Legal Issues

Browse articles from all of our Newsletters related to Legal Issues.

June 27, 2016 - Inside the CFPB

CFPB Issues Updated Mortgage Servicing Examination Manual

In an effort to spur better industry compliance with its 2013 mortgage servicing rules, the CFPB last week released an updated mortgage servicing exam manual, reflecting a greater emphasis on the handling of consumer complaints as well as fair lending. The bureau regularly publishes a mortgage servicing chapter of the CFPB Supervision and Examination Manual to reflect regulatory changes, to make technical corrections, and to update examination priorities. This new, third iteration of its exam procedures offers guidance to financial institutions and mortgage companies on what the bureau will be looking for in its exams. Among other things, mortgage servicers should note a greater emphasis in exams on the handling of consumer complaints. The CFPB has enhanced the section related ...

June 27, 2016 - Inside the CFPB

Fair Lending Focus Shifting to Access to Credit, Pricing Issues

Mortgage lenders looking to get ahead of the fair lending enforcement curve need to be aware that the industry will face greater scrutiny from the CFPB on two main fronts: access to credit and pricing issues, according to one top attorney. Speaking at the American Bankers Association’s recent regulatory compliance conference in San Diego, Andrew Sandler, chairman and executive partner at the BuckleySandler law firm in Washington, DC, said, “There are really two sets of issues that we’re seeing in fair lending, and that we’re increasingly going to see over time. The first is access to credit as an absolute concept.” As the U.S. came out of the financial crisis, as policymakers adopted all kinds of rules, regulations, philosophies and ...

June 27, 2016 - Inside the CFPB

Bureau Faults Mortgage Servicers For Using Failed Technology

A special edition of the CFPB’s supervision highlights report issued last week claims that some mortgage servicers continue to use failed technology that has already harmed consumers, putting such firms in violation of the agency’s servicing rules, which were released in 2013. “Mortgage servicers can’t hide behind their bad computer systems or outdated technology. There are no excuses for not following federal rules,” said CFPB Director Richard Cordray. “Mortgage servicers and their service providers must step up and make the investments necessary to do their jobs properly and legally.” The bureau acknowledged that some servicers have made significant improvements in the last several years, partly by enhancing and monitoring their service platforms, staff training, coding accuracy and auditing, and allowing ...

June 27, 2016 - Inside the CFPB

Compliance Pros Provide Tips On How to Test for TRID

Mortgage lenders throughout the land are justifiably anxious about complying with the CFPB’s TRID integrated disclosure rule. But compliance professionals at Treliant Risk Advisors recently provided a number of key checkpoints that lenders can use to prepare themselves and examine their own degree of compliance. During a presentation at the American Bankers Association’s recent regulatory compliance conference in San Diego, Lyn Farrell, a managing director at Treliant, rattled off a list of TRID technical compliance testing criteria for attendees. First, lenders should “ensure that the testing scope includes all covered products from all applicable channels,” Farrell said. They also should check that their institution provides all disclosures by the appropriate deadlines, including, of course, all loan estimates and closing disclosures....

June 27, 2016 - Inside the CFPB

SFIG Issues TRID Compliance Review Documentation

Late last week, the Structured Finance Industry Group, a securitization trade association, put out its long-awaited compliance review documentation related to the CFPB’s integrated disclosure rule under the Truth in Lending Act and the Real Estate Settlement Procedures Act. SFIG said its RMBS 3.0 TRID Compliance Review Scope documentation was put together by representatives of third-party review firms across the industry and its own RMBS 3.0 Due Diligence, Data and Disclosure Working Group. The material addresses TRID compliance issues on non-agency mortgages uncovered during reviews by due diligence providers. Under the standards, loans that would have received grades of C or D due to TRID exceptions can sometimes receive B grades if errors are corrected. The document was created to ...

June 27, 2016 - Inside the CFPB

CFPB Expected to Codify Informal TRID Guidance. Will it Go Further?

There is plenty of speculation in the mortgage industry these days about which issues are going to be addressed in the CFPB’s pending proposed rule to clarify many of the uncertainties associated with its Truth in Lending Act/Real Estate Settlement Procedures Act Integrated Disclosure Rule, commonly known as TRID. During a panel discussion at the American Bankers Association’s annual regulatory compliance conference in San Diego earlier this month, Rodrigo Alba, senior vice president and senior regulatory counsel with the ABA, speculated that one of the main areas the bureau will address is the codification of the informal guidance CFPB officials have provided since the rule was released. As he sees it, the bureau will take all of the content and ...

