Regulatory Developments
CFPB Publishes Analysis of Qualified Mortgage Rule
On January 10, the CFPB issued an analysis of the Dodd-Frank Act’s Ability-to-Repay/Qualified Mortgage Rule. The report finds that, while the rule had little effect on mortgage cost at the aggregate market level and the ability of borrowers to access credit, a majority of mortgage lenders changed their business models as a result of the rule. The report also discussed the temporary GSE Qualified Mortgage provision of the rule, which grants qualified mortgage status to loans eligible to be purchased or guaranteed by the GSEs and which is set to expire in 2021. The report found that, contrary to the CFPB’s expectations at the time of the rulemaking, the GSEs (Fannie Mae and Freddie Mac) have maintained a persistently high share of the market in the years following the rule’s effective date. Despite this, the CFPB did not make recommendations on improving the rule.
CFPB Releases Report On 2013 Mortgage Servicing Rule Assessment
On January 10, the CFPB released its 2013 RESPA Servicing Rule Assessment Report (Report). The Report provides the results of the CFPB’s five-year assessment, as mandated by the Dodd-Frank Act, of the 2013 mortgage servicing rule, which was issued under the Real Estate Settlement Procedures Act. The rule, which has the primary purpose of providing assistance to borrowers who struggle with mortgage payments to apply and be considered for foreclosure-avoidance options, was found to be costly in some respects, while less costly in others. For instance, loss mitigation application and process were found to be the costliest provisions. The Report noted that 26,000 more borrowers who became delinquent in 2014, or less than 0.05% of the 53 million mortgage loans then outstanding, would have been foreclosed on had the rule not been implemented. The Report provides additional findings while also providing an overview of trends in the mortgage servicing market, delves into the data and evidence available for findings, discusses the rule’s intervention provisions and key findings, and provides a discussion of the rule’s provisions that prohibit services from initiating a foreclosure proceeding. The CFPB conducted the assessment through interviews, data collection, reports and public comments provided for the assessment.
On December 26, the Securities and Exchange Commission (SEC) settled enforcement proceedings against ADT Inc. involving certain ADT earnings releases that did not comply with SEC non-GAAP disclosure requirements. Specifically, the SEC cease-and-desist order states that when ADT presented non-GAAP financial measures in the headlines to its 2017 full-year and 2018 first-quarter earnings releases without giving the comparable GAAP financial measures equal or greater prominence, ADT violated Item 10(e)(1)(i)(a) of Regulation S-K, Section 13(a) of the Securities Exchange Act of 1934, and Rule 13a-11 thereunder. Among other non-GAAP financial measures, ADT presented adjusted EBITDA in the headlines of both earnings releases and stated that EBITDA had increased by a stated percentage over the comparable prior period without disclosing net income or loss, the comparable GAAP financial measure, in the headlines. The comparable GAAP financial measures were included further down in the body of the earnings releases. ADT paid a $100,000 fine in connection with the settlement. For more information, read the client alert issued by Goodwin’s public companies practice.
Goodwin Alert: SEC Expands ‘Regulation A’ Eligibility to Reporting Companies
Regulation A provides an exemption from the registration requirements of the Securities Act of 1933 (the Securities Act) for offers and sales of securities up to $20 million, for Tier 1 offerings, or up to $50 million, for Tier 2 offerings, in each case in any rolling 12-month period. Under the current rules, Regulation A is not available to companies (34 Act Companies) subject to the ongoing reporting requirements of Section 13 or 15(d) of the Exchange Act of 1934 (Exchange Act). However, on December 19, 2018, the Securities and Exchange Commission (SEC) announced that it adopted amendments to 17 CFR 230.257 (Rule 257) to make ’34 Act Companies eligible to utilize Regulation A. In addition, with respect to Tier 2 offerings, the amended rule provides that such issuers would be deemed to have met the periodic and current reporting requirements under Regulation A if they have otherwise complied with the reporting requirements of the Exchange Act. For more information, read the client alert issued by Goodwin’s real estate practice.
Enforcement & Litigation
49 State Attorneys General Obtain Nearly $500 Million in Student Loan Debt Relief
On January 2, 49 state attorneys general reached a settlement with an Illinois-based for-profit education company, securing approximately $493.7 million in debt relief for over 179,000 students nationwide. The settlement is the result of a five-year investigation, which began in 2014 after states received complaints from students, and the U.S. Senate’s Health, Education, Labor and Pensions Committee released a report on the company. View the Enforcement Watch blog post.
Supreme Court Hears Argument on Future of FDCPA Landscape
The issue of whether the Fair Debt Collection Practices Act (FDCPA) applies to non-judicial foreclosure proceedings is now squarely before the U.S. Supreme Court. Following oral arguments last week in the case Obduskey v. Wells Fargo, et al., No. 17-1307, the justices will be tasked with deciding whether non-judicial foreclosures qualify as an attempt to collect a debt, and consequently whether parties bringing non-judicial foreclosure actions qualify as “debt collectors,” subject to the restrictions of the FDCPA. View the LenderLaw Watch blog post.
Goodwin News
Acquire or Be Acquired Conference - January 27-29, 2019, Phoenix, AZ
Goodwin is sponsoring, and partner Regina Pisa is presenting, at the 25th anniversary of Bank Director’s Acquire or Be Acquired Conference. In 2018, over 1,200 executives came together to explore financial growth options, consider strategic opportunities and discuss initiatives involving partnerships. For some, the conference reinforced the notion that now is the right time to sell; for others, it proved that the next few years present real options to expand. This year's conference session highlights include The Mechanics of Successful Deals, Preparing for Performance, Aligning Yourself for Future Growth, Key Regulatory Priorities, Don't Let Your Digital Strategies Fail and Ingredients of An Extraordinary Bank.
This week’s Roundup contributors: Jessica Craig, Jessie Rabinowitz and Thomas Schaad.