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Volume 25 - Number 24

November 24, 2014

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CFPB Propose Loss Mit Changes to 2013 Mortgage Servicing Rules

If anyone in the housing finance industry thought the CFPB was finished with its mortgage-related rulemaking, they were wrong. Last week, the CFPB issued a batch of proposed amendments to its 2013 mortgage servicing rules, including a number of changes to how servicers handle loss-mitigation applications. First, the bureau is proposing to require servicers to meet the loss-mitigation requirements of its mortgage servicing rules more than once in the life of a loan for borrowers who become current after a delinquency. However, the rule is not clear how many times this could occur over the life of the mortgage. A little insight can be gleaned from a CFPB blog posting geared towards borrowers, which stated, “We are also proposing that ...

Numerous Other Servicing Changes Proposed in CFPB Amendments

There are eight other subject areas included in the CFPB’s 490-page proposed rulemaking to amend its 2013 mortgage servicing rules, above and beyond the extensive amount of revisions to loss mitigation practices, as highlighted above. The first of those has to do with successors in interest – people who inherit or receive property when there is still an outstanding mortgage loan on the property. The bureau is proposing three sets of rule changes relating to successors in interest, the first of which is to apply all of its mortgage servicing rules to a successor in interest once a servicer confirms that a person is a successor in interest. Second, the bureau is proposing rules relating to how a mortgage servicer makes ...

CFPB Orders Franklin Loan Corp. to Pay Borrowers $730k in Restitution

The CFPB recently ordered Franklin Loan Corp., an independent, residential mortgage banker in Palm Desert, CA, to pay $730,000 to consumers the bureau alleges were harmed by the company’s practice of giving employees bonuses for steering consumers into loans with higher interest rates. The bureau also has asked a federal district court to approve a consent order requiring the company to end its allegedly illegal compensation system and refund the consumers it harmed. This is the second loan originator compensation settlement the CFPB has obtained, the first being the case involving Castle & Cooke Mortgage. In this case, according to the CFPB, Franklin Loan originated approximately $887 million in loans between 2011 and 2013. “From June 2011 to October 2013, ...

CFPB Fines Subprime Auto Dealer Over Debt Collection Practices

Last week, the CFPB initiated its first enforcement action against a “buy-here, pay-here” car dealer, DriveTime, which it accused of harming consumers by allegedly making harassing debt collection calls and providing inaccurate credit information to credit reporting agencies. DriveTime must pay $8 million as a civil money penalty, end what the bureau characterized as unfair debt collection tactics, revise its credit reporting practices, and arrange for harmed consumers to obtain free credit reports. Phoenix-based DriveTime Automotive Group Inc. and its finance company, DT Acceptance Corp., make up the largest buy-here, pay-here car dealer in the nation, according to the CFPB. “Buy-here, pay-here” means that the dealer sells the car as well as originates and services the auto loan. These kinds ...

Sweeping Changes for Prepaid Cards Under CFPB Proposal

The CFPB last week proposed sweeping changes for the booming prepaid card market, aiming to mandate new disclosures, error-resolution procedures, consumer liability limits for unauthorized transactions, fee limits, and added requirements for cards with overdraft or credit features. This proposal would apply a number of specific federal consumer protections to broad swaths of the prepaid market for the first time. The proposal would cover traditional plastic prepaid cards, many of which are general purpose reloadable cards. In addition, the proposal would cover mobile and other electronic prepaid accounts that can store funds. The prepaid products covered by the proposal also include: payroll cards; certain federal, state and local government benefit cards such as those used to distribute unemployment insurance, child ...

Bureau Warns Mortgage Lenders Against SSDI Discrimination

The CFPB put out a bulletin last week advising lenders not to create illegal hurdles for recipients of Social Security Disability Income who apply for mortgages, warning that requiring unnecessary documentation from such consumers could raise fair lending risk. The new bulletin discusses standards and guidelines on verification of SSDI, including those under the CFPB’s ability-to-repay rule, the Department of Housing and Urban Development’s standards for FHA loans, the Department of Veterans Affairs’ standards for VA-guaranteed loans, and guidelines from Fannie Mae and Freddie Mac. The bureau begins by noting that to verify income for qualified mortgage debt-to-income ratios under the ability-to-repay rule, lenders are required to look at whether the Social Security Administration benefit verification letter or equivalent document ...