June 27, 2016 - Inside the CFPB

Life Under TRID: Regulators’ Good-Faith Enforcement Period is Evolving

Given the high stakes associated with the CFPB’s Truth in Lending Act/Real Estate Settlement Procedures Act Integrated Disclosure Rule, commonly known as TRID, the mortgage lending industry perhaps can be forgiven for being hyper-sensitive to minute, incremental change, whether it be another clarifying rulemaking or a change in enforcement. Sometimes, these developments could be a matter of perception or semantics; at other times, facts on the ground may actually be changing. “Uncertainty about enforcement on TRID mirrors the uncertainty on the rule itself. TRID has been an extremely complex regulation for the industry to implement,” American Land Title Association CEO Michelle Korsmo told Inside the CFPB. “ALTA has continuously encouraged the CFPB to provide more written guidance on the 1,888-page ...

June 24, 2016 - Inside MBS & ABS

U.S. Court Shifts Discovery Obligation to MBS Plaintiff, NY Court Denies JP Morgan, ACLU in MBS Case

A federal appeals court in New York this week will hear arguments from African-American subprime borrowers in Detroit in connection with a proposed class action challenging Morgan Stanley’s mortgage securitization practices during the subprime mortgage boom. The American Civil Liberties Union and its partners are seeking class-action status for the borrowers’ Fair Housing Act claims, which were initially rejected by a lower court. The court previously ruled that each borrower would have to sue on his or her own. The issue on appeal at the U.S. Court of Appeals for the Second Circuit is...

June 24, 2016 - Inside MBS & ABS

SFIG Publishes Standards to Help Non-Agency MBS Market Address TRID Issues, But CFPB Guidance Seen as Critical

The Structured Finance Industry Group late last week published a final draft of the standards for due diligence firms to use when testing loans for compliance with the Truth in Lending Act/Real Estate Settlement Procedures Act disclosure rule. “The underlying premise of this documentation is to establish a best practices approach to pre-securitization testing logic that will drive the due diligence conducted by third-party review firms,” SFIG said. The RMBS 3.0 TRID Compliance Review Scope documentation addresses...

June 23, 2016 - Inside Mortgage Finance

CFPB Seeks to Protect its Privileged Supervisory Records in Case Against Ocwen Loan Servicing

Earlier this month, the Consumer Financial Protection Bureau asked to intervene in a federal whistleblower case brought against Ocwen Loan Servicing in order to protect the confidentiality of its supervisory information. “The bureau seeks to intervene for the limited purpose of invoking the bank examination privilege and the bureau’s regulations to protect confidential and privileged bureau supervisory records and information related to the bureau’s supervision of Ocwen,” the CFPB said in its motion filed in U.S. District Court for the Eastern District of Texas, Sherman Division. Counsel for the relators in the case, Michael Fisher and Brian Bullock, and the defendants, Ocwen Loan Servicing and Ocwen Financial Corp., told...

June 23, 2016 - Inside Mortgage Finance

Slow Judicial Foreclosure Process Seen as Helping To Prevent Housing-Price Bubbles in Certain States

The slow foreclosure timelines in states with a judicial foreclosure process appear to have a silver lining: home-price bubbles are more prevalent in other states, according to Fitch Ratings. In a report released this week, analysts at the rating service said home prices nationally appear to be on solid footing, although some regional pockets of price risk are growing, primarily in states in the West and Southwest. Fitch said...

June 17, 2016 - Inside FHA/VA Lending

CA Realtors Seek Rule to Prohibit PACE Lien Seniority over FHA Lien

The California Association of Realtors renewed its push for rules addressing the proliferation of FHA-insured mortgages that have Property Assessed Clean Energy super liens. In a recent letter to Office of Management and Budget Director Shaun Donovan, the CAR requested that both FHA and the Department of Housing and Urban Development adopt policy that is consistent with the Federal Housing Finance Agency’s existing policy on PACE liens. Specifically, such a policy would prohibit the use of PACE encumbrances with a “super lien” priority over mortgage financing. The group also urged HUD to issue guidelines directing FHA lenders and servicers not to place PACE liens above any mortgage insured by FHA. The CAR expressed concern about how PACE liens might affect the FHA Mutual Mortgage Insurance Fund, which is currently recovering from years of losses. “If the ..

