Consumer Financial Services Alert - May 1, 2012 May 01, 2012
In This Issue

CFPB Issues Guidance on Compliance with Fair Lending Requirements of ECOA

The CFPB issued a guidance bulletin on compliance with the fair lending requirements of the Equal Credit Opportunity Act and its implementing regulation, Regulation B.  The CFPB stated that it will continue to use the doctrine of disparate impact in its supervisory and enforcement activities, and concurred with the Interagency Task Force on Fair Lending’s 1994 Policy Statement on Discrimination in Lending, which provided three methods for establishing lending discrimination under ECOA: (1) overt evidence of discrimination; (2) evidence of disparate treatment; and (3) evidence of disparate impact.

The CFPB also released a Credit Discrimination Brochure which provides consumers with tips and warning signs to identify credit discrimination. Click here and here for related press releases, here for the bulletin, here for the interagency policy statement, here for the brochure, and here for Director Richard Cordray’s recent speech on fair lending.

CFPB Issues Guidance on Transitional Licensing under the SAFE Act

The CFPB issued a guidance bulletin clarifying issues relating to transitional licensing under the SAFE Act and Regulation H.  According to the CFPB, states are permitted to provide a transitional license to an individual with a mortgage loan originator license from another state, but states are prohibited from granting 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. Click here for the related press release and here for the bulletin.

CFPB Launches Inquiry into Arbitration Clauses

The CFPB launched an inquiry into how it should study arbitration clauses and agreements between financial service companies and consumers.  Section 1028(a) of the Dodd Frank Act requires the CFPB to conduct a study of arbitration agreements and clauses and provide a report to Congress.  For purposes of conducting the study, the CFPB issued a public request for information, seeking comment in three areas: (1) prevalence of use of arbitration clauses and agreements; (2) use and impact in arbitration proceedings; and (3) impact and use of outside arbitration proceedings.  Comments are due June 23, 2012. Click here for the related press release and here for the information request.

CFPB Extends Comment Period on Impact of Overdraft Programs on Consumers

The CFPB extended the comment period to June 29, 2012 for the Notice and Request for Information on the Impact of Overdraft Programs on Consumers. Click here for the related press release and here for the notice extending the comment period.

CFPB Seeks Comment on Information Collections

The CFPB is seeking comment on its information collections for the following: Financial Education Program; SAFE Act (Regulation G); Truth in Savings (Regulation DD); and the Fair Credit Reporting Act (Regulation V). Comments are due May 17, 2012. Click here for the related notice.

CFPB Deputy Director Remarks on Qualified Mortgage Rule

CFPB Deputy Director Raj Date spoke at the Greenlining Institute Conference about the Bureau’s focus on fairness, transparency and financial incentives in the mortgage regulation and enforcement context.  In discussing the qualified mortgage rule, Mr. Date stated that the CFPB is seeking in its rulemaking to reduce compliance burdens, ensure benefits to all interested parties and prevent disincentives that would “prevent lenders from making prudent, profitable loans in seemingly higher-risk or non-traditional segments – like loans to self-employed borrowers.” Click here for Mr. Date’s remarks.

Industry Urges “Safe Harbor” for Lenders in Qualified Mortgage Rule

In a letter to the CFPB, mortgage industry groups urged it to structure the qualified mortgage rule in its forthcoming ability to repay regulation as a “legal safe harbor with clear, well-defined standards.”  In particular, the industry called for standards that specify the grounds on which there can be litigation or enforcement action as to whether the requirements for a “qualified mortgage” have been met. The industry further argued that structuring the qualified mortgage rule as a safe harbor, as opposed to a rebuttable presumption, would “markedly lessen the availability and affordability of sustainable mortgages to consumers,” reduce litigation and allow lenders to “comfortably operate within the boundaries” established by the rule. Click here for the letter.

FDIC Responds to CFPB Guidance on Compensation Rules for Mortgage Loan Originators

The FDIC confirmed that the CFPB’s guidance on the mortgage loan originator compensation rules (reported in the April 3, 2012 edition of the Alert) is applicable to FDIC-regulated banks and has directed its banks to ensure that their policies and procedures are consistent with the CFPB’s compensation rules. Click here for the financial institution letter.

