On August 23, Fannie Mae and Freddie Mac announced the release of the redesigned Uniform Residential Loan Application, the first substantial revision to the form in more than two decades. Changes include a reorganized layout, simplified technology and new data fields, including mobile phone number, email address and military service history. Lenders may begin using the form on January 1, 2018. Among the new fields are several elements required under recent Home Mortgage Disclosure Act rule changes. For lenders who continue to use the former URLA starting in 2018, the GSEs issued a separate demographic addendum to capture the expanded HMDA data.
The Federal Deposit Insurance Corporation (FDIC) published the Summer 2016 issue of its Supervisory Insights, which features two articles of interest to bankers and other industry participants. The first article provides an overview of trends in de novo bank formation; the process by which the FDIC reviews applications for deposit insurance; the supervisory process for de novo institutions; and steps the FDIC is taking to support de novo formations. The second article discusses how the FDIC’s Matters Requiring Board Attention (MRBA) page within the Risk Management Report of Examination is used to focus the attention of bank management and the directorate on issues that, if addressed early, will reduce the likelihood that those institutions will experience serious adverse effects. This article describes the MRBA categories cited most often at satisfactorily rated institutions in 2014 and 2015 and highlights trends that can provide an overview of risks that may be developing in the industry.
The FDIC has updated its video series addressing the Consumer Financial Protection Bureau’s (CFPB) Ability-to-Repay & Qualified Mortgages rules. The series includes nine short video segments, each accompanied by presentation materials, which are designed to help community bank compliance officers understand and comply with the rules. The rules apply to “covered transactions,” which are generally consumer purpose, closed-end loans secured by a dwelling. The ability-to-repay analysis requires a creditor, before entering a covered transaction, to make a reasonable good faith determination that the borrower will have a reasonable ability to repay the loan according to its terms. The videos identify the types of transactions covered by the rules and significant exemptions. They also review the underwriting factors a creditor should use to assess a borrower’s ability to repay, as well as the requirements for qualified mortgages and how points and charges are applied to fee caps. Additionally, the videos touch upon balloon mortgages, ARM loans, and characteristics of effective compliance programs.
On August 18, the Office of the Comptroller of the Currency (OCC) released the August 2016 edition of its Bank Accounting Advisory Series (BAAS) that includes recent answers to frequently asked questions in areas such as contingencies, fair value accounting, and deferred taxes. The BAAS is intended to promote consistent application of accounting standards among national banks and federal savings associations. OCC-regulated institutions that deviate from these interpretations may be required to justify those departures to the OCC.
On August 18, the CFPB Student Loan Ombudsman released a report finding that servicing problems made it difficult for consumers to get lower student loan payments tied to their income. Specifically, student loan borrowers who sought to take advantage of income-driven repayment plans with their federal student loans reported the following concerns: (1) extended processing delays for their applications, (2) repayment rejection, (3) repeated obstacles when recertifying, and (4) expensive processing delays. In response, the CFPB published a “Fix It Form” designed to assist servicers and improve the level of service they provide by (1) creating more responsive, consistent servicing, (2) improving transparency around criteria, and (3) improving access.
Enforcement & Litigation
On August 22, the CFPB announced that it entered into a consent order with a large national bank in relation to the company’s private student loan servicing practices. The CFPB asserts that the bank’s practices allegedly increased costs and penalized certain borrowers, leading to illegal fees and inaccurate credit reporting. The CFPB order is based on alleged violations of the Consumer Financial Protection Act (CFPA), 12 U.S.C. §§ 5531, 5536, the Fair Credit Reporting Act (FCRA), 15 U.S.C. § 1681s-2(a)(2), and Section 1022.42 of Regulation V, 12 C.F.R. § 1022.42(a). According to the order, the bank’s servicing process caused thousands of student loan borrowers to have issues with their loans or receive inaccurate information regarding their payment options. Specifically, the order states that the CFPB’s investigation found that the company: (1) processed loan payments such that it maximized late fees; (2) provided borrowers with inaccurate billing statements regarding the value of partial payments; (3) charged certain borrowers late fees even when those persons made timely payments; and (4) failed to update and correct borrower information such that it led to inaccurate credit reporting. The consent order will require the company to pay at least $410,000 in consumer refunds of improper late fees, as well as an additional $3.6 million in civil penalties. The company will also be required to amend its policies and practices regarding the allocation of partial payments and consumer billing disclosures. The company must submit a compliance plan to the Regional Director of the CFPB within 90 days of the effective date of the order. For more information, see our Consumer Finance Enforcement Watch blog post.
On August 12, the Massachusetts Division of Banks made public its second quarter enforcement actions, including a consent order that it had entered into on April 21 with a California-based mortgage lender and broker concerning its alleged practice of charging borrowers per diem interest between the funding date of the loan and the date the funds were disbursed to the borrowers. The consent order noted that the mortgage lender has since conducted a review of all Massachusetts loans closed between October 1, 2012, through March 31, 2015, and has reimbursed all borrowers for the full amount of interest collected during that period. Under the terms of the consent order, the mortgage lender agreed to implement and maintain policies and procedures to ensure that, in a mortgage refinance transaction, loan proceeds are made available to the borrower on the business day following the expiration of the rescission period, and to expand independent audits to include fair lending, Home Mortgage Disclosure Act, and Equal Credit Opportunity Act reviews. For more information, see our Consumer Finance Enforcement Watch blog post.
Earlier this month, the U.S. Securities and Exchange Commission (SEC) announced its second significant enforcement action against an employer based on confidentiality and release provisions that the SEC asserts will discourage employees from participating in the SEC’s whistleblower program. The SEC has announced another significant enforcement action that confirms the position taken earlier this month in the BlueLinx enforcement action. The latest enforcement action, taken against Health Net, Inc., underscores the importance of reviewing the language in agreements with current and former employees. For more information, read the client alert from Goodwin’s Public Companies practice.
Bank partnerships in online marketplace lending are getting a lot of attention. There is pent up demand for these arrangements, with banks operating in this space experiencing increased inquiries from Fintech startups with lending ideas. Seeing these opportunities, other banks are considering becoming Fintech partners. All of this interest has translated into some regulators and enforcement agencies taking a critical look at how bank partnerships operate. In this first issue of Fintech Flash – a series of client alerts published by Goodwin’s Fintech Practice – we cover the pros and cons of marketplace lending platform companies either getting their own state lender licenses or entering into bank partnerships. For more information, click here.
On September 8 – 10, the American Bar Association (ABA) will host its Business Law Section Annual Meeting. Grow your international network of business law thought leaders and colleagues. Design your business law curriculum with over 90 CLE programs and attend committee meetings and events to build relationships with peers in your area of interest. Partners Lynne Barr and Scott Webster will be speaking at the event. For more information, please visit the event website.
Best Lawyers in America has named eight Goodwin partners to its 2017 “Lawyers of the Year” list. Based on peer review, this recognition is presented annually to a single stand-out lawyer in each practice and major metropolitan area. Best Lawyers is an annual ranking designed to capture the opinion of leading lawyers about the professional abilities of their colleagues within the same geographical and legal practice areas. 93 Goodwin lawyers were named to the 2017 listing. For the list of Goodwin partners, click here.