June 17, 2016 - Inside FHA/VA Lending

HOAs Required to Disclose VA, FHA Certification of Condo Projects

A new California law requiring condominium homeowner associations to disclose to their members whether the VA or the FHA has certified their buildings will soon take effect.Starting July 1, 2016, California HOAs will have to disclose in their annual budget report whether or not their condominium projects have been approved for VA or FHA financing. Gov. Jerry Brown, D, signed Assembly Bill 596 into law in August last year to encourage more veterans and first-time homebuyers to purchase condominiums and take advantage of the benefits of government-backed home financing. In signing the measure into law, Brown expressed hopes that condominium HOAs will step up their certification or recertification process. Assemblyman Tom Daly, D-Anaheim, author of the bill, estimates there are 28,000 condo projects in the Golden State, and only a third are FHA-certified. There are far fewer projects that are ...

June 17, 2016 - Inside FHA/VA Lending

USDA Securitization Down in 1Q16, Agency to Lower Premium, Fees

Ginnie Mae securitization of rural home loans got off to a wobbly start in the first quarter of 2016 as securitization volume fell 13.8 percent from the prior quarter, according to an Inside FHA/VA Lending analysis of Ginnie data. Approximately $3.9 billion in loans with a USDA guarantee were securitized during the first three months, with the top five issuers accounting for $2.1 billion of mortgage-backed securities produced by the segment during the period. USDA securitization volume dropped 9.2 percent year over year. Top USDA issuer Chase Home Finance accounted for $1.2 billion of securitized rural housing loans, while PennyMac, in distant second place, finished the quarter with $378.5 million. Wells Fargo ($294.0 million), Pacific Union Financial ($122.8 million) and Amerihome Mortgage ($102.2 million), in sequential order, comprised the rest of the top five issuers. Pacific Union climbed over ...

June 17, 2016 - Inside FHA/VA Lending

Maximum Civil Penalties for HUD, FHA Violations Set to Increase

FHA lenders will face stiffer maximum monetary penalties later this year for various violations of agency rules and regulations. The higher monetary penalties are the result of legislation signed into law late last year requiring federal agencies to adjust the current maximum penalty amounts for inflation in order to maintain their deterrent effect. Specifically, the Federal Civil Penalties Inflation Adjustment Act of 2015 (2015 Act) requires federal agencies to adjust the level of civil monetary penalties with an initial “catch-up” adjustment through an interim final rule and subsequent annual adjustments for inflation. The interim final rules with the initial penalty adjustments must be published by July 1, 2016. The new penalty levels must take effect no later than Aug. 1, 2016. Additionally, agencies are required to make annual inflation adjustments, starting Jan. 15, 2017, and for each year going forward. The adjustments will ...

June 17, 2016 - Inside MBS & ABS

TRID Liability High and Uncertain, Industry Hopes For Clarity and Resolution With Next Rulemaking

The mortgage industry and secondary-market investors continue to struggle with uncertainty over the degree of liability for errors in complying with the Consumer Financial Protection Bureau’s integrated-disclosure rule, commonly known as TRID. Many hope the pending TRID 2.0 rulemaking expected from the CFPB this July will clarify and resolve the exasperating ambiguity and at least let industry participants and investors know exactly where they stand and what risks they are taking on. One of the most important areas for investors is contractual liability. “Under most mortgage loan purchase agreements, there is a representation and warranty for absolute compliance [or] a signed agreement saying that you’re only liable for material violations,” said Richard Horn, a Washington, DC, attorney. Speaking at this week’s American Bankers Association conference, the former CFPB official said, “But whatever the agreement, you still have contractual liability for the loans that you sell, so keep that in mind.” Civil liability is...

June 13, 2016 - Inside the CFPB

News in Brief

Compass Point predicts that CFPB will lose its dispute with PHH. The CFPB is hosting an eRegulation webinar. HUD and First Citizens Bank (SC) resolve a fair lending complaint spurred by HMDA data. And CFPB staff exit for SunTrust and JH Capital Group.

June 10, 2016 - Inside The GSEs

Judge Orders FHFA, Treasury to Produce More Documents

A judge overseeing a key GSE shareholder lawsuit says she will look at another batch of government documents to determine whether they should be made available to the plaintiffs. The Federal Housing Finance Agency and Treasury Department are opposing the decision. Judge Margaret Sweeney’s May 20 order, in the Fairholme Funds, Inc. v. The United States case, requests that the defendants provide the court with hard copies of some of the documents listed in the ...

June 10, 2016 - Inside The GSEs

FHFA’s Attempt to Consolidate Shareholder Cases Denied

A key judicial review panel last week said the Federal Housing Finance Agency’s March bid to consolidate all the GSE shareholder lawsuits and transfer them to one court was “inappropriate” and rejected the government’s request. The Judicial Panel on Multidistrict Litigation said that the government’s case for centralization was not strong enough. “On the basis of the papers filed and hearing session held, we conclude that centralization is not necessary for the ...

