Who Gets New Disclosures When Your Mortgage Debtor Dies?

To its credit, several years ago the CFPB promulgated regulations integrating Successor in Interest requirements into TRID. These amendments helped address increasingly common issues such as when a debtor dies still owing money on a mortgage loan. Who should the lender be sending out notices to? When should these notices be sent? And are they even required?

Apparently there is a further need for clarification. I’ve been examining this guidance/fact sheet/flow chart providing information on when new Loan Estimates and Closing Disclosures are required for certain mortgage transactions. Specifically the CFPB felt the need to explain when new disclosures are required for a transaction: (1) in which a new consumer is being added or substituted as an obligor on an existing consumer credit transaction; (2) that is a closed-end consumer credit transaction secured by real property or a cooperative unit; and (3) that is not a reverse mortgage subject to 12 CFR 1026.33. In other words, when is an assumption an assumption under 12 CFR 1026.20(b).

As with so much dealing with Regulation Z, terminology is absolutely crucial to understanding the potential complexities. So first let’s review some key terms with apologies to those of you for whom this is basic stuff.

First, 12 CFR 1026.2a 24 defines a Residential mortgage transaction as “a transaction in which a mortgage, deed of trust, purchase money security interest arising under an installment sales contract, or equivalent consensual security interest is created or retained in the consumer’s principal dwelling to finance the acquisition or initial construction of that dwelling.”

An assumption occurs when a creditor expressly agrees in writing with a subsequent consumer to accept that consumer as a primary obligor on an existing residential mortgage transaction.

In this guidance, CFPB attempts to clarify the answers to some nuanced questions. One of the trickiest areas involves whether or not property should be considered residential for purposes of TRID disclosures. As the guidance explains the creditor “must determine if the transaction involves consumer’s principal dwelling and whether the new consumer is financing the acquisition or initial construction of that dwelling.” Let’s say you have a member who took out a mortgage to finance the purchase of a second home in Lake George. She passes away with ten years to go on the mortgage and not only does her daughter Sally want to keep on paying the mortgage but she plans on using it as her primary residence. Even though when originally financed by mom, the second home was not a residential mortgage transaction,  it is considered an assumption for which new disclosures are required for Sally because it is going to be her principle residence and  a new obligor  is being added to an existing obligation.

The guidance i no substitute for the existing commentary but is a useful resource which you may want to put in  your policy file. Let’s face it, a lot of us aren’t getting any younger and if existing trends hold your members will be dying with more debt than anyone would have thought of as possible even a decade ago.

 

 

May 23, 2019 at 10:04 am Leave a comment

Dividend Payouts, Housing Reform and Taxi Lending Highlight CU News You Can Use

Show Me More Money

I figured I’d start with some good news this morning. NCUA announced that it will be paying out dividends totaling $160.1 million. This means that NCUA has been able to issue close to $900 million in equity distributions over the past year. Right now the NCUA has a Share Insurance Fund equity ratio of %1.39 to aggregate credit union assets. Under the law, any money in excess of the ratio must be returned to credit unions. The money is available as a result of NCUA’s decision to end the temporary Credit Union Stabilization Fund which was set up in the aftermath of the corporate crash.

GSE Capital Requirements Emerge As Key Issue In Housing Reform Debate

A key fault-line in the debate over how to reform the GSE’s spilled out into the public yesterday. In a speech before the Mortgage Banker’s Association laying out his view of what the housing industry should look like the future, FHA Director Mark Calabria argued that Fannie and Freddie should exit conservatorship but only after huge capital infusions. He explained that, “I can’t tell you what exactly the new model will look like. But, as a regulator, what I do know is that the future role and structure of Fannie and Freddie will be determined by the amount of private capital they’re able to build up.”

