Sep. 22: Letters & notes about regulatory enforcement, weed, cost cutting, state-level lending law changes

Small lenders continue to wonder if anything can be done about the “insane” new 1003. At 14 maximum pages small shops view it as absurd, and others wonder if the new crew running the CFPB has failed to grasp the regulatory problems before the bureau. An industry vet wrote to me saying, “At no point have we seen an effort to correct the imbalance caused by the MLO Comp Rule or the SAFE Act. Both continue to put small businesses at a distinct disadvantage. TRID and QM continue to languish as grossly expensive for the industry and the consumer while offering absolutely no additional safe guards for the nation. Not to mention the QM exemption issue loans approved by DU and LP for another couple years until it is extended, with the actual ‘line in the sand’ DTI number being 43% but some companies using 41.5% to provide an additional buffer.”

Cost cutting

Loan officers have grown accustomed to bearing the brunt of cost cutting chatter, especially when it comes to their compensation. Is it possible to have production staff that doesn’t cost the owner a penny? Highly unlikely, and I received this note. “The real challenge is creating the ‘no-cost LO.’ Most managers and staff (and some Exec’s, FWIW) don’t pay attention to what it really costs an employer to have a LO or any staff member on the books. Employee benefits alone can cost a company over $1,000 a month, then add the proportional cost of IT systems & support, facilities (their desk space and supplies), marketing, administrative support (accounting, HR, their manager, ops staff, etc.), insurance (E&O, fidelity bond), and others all directly drive the expense side of the income statement to support their existence. This easily equates to each employee costing a company more than $3,000+ a month before they ever generate any income, let alone a net profit for the company. Depending on the market, that number can be much higher. Does any lender still want under-performing staff hanging around as volume and margins continue to tighten? I sure hope not…”


The publicly-held cannabis companies are making headlines with their stock prices skyrocketing. They can come down just as quickly, however. For something a little more concrete, Nevada has collected some $69.8 million in its first fiscal year of marijuana taxes, which is 140 percent of what was anticipated. Who could have ever thought that Nevada would see serious financial benefit from residents and tourists spending money indulging vices?

Pro Teck’s July HVF Monthly Market Report saw that nine of the top 10 hottest CBSAs are in states with legalized marijuana, and sale prices increased by an average of 10% across those metros in the past year. Across other market statistics, such as months remaining inventory, active price change, and days on market, these markets where marijuana has been legalized are all trending up. How is this accounted for? Recreational marijuana brings jobs, investment opportunities and property development.

As we all know, however, marijuana is not legal at the federal level. And any lender that originates a loan that will be purchased or insured by an entity doing business with, or as part of, the U.S. government can’t use income or assets related to something that is illegal – like marijuana.

Regulatory enforcement actions: change in the wind

I received this note from attorney Brian Levy with Katten & Temple, LLP. “Rob, as you know, over the past few years, I’ve decried the issue of ‘regulation by enforcement’ in your blog and elsewhere in articles, speeches and other public forums. As a result, I feel somewhat vindicated by the recent joint agency announcement (, noting that enforcement actions may not be taken purely based on general supervisory guidance or other enforcement actions. This should be seen as a powerful statement about the nature of federal financial institution regulation, rolling back some terrible developments that occurred, particularly with the CFPB under Cordray.

“What this means for federal financial institution regulation generally is that unless it’s either (i) an actual law (passed by Congress) or (ii) a regulation promulgated through Constitutionally permitted notice and comment rulemaking procedures by a federal agency with power to issue its own rules, it’s not a law or regulation. Seems obvious, but that’s just another way of saying, ‘just because it quacks, it isn’t a duck unless the DNA test proves it’s really a duck.’ Everything else (supervisory guidance, enforcement actions etc.) might be a good idea, but the government can’t punish you for not doing (or doing) it.

Frankly, it’s incredibly scary that this distinction was so often ignored and even rejected by regulators in the first place (see e.g., former CFPB Director Cordray’s infamous, ‘compliance malpractice’ comment). Even when applied to financial institution regulation, elevating regulatory guidance and enforcement to having the force of law is a form of governmental tyranny that is prohibited by our Constitution. I’m truly glad the regulators have recognized in writing what should have been obvious all along.” Thank you, Brian!

Compliance personnel know that the Agencies have affirmed policies that say no enforcement actions should be based on guidance. The ABA noted, “In an important joint statement, the financial regulatory agencies clarified the role of supervisory guidance in bank supervision, noting that it ‘does not have the force and effect of law.’ Regulators from the Federal Reserve, FDIC, OCC, Consumer Financial Protection Bureau and the National Credit Union Administration affirmed that supervisory guidance is intended to outline expectations and general views regarding appropriate practices for a given subject area, and that they would not pursue enforcement actions based on it.

“The agencies highlighted additional ongoing efforts to clarify policies and practices related to supervisory guidance. Specifically, they said they would: limit the use of numerical thresholds or bright-lines when outlining expectations in supervisory guidance; not criticize institutions for ‘violations’ of supervisory guidance; strive to reduce the issuance of multiple guidance documents; and continue working to clarify the role of supervisory guidance in communications with exam teams and supervised institutions. They also noted that seeking public comment on guidance does not signal that the guidance is intended to have the force and effect of a regulation or law.

“ABA welcomed the announcement. ‘We appreciate this effort by regulators to ensure that both banks and examiners have a clear understanding of the appropriate role of guidance in bank supervision,’ said ABA EVP Wayne Abernathy. ‘Bankers over the years have raised numerous concerns about the application of guidance in the examination process, and we view this as a positive step towards providing greater clarity.’