June 9, 2016 - Inside Mortgage Finance

Servicers Concerned About Increased Costs as New York Moves Toward Passing Abandoned Property Bill

A bill making its way through the New York state legislature has prompted concerns among servicers and the Mortgage Bankers Association, who warn that the bill’s requirements regarding abandoned properties would increase costs and legal risks for servicers. A.6932-A, the Abandoned Property Neighborhood Relief Act, was recently approved by New York’s Assembly on a 116-22 vote. The bill would require servicers to periodically inspect properties tied to delinquent mortgages, report vacant properties to a state registry and provide authorities with tools to prompt servicers to maintain abandoned properties, among other provisions. “There is...

June 3, 2016 - Inside FHA/VA Lending

Firm Allegedly Scammed GNMA, Executives to Pay $12.7 M to SEC

A California-based mortgage lender and six senior executives have agreed to pay $12.7 million to the Securities and Exchange Commission to resolve allegations they schemed to defraud investors in the sale of residential mortgage-backed securities with a Ginnie Mae guarantee. The SEC complaint alleged that, from March 2011 to March 2015, Ginnie Mae issuer First Mortgage Corp. and its top executives pulled current performing loans out of Ginnie Mae MBS. The issuer falsely claimed that the loans were delinquent so that it could recycle them as newly issued MBS and sell them at a profit. FMC allegedly issued Ginnie Mae MBS prospectuses with false and misleading information by using a Ginnie Mae rule that allowed issuers to repurchase seriously delinquent loans. In addition, the SEC complaint alleged that FMC deliberately delayed depositing checks from borrowers who had been behind on ...

June 3, 2016 - Inside MBS & ABS

Trustee Plans $420 Million MBS Suit Versus BAML, FDIC Settles Countrywide MBS Charges With Eight

HSBC Bank has filed a summons with notice in the New York State Supreme Court on Bank of America and Merrill Lynch to appear and face charges alleging complicity in the origination and sale of toxic mortgage loans that led to millions of dollars in losses to investors. Filed last week, the summons alleges that BofA, Merrill Lynch and Countrywide Home Loans were aware of the defects in approximately 1,359 residential mortgage loans that were securitized and sold to investors in 2007. The loans had an aggregate principal balance of $564.8 million. According to filing documents, Merrill Lynch purchased...

June 3, 2016 - Inside MBS & ABS

Mortgage Company, Execs Settle With SEC Over Allegations of Defrauding Investors in Ginnie MBS

First Mortgage Corp., a privately-held mortgage company based in Ontario, CA, and six executives have agreed to pay the Securities and Exchange Commission $12.7 million to resolve charges they concocted a scheme to defraud investors in Ginnie Mae MBS, the SEC announced this week. According to the SEC’s complaint, from March 2011 through March 2015, FMC repurchased current loans from Ginnie pools that it claimed were delinquent. FMC bought...

June 2, 2016 - Inside Mortgage Finance

Some Banks Are Exploring Low-Downpayment Options to FHA and Fannie/Freddie Programs

Wells Fargo and JPMorgan Chase recently launched programs to deliver low-downpayment mortgages to Fannie Mae that differ from the government-sponsored enterprises’ recent expansion into high loan-to-value financing. Both banks introduced new 97 percent LTV programs they believe are easier to use than the GSE initiatives and, for certain borrowers, a better choice than FHA financing. Wells Fargo’s “yourFirstMortgage” requires a minimum of 3 percent downpayment for fixed-rate mortgages. The company will consider FICO scores significantly lower than other similar high-LTV programs, to as low as 620, along with debt-to-income ratios up to 45 percent. Factoring in nontraditional uses of credit such as rent, utility bill payments and tuition is...

June 2, 2016 - Inside Mortgage Finance

HUD, Inspector General at Loggerheads over DAP Policy, Uncertainty Raises Questions about Potential Lender Risk

A dispute over rule interpretation between the Department of Housing and Urban Development and its inspector general regarding the use of gift funds and premium pricing in downpayment assistance has FHA lenders concerned about potential liability and unnecessary legal costs. Last week, HUD Deputy Secretary/FHA Commissioner Edward Golding sought to allay lender concerns by refuting the IG’s position on lender use of downpayment assistance programs sponsored by state housing finance agencies. In a memo to the industry, Golding upheld...

