“I don’t know if the news made it to you today, but they found another disease piggybacking on the reported disease. It seems that Corona-virus goes better with Lyme disease.” “Ahead of the Super Bowl, it is rumored that Corona offered $15 million to change the coronavirus name to budlightvirus.” There’s a lot of wit out there, often dealing with unpleasant topics. “Why do regulators exist? So economists have someone to laugh at.” In reality complying with regulations is hardly a laughing matter, and in fact my cat Myrtle has never even cracked a smile when I recite a partial list of groups that have a hand in regulating any entity that makes residential loans, or services them, including the CFPB, the OCC, the FDIC, HUD, Fannie Mae, Freddie Mac, Ginnie Mae, FHLB, VA, NCUA, NMLS, and every state.
When asked how they keep track of it all, any CEO or owner that shrugs and says they leave it up to their vendors may want to rethink that approach. Telling the judge, or regulator, that, “My staff thought my vendors had it covered” is probably not a solid defense.
The Consumer Financial Protection Bureau filed suit against several companies and individuals involved in offering student loan debt-relief services for allegedly obtaining consumer reports illegally, charging unlawful advance fees, and engaging in deceptive conduct. The Bureau’s action is against a mortgage lender called Chou Team Realty, LLC, which does business as Monster Loans (Monster Loans), an allegedly sham mortgage brokerage called Lend Tech Loans, Inc., and others.
A suit brought by Pennsylvania will end with 13 financial firms paying $337 million to settle claims that they collaborated to artificially inflate the price of bonds issued by Freddie Mac and Fannie Mae. This would be in addition to the $49 million already won from Deutsche Bank, Goldman Sachs and First Tennessee Bank. Barclays was the largest holder of the bonds, controlling 14 percent of the market and agreeing to pay $87 million, with another 12 banks agreeing to pay $250 million. All told, the 16 banks controlled approximately 77 percent of the market for GSE bonds, and from 2009 to 2015 are alleged to have violated anti-trust law.
The CFPB has issued a statement on how it intends to police abusive behavior by lenders. The Bureau has decided that the definition of abusive behavior is too vague, and that uncertainty is having a negative effect on consumers by driving overly cautious behavior in lenders. “First, consistent with the priority it accords to the prevention of harm, the Bureau intends to focus on citing conduct as abusive in supervision or challenging conduct as abusive in enforcement if the Bureau concludes that the harms to consumers from the conduct outweigh its benefits to consumers.” Harm outweighing the benefit? Sounds a little subjective. The Mortgage Bankers Association weighed in.
“Second, the Bureau will generally avoid challenging conduct as abusive that relies on all or nearly all of the same facts that the Bureau alleges are unfair or deceptive. Where the Bureau nevertheless decides to include an alleged abusiveness violation, the Bureau intends to plead such claims in a manner designed to clearly demonstrate the nexus between the cited facts and the Bureau’s legal analysis of the claim. In its supervision activity, the Bureau similarly intends to provide more clarity as to the specific factual basis for determining that a covered person has violated the abusiveness standard. Third, the Bureau generally does not intend to seek certain types of monetary relief for abusiveness violations where the covered person was making a good-faith effort to comply with the abusiveness standard.”
Did someone say, “QM patch?” Or, “DTI is only one factor in underwriting a loan, and it changes the day after the borrower funds?” Corelogic’s Pete Carroll estimates that $260B of the $1.63T in 2018 mortgage volume (16%) was originated through the GSE Patch. Listening to some of the largest mortgage lenders in the industry, the CFPB is moving to back the elimination of debt-to-income (DTI) requirements in mortgage underwriting. In a letter CFPB Director Kathy Kraninger sent to Congress, the CFPB asked to amend the Ability to Repay/Qualified Mortgage rule (ATR/QM rule) in order to remove DTI as a qualifying factor in mortgage underwriting. Experts think that the CFPB expects to propose to temporarily extend the expiration of the GSE Patch until the effective date of a new proposal or until one or more of the GSEs exits conservatorship, whichever comes first. The Bureau is working diligently to issue a proposed rule no later than May 2020 that will seek comment on these amendments.
On December 18, the CFPB published two guides to assist with TILA-RESPA Integrated Disclosure Rule (TRID) compliance for construction-only and construction-permanent loans. The Bureau notes that under Regulation Z, “a creditor may treat a construction-permanent loan as either one, combined transaction or as two or more separate transactions.” Disclosure options are (i) one, combined loan estimate along with one, combined closing disclosure; or (ii) two or more loan estimates and two or more closing disclosures for each phase of the construction-permanent loan. Appendix D in both the Combined Guide and the Separate Guide provides methods that may be used for estimating construction phase financing disclosures. The Bureau previously released FAQs in May concerning the application of TRID to construction loans.
Don’t forget that the CFPB published two guides to assist with TILA-RESPA Integrated Disclosure Rule (TRID) compliance for construction-only and construction-permanent loans. The Bureau notes that under Regulation Z, “a creditor may treat a construction-permanent loan as either one, combined transaction or as two or more separate transactions.” Disclosure options are (i) one, combined loan estimate along with one, combined closing disclosure; or (ii) two or more loan estimates and two or more closing disclosures for each phase of the construction-permanent loan. Appendix D in both the Combined Guide and the Separate Guide provides methods that may be used for estimating construction phase financing disclosures. The Bureau previously released FAQs in May concerning the application of TRID to construction loans.
