and examiners that the Federal Reserve’s regulations and policies permit the rental of residential other real estate owned (OREO) properties to third-party tenants as part of an orderly disposition strategy within statutory and regulatory limits. The policy statement applies to state member banks, bank holding companies, nonbank subsidiaries of bank holding companies, savings and loan holding companies, non-thrift subsidiaries of savings and loan holding companies, and U.S. branches and agencies of foreign banking organizations.

FHFA – Servicing

FHFA Calls for Streamlined Short Sales

4/17/12 – The FHFA directed FNMA and FHLMC to develop procedures for streamlining Short Sales, Deeds –in-Lieu and Deeds-for-Lease in order to avoid foreclosures.  Under the new Fannie Mae and Freddie Mac policies, first, servicers will be required to review and respond to requests for short sales within thirty (30) calendar days from the receipt of the short sale offer,  and complete a borrower response package, and second, provide weekly status updates to the borrower if the short sale offer is still under review after thirty (30) calendar days, and third, make and communicate final decisions to the borrower within sixty (60) calendar days of receipt of the offer and complete borrower response packages.

FNMA – Servicing

Servicing Guide Lender Letter 2012-04:  Guidance Regarding Chicago Vacant Property Ordinance and Payment of Homeowners’ Association Dues and Condo Assessments.

4/11/12 – Fannie Mae has published Servicing Guide Lender Letter LL-2012-04, which follows up on a previous notice on 12/12/11 regarding the City of Chicago’s (the City) vacant property ordinance. Effective 5/01/12, servicers will be required to submit expense reimbursement requests using the Cash Disbursement Request and updated expense designations for all expenses related to the ordinance that are not otherwise required by the Servicing Guide. The Letter attaches a list of the expense designations. Fannie Mae reminds servicers that payments to the City in connection with the ordinance must be made “under protest” by sending a written communication to the City with the registration fee. Further, (i) all ordinance-related expenses must be submitted to Fannie Mae within 10 business days of the date they are paid by the servicer, (ii) ordinance-related expenses incurred from 11/19/11 through 4/20/12must be submitted for reimbursement using the new expense categories no later than 5/31/12, (iii) servicers will not be reimbursed for any penalties, fines, expenses or interest assessed by the City for failure to comply with the ordinance, and (iv) servicers must submit a request for pre-approval for ordinance expenses that exceed the allowable limits on or after 5/01/12.

Servicing Guide 2012-05:  HOA Dues and Condo Assessments

4/11/12 – Effective 7/01/12, servicers must ensure that any priority liens for delinquent HOA dues and assessments on acquired properties are cleared immediately, but no later than 30 days, after the foreclosure sale or acceptance of a deed-in-lieu of foreclosure. The Announcement also revises the reimbursement policy to align with the amount a servicer must pay to protect the lien position and ensure properties are clear of any liens for HOA dues and condo assessments. The Announcement further reminds servicers of their responsibility to continue (1) advancing funds to pay HOA dues and property taxes as they become due following a foreclosure sale and (2) performing certain property management duties.

Servicing Guide 2012-06:  Delinquency Management

4/25/12 – Fannie Mae issued Servicing Guide Announcement SVC-2012-06, which sets new policies and clarifies several delinquency management and default prevention requirements related to (i) electronic submission of borrower response package documents, (ii) income documentation for employed borrowers, (iii) determining monthly gross income, (iv) modifications of loans secured by leasehold estates, (v) property valuation, and (vi) executing and recording modification agreements. The majority of the changes are effective immediately. The new requirements for determining income are effective for loans evaluated on or after 7/01/12.

Servicing Guide 2012-07:  Preforclosure Sale Process    

4/25/12 – Fannie Mae has published SVC-2012-07 to establish new policies to expedite the preforeclosure sale process. For all conventional mortgage loans held in Fannie Mae’s portfolio, those purchased for Fannie Mae’s portfolio but subsequently securitized into Fannie Mae MBS pools, and those originally delivered as part of an MBS pool, the policies (1) establish maximum required response times for preforeclosure sale offers submitted for consideration, (2) require servicers to provide borrowers with status updates during the evaluation process, and (3) allow servicers to respond to unsolicited preforeclosure sale offers without first requiring an evaluation for a HAMP modification. Servicers are encouraged to adopt these policies immediately, but must do so no later than 6/25/12. The Announcement reminds servicers that Fannie Mae may pursue any of its available remedies for failure to comply with these new policies.