May 30, 2016 - Inside the CFPB

Other News in Brief

More Gripes About TRID Dribble In. After what seemed like a lull in hearing complaints from lenders regarding the integrated disclosure rule known as TRID, the gripes are picking up again. At least that’s what we detected from some originators a few days ago. One loan broker who works the southern California market said she’s been telling some clients that it will take an extra seven days to close. “It was 15 before wholesale caught up, but now they’re behind again due to heavy sales volume.” Broker Slams Bureau’s Complaint Database. While he was running for a House seat in West Virginia, mortgage trade group president Marc Savitt was mostly quiet on issues tied to the CFPB. But now that ...

May 30, 2016 - Inside the CFPB

CFPB Bankruptcy Statement Report Incomplete, Testing Flawed

A handful of industry groups told the CFPB last week that the agency’s recent report on consumer testing of periodic statements for homeowners who have filed a bankruptcy petition is of limited usefulness without a full-fledged regulation to review at the same time. The testing itself was inadequate as well. “While we appreciate the opportunity to comment on the testing, we note that the statements have only limited meaning without their accompanying regulation,” said the Consumer Mortgage Coalition, the Credit Union National Association, and the National Association of Federal Credit Unions, in conjunction with the Mortgage Servicers Working Group. They said that, in several areas, they were unable to understand what the statements reflect because they did not have an ...

May 30, 2016 - Inside the CFPB

New HMDA Rule Fails to Address Privacy Concerns, Attorney Says

The CFPB’s pending Home Mortgage Disclosure Act rule significantly expands the industry’s data-reporting requirements – and the risk of possible disclosure of a borrower’s personal information along with it – something the bureau still has not addressed to the industry’s satisfaction, according to one top attorney. “The implementation date of the rule is fast approaching and the mortgage industry still has not received any answers in regards to their data privacy concerns,” Craig Nazzaro, of counsel in the Atlanta office of the Baker Donelson law firm, said in a blog posting earlier this month. He noted that mortgage industry representatives have repeatedly raised their privacy concerns about the new rule with the bureau. However, “the CFPB has thus far avoided addressing these ...

May 30, 2016 - Inside the CFPB

CFPB Fines, Bans Former Wells LO Over Mortgage ‘Fee Shifting’

The CFPB last week filed an administrative consent order against a former Wells Fargo employee, for running an alleged illegal mortgage “fee-shifting” scheme, fining him $85,000 and banning him from working in the mortgage industry for a year. The bureau accused David Eghbali, formerly a loan officer for the Wilshire Crescent Wells Fargo branch in Beverly Hills, CA, of referring a substantial number of loan closings to a single escrow company, New Millennium Escrow, Inc., which allegedly shifted its fees from some customers to others at his request. “While employed by Wells Fargo from November 2007 through July 2015, in connection with originating federally related mortgage loans to consumers primarily for personal, family or household purposes, respondent provided real-estate settlement ...

May 30, 2016 - Inside the CFPB

Coordinated Exams Between CFPB, States Nearly Doubled Last Year

There was a significant increase last year in the number of coordinated examinations of non-bank financial services companies between the CFPB and state banking regulators. The number of such exams rose from nine in 2014 to 16 in 2015, the State Coordinating Committee of the Conference of State Bank Supervisors reported recently in its annual report. Examinations that are scheduled between the SCC and the CFPB are performed simultaneously between state regulators and the CFPB. The examinations involve coordinated planning, shared resources, concurrent onsite visits, and sharing of confidential and non-confidential supervisory information, including findings and reports of exam. The SCC also indicated there was “an expansion into new industry types as the CFPB established additional supervision authority by rule.” ...

May 30, 2016 - Inside the CFPB

Consumer Complaints, Litigation Help Prompt CFPB Examinations

One of the biggest red flags that will bring CFPB examiners charging in a lender’s direction is the level of consumer criticisms lodged against a company, especially if the number of such gripes is disproportionately large, a top industry attorney reminded the industry recently. Addressing attendees earlier this month during a webinar sponsored by Inside Mortgage Finance, a sibling publication, Michelle Rogers, a partner in the BuckleySandler law firm office in Washington, DC, said, “If your complaints are anomalous in that they’re much higher than others in your industry – peers, folks of your size – you are more likely to get an exam than others. And so you want to make sure that you’re mitigating or addressing those issues.” And those ...

May 27, 2016 - Inside The GSEs

FHFA-OIG Racks Up Funds from Criminal, Civil Investigations

The Federal Housing Finance Agency Office of Inspector General reported that the compensation resulting from six months of probes into criminal and civil investigations amounted to $3.6 billion. The bulk of the monetary damages awarded, more than $3 billion, was in civil settlements, while more than $480 million was from criminal fines, restitutions, forfeitures, and settlements. There were a total of 53 indictments, five trials, 73 convictions and 75 sentencings. Laura Wertheimer, inspector general at the FHFA, said when there’s not sufficient evident to refer a case for criminal charges, the FHFA will work to bring civil claims. One of those recent civil settlements was with Morgan Stanley, which agreed to pay a $2.7 billion penalty to resolve claims related to its mortgage-backed securities.