FHA Requires Streamlined Short Sales

The FHA directed Fannie Mae and Freddie Mac to develop “enhanced and aligned” strategies for facilitating short sales, deeds-in-lieu, and deeds-for-lease in order to help homeowners avoid foreclosure. The FHA noted that Fannie Mae and Freddie Mac’s efforts will come in stages, with the first to take place in June 2012. Under the new aligned timeline, servicers will be required to:

  • Review and respond to requests for short sales within 30 days from receipt of a short sale offer;
  • Provide weekly status updates to borrowers if the short sale offer is still under review after 30 days; and
  • Make and communicate final decisions to borrower within 60 days after receipt of the offer and complete borrower response package.

Enhancements addressing borrower eligibility and evaluation, documentation simplification, property valuation, fraud mitigation, payments to subordinate lien holders and mortgage insurance are forthcoming and expected by the end of the year. Click here for the related press release.

Eleventh Circuit Rejects Liability under HAMP for Loan Servicers

The Eleventh Circuit affirmed a lower court’s decision rejecting liability for servicers under the federal Home Affordable Modification Program for failing to extend a permanent loan modification. After experiencing financial difficulties, plaintiff sought and received a temporary loan modification. After approximately a year under the temporary loan modification program, the servicer notified plaintiff that it would not permanently extend the loan modification.  Plaintiff filed suit alleging the servicer failed to comply with its obligations under HAMP by declining to issue him a permanent loan modification.

In upholding the lower court’s decision, the Eleventh Circuit held that neither the Emergency Economic Stabilization Act of 2008 nor HAMP “expressly create a private right of action for borrowers against loan servicers.”  The Eleventh Circuit also held that there was no implied right of action under HAMP, using the factors articulated in Hempispherx Biopharma, Inc. v. Johannesburg Consol. Inves., 553 F.3d 1351, 1362 n. 14 (11th Cir. 2008). Click here for the opinion.

Virginia Supreme Court Holds Pre-Foreclosure Meetings on FHA Loans Required Under HUD Rules

The Virginia Supreme Court held that federal housing rules require a face-to-face meeting between trustees and borrowers at least 30 days before foreclosure of an FHA loan.  The Court agreed with the plaintiffs’ argument that, pursuant to Bayview Servicing, LLC v. Simmons, 654 S.E. 2d 898 (Va. 2008), a lender must comply with all conditions precedent to foreclosure in a deed of trust, even if the borrowers are in arrears, including applicable HUD regulations on pre-foreclosure meeting requirements. In Bayview, the Court held that the sale of a foreclosed property was improper because the lender and its servicer failed to provide a pre-acceleration notice, which was a condition precedent to acceleration under the deed of trust. Here, the Court held that a trustee’s power to foreclose is conferred by the deed of trust. The trustee’s power to foreclose “does not accrue until its conditions precedent have been fulfilled.” Further, according to the Court, “the fact that a borrower is in arrears does not allow the trustee to circumvent the conditions precedent.” The Court also pointed to the provision in the deed of trust, “Grounds for Acceleration of Debt,” which reference HUD regulations, and, according to the Court, “express[ed] the intent of the parties that the rights of acceleration and foreclosure do not accrue under the Deed of Trust unless permitted by HUD’s regulations.” Click here for the opinion.

Federal District Court Judge Grants Class Certification in Mortgage Appraisal Suit

The United States District Court for the Northern District of California granted class certification in a mortgage loan appraisal suit alleging defendants conspired to inflate appraisals to increase the sale of loans in the secondary market. The Court found that plaintiffs presented sufficient evidence to establish common questions of fact and law, holding that common questions and answers need not uniformly apply to all class members.  The Court also found that the analysis of individual appraisal fees would not create individualized issues, but instead would provide additional support for plaintiffs’ claims that an inflated appraisal scheme existed. Finally, the Court also held that the Real Estate Settlement Procedures Act’s treble damages, attorney’s fees and government enforcement mechanisms did not make class action an inferior method of litigation. Click here for the opinion.