Mar. 13: The CFPB removes doubt on intent; Mike Cagney on Rohit Chopra; state-level changes: Oregon, HOA fees, and a foreclosure
Eating pizza is often a social thing, so don’t forget “Pi Day” is tomorrow, which is also, coincidentally, Albert Einstein’s birthday. Although pizza promotions have taken over this date, every year March 14 (3.14) celebrates the irrational number that we use to explain the relationship between a circle’s circumference and diameter, bringing joy to nerds everywhere. Pi, whose symbol is the Greek letter π, goes on forever, with computers having calculated over 1 trillion digits past the decimal. (Pi is an irrational and transcendental number meaning it will continue infinitely without repeating.) But enough non-mortgage stuff!
Besides the usual spate of “don’t forget to change your clock Sunday morning” warnings, I have received plenty of emails about the onerous new 1003. Good luck MLOs. For good news, for me, recent weeks have included business travel to Southern California and to Atlanta and informal conversations with others in residential mortgage lending indicate that there are “green shoots” when it comes to small company events, vendor-sponsored get-togethers, and even in-person conferences. Fist bumps and waves are the norm versus handshakes and hugs, and folks keep their distance and wear masks when required. Let’s hope social aspects of our business are able to progress! We live in a world of rules and restrictions, speaking of which…
States and the Consumer Finance Protection Bureau spring into action
Yesterday’s audio version of the commentary features Mike Cagney of Figure discussing, among other things, the new CFPB and Rohit Chopra.
If anyone was hoping for a kinder, gentler, CFPB, they were dealt a setback. Compliance personnel and attorneys took note this week when the CFPB announced it is rescinding its January 24, 2020 policy statement, “Statement of Policy Regarding Prohibition on Abusive Acts or Practices.” “Going forward, the CFPB intends to exercise its supervisory and enforcement authority consistent with the full scope of its statutory authority under the Dodd-Frank Act as established by Congress. The CFPB has made these changes to better protect consumers and the marketplace from abusive acts or practices, and to enforce the law as Congress wrote it.”
Congress defined abusive acts or practices in section 1031(d) of the Dodd-Frank Act. Among other things, companies are prohibited from materially interfering with someone’s ability to understand a product or service, taking unreasonable advantage of someone’s lack of understanding, taking unreasonable advantage of someone who cannot protect themselves, and taking unreasonable advantage of someone who reasonably relies on a company to act in their interests.
This CFPB believes that he 2020 Policy Statement was inconsistent with the Bureau’s duty to enforce Congress’s standard and rescinding it will better serve the CFPB’s objective to protect consumers from abusive practices.
For example, the 2020 Policy Statement stated that the CFPB would decline to seek civil money penalties and disgorgement for certain abusive acts or practices. The CFPB deters abusive practices and compensates certain harmed consumers using penalties, so the Policy Statement undermined deterrence and was contrary to the CFPB’s mission of protecting consumers.
Going forward, the CFPB intends to consider good faith, company size, and all other factors it typically considers as it uses its prosecutorial discretion. But a policy of declining to enforce the full scope of Congress’s definition of an abusive practice harms both the consumers who were taken advantage of and the honest companies that have to compete against those that violate the law.
Recall that the CFPB said the disclosure rule has cost lenders. It released a five-year look-back review of its mortgage disclosure rule that found consumers benefited from being able to compare terms and costs but that lenders paid a high price for compliance. The report found that loan terms varied dramatically. Roughly 40% of all home loans had at least one change to the annual percentage rate, while nearly 25% had changes to the loan amount and loan-to-value ratio. Interest rates changed on 8% of home loans, the report found. The bureau is accepting public comments to determine whether further changes are needed that would strengthen the rule’s benefits or reduce costs.
Tu no habla Ingles? The CFPB has a statement on providing financial products and services to limited English proficiency consumers, summed up by Ballard Spahr’s Barbara Mishkin and addressing the statement’s background and goals, the fair lending and UDAAP concerns the statement seeks to address, key aspects of the guidance it provides, and Bureau resources.