In the meantime, Dan Layton, the CEO of Freddie told lawmakers, albeit in bureaucratic speak, that the capital plans being drawn up by the Trump Administration are crazy. He called plans to have the GSE’s raise $125 billion in capital “unprecedented” and predicted that it would take at least 5 years to raise up to $50 billion. Five years is the length of Calabria’s term at the FHFA and he made it clear yesterday that when he leaves his post he intends the housing market to be a different place than it is today.

Taxi Lending Investigations Keep Piling Up

Now for some bad news. The investigations into taxi medallion lending practice are piling up quicker than presidential tweets. Yesterday evening the Times tweeted out that New York Senator and Minority Leader Chuck Schumer is requesting “a review of the regulation of credit unions in a taxi industry.” A good place to start would be the review of the regulation of credit unions in the taxi industry already conducted and released by NCUA’s Inspector General. New York City Mayor DeBlasio, Assembly Banking Chair Zembrowski and New York Attorney General James have already called for hearings and/or started investigations. As these investigations go forward let’s not forget about two companies called Uber and Lyft.

May 22, 2019 at 9:04 am Leave a comment

AG To Investigate Taxi Lending

 

New York’s Attorney General Letita James announced that she would be opening an investigation into taxi medallion lending practices. Her announcement follows on the heels of an exhaustive two part investigation by the New York Times and to the lending standards that were used by banks and credit unions when providing funding for medallion purchases.

Assemblyman Ken Zebrowski, who is Chairman of the Assembly Banks Committee also announced that his committee would be holding a hearing on the subject according to the paper.

The articles extensively detail lender practices as well as the oversight of these practices by NCUA, the New York State Department of Financial Services and the New York City Taxi and Limousine Commission in the years leading up to the crash of medallion loan values.

Frankly the paper misses the mark when it suggests that the medallion crash would have happened with or without the rise of Uber and Lyft. The facts simply don’t bear this out. Medallion lending had thrived for decades and over that time there had been fluctuations in the market value of medallions. Uber and Lyft fundamentally changed the industry because they attacked the premise upon which the price of medallions was based: mainly that with an increasing number of tourists in a thriving city, people would always be willing to pay a premium for the comfort of knowing that that yellow cab in Manhattan was a taxi.

Municipal Conserved

For those of you who missed it, on Friday afternoon the New York State Department of Financial Services placed Municipal Credit Union in conservatorship and appointed NCUA as conservator. There seems to be a bit of confusion about what exactly this means. The bottom line is that placing the credit union in conservatorship could lead to (1) a reorganization of the credit union from which it could reemerge. Municipal actually followed this path once before only to reemerge and grow to a $3.8 Billion asset credit union; it could be merged or it could be liquidated.

 

May 21, 2019 at 9:18 am Leave a comment

NY Lawsuit taps “breaks” on Fintech Charter

New York’s lawsuit challenging the authority of the OCC to charter limited purpose fintech charters has already accomplished one of its primary goals by slowing down OCC’s charter approval timeline.

Comptroller Otting was originally hoping to see the first official application in the second quarter of 2019 but in an interview with American Banker he admits that a recent ruling allowing NY to go forward and challenge the OCC’s authority has put a “chill” on things,  NY argues that by granting bank charters to non-depository institutions many of these corporations will avoid state level regulation of activities such as mortgage brokering and payday lending.

“I respect the judge who made the decision. … However, we still feel we have the legal authority to do this,” Otting said. “If you apply his principle, then every bank would have to have an active deposit to do anything in the banking industry … we intend to defend what we think is our legal right.” he explained

An OCC motion to dismiss a similar lawsuit brought by a coalition of state regulators is currently pending in DC federal court.and the OCC might simply be waiting to see what happens to its motion to dismiss this case before deciding how  to  proceed.

I’m a little surprised by the OCC’s  caution.  the Judge’s ruling simply allows New York to take on the much more difficult task of winning on the merits of its claim.  Litigation was inevitable and will take  years to resolve.  Then again,  who wants to ask for a charter that you may not be able to keep?

