October 20, 2015
Tuesday’s Regulatory & Legislative Update
- The Consumer Financial Protection Bureau (CFPB) has finalized a Rule to expand reporting requirements imposed upon financial institutions under the Home Mortgage Disclosure Act (HMDA). Dodd-Frank included a mandate directing the CFPB to collect metrics to allow, among other things, a better understanding of the mortgage market, quicker identification of trends, and spotting of discriminatory patterns and practices. The CFPB also hopes to use the data to avoid some of the mistakes in the mortgage market which led to the Financial Crisis. The CFPB also has a site containing resources to help financial institutions comply.
- CFPB has released the prepared remarks of Director Richard Corday, which he delivered before the Mortgage Bankers Association’s Annual Convention. In discussing the new agency’s work since Dodd-Frank, Corday asserted that the CFPB has worked hard to create a “set of rules that protect prospective homebuyers in a manner that never existed in the past, while supporting responsible lenders against those who led a race to the bottom in underwriting standards. We now have a system in place that consumers can trust in a way they could not trust in the marketplace a decade ago.”
- The Terwilliger Foundation hosted a Housing Summit in New Hampshire where Presidential Hopefuls, including, among others: Martin O’Malley, Chris Christie, George Pataki), Mike Huckabee, and Rand Paul. The Enterprise Community Partners Blog has a great piece which describes the affordable housing policy proposals of the various candidates.
October 20, 2015 | Permalink | No Comments
October 19, 2015
Kickbacks in Residential Transactions
The Consumer Financial Protection Bureau has issued Compliance Bulletin 2015-05, RESPA Compliance and Marketing Servicing Agreements. The Bulletin opens,
The Consumer Financial Protection Bureau (CFPB or the Bureau) issues this compliance bulletin to remind participants in the mortgage industry of the prohibition on kickbacks and referral fees under the Real Estate Settlement Procedures Act (RESPA) (12 U.S.C. 2601, et seq.) and describe the substantial risks posed by entering into marketing services agreements (MSAs). The Bureau has received numerous inquiries and whistleblower tips from industry participants describing the harm that can stem from the use of MSAs, but has not received similar input suggesting the use of those agreements benefits either consumers or industry. Based on the Bureau’s investigative efforts, it appears that many MSAs are designed to evade RESPA’s prohibition on the payment and acceptance of kickbacks and referral fees. This bulletin provides an overview of RESPA’s prohibitions against kickbacks and unearned fees and general information on MSAs, describes examples of market behavior gleaned from CFPB’s enforcement experience in this area, and describes the legal and compliance risks we have observed from such arrangements. (1, footnote omitted)
RESPA had been enacted to curb industry abuses in residential closings. Segments of the industry have been very creative in developing new strategies to avoid RESPA liability, with MSAs a relatively new twist. MSAs are often “framed as payments for advertising or promotional services” but in some cases the providers “fail to provide some or all of the services required under their agreements.” (2,3)
This Bulletin is a shot across the bow of industry participants that are using MSAs, reminding them of the significant penalties that can result from RESPA violations. It seems to me that the Bureau is right to warn industry participants to “consider carefully RESPA’s requirements and restrictions and the adverse consequences that can follow from non-compliance.” (4)
October 19, 2015 | Permalink | No Comments
Monday’s Adjudication Roundup
- The U.S. Securities and Exchange Commission were granted its request to freeze Luca International Group LLC’s CEO’s assets. He allegedly engaged in a “Ponzi-like” scheme with EB-5 investors.
- New York appeals court revived claims against Nomura Holdings Inc. brought by investors finding that HSBC can seek damages for misrepresentation in mortgage-backed securities transactions, which ended up being defective loans.
- In case brought by U.S. Bank against Credit Suisse, a New York judge refused dismissal for failing to buy back bad loans worth $1 billion, finding that the servicing agreement with U.S. Bank required it to do so.
- The Internal Revenue Service approved Bank of America’s $8.5 billion settlement for mortgage-backed securities purchased from Countrywide.
- JPMorgan and MassMutual have settled in case where JPMorgan had allegedly cause MassMutual to lose $2.3 billion in mortgage-backed securities.
October 19, 2015 | Permalink | No Comments
October 16, 2015
Enhancing Mortgage Data and Litigation Risk
Law360 quoted me in CFPB Data Collection Boost May Bring More Lending Cases (behind a paywall). It reads, in part,
The Consumer Financial Protection Bureau has given lenders more time to prepare for its new mortgage data reporting rule and streamlined some of the information lenders will have to provide to regulators, but worries persist that the new data will be used to bring more fair-lending enforcement actions.
The federal consumer finance watchdog on Thursday released a final version of its update to the Home Mortgage Disclosure Act — a key tool that regulators for decades have used to determine which populations were receiving home loans and which were being shut out — that more than doubles the amount of information that lenders will have to provide about the mortgages they issue.
