Tag Archives: Truth in Lending Act

CFPB Mortgage Highlights Fall ’15

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Mike Licht

The Consumer Financial Protection Bureau released its Fall 2015 Supervisory Highlights. In the context of mortgage origination, the CFPB found that

supervised entities, in general, effectively implemented and demonstrated compliance with the rule changes, there were instances of non-compliance with certain [rules] . . .. There were also findings of violations of disclosure requirements pursuant to the Real Estate Settlement Procedures Act (RESPA), implemented by Regulation X; the Truth in Lending Act (TILA), implemented by Regulation Z; and consumer financial privacy rules, implemented by Regulation P. (9, footnotes and sources omitted).

Specifically, it found that one or more entities failed to

  • “fully comply with the requirement that charges at settlement not exceed amounts on the good faith estimate by more than specified tolerances.” (10)
  • comply with the regulations governing HUD-1 settlement statements because of fees on the HUD-1 did match those on invoices; improper calculations on the HUD-1; and fees charged for services that were not provided, among other things.
  • provide required disclosures.
  • reimburse borrowers for understated APRs and finance charges, as required by Regulation Z.

In the context of mortgage servicing, the CFPB found that while it

continues to be concerned about the range of legal violations identified at various mortgage servicers, it also recognizes efforts made by certain servicers to develop an adequate compliance position through increased resources devoted to compliance. . . . Supervision continues to see that the inadequacies of outdated or deficient systems pose considerable compliance risk for mortgage servicers, and that improvements and investments in these systems can be essential to achieving an adequate compliance position. (15)

This is all well and good, but as I have noted before, it is hard to estimate how much of a problem exists from such a report — one or more entities did this, we are concerned about a range of legal violations of that . . .. I understand that the CFPB’s primary audience for this report are CFPB-supervised entities concerned with the CFPB’s regulatory focus, but this approach barely rises to the level of anecdote for the rest of us.

Tuesday’s Regulatory & Legislative Round-Up

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  • The Consumer Financial Protection Bureau’s (CFPB) new Know Before you Owe mortgage disclosure rule went into effect this week.  The new rule was implemented as a reform under Dodd-Frank.  Borrowers now have to be allowed three days to consider a mortgage loan, under certain circumstances, and Lenders are required to make a number of disclosures via forms mandated under the Truth in Lending Act. The CFPB has released this video to explain the new rule.
  • The U.S. Department of Housing and Urban Development (HUD) continues its recent flurry of grant making activity by awarding $138 Million to over 100 groups to fight housing discrimination. The grants were made under the auspices of the Fair Housing Initiatives Program (FHIP).  The awardees will use the funds to support education, outreach, investigations and capacity building.

Tuesday’s Regulatory & Legislative Round-Up

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  • The Consumer Financial Protection Bureau has launched an Online Guide for Real Estate Professionals to understand their obligations under the new “Know Before You Owe” mortgage disclosure rules, which become effective October 3, 2015.  The Know Before You Owe mortgage initiative is designed to empower consumers with the information they need to make informed mortgage choices. It includes the implementation of the TILA-RESPA (Truth in Lending Act – Real Estate Settlement Procedures Act) Integrated Disclosure rule. The new rule primarily does two things, first it consolidates some of the disclosures that must be made unto fewer forms and second it changes the timing of certain activities in the mortgage lending process.
  • Fannie Mae and Freddie Mac have announced an auction of Non-Performing Loans (NPLs) in the amount of 1.2 billion and provided details for bidder pre-qualification and servicer requirements. The reasons for the program are fourfold: 1. reduce illiquid assets, 2. encourage broad investor participation; 3. consider borrower outcomes; 4. a well controlled transparent process.
  • The New York City Council has passed three Tenant Buyout Bills which were designed to protect tenants from landlords who want them out of rent stabilized apartments.
    • The Bills are: Intro 682 – buyout offered in a threatening manner are an act of harassment.  This includes untoward language, odd hour contact, frequent contact, and abusive contact.
    • Intro 700 – requirement of a writing to memorialize the buyout offer, this writing must include important facts including the tenant’s right to seek legal representation and the right to refuse.
    • Intro 757 – Bars repeated buyout offers by making such behavior a form of harassment when the tenant has indicated she/he is not interested.

Tuesday’s Regulatory & Legislative Round-Up

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  • The Consumer Financial Protection Bureau issued guidance to “remind lenders of their obligations under the Equal Credit Opportunity Act and it’s implementing Regulation B, to provide non-discriminatory access to credit for mortgage applicants  using income from the section 8 housing choice voucher program.”
  • A bipartisan House Bill was recently introduced to provide a temporary safe harbor for from the enforcement of integrated disclosure requirements under the Real Estate Settlement Procedures Act (RESPA) and the Truth in Lending Act until January 2016 for those seeking to comply in good faith – this safe harbor would allow lenders to implement the new rules.

Tuesdays Regulatory & Legislative Round-Up

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Supreme Take on Truth in Lending

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The United States Supreme Court issued its ruling in Jesinoski v. Countrywide Home Loans, Inc., No. 13-684 (Jan. 13, 2015).  Jesinoski resolved a circuit split regarding notice requirements under the Truth in Lending Act (TILA) that apply when a homeowner is rescinding certain types of home mortgage loans.

Justice Scalia wrote the short opinion for a unanimous Court. The Court held that a “borrower exercising his right to rescind under the Act need only provide written notice to his lender within the 3-year period, not file suit within that period.” (syllabus at 1) Countrywide had argued that the borrower had to file suit within that 3-year period. In finding for the borrowers, the Court found that the language of the statute was “unequivocal.”

While some have said that this result will lead to borrowers walking away from their loans, that is unlikely to occur in all but a handful of cases. That is because in order to rescind the loan, a borrower would need to tender back the original loan proceeds. Hard to imagine too many borrowers being able to do that.

The opinion is important because it resolves a significant circuit split, but its unanimity reflects that this case was perceived by the members of the Court as a straightforward question of statutory interpretation. As such, it does not appear to be signaling much about the Court’s approach to consumer protection jurisprudence more generally.

S&P’s Upbeat Outlook on Mortgage Market

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S&P posted U.S. RMBS Roundtable: Mortgage Origination And Securitization In The Post-Qualified Mortgage/Ability-To-Repay Market. The roundtable discussion offers views on many aspects of the 2015 mortgage market, but I found this passage to be particularly interesting:

Originators agreed loans that fall outside of the safe harbor by virtue of interest-only (IO) features have been and will continue to be attractive non-QM lending products. These loans have been originated post-crisis, and originators expect to continue lending to high-quality borrowers with substantial equity in their properties. There was general consensus that IO loans should not have been automatically excluded from QM treatment.

However, large bank depository lenders have shown a desire to originate and hold larger balance IO loans on their balance sheets rather than including them in securitizations. One participant from a major depository institution indicated that, given the increasing IO concentration on those institutions’ balance sheets, there may be a desire to securitize these loans upon meeting balance sheet thresholds. (1)

After Dodd-Frank, there was a lot of concern that the Qualified Mortgage and Ability-to-Repay rules would shut down the mortgage markets. It seems pretty clear to me that lenders are figuring out how to navigate both the plain-vanilla world of the Qualified Mortgage and the exotic world of the non-Qualified Mortgage, with its interest-only and other non-prime products. Lenders are still figuring out how far afield they can roam from a plain-vanilla product, but that is to be expected during a major transition such as the one from the pre- to the post-Dodd-Frank world.