Report released on Complaints to CFPB

I’ve never been a big  fan  of the cfpb’s Consumer complaint portal.  Given enough  data,  the statistics produced by this wiki inspired  innovation can be both  deceiving and counterproductive,  particularly since no effort is made to verify the accuracy of complaints before they are posted. So  I’ll   let you decide if you agree with me  after reading this report from the US public interest Group..

May 16, 2019 at 9:54 am Leave a comment

ADA Website Wins Keep Coming For CU’s

Credit unions scored another important legal victory yesterday when the Court of Appeals for the 4th Circuit rejected the appeal of a blind individual who was seeking to sue Northwest Federal Credit Union alleging that its website violated the ADA by not being accessible to blind individuals. The case all but ends any hope of an individual other than a member of a credit union successfully bringing an ADA lawsuit against a credit union in the 4th Circuit which is based in Richmond, Virginia. The court’s rulings have also had an impact on other federal circuits as well.

KEITH CARROLL v. NORTHWEST FEDERAL CREDIT UNION, Nw. FCU. No. 18-1434, 2019 WL 2089378, (4th Cir. May 13, 2019) involved a blind individual who was not a member of the credit union when he filed his claim. What distinguished this case from an earlier ruling in Griffin v. Dep’t of Labor Fed. Credit Union, 912 F.3d 649, 655 (4th Cir. 2019) was that this plaintiff amended his complaint to state that he would be volunteering at the Special Olympics. If true, this would make him eligible for membership in the credit union. However the court rejected this eleventh hour attempt to establish standing concluding that his standing must be based on the facts as they existed the day he filed the complaint. CUNA and NAFCU both filed briefs in support of the credit union.

On a purely practical level. rulings like this are important because on the more difficult it is to establish standing the less credit unions have to fear from  attorneys who  threaten entire states  with lawsuits based on the allegations of one or two individuals. If these lawsuits are to continue, attorneys will have to find actual members who can actually prove that they are harmed. What a concept.

Now for my personal opinion. I’ve said it before and I’ll say it again: even as credit unions win these cases none of these rulings stand for the proposition that credit union websites are not subject to ADA requirements. Eventually there will be a lawsuit involving a member with standing to sue a credit union. When this case comes to pass  a court could very well rule that the ADA is applicable to websites. As a result, use this time to cost effectively make reasonable changes to your website so that visually impaired persons can access your electronic facilities.

May 15, 2019 at 9:08 am Leave a comment

Account Transaction Fees Under The Microscope in NY and the CFPB

The bill I’m going to talk about today provides you a sense of how much things have changed in the Legislature now that the democrats are in full control of the senate chamber. Yesterday, the Assembly passed A1940 which is cosponsored by Assemblyman Zebrowski and Senator Sanders, both of whom share their respective Chamber’s Banks Committees. If the senate ultimately passes the bill which is currently on the senate floor and it is signed into law, it will require all state chartered banking institutions to provide members with basic banking accounts who are 65 years of age or older with twelve account transactions a month without incurring a fee.

To understand why I find this bill significant we have to take a trip down memory lane. In 1994, the banking industry successfully lobbied the Legislature to remove interest rate caps on most consumer loans. In return for this concession, banks agreed to provide lifeline banking accounts. This requirement is codified in section 14-F of the banking law which mandates that state chartered banks and credit unions offer low cost banking accounts with certain minimum features including a minimum number of eight free consumer transactions from demand deposit accounts. The goal is to minimize the number of ATM transactions for which a fee is charged. Since at least the late 90’s I have seen legislation in the Assembly that would increase the number of consumer transactions. The bill would even pass sometimes in the Assembly but be ignored by the senate. In other words, legislation which has been bouncing around for over two decades is now alive and well. One question which the legislation raises is how exactly institutions are going to be able to identify transactions being made by senior citizens and increase the number of fee free transactions for that specific group.