The single disclosure approach often is referred to as using “combined disclosures.” The “Guide for separate construction and permanent phase disclosures” focuses on the Loan Terms, Projected Payments, Loan Costs and Adjustable Payments tables of the Loan Estimate and Closing Disclosure. Similarly, the “Guide for combined, one-transaction disclosures” focuses on the Loan Terms, Projected Payments, Loan Costs, Adjustable Payments, and Adjustable Interest Rate tables of the Loan Estimate and Closing Disclosure.
The CFPB announced final rules adjusting the asset-size thresholds under HMDA (Regulation C) and TILA (Regulation Z) that are now in effect. Under HMDA, institutions with assets below certain dollar thresholds are exempt from the collection and reporting requirements. The final rule increases the asset-size exemption threshold for banks, savings associations, and credit unions from $46 million to $47 million, thereby exempting institutions with assets of $47 million or less as of December 31, from collecting and reporting HMDA data in 2020.
Buckley reports that, “TILA exempts certain entities from the requirement to establish escrow accounts when originating higher-priced mortgage loans (HPMLs), including entities with assets below the asset-size threshold established by the CFPB. The final rule increases this asset-size exemption threshold from $2.167 billion to $2.202 billion, thereby exempting creditors with assets of $2.202 billion or less as of December 31, from the requirement to establish escrow accounts for HPMLs in 2020.”
Plenty of banks and lenders fret every year about filling their quota of CRA loans. The OCC and FDIC published a joint notice of proposed rulemaking (NPRM) to solicit comments on proposed amendments to the regulations implementing the Community Reinvestment Act (CRA). The three federal banking agency members of the Federal Financial Institutions Examination Council (FFIEC) with Community Reinvestment Act (CRA) responsibilities announced the availability of data on small business, small farm, and community development lending reported by certain commercial banks and savings associations, pursuant to the CRA. The agencies releasing the data are the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency.
Buckley reported that the Federal Reserve Board (Fed) released a new issue of the Consumer Compliance Supervision Bulletin focusing on supervisory insights into consumer compliance issues related to fintech to assist financial institutions with assessing and managing risk associated with technological innovation.
Can a real estate attorney who recently got licensed as a realtor act as both the realtor and an attorney on a transaction? Lenders Compliance Group addressed this question recently. The presumption here is that the attorney will be representing buyers in real estate transactions both as a real estate agent and attorney, raising a conflict of interest and hurting the individual’s ability to adequately represent the buyer in both capacities. The short answer is no. As the real estate agent, not only is the individual interested in the highest purchase price but also in closing the transaction; otherwise, they will not get paid. By contrast, the buyer’s lawyer’s role is to protect the buyer’s interests, which in some circumstances may include renegotiating a lower purchase price due to inspection issues or even advising the client that it is in his best interest to walk away from the deal even though doing so may preclude the real estate agent from receiving a commission. Most, if not all, states’ Rules of Professional Conduct prohibit an attorney from entering a “business transaction” with a client unless certain conditions are satisfied, including that the transaction is fair and reasonable, that the client has been advised in writing to consider the desirability of seeking the advice of other legal counsel, and that the client has provided informed consent to the representation in writing. However, many states’ bar associations and state court opinions have said that the personal conflict of interest of an individual acting in the dual capacity of a buyer’s real estate agent and lawyer is not one that may be waived by the parties; it is essentially “non-consentable by the client” and thus an individual may not act as both the buyer’s attorney and buyer’s real estate agent in the transaction. This applies when the real estate agent/lawyer is receiving a commission paid by the seller. It may be permissible for the individual to act in a dual capacity in other circumstances such as if, in their capacity as a real estate agent, they are being paid a flat fee regardless of whether the closing transaction is being paid by the buyer.
And lest we think that this world is all work and no play, as part of the recent 2019 Realtors Conference & Expo, industry and legal experts weighed in on the expanding state-level legalization of marijuana and its impact on Realtors and real estate markets. Because marijuana has to be grown, processed, distributed and used on real property, every property type is impacted by cannabis laws. 14 states have currently approved recreational adult use of cannabis, while a total of 33 states and territories have some form of legal medical marijuana.
Every lender, however, knows that the plant remains illegal on a federal level, signals from the Trump administration indicate that the federal government will not prosecute state-legal marijuana entities. The downside for those in the cannabis industry in states with approved ballot measures on the substance is that there is no access to FDIC-insured banks because it remains illegal under federal law. This means those businesses can’t accept credit cards and most of their business is run in cash.
There is the added liability of operating with cash-only businesses, as those businesses are exposed to added risks and security concerns not typically applicable to traditional entities. Many have argued the current laws keeping the industry’s money out of America’s banking system is jeopardizing economic growth while forfeiting critical opportunities for oversight and transparency. Unfortunately there doesn’t seem to be any imminent federal regulation in the works on this subject.
The CEO of a lender is called up for a CFPB exam. He’s really flustered and goes to his compliance VP for advice.
“Make sure you dress up like a guy who is on the edge of losing money. It will convince the regulator that you are not hiding anything.”
Not satisfied, he goes to his lawyer. He is told: “Dress in your best suit. If you look like a confident businessman, the CFPB won’t give you too much trouble.”
Unable to make head or tails of this, the CEO goes to his Rabbi. The Rabbi says: “You remind me of a young woman who came to me for advice. She was worried about what to wear for her wedding night. She aunt told her to dress plainly so her husband would think she was pure and innocent. Her mom told her to wear something revealing so he would be excited to be with her.”
The CEO is upset. “What does this have to do with me?”
The Rabbi replies: “Sam, the advice I give you is the same thing I gave her: It doesn’t matter what you wear, you’re still going to get shtupped.”
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