May 27, 2016 - Inside The GSEs

FHFA Didn't Provide Proof of Fraud, BofA's $1.2B Penalty Dismissed

Bank of America escaped having to pay $1.2 billion in penalties when a federal appeals court dismissed the Federal Housing Finance Agency’s allegations of fraud this week. The appeal stemmed from a 2013 verdict stating that Countrywide Home Loans, a subsidiary of BofA, was liable for damages caused by selling bad loans to Fannie Mae and Freddie Mac during the financial crisis. Whether or not a breach of contract can also support a claim for fraud was the argument and primary factor in the judge’s decision. It seems that even if a loan seller is guilty of an intentional breach of contract, it’s not considered fraud.

May 27, 2016 - Inside MBS & ABS

House Oversight Panel Scrutinizes Payments to Third Parties from Banks’ RMBS Settlements

A heated partisan debate broke out during a House subcommittee hearing late last week on whether multi-billion dollar settlements designed to resolve legacy MBS cases undermine Congress’ power to appropriate funds. Democrats and Republicans on the House Financial Services Subcommittee on Oversight and Investigations debated whether federal law allows banks to donate money to third-party charities to fulfill some of its settlement obligations. Ranking Minority member Al Green, D-TX, said...

May 27, 2016 - Inside MBS & ABS

Newly Released Documents Called a ‘Treasure Trove’ Of Damaging Evidence in GSE Shareholder Cases

Investors who are suing the government over the terms of the conservatorships of Fannie Mae and Freddie Mac said the 53 documents recently made public solidify their claim that the government-sponsored enterprises had plenty of capital and a government bailout was unnecessary. The Treasury Department provided the documents to plaintiffs last week as part of a court case in Kentucky. “The newly de-designated documents also suggest...

May 26, 2016 - Inside Mortgage Finance

Supreme Court Ruling in Case Involving FCRA Seen As Helpful in Limiting Mortgage-Related Class Actions

A ruling last week by the Supreme Court of the United States was viewed by the Mortgage Bankers Association as potentially making it harder for plaintiffs to win class-action certifications. Spokeo, Inc. v. Robins involves alleged violations of the Fair Credit Reporting Act. Thomas Robins filed a class-action lawsuit against Spokeo, alleging that his profile on the firm’s website contained inaccurate information. Spokeo is an online aggregator of individuals’ contact- and credit-information. The case was initially dismissed...

May 26, 2016 - Inside Mortgage Finance

Guild Mortgage Digs In, Vows to Fight FCA Allegations, Says Punitive Environment at Odds with FHA Mission

Guild Mortgage vowed to defend itself against government charges that it improperly originated and underwrote mortgages, which later caused millions of dollars in losses to the FHA and taxpayers. In a statement released after the Department of Justice filed its complaint in federal district court in Washington, DC, last week, Mary Ann McGarry, president and chief executive officer of Guild Mortgage, said the government’s action is unwarranted and meritless. “The implication that any default on an FHA loan by a borrower represents wrongdoing by the lender is not justified...

May 20, 2016 - Inside FHA/VA Lending

Around the Industry

HUD Sends Final Condominium Rule to OMB for Clearance. The Department of Housing and Urban Development has sent a final rule to the Office of Management and Budget that would make it easier for borrowers to obtain FHA financing for certified condominium units. Once issued, the final rule will replace temporary guidance which HUD issued in November last year to ease FHA’s condo approval process. The move is aimed at increasing affordable housing options for first-time and low-income homebuyers. The final rule is expected to reflect measures in the interim guidance, including modification of the requirements for condo project recertification, revised calculation of FHA’s required ownership-occupancy percentage, and expansion of eligible condo-project insurance coverages. IG Scrutinizes HUD Oversight of SFHAs’ Downpayment Assistance Programs. Residential lenders that rely on ...

May 20, 2016 - Inside FHA/VA Lending

VA Clarifies Guidance for Conveying Titled Properties to VA Secretary

The Department of Veterans Affairs has clarified the type of documents lenders would need to provide clear and marketable title for conveyed properties to the VA in all states and U.S. territories. Under VA rules, each conveyance or transfer of real property to the VA shall be acceptable if “the holder covenants or warrants against the acts of the holder and those claiming under the holder (e.g. by special warranty deed).” In addition, the conveyance would be acceptable if it entitles the VA Secretary to such title as is or if it is acceptable to prudent lenders, informed buyers, title companies and attorneys, generally in the community in which the property is located. The VA said its determination of clear and marketable title depends on state statutory requirements. As a general requirement, documents for proper conveyance of clear and marketable title to the VA include the ...