AFSA Study Disputes Bureau’s Indirect Auto Finance Methodology

A new study commissioned by the American Financial Services Association found significant bias and high error rates in the proxy methodology used by the CFPB to determine discrimination in the indirect auto finance market. Central to the study was an examination of the Bayesian Improved Surname Geocoding (BISG) proxy methodology used by the CFPB to determine a disparate impact to legally protected groups. BISG estimates race and ethnicity based on an applicant’s name and census data. AFSA’s study calculated BISG probabilities against a test population of mortgage data, where race and ethnicity are known. One of the primary findings was that when the proxy uses an 80 percent probability that a person belongs to an African American group, the proxy ...

Settlements with Ocwen, Flagstar, SunTrust Instructive for Servicers

The mortgage servicing settlements the CFPB obtained with Ocwen, SunTrust Bank and Flagstar Bank have much to teach the rest of the industry about landmines to avoid. During a webinar sponsored last week by Inside Mortgage Finance, an affiliated newsletter, Allyson Baker, a former CFPB attorney and partner at the Venable law firm in Washington, DC, highlighted the importance of trends seen in the three enforcement cases. “Number one is the bureau’s and other law enforcement agencies’ ongoing joint monitoring of the space,” which suggests the industry is likely to see more joint enforcement actions in the future, Baker told event participants. The second important trend is the very large civil money penalties and restitution that are resulting in tens ...

Consumer Complaints About Money Transfers Down Noticeably in 3Q14

Consumer complaints to the CFPB about their money transfer transactions fell a sharp 28.4 percent industry-wide during the third quarter of 2014, according to a new analysis by Inside the CFPB. From a short-term perspective, that’s a fairly good performance. The longer-term results are more iffy. The CFPB only started collecting complaints from this sector in the second quarter of 2013, so there are just a handful of reporting periods that can be reviewed. That being said, comparing two six-month periods – the second and third quarters of 2013 versus the same periods this year – the data show an industry-wide jump of 93.7 percent. On the other hand, there are only 1,409 total complaints that have been received [with exclusive chart] ...

GAO Finds Weakness in CFPB Internal Control for Payables

The CFPB’s internal control over financial reporting was not effective as of September 30, 2014, because of a material weakness related to the reporting of accounts payable, according to a new study by the U.S. Government Accountability Office. The material weakness is a result of serious control deficiencies that affected CFPB’s determination and reporting of accounts payable. “Specifically, GAO found that CFPB did not have effective procedures in place to determine and record an appropriate amount for goods and services received but not yet paid for as of Sept. 30, 2014,” said the congressional watchdog agency. Additionally, CFPB did not have effective review procedures to timely detect and correct inaccuracies in the accrual amounts. “Despite the material weakness, CFPB made ...

CFPB Needs to Make More Info Security Upgrades, OIG Finds

The CFPB’s Office of Inspector General found the bureau’s information security program was generally in compliance with the Federal Information Security Management Act, but that further improvements are needed in security training and contingency planning. Nine other areas that received a passing grade from the OIG were information security continuous monitoring (ISCM), configuration management, identity and access management, incident response and reporting, risk management, plan of action and milestones, remote access, contractor systems, and security capital planning. “While we found that the CFPB’s information security program was generally consistent with the requirements for ISCM, configuration management, and incident response, we identified opportunities to strengthen these areas through automation and centralization,” the report stated. This year, the OIG found that the ...

Worth Noting

CFPB eClosing Program Will be a Plus, Eventually. The eClosing initiative launched earlier this year by the CFPB will ultimately be beneficial to the mortgage industry, once all the big wrinkles are ironed out, according to analysts at DBRS, formerly Dominion Bond Rating Service. “Many of the elements that make up eClosings are already being used in other consumer and commercial loans (such as auto loans and equipment lending), so much of the process should be easy to replicate,” the analysts said in a client note last week. “However, it is the uniqueness of the mortgage industry that will present some challenges.” For instance, there are real estate statutes for real property, compared with the Uniform Commercial Code for personal ...

Poll

What is it going to take to convince lenders to loosen the credit box (i.e., remove underwriting overlays)?

The recent rep and warranty changes announced by the Federal Housing Finance Agency should go a long way in protecting lenders from future buybacks and help expand mortgage credit.
There won’t be any significant elimination of underwriting overlays until the government stops seeking huge mortgage-related penalties and settlements from lenders.
There shouldn’t be any expansion of the mortgage credit box since looser underwriting is what caused the recent mortgage crisis.

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