FHLMC – Servicing

Servicing Guide Bulletin 2012-09 – HAFA Short Sales Changes

4/17/12 – Bulletin 2012-09 clarifies existing requirements and adds new minimum requirements for communication timelines for Home Affordable Foreclosure Alternatives Short Sales and short sales processed under Guide Chapter B65. Servicers are encouraged to begin implementing the new requirements as soon as possible, but must do so for all new borrower evaluations conducted on or after June 15, 2012

Servicing Guide Bulletin 2012-10 – Adjustment to Residential Loan Mitigation Options

4/23/12 – Freddie Mac issued Servicer Guide Bulletin 2012-10 that expands and amends certain loss mitigation options to offer additional assistance to struggling borrowers. With regard to state housing finance agency borrower assistance programs, the Bulletin provides requirements for servicer participation in programs funded by the Hardest Hit Fund, and consolidates all requirements related to participation in such programs. Among other things, the Bulletin also implements a previously announced extension of the HAMP and HAFA programs through December 2013, and revises HAMP eligibility requirements for permanent modifications.

State Specific – Servicing

Kentucky

Kentucky HB 62 and HB396 relate to foreclosures

The former requires a mortgage holder to file a deed in lieu of foreclosure with the county clerk within 45 days of the instrument’s execution and allows for a penalty in the form of a violation of law for any mortgage holder who fails to do so. The bill also exempts filing deeds in lieu of foreclosures from the state’s transfer tax on property as well as the voluntary surrender under a mortgage in lieu of a foreclosure proceeding. The latter Bill relates to an expedited sale mechanism for foreclosures involving vacant and abandoned real property and amends the offense of defrauding a secured creditor to add situations where collateral is intentionally damaged.

New York

New York Extends Emergency Rules Regarding Mortgage Loan Servicers

4/04/12 – The New York Department of Financial Services has extended through 6/17/12 existing emergency rules regarding the registration and financial responsibility requirements for mortgage loan servicers.

Virginia

HB 1110 Foreclosure and Landlord Tenant Landlord

Allows a plaintiff in an unlawful detainer action to submit copies of the lease under certain circumstances. The bill also (1) removes the four-residential-unit limitation on the exemption of an owner who performs mold inspection or remediation from licensure as a mold inspector or remediator; (2) revises the definition of dwelling unit; (3) allows a tenant to stay in the dwelling unit after foreclosure of the property containing the dwelling unit under certain circumstances; (4) provides that in unlawful detainer actions, the proceeding shall be dismissed under certain conditions if the tenant pays the landlord or his attorney, or pays into court all (a) rent due and owing as of the court date, (b) damages and other charges contracted for in the rental agreement, (c) late charges contracted for in the rental agreement, (d) reasonable attorney fees, and (e) costs of the proceeding; and (v) allows the landlord to recover from the tenant the tenant’s prorated share of the actual costs of other insurance coverages provided by the landlord relative to the premises, including the landlord’s administrative or other fees associated with the administration of such coverages.

Washington

Enactment New Short Sale and Foreclosure Protections, Adds Escrow Licensing Exemption

On 3/29/12, Washington enacted HB 2614, which took effect immediately and created new borrower protections. The bill requires mortgagees that intend to permit a short sale of a residential property to provide written notice to the borrower that it is either waiving or reserving its right to collect the full debt. Mortgagees that reserve the right to collect must initiate a court action to collect within three years of the short sale. House Bill 2614 also amends provisions of Washington’s Foreclosure Fairness Act, including, among other things, (1) to allow meetings with the borrower to discuss foreclosure avoidance options to be conducted by phone, if the borrowers agrees, (2) to alter the foreclosure mediation procedures, (3) to extend the time period for a trustee’s sale, and (4) to change beneficiary reporting requirements. Lastly, the bill creates a process to rescind a trustee sale under certain circumstances.

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CFPB Exerts Supervisory and Enforcement Authority

The CFPB Exerts Supervisory and Enforcement Authority Over Service Providers

On April 13, 2012, the CFPB published Bulletin 2012-03 that specifically addresses the CFPB supervisory and enforcement authority over Supervised Service Providers that provide services to Supervised Banks and Non-Banks.

A Supervised Service Provider is defined as “any person that provides a material service to a covered person in connection with the offering or provision by such covered person of a consumer financial product or service¹.”  The outsourcing of specific functions to service providers does not absolve the Supervised Bank or Non-Bank of responsibility of complying with Federal consumer financial law, and the Supervised Bank or Non-Bank shall be responsible for ensuring said compliance by the covered person (“Supervised Service Provider”).

Title X of the Dodd-Frank Act permits the CFPB to exert supervisory and enforcement authority over Supervised Service Providers, which also permits the CFPB to examine the operations of Supervised Service Providers on site.

What does this mean?  As a service provider that has a business arrangement with a Supervised Bank or Non-Bank, you are now subject to the supervisory and enforcement authority of the CFPB… welcome to the club.