That alone will make for a major technical overhaul of lenders’ operations, an overhaul that is likely to be expensive both in purchasing and developing new technology but also in the number of hours lenders will have to spend to get up to speed. But a second concern revolves around the vast new amount of information that the CFPB will have, and how it could use that information to review lenders’ compliance with fair-lending laws, said Donald C. Lampe, a partner with Morrison & Foerster LLP.
“I don’t think the full cost has yet been established, and I think what you’re seeing here are that there are concerns that this level of granular data can be misinterpreted,” he said. “There’s enough information here from a practical standpoint to re-underwrite the loan.”
* * *
“My position is that collecting more data about the mortgage market is a very good thing for consumers,” said David Reiss, a professor at Brooklyn Law School. “The more data [lenders] provide, the more likely it is that academics or the feds could find patterns of discriminatory lending.”
The added litigation risks do not come solely from the CFPB. The HMDA data is released publicly each year, meaning that activist groups, state regulators and plaintiffs attorneys will be able to comb through the vastly more comprehensive information, said Warren Traiger, counsel at BuckleySandler LLP.
“This is public data, so in addition to bank examiners and the [U.S. Department of Justice utilizing the data, there’s nothing preventing state attorneys general from using it as well,” he said.
And when state regulators, private plaintiffs or other parties come along with new complaints, the expanded data set will allow them to make far more specific discrimination claims than the current HMDA data makes possible.
“There will be a number of additional fields that will be out there that will allow regulators and the public to make more specific allegations regarding discrimination in mortgage lending than the current HMDA data allows,” Traiger said.
October 16, 2015 | Permalink | No Comments
Friday’s Government Reports
- The Federal Reserve Bank of Philadelphia has released a Discussion paper Gentrification and Residential Mobility in Philadelphia the study uses consumer credit data to study the economic effects of gentrification on existing lower income residents. The study finds the following: “[R]esidents in gentrifying neighborhoods have slightly higher mobility rates than those in nongentrifying neighborhoods, but they do not have a higher risk of moving to a lower-income neighborhood. Moreover, gentrification is associated with some positive changes in the financial health of residents as measured by individuals’ credit scores. However, when more vulnerable residents (low-score, longer-term residents, or residents without mortgages) move from gentrifying neighborhoods, they are more likely to move to lower-income neighborhoods and neighborhoods with lower values on quality-of-life indicators. The results reveal the nuances of mobility in gentrifying neighborhoods and demonstrate how the positive and negative consequences of gentrification are unevenly distributed.”
October 16, 2015 | Permalink | No Comments
October 15, 2015
Millennials, Paycheck to Paycheck
The National Housing Conference and the Center for Housing Policy issued a report, Paycheck to Paycheck: A Snapshot of Housing Affordability for Millennial Workers. The report opens,
Public perception of millennials tends to paint a picture of highly educated hipsters living in city micro-units, or perpetual youth living in their parents’ basements. However, those stereotypes do not adequately portray the diversity of race, education, income, family types, living arrangements and employment among millennials.
In fact, most millennials do not live in micro-units or with their parents. Many are getting married and starting families. Even though millennials are more highly educated than previous generations, many face limited job prospects. And many millennial workers are in relatively low-paying jobs and have difficulty finding housing they can afford. As a result, they spend a burdensome share of their paycheck on housing, leaving little for other expenses, including student debt payments, savings for a mortgage down payment and childcare. (1)
The report makes a variety of conservative assumptions. For instance, it assumes that a loan to value ratio of 28% of income and it assumes that households have only one worker. It proposes a variety of policies to expand mortgage credit, affordable housing subsidies and zoning reforms to increase the supply of housing.
Given that the report comes from two affordable housing advocacy groups, its policy proposals to increase the supply of affordable housing for millenials are not surprising. But I do think it is worth thinking about household formation a bit more in this context.
Many of us do not give much thought to how households form. When we think about our own experience, we might conclude that when we had enough money to get our own place we did just that. But, in fact, the rate of household formation is significantly affected by broader economic forces, namely the state of the job market. If an individual does not believe that her income is stable, she will delay creating her own household. Thus, she might live with her parents or share an apartment with others. Reports like this one assume that there is a natural rate of household formation just as many people assume that there is a natural rate of homeownership. As a general rule, those people generally assume that higher is better.
It might be worth considering that household formation and homeownership rates are driven by the interplay of much larger forces. Instead of trying to move those rates for their own sake, it might be more important to look at fundamentals in the economy, like the unemployment rate and wage growth, and let household formation and homeownership rates take care of themselves.
October 15, 2015 | Permalink | No Comments
Thursday’s Advocacy & Think-Tank Round-Up
- Corelogic’s National Foreclosure Report shows a total of 36,000 foreclosures in August, nationwide. This represents a decline of over 20% when compared to August of 2014.
- The Make Room Campaign has completed an analysis of the affordable housing crisis in Florida, where they find that 30% of renters spend more than 50% of their income on rent per month.
- In an effort to decrease costs for affordable housing developers NYC proposes to eliminate off-street parking mandates for developments with good transit access.
October 15, 2015 | Permalink | No Comments