May 20, 2016 - Inside FHA/VA Lending

VA Issues New Servicing Guidance, Reminders on Foreclosures, Others

The Department of Veterans Affairs has issued new guidance and some servicing reminders in connection with mobile-home foreclosures, consent judgments, servicer transfers, liquidation appraisal fees and others. VA servicers must specifically refer to the mobile home in foreclosure declaration documents to ensure that both the home and the land are properly foreclosed, the VA said. Many states require two separate foreclosure procedures for every transaction – one to foreclose the interest on the land and the other to foreclose on the title of the mobile home. The VA said foreclosure on the title of the mobile home may have to be filed with state’s Department of Motor Vehicles (DMV). When a VA loan on a home on wheels is referred to foreclosure, the servicer must inform the foreclosing attorney that it is a mobile home and whether a DMV filing is required. The VA will reconvey the mobile home to the ...

May 20, 2016 - Inside FHA/VA Lending

Trade Groups Urge Congress to Reevaluate Appraisal Oversight

Trade groups representing lenders, homebuilders and appraisers have asked Congress to hold a hearing this year on the future of appraisal regulation. In a joint letter, five industry groups urged the Senate Committee on Banking, Housing and Urban Affairs to reevaluate oversight of the appraisal industry and the current federal regulatory structure for real estate appraisal. The committee last held an appraisal oversight hearing in 2004. Federal appraisal regulations have been untouched since the enactment of the Federal Financial Institutions Reform, Recovery and Enforcement Act of 1989, the trade groups noted. In addition, the groups asked that both federal and state responsibilities be reassessed to see if they continue to serve consumers and market participants well, as well as promote competition in the marketplace. In addition to federal regulation, states regulate appraisers as well. The groups want to know from Congress whether federal oversight of appraisers is still necessary.

May 20, 2016 - Inside FHA/VA Lending

Key Lessons for FHA Lenders from M&T Bank, Guild FCA Lawsuits

There are important details in the recent M&T Bank settlement with the Department of Justice and in this week’s announced filing of a lawsuit against Guild Mortgage that could help lenders avoid a potential false claims lawsuit, according to industry observers. The government’s complaints against the two FHA lenders were brought under the False Claims Act, which penalizes acts that intend to defraud the government and taxpayers. The government has been using this powerful statutory tool in the mortgage arena in its attempt to recover FHA losses arising from fraud and noncompliance with agency requirements. As in previous FCA cases against FHA lenders, both M&T Bank and Guild Mortgage were accused of false certification, lax underwriting, poor quality control, failure to review early payment defaults, and failure to self-report deficient loans and remediate problems in a timely manner. In addition, the ...

May 20, 2016 - Inside FHA/VA Lending

Attorneys See Potential Defense In Recent Circuit Court Rulings

Recent circuit court rulings may bolster FHA lenders’ defense against the government’s heavy use of the False Claims Act in FHA lending cases, according to industry attorneys. In the years following the financial crisis, the Department of Justice and the relators bar have used the FCA aggressively to target banks and nonbank mortgage lenders for losses incurred by FHA due to poor underwriting and false certifications. The DOJ and the Department of Housing and Urban Development have recovered billions of dollars through settlements with various mortgage lenders and servicers, using increasingly creative theories of liability to hold them responsible for FHA losses. This week, the DOJ filed a lawsuit in federal court in Washington, DC, accusing Guild Mortgage of improper origination and underwriting of FHA-insured mortgage loans from January 2006 through December 2011. As in ...

May 20, 2016 - Inside FHA/VA Lending

Deconsolidation Opened Credit Access, New Things to Think About

The rapid deconsolidation in the Ginnie Mae issuer community and shift to nonbanks helped expand access for borrowers, but it’s also given the agency new issues to consider, officials said. Back in 2010-11, three Ginnie issuers dominated the program, noted Ginnie Mae President Ted Tozer during the Mortgage Bankers Association secondary-market conference in New York this week. But those three firms now account for just 14 percent of the agency’s business, and nonbanks held a combined 70 percent of the market, he said. Many new firms became issuers in part so they could get away from the credit overlays imposed by the national aggregators, Tozer said. The result is that the average score on a Ginnie loan is now 60 points lower than on loans securitized by Fannie Mae and Freddie Mac, he added. Michael Drayne, senior vice president in Ginnie’s office of issuer & portfolio management, said the ...