CFPB Details Plans For Regulatory Review

It wasn’t too long ago, let’s say 2016, that I would have been less than enthusiastic about an announcement by the CFPB that it was laying the ground work for a ten year review of all the regulations it has promulgated. After all, one of the reasons I became increasingly frustrated by the old regime was that it became increasingly obvious that while it said it was committed to an open minded facts driven approach to regulation, the reality was, it had an ideological agenda and simply used research to confirm its own biases but now under new leadership, I have some good news to report.

Under Section 610 of the Regulatory Flexibility Act, the CFPB is required to review its regulations at least once every ten years to assess their impact on “small entities”. This means that the CFPB will be asking for feedback in the coming year on all of those regulations it has promulgated, taking into account the following considerations:

  1. The continued need for the rule;
  2. The nature of public complaints or comments on the rule;
  3. The complexity of the rule;
  4. The extent to which the rule overlaps, duplicates, or conflicts with Federal, state,or other rules; and
  5. The time since the rule was evaluated or the degree to which technology, market conditions, or other factors have changed the relevant market.

The CFPB also announced that the first regulation it will be reviewing under this framework is none other than the debit overdraft transaction regulations amending regulations which were promulgated by the Federal Reserve and took effect in 2009. These are of course the regulations which require credit unions and banks to get a consumer’s affirmative consent before charging for overdraft protection on ATM transactions. Maybe there’s something we can do about the number of lawsuits this regulation has created? On that note, have a good day.

 

 

May 14, 2019 at 8:59 am Leave a comment

Facebook Has A New Pen Pal: The Senate Banks Committee

On Friday, the Chairman and Ranking Member of the Senate Banks Committee sent a politely worded letter to Facebook inquiring about its plans to move aggressively into the payments market by offering its users the opportunity to buy products directly from merchants using a Facebook backed coin or cryptocurrency depending on how nefarious you want to make its plans sound.

Why is this a big deal? Well how much money do you make off credit and debit card transactions issued by your credit union? If Facebook successfully integrates the coin payment platform into its infrastructure this would mean that 1/3 of the world’s population could start using Facebook to facilitate purchases, making Facebook an overnight threat to Visa and MasterCard.

In their letter to Facebook, following an article describing Facebook’s plans in the Wall Street Journal, the Senators explain that in addition to Facebook’s cryptocurrency ambitions, “privacy experts have raised questions about Facebook’s extensive data collection practices and whether any of the data collected by Facebook is being used for purposes that do or should subject Facebook to the Fair Credit Reporting Act.”

As with so many other aspects of its growth Facebook is somewhat clumsily taking aim at the financial sector. In addition to questions about its cyber currency ambitions, it is currently being sued by HUD over claims that it violates its advertising platform allows lenders to effectively engage in digital redlining by choosing such finely tuned demographic target audiences in such a way that lenders can avoid offering financial products and services to minorities.

Assembly To Hold Municipal Deposit Hearing Next Monday

In case you haven’t heard, the Assembly Banks and Local Governments committee will be holding a hearing on municipal deposits next Monday. An assortment of credit union, bank and local government organizations have been invited to testify. This is a key opportunity for credit unions to respond to banker municipal deposit myths and finally allow public tax dollars to be placed in those financial institutions where they will most benefit taxpayers.

Department of Treasury Issues OFAC Guidance

I’ve been analyzing this guidance for a couple weeks now trying to figure out how significant it is and why it was issued in the first place. It seems to me that nothing in this release should be a surprise to anyone who has tried to comply with OFAC which I’m assuming almost all of my faithful readers have. Nevertheless, any time the Department of Treasury comes out with guidance on this issue you should read it and compare your practices with those expected by the regulator.

May 13, 2019 at 8:45 am Leave a comment

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Authored By:

Henry Meier, Esq., Senior Vice President, General Counsel, New York Credit Union Association.

The views Henry expresses are Henry’s alone and do not necessarily reflect the views of the Association. In addition, although Henry strives to give his readers useful and accurate information on a broad range of subjects, many of which involve legal disputes, his views are not a substitute for legal advise from retained counsel.

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