In January, the CFPB published a “Statement Regarding the Provision of Financial Products and Services to Consumers with Limited English Proficiency”. An article discussing Key Takeaways from CFPB’s Statement Regarding LEP Consumers was posted by First American Docutech.
Non-QM lenders certainly took note of the CFPB’s proposal to delay mandatory compliance date for new general qualified mortgage. It would push implementation of the Regulation Z ability to repay/QM rule from July 1, 2021 to October 1, 2022. It was in December that the CFPB issued two final QM rules. One created the new general QM based on an annual percentage rate (APR) limit to replace the original general QM based on a strict 43% debt-to-income (DTI) ratio limit. And the other created a new seasoned loan QM. Both rules became effective on March 1, 2021. Comments on the proposal are due by April 5, 2021.
Originators know that lenders may use the original 43% DTI QM, the new general QM based on an APR limit, and the temporary QM based on a loan being eligible for sale to Fannie Mae or Freddie Mac, which is commonly referred to as the “GSE Patch,” for applications received before July 1, 2021, and only the new general QM would be available for applications received on or after that date. If the mandatory compliance date of the new general QM rule is extended to October 1, 2022, all three QMs will be available for applications received before that date.
The CFPB issued a report on the impact of the pandemic on low income and minority households titled, “Housing insecurity and the COVID-19 pandemic.” For MLOs that are interested in the combination of numbers and personal stories, 11 million renter and homeowner households were significantly overdue on their regular housing payments as of December 2020, placing them at heightened risk of losing their homes to foreclosure or eviction over the coming months. Six percent of mortgages were delinquent, which has doubled since the start of the pandemic. About 2.1 million borrowers are 90 days behind on payments and an estimated 8.8 million tenant households are behind on their rental payments. And Blacks and Hispanics are more than twice as likely to report being behind on their housing payments in comparison to white families, and those households comprise the highest rates of the nearly 10 percent of renters that reported that they are likely to be evicted in the next two months.
The CFPB issued an interpretive rule clarifying that the prohibition against sex discrimination under the Equal Credit Opportunity Act (ECOA) and Regulation B includes sexual orientation discrimination and gender identity discrimination. This prohibition also covers discrimination based on actual or perceived nonconformity with traditional sex- or gender-based stereotypes, and discrimination based on an applicant’s social or other associations.
But the CFPB isn’t the only entity impact lenders across the nation. Each state is active, with some having “mini-CFPB’s” and certainly having the ability to tax.
A recent post from First American Docutech addressed the new Wyoming Revised Uniform Law on Notarial Acts, and how Wyoming amended its version of the UCCC. Indiana answered questions surrounding the notary block in security instruments.
In the Land of Enchantment, House Bill 19 has been introduced in the New Mexico Legislature that would, if it passes, enact a Transfer Tax on the sale of real property valued at over $500,000 and calls for the generated revenue to be used to offset the loss of exempting Social Security Income. Lenders and Realtors are not big fans of transfer taxes on the sale of real property.
In the Empire State, an Assurance of Discontinuance (AOD) went into effect between the New York Attorney General and a national mortgage servicing company regarding allegations that the company’s reverse mortgage servicing division sent borrowers deceptive communications. Put another way, the NY AG settled a deceptive notes claim with a reverse mortgage servicer.
In the nearby Garden State, the New Jersey Department of Banking and Insurance announced it is adjusting the definition of “high-cost home loan” to provide that the maximum principal amount of a loan that may be considered a high cost home loan will be $513,782.50. And New Jersey approved a bill that requires all creditors that acquire title to any non-owner-occupied residential property following foreclosure to notify the municipality where the property is located as well as any common interest community the property is part of, if applicable.
Down in Old Dominion, Virginia recently enacted House Bill (HB) 1882, which addresses a couple scenarios impacting, among other things, lien priorities for recorded documents and kicks in July 1. As Weiner Brodsky Kider points out, it “addresses certain residential mortgage lien priority issues in connection with refinancing, generally requiring that, for a subordinate mortgage to retain the same subordinate position with respect to a refinance mortgage that the subordinate mortgage had with the prior mortgage, the interest rate of the prior mortgage must be stated on the first page of the refinance mortgage in a particular way, in addition to other existing requirements.”