If a Supervised Bank or Non-Bank outsources any function of the loan origination process, then you, as the supervised entity, should know that the Supervised Service Provider is complying with all obligations that you may have as a Supervised Bank or Non-Bank.  Let’s look at the outsourcing of loan underwriting, i.e. 3rd Party Loan Fulfillment Services.   Sure the Truth-in-Lending Act (TILA) and the Real Estate Settlement Procedures Act (RESPA) are clear obligations that can be tracked through a closed loan review, but what about the Equal Credit Opportunity Act (ECOA), the Secure and Fair Enforcement of Mortgage Licensing Act (SAFE Act)² and the protection of nonpublic personal information (“NPI”) under the Gramm-Leach-Bliley Act³?  What level of institutional review, as a Supervised Bank or Non-Bank, do you conduct upon your service providers?  What contractual protections do you have in place to protect your Supervised Bank or Non-Bank in the event of a violation of any of the aforementioned regulations that you are responsible for, but do not control?

Who does this apply to?  Based upon my read, this applies to any entity that provides a material service to a covered person in connection with the offering or provision by such a covered person of a consumer financial product or service.

I would say that depending on the definition of “material service”, “offering” and “provision by” would be of most concern to any service provider in the mortgage space.  I imagine that within these three terms, the CFPB will cast a wide net, and depending on the number of complaints received, you can expect a visit or inquiry from the CFPB if you play a role in the lifecycle of a mortgage loan.

Bottom Line: If you are an Appraiser, Appraisal Management Company, Credit Reporting Agency, Document Provider, Direct Mail Provider, Due Diligence Provider, Title/Escrow Vendor, or any sort of Technology Vendor, or subcontractor thereof, be aware of your liability and obligations to your Customers that may be covered persons, or vendors of covered persons, or vendors, of vendors of covered persons ∞…


[1] Dodd-Frank Act Section 1002(26).
[2] 12 U.S.C., Sec. 5100, et seq
[3] 15 U.S.C, Sec. 6801, et. seq.
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Freeman vs. Quicken Loans

Freeman v. Quicken Loans, Inc.:

What Is the Potential Impact Upon Lenders and Brokers?

The Issue:  Does Section 8(b) of the Real Estate Settlement Procedures Act (RESPA) prohibit a real estate settlement services provider (including a Lender or Broker), from charging an unearned fee (non-Bona-Fide Discount Points) only if the fee is divided between two or more parties? 

This case questions whether a lender must split an unearned fee in order to violate the Real Estate Settlement Procedures Act (RESPA), or if merely the retention, by a lender, of an unearned fee paid by the Consumer is sufficient to violation RESPA.  The case is before the Supreme Court and is intended to settle this dispute among the federal circuit courts based upon the statutory interpretation of Section 8(b) of RESPA (which prohibits giving or accepting “any portion, split, or percentage” of any charge for settlement services “other than for services actually performed”). 

The issue in Freeman hinges on whether a Section 8(b) claim may apply to an unearned fee charged by the loan originator. Quicken charged the borrower discount points that did not have the direct effect of reducing the borrower’s interest rate; and as a result, Freeman claims the charges are unearned, not for services actually performed, and a violation of Section 8(b). The industry understands and everyone agrees that if the fees were split with a third party, the arrangement would be illegal under RESPA, BUT, in this circumstance, the Defendant did not split its fees with a third party.  

The question before the Supreme Court is based upon the conflict between four federal circuit courts (4th, 7th, 8th & 5th), which state that the plain language of the statute is clear, specifically that Section 8(b) requires both the giving and accepting of a split of a settlement charge, and as a result it takes two-parties to violate RESPA. However, the countervailing opinion from three federal circuit courts (2nd, 3rd and 11th) as well as HUD, claim that RESPA is a consumer protection statute, that Section 8(b) is ambiguous, and it was not Congress’ intent to allow lenders to receive unearned fees, thus, permitting HUD to offer interpretation (2001 Policy Statement), regardless of whether the fee is divided with a third party or retained entirely by the lender.  It is clear that this case presents a straight forward statutory construction question under RESPA, with one of the following answers prevailing;  1) the Supreme Court will strictly construe the language of the provision, stating RESPA is clear on its face, as lenders and settlement service providers argue, or; 2) the Court will accept the Plaintiff’s and the government’s claims that deference should be shown to HUD’s long standing interpretation of the arguably ambiguous meaning and intent of the Act (see Chevron v. NRDC – for all of those 2L or 3L’s that has this case jammed down their throats in Administrative Law class – special thanks here to Prof. A. Michael Froomkin). 

The result of this case, will have the effect of either clearly and unequivocally permitting Lenders to charge Discount Points, that are not Bona Fide, and as a result unearned.  Therefore, no RESPA violation will occur as long as the fee is not split (given and accepted) between two parties; or, any unearned fees that are paid by the Consumer and to the lender (even if not split between two parties) will result in a Section 8(a) RESPA violation.

Stay tuned, as Oral Arguments were heard on 2/21/12, and depending on the outcome, your Origination practices may be drastically changed as a result.

Link to Case History:  http://www.supremecourt.gov/Search.aspx?FileName=/docketfiles/10-1042.htm

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