And Mortgage Bankers Association President and CEO Robert Broeksmit, CMB, believes that the real estate finance industry’s efforts are starting to “bear fruit.”

State news and lending law changes continue!?

Things are bigger in Texas. Judy Cochran, the mayor of Livingston, Texas, enlisted her son-in-law and a raccoon to lure a massive alligator (12 feet, 580 pounds) from a pond before killing it (the gator) with a single shot from her Winchester .22 Magnum. And thus, the death of her miniature horse years ago, likely at the hands and jaw of the very same reptile, was avenged.

Maryland has passed House Bill 1511, effective October 1, 2018, which modifies a provision of its regulations regarding mortgage brokers finder’s fees. Previously, a mortgage broker who obtained more than one mortgage loan on the same property within a 24-month period could charge a finder’s fee only on “so much of the loan as is in excess of the initial loan.” Under HB 1511 “a mortgage broker obtaining a mortgage loan with respect to the same property more than once within a 24-month period may charge a finder’s fee if the fee is not in excess of 8% of the initial loan amount when combined with the finder’s fee charged on the initial loan and on any other finder’s fee collected during that 24-month period.”

The Maryland Court of Appeals confirmed foreign statutory trusts that acquire delinquent residential mortgage loans are NOT required to be licensed under the Maryland Collection Agency Licensing Act (the “Act”). Mayer Brown lawyers released its latest Consumer Financial Services Review titled, “Foreign Statutory Trusts Purchasing Delinquent Residential Mortgage Loans Are Not Required to Obtain Maryland Collection Agency License, Finds Maryland Court of Appeals,” on this opinion.

Maryland has passed House Bill 1297 which makes wide ranging changes to its Financial Consumer Protection Act. Among the sections amended include Section 12-114.1 which prohibits an unlicensed person from making a covered loan, meaning a loan subject to Section 12-103(A)(3) or (C) of the act; Section 12-303 which applies to a loan of $25,000.00 or less made for personal, family, or householder purposes; and Section 12-314 which prohibits a person from lending $25,000.00 or less if the person directly or indirectly charges an interest rate prohibited by law, or if the transaction violates the Federal Military Lending Act, or if the person is not licensed under or exempt from the Maryland Consumer Loan Law Licensing Provisions.

Additionally, amendments to Section 12-402.1 allow a lender, on or after January 1, 2019, to make a loan under the provisions of this subtitle so long as, among other things, the lender makes a written election in the agreement specifying that this subtitle will govern the loan.

Connecticut has amended its provisions regarding foreclosure mediation sessions effective as of October 1, 2018. Under the new provisions, the requirement that a mortgagor represented by counsel attend the first foreclosure mediation session in person has been eliminated. It is sufficient for the mortgagor’s counsel to appear in lieu of the mortgagor at this initial session so long as the mortgagor remains available during the mediation via telephone.

Connecticut has modified its provisions regarding security freezes on credit reports, identity theft prevention services, and regulations of credit rating agencies. Under the new provisions, a credit rating agency must place a security freeze on a consumer’s credit report as soon as practicable, but not later than five business days after receipt of a consumer’s written request to do so. The same time line applies when the consumer requests the security freeze to be removed. It is prohibited to charge a fee to a consumer for the placement of a security freeze or for the temporary or permanent removal of said freeze.

Upon discovery of a security breach, the person conducting business in the state of Connecticut shall notify each resident whose personal identification was compromised of the breach. The person conducting business in the state must also provide to the resident appropriate identity theft prevention and mitigation services at no cost to the consumer for at least twenty-four months. The previous provision only required these services to be provided for twelve months.

The Banking Commissioner is also required to adopt regulations requiring credit rating agencies to provide to the Banking Commissioner points of contact to be used by the Department of Banking in assisting consumers in the event of a data breach.

Alabama has enacted HB90 which amends current law regarding the 180-day right of redemption period after a foreclosure sale. HB90 provides that the right of redemption cannot be exercised more than one year after the date of foreclosure, that the production of proof of mailing of the notice of right of redemption is an affirmative defense to any notice requirement action, and bars any action related to the notice requirement if brought more than one year after the foreclosure sale.

Current law provides that a foreclosing mortgagee is required to give notice to the mortgagor of their right of redemption. The notice must be mailed certified mail with proof of mailing and must contain the following language: “Alabama law gives some persons who have an interest in property the right to redeem the property under certain circumstances. Programs may also exist that help persons avoid or delay the foreclosure process. An attorney should be consulted to help you understand these rights and programs as a part of the foreclosure process.”

Alabama has enacted SB318, an act known as the Alabama Data Breach Notification Act of 2018. The act requires that a covered entity provide notice to an individual where that individual’s personally identifying information may have been compromised as a result of a data breach. The act applies to all “covered entities” which may include a person, government entity, corporation, trust, estate, or any other business entity that acquires or uses personally identifying information. The act also applies to third party agents of covered entities that have access to an individual’s personally identifying information.

In the event a breach of security may have occurred, the act requires a covered entity to investigate to ascertain the scope of the breach, identify any information that may have been compromised in the breach, and identify the individuals whose information may have been accessed in the breach. If a covered entity has determined that a breach has occurred, or if a third-party agent notifies the covered entity that a breach has occurred, the covered entity is required to provide notice of the breach to everyone as expeditiously as possible.

Bad pun of the day

A Scotsman was arrested last week for stealing a truckload of kilts. He plaid guilty to all the charges.

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Rob Chrisman