b'For more information, please visit www.lenderlawwatch.com or www.enforcementwatch.comFreedom Mortgage Corporation Agrees to SettleCFPB Relaxes HMDA Reporting Requirements forrecommend that the DOJ seek dismissal of that lawsuita valid interest or legitimate objective; (2) that there Alleged HMDA Violations. In June, the CFPB enteredSmall Lenders. In October, the CFPB issued a final ruleif the alleged conduct fails to meet the FCA Evaluationis a robust causal link between the challenged policy into a consent order with Freedom Mortgage Corpo- under HMDA clarifying partial exceptions to HMDAStandards.or practice and a disparate impact on members of a ration, one of the nations ten largest HMDA reporters,reporting requirements and extending the currentFHA Proposes Revisions to Certifications and Defectprotected class; (3) that the policy or practice has an resolving allegations that Freedom violated HMDA-re- temporary threshold that triggers HMDA reportingTaxonomy. In October, the FHA proposed revisions toadverse effect on members of a protected class; (4) porting requirements. HMDA requires large mortgagerequirements. The new rule extends the existing re- FHAs annual lender certifications, loan-level certifica- that the disparity caused by the policy or practice is lenders to collect, record, and report data on certainporting threshold for open-end lines of credit. The ruletions, and its defect taxonomy. According to the FHA,significant; and (5) that there is a direct link between the mortgage lending transactions. According to the CFPB,requires companies to report on such loans only if theythe revisions to the annual certification better align thedisparate impact and the complaining partys alleged certain loan officers employed by Freedom recordedmeet a threshold of originating 500 open-end linescertification statements with HUDs statues and regula- injury. If this new standard is adopted, we predict it will inaccurate information concerning the race, ethnicity,of credit in each of the past two years. The CFPB alsotions while continuing to hold lenders accountable forhave a dampening effect on future disparate impact and sex of borrowers. Under the consent order, theclarified the rules governing certain partial exemptionscompliance with FHAs eligibility and approval require- FHA actions. lender agreed to pay a civil money penalty of $1.75for smaller lenders provided by the Economic Growth,ments. The revisions to the loan-level certification ex-million and develop and implement a compliance planRegulatory Relief, and Consumer Protection Act. Ac- pressly incorporate a materiality element. The revisedLOOKING AHEAD TO 2020to prevent future HMDA violations.cording to CFPB Director Kraninger, these changesTaxonomy provides more clarity and transparency into CFPB Settles with BSI Financial Over TILA, CFPAwere implemented to provide much needed relief toFHAs loan-level quality assurance processes, and in- We expect mortgage origination and servicing-relat-& RESPA Claims. In May, the CFPB entered into asmaller community banks and credit unions while stillcludes: clarification of Severity Tier definitions; potentialed enforcement activity to remain relatively stagnant consent order with BSI Financial (BSI), a Texas-basedproviding federal regulators and other stakeholdersRemedies that align with Severity Tiers; revised Sourc- in 2019, as financial crisis-related actions continue to mortgage servicer, for allegedly violating RESPA, TILA,with the information [the CFPB] need[s] under the Homees and Causes in certain Defect Areas; and incorpora- subside and agencies such as HUD and the DOJ that and the CFPA. The CFPB accused BSI of maintaining anMortgage Disclosure Act. As described in a letter fromtion of HUD policy references.were active in the enforcement space reprioritize their inadequate document management system that pre- the Mortgage Bankers Association (MBA) respondingHUD Proposes a Higher Standard for Disparate Im- enforcement agendas. vented BSI personnel from obtaining accurate infor- to the proposed changes, from 2008 to 2018, the costpact Actions. HUD proposed a new disparate impactWhile HUD took numerous steps in 2019 to encourage mation about consumers loans. The servicer allegedlyto originate a mortgage loan for mid-sized banks hasrule that we anticipate will cause a decline in the num- lenders to participate in the FHA mortgage insurance failed to acquire and transfer loss mitigation and es- nearly doubled from $4,800 to $9,000, in part due tober of disparate impact actions brought under the Fairprogram, it is unlikely that many new lenders will restart crow