Speaking of lien position, in the Beaver State, the Oregon Supreme Court ruled that a condo association’s lien for unpaid assessments took priority over a bank’s lien because the bank failed to initiate foreclosure proceedings within 90 days of the condo association’s notice concerning a condo owner’s default.
Switching gears to company tactics, Lenders Compliance Group’s Jonathan Foxx addressed how to go about handling a whistleblower complaint without being fired. Specifically, people in the office have been getting sick and, at one company, employees were told they will be replaced, which would discontinue income and health benefits. What protection do employees have from getting fired if they report this unhealthy environment to authorities? When an illegitimate and illegal firing takes place for reporting the potential of violations of law in a commercial entity, this is called Whistleblower Retaliation. He suggested first finding a way to broaden the discussion with management in a proactive and helpful way. Management likely wants to work collaboratively with employees.
As many in the mortgage industry know, it is illegal to promote products and services of an affiliate on their website, and this crosses into regulatory territory. That territory is the regulatory framework of the Federal Trade Commission, which clarifies a set of guidelines that will make it possible for you to both mention the affiliates’ products and services without giving the impression that you are promoting them without proper disclosure.
For banks and the pandemic, don’t forget that federal bank regulatory agencies finalized two rules. One is a final rule that temporarily defers appraisal and evaluation requirements for up to 120 days after the closing of certain residential and commercial real estate transactions, and neutralizes, due to the lack of credit and market risk, the regulatory capital and liquidity effects for banks that participate in certain Federal Reserve liquidity facilities. This will allow individuals and businesses to more quickly access real estate equity to help address needs for liquidity as a result of the coronavirus pandemic. The final rule also clarifies which loans are subject to the deferral and is currently effective in the Federal Register but expired on December 31, 2020.
The second final rule was regarding Federal Reserve liquidity facilities. The facilities adopted without change three interim final rules issued in March, April, and May, which neutralizes the regulatory capital and liquidity coverage ratio effects of participating in the Money Market Mutual Fund Liquidity Facility and Paycheck Protection Program Liquidity Facility. The reasoning is that there is no credit or market risk in association with exposures pledged to these facilities. As a result, the final rule will support the flow of credit to households and businesses affected by the coronavirus. The effective date of this final rule is 60 days after the date of publication in the Federal Register. Both final rules should be welcomed by LOs, as the intention is to free up more credit to consumers, meaning more originations for lenders.
An hour outside of Dublin an Irish farmer named Seamus had a car accident. In court, the lorry company’s hot-shot solicitor was questioning Seamus.
“Didn’t you say to the police at the scene of the accident, ‘I’m fine?'” asked the solicitor.
Seamus responded, “Well, I’ll tell you what happened. I had just loaded my favorite cow, Bessie, into the…”
“I didn’t ask for any details,” the solicitor interrupted. “Just answer the question. Did you not say, at the scene of the accident, ‘I’m fine!’?”
Seamus said, “Well, I had just got Bessie into the trailer and I was driving down the road…”
The solicitor interrupted again and said, “Your Honor, I am trying to establish the fact that, at the scene of the accident, this man told the police on the scene that he was fine. Now several weeks after the accident, he is trying to sue my client. I believe he is a fraud. Please tell him to simply answer the question.”
By this time, the judge was fairly interested in Seamus’s answer and said to the solicitor, “I’d like to hear what he has to say about his cow Bessie.”
Seamus thanked the judge and proceeded. “Well as I was saying, I had just loaded Bessie, my favorite cow, into the trailer and was driving her down the road when this huge lorry and trailer came through a stop sign and hit my trailer right in the side. I was thrown into one ditch and Bessie was thrown into the other. I was hurt, very bad like, and didn’t want to move. But I could hear old Bessie moaning and groaning. I knew she was in terrible pain just by her groans.
“Shortly after the accident, a policeman on a motorbike turned up. He could hear Bessie moaning and groaning so he went over to her. After he looked at her, and saw her condition, he took out his gun and shot her between the eyes.
“Then the policeman came across the road, gun still in hand, looked at me, and said, ‘How are you feeling?’
“Now judge, what the heck would you have said?”
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