- 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.
Tag Archives: Consumer Financial Protection Bureau
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)
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.”
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“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.
Tuesday’s Regulatory & Legislative Round-Up
- 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.
Friday’s Government Reports
- The Consumer Financial Protection Bureau’s Monthly Complaint Snapshot focuses on consumer complaints related to mortgages. The CFPB found that consumers have particular difficulty with mortgage servicing – especially when applying for loan modifications to avoid foreclosure. The report also takes a close look at compliants coming out of the Denver, CO area.
- The U.S. Treasury has announced $327 million in CDFI Bond Fund Gaurantees, which were awarded to CDFI’s to issue bonds, the funds of which are intended to be used to finance projects in low income communities. Among the initiatives guaranteed include senior and long term care development in latino communities and residential and commercial development in Native American communities.
CFPB Mortgage Market Rules
Law360 quoted me in Questions Remain Over CFPB Mortgage Rules’ Market Effects (behind a paywall). The story highlights the fact that the jury is still out on exactly what a mature, post-Dodd-Frank mortgage market will look like. As I blogged yesterday, it seems like the new regulatory regime is working, but we need more time to determine whether it is providing the optimal amount of sustainable credit to households of all income-levels. The story opens,
Despite fears that a set of Consumer Financial Protection Bureau mortgage rules that went into effect last year would cut off many black, Hispanic and other borrowers from the mortgage market, a recent government report showed that has not been the case.
Indeed, the numbers from the Federal Financial Institutions Examinations Council’s annual Home Mortgage Disclosure Act annual report showed that the percentage of black and Hispanic borrowers within the overall mortgage market actually ticked up in 2014, even as the percentage of loans those two communities got from government sources went down.
However, it may be too early to say how the CFPB’s ability-to-repay and qualified-mortgage rules are influencing decisions by lenders and potential borrowers as the housing market continues to recover from the 2008 financial crisis, experts say.
“Clearly, there’s a story here, and clearly there’s a story from this 2014 data,” said David Reiss, a professor at Brooklyn Law School. “But I don’t know that it’s that QM and [ability to repay] work.”
The CFPB was tasked with writing rules to reshape the mortgage market and stop the subprime mortgage lending — including no-doc loans and other shoddy underwriting practices — that marked the period running up to the financial crisis.
Those rules included new ability-to-repay standards, governing the types of information lenders would have to collect to have a reasonable certainty that a borrower could repay, and the qualified mortgage standard, a class of mortgages with strict underwriting standards that would be considered the highest quality.
The rules took effect in 2014, after the CFPB made changes aimed at easing lenders’ worries over potential litigation by borrowers should their QMs falter.
Even with those changes, there were worries that black, Hispanic and low-income borrowers could be shut out of the market, as lenders focused only on making loans that met the QM standard or large loans, known as jumbo mortgages, issued primarily to the most affluent borrowers.
According to the HMDA report, that did not happen in the first year the rules were in effect.
Both black and Hispanic borrowers saw a small uptick in the percentage of overall mortgages issued in 2014.
Black borrowers made up 5.2 percent of the overall market in 2014 compared with 4.8 percent in 2013, when lenders were preparing to comply with the rule, and 5.1 percent in 2012, the report said. Latino borrowers made up 7.9 percent of the overall market in 2014 compared with 7.3 percent in 2013 and 7.7 percent in 2012, the federal statistics show.
And the percentage of the loans those borrowers got from government-backed sources like the Federal Housing Administration, a program run by the U.S. Department of Housing and Urban Development targeting first-time and low- to middle-income borrowers, the U.S. Department of Veterans Affairs and other agencies fell.
Overall, 68 percent of the loans issued to black borrowers came with that direct government support in 2014, down from 70.6 percent in 2013 and 77.2 percent in 2012, the HMDA report found. For Hispanic borrowers, 59.5 percent of the mortgages issued in 2014 had direct government support, down from 62.8 percent in 2013 and 70.7 percent in 2012.
For backers of the CFPB’s mortgage rules, those numbers came as a relief.
“We were definitely waiting with bated breath for this,” said Yana Miles, a policy counsel at the Center for Responsible Lending.
To supporters of the rules, the mortgage origination numbers reported by the federal government showed that black and Hispanic borrowers were not being shut out of the mortgage market.
“Not only did we not see lending from those groups go to zero, we’re seeing a very, very small baby step in the right direction,” Miles said. “We’re seeing opposite evidence as to what was predicted.”
And in some ways, the CFPB has written rules that met the goal of promoting safe lending following the poor practices of the housing bubble era while still giving space to lenders to get credit in the market.
“We have a functioning mortgage market,” Reiss said.
Tuesday’s Regulatory & Legislative Round-Up
- The Consumer Financial Protection Bureau (CFPB) has finalized changes to Mortgage Rules as applied to small lenders that operate primarily in underserved and rural areas. This change eliminates some of the prohibitions under the Ability- to-Repay Rule thereby allowing income to debt ratios as high and 43% and balloon payments, as long as the creditor holds the loan in their own portfolio. The Rule also allows more creditors to be considered small lenders because it increases the number of mortgages a small lender can hold from 500 to 2000. It would also expand the number of geographic locations which can be considered rural.