data and information, which resulted in a failurethe costs associated with compliance with the HMDAHousing Act in 2020 and for years to come. The ruletheir FHA lending programs in 2020. Although the to offer some consumers loss mitigation, prior loanrule. We anticipate the new changes will provide need- was drafted in response to the Supreme Courts 2015MOU is a welcome respite to participants shellacked by modifications not being honored, and untimely escrowed relief to smaller lenders and open the door for theseruling in Inclusive Communities where the Court heldenforcement actions brought under the FCA, the indus-distributions. The Bureau also alleged that the servicerlenders to originate more loans. that disparate impact claims were cognizable undertry has harshly criticized the new lender and loan-level failed to promptly enter interest rate data for adjustableDOJ and HUD Enter Into MOU Over FHA GuidelineFHA but also explained that disparate-impact liabili- certification and defect taxonomy as failing to provide rate mortgage loans into its servicing system, and thusEnforcement. In October, HUD and the DOJ enteredty must be limited so employers and other regulatedlenders with any greater certainty over what FHA sent consumers inaccurate monthly statements. Underinto a MOU [a]s part of a broad initiative to ensure thatentities are able to make the practical business choicesconsiders important and consequently when imperfect the terms of the consent order, BSI agreed to pay a civilthe severity of certain violations is matched with theand profit-related decisions that sustain a vibrant andcompliance may trigger liability. Lenders will also likely money penalty of $200,000 and restitution of approxi- appropriate remedy. The MOU states the agenciesdynamic free-enterprise system. Tex. Dept of Hous. &be hesitant to restart FHA lending if they anticipate a mately $36,500. expectations that violations will be enforced primarilyCmty. Affairs v. Inclusive Cmtys. Project, Inc., 135 S. Ct.change in administration resulting from the 2020 Presi-State of California Settles with CitiMortgage Over Al- through HUDs administrative proceedings rather than2507, 2518 (2015). Under the current rule, plaintiffs onlydential election, which could result in a return to over-leged Failure to Pay Escrow Interest. In June, the Cali- the FCA. The MOU provides that if HUD identifies vio- need to show that a challenged practice caused, orzealous FCA enforcement. fornia Department of Business Oversight (DBO) enteredlations of its underwriting guidelines through the Singlepredictably will cause, a discriminatory effect. Enforcement activity aimed at protective minority bor-into a settlement and consent order with CitiMortgage,Family Housing Loan Quality Assessment MethodologyThe new proposed rule sets a much higher standard,rowers and military servicemembers is likely to remain Inc. over its alleged failure to pay interest on escrow(commonly referred to as the Defect Taxonomy), thoserequiring plaintiffs meet five elements to establish astrong. However, if HUDs proposed disparate impact impound accounts for approximately 95,000 residentialviolations will be referred to HUDs Mortgagee Reviewprima facie case: (1) that the challenged policy or prac- rule is implemented, we anticipate a resulting decrease mortgage loans between July 1, 2014 and December 31,Board (MRB). The MRB will then review the violations totice is arbitrary, artificial, and unnecessary to achievein disparate impact enforcement actions. 2018. The California Residential Mortgage Lending Actdetermine whether certain FCA Evaluation Standards requires servicers to pay interest on escrow impoundare met, including whether equivalent violations exist accounts. The settlement follows a two-year examina- in at least 15 loans or whether aggravating factors exist.WHAT TO WATCHtion of CitiMortgage by the DBO. Under the agreement,HUD will only refer a violation to the DOJ for potential CitiMortgage will pay back the interest at a rate of 2%prosecution under the FCA if warranted under theseContinued decrease in financial crisis-era mortgage lending and servicing enforcement activityto affected borrowers, estimated to cost CitiMortgagestandards. The MOU also states that in the event aContinued enforcement activity related to discriminatory mortgage origination and servicing$7.8 million, and will continue to pay interest on suchparty other than HUD, such as a qui tam relator, refers aFinal rules from HUD revising lender and loan certifications and defect taxonomy accounts in the future.matter to the DOJ for potential FCA litigation, HUD may 14 15'