May 20, 2016 - Inside MBS & ABS

Payout from $8.5 Billion BofA Settlement Cleared, UBS Seeks MBS Suit Dismissal, Court Favors Trustee

After nearly five years of legal entanglements, investors will soon receive their share of the $8.5 billion Bank of America agreed to pay in June 2011 to resolve legacy mortgage-repurchase and servicing claims associated with Countrywide Financial Corp. The payouts were delayed by legal wrangling over whether trustee Bank of New York Mellon had the authority to settle. Last year, the New York Supreme Court ruled in the trustee’s favor, and a state court judge recently approved the severance order and partial final judgment, which cleared the way for BNYM to begin distributing the settlement proceeds from 512 of the 530 trusts in the case. Twenty-two investors that suffered significant losses for their failed investment in MBS sold by Countrywide prior to the collapse of the housing market are...

May 16, 2016 - Inside the CFPB

Also in Brief: Capitol Hill Roundup

Hensarling Slams CFPB, Vows Big Changes to Dodd-Frank, the Bureau. During a speech last week at the National Center for Policy Analysis, Rep. Jeb Hensarling, R-TX, chairman of the House Financial Services Committee, pledged to push a package of pro-growth, pro-consumer reforms as an alternative to the Dodd-Frank Act, including clipping the wings of the CFPB. “At almost every opportunity, the bureau abuses and exceeds its statutory authority, which is already immense,” said the congressman. “The bureau operates with such secrecy, unaccountability, and bureaucratic tyranny it would make a Soviet Commissar blush.” As the committee moves forward with its plans for financial reform, Hensarling promised the Republicans will have ...

May 16, 2016 - Inside the CFPB

CFPB Looks to Ban Class Action Waivers in Arbitration Agreements

Earlier this month, the CFPB finally issued its long-awaited proposed rule to drastically scale back the ability of consumer financial companies to use pre-dispute arbitration clauses in their contracts for consumer financial products and services. The proposed rule would impose two sets of limitations on the use of pre-dispute arbitration agreements by covered providers of consumer financial products and services. First, it would prohibit providers from using such an agreement to block consumer class actions in court and would require providers to insert language into their arbitration agreements reflecting this limitation. “This proposal is based on the bureau’s preliminary findings – which are consistent with [its earlier] study – that pre-dispute arbitration agreements are being widely used to prevent consumers from seeking ...

May 16, 2016 - Inside the CFPB

Fair Lending in Mortgages Remains Key Issue for CFPB Enforcement

Mortgage lending continues to be a key priority for the CFPB’s Office of Fair Lending for supervision and enforcement, particularly Home Mortgage Disclosure Act data integrity and potential fair lending risks in the areas of redlining, underwriting and pricing, the bureau said in a new report. Last year, the bureau brought to an end two important public enforcement actions that had to do with mortgage lending. The first was a redlining case against Hudson City Savings Bank, which was required to pay almost $33 million in direct loan subsidies, funding for community programs and outreach, and a civil penalty. In this case, the CFPB accused Hudson City of providing unequal access to credit by structuring its business to avoid providing ...

May 16, 2016 - Inside the CFPB

More Homebuyers Reviewing Mortgage Disclosures, ALTA Finds

More homebuyers are reviewing their mortgage documents prior to their real estate closing under the new disclosure regime brought into the marketplace by the CFPB’s integrated disclosure rule, according to the results of a new closing survey by the American Land Title Association. However, there are still issues related to better educating consumers and in terms of the industry’s compliance. “While there remain challenges to complying with the regulation, title and settlement agents went to great lengths to prepare and train staff about the new process,” said Michelle Korsmo, ALTA’s chief executive officer. “The hard work of these professionals paid off as our survey found that 92 percent of surveyed homebuyers are taking time to review their mortgage documents before ...

May 16, 2016 - Inside the CFPB

Did CFPB Botch Another Attempt to Clarify its TRID Disclosure Rule?

Last week, in another apparent attempt to provide the mortgage lending industry with a bit more clarity when it comes to its TRID rule, the CFPB published on its website annotated versions of the Loan Estimate and Closing Disclosure that provide citations to the disclosure provisions in Chapter 2 of TILA referenced in the rule. However, neither of the two documents, which only number 14 pages between the two of them, appear to go anywhere near providing the kind of clarity the industry continues to hope for. According to Kristie Kully and David Tallman, both partners at the Mayer Brown law firm, these so-called “mapping forms” are unfortunately hamstrung by such extensive disclaimers that the bureau might as well have ...


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