Posts tagged ‘RESPA’

Fast And Furious: New COVID Guidance

Remember how in early July we were deluding ourselves into thinking that we were fast approaching a post-COVID nirvana in which we could all frolic freely without needing face masks, debating vaccine mandates or worrying about holding backyard barbecues?

Fast forward to mid-November and regulators are adjusting to a world in which COVID is a chronic condition and we have to adjust to this new normal. For credit unions in general, and compliance folks in particular, this means updating policies and procedures to make sure that you are keeping up with the latest COVID inspired dictates. Here are some of the latest developments I’ve spotted over the last week and a half:

  • The NCUA announced that it was extending the authority of federal credit unions to hold meetings remotely provided they have adopted the appropriate bylaws and send the appropriate notices to their membership. Remote flexibility is one of the good things to come out of the pandemic and I for one am glad to see that credit unions can continue to take advantage of this common sense measure.
  • Federal regulators, including the NCUA, recently announced that mortgage servicers were no longer going to be given a “get out of jail free card” when it comes to complying with RESPA’s mortgage servicing rules.

              In April of last year the same group of regulators issued a joint statement explaining that, “the current crisis could cause temporary business disruptions and challenges for mortgage servicers, including staffing challenges.” As a result, the regulators announced that they were giving servicers greater flexibility to comply with Regulation X. The same group of regulators now feels that the adjustment period has ended. The other day they announced that “servicers have had sufficient time to adjust their operations… agencies will apply their respective supervisory and enforcement authority to address any non-compliance with Regulation X”.  This one is a bit of a head scratcher to me because I could swear there is still plenty of evidence that staffing shortages persist and that members are still in need of enhanced forbearance assistance.  At least according to the CFPB.   

  • Never to be ignored, on October 28th New York’s Department of Financial Services issued its own guidance detailing its continuing expectations for mortgage servicers to work with consumers impacted by the pandemic. The guidance also encouraged servicers to participate in a new program being unveiled to provide financial support for eligible borrowers. I will have more about this program in the coming days.

On that note, visualize your post-COVID happy place and get to work.

November 16, 2021 at 9:24 am Leave a comment

Juneteenth Creates Compliance Glitch For Mortgage Lenders

The passage of legislation making Juneteenth a national holiday resulted in a compliance glitch which the CFPB could, and hopefully will, fix as early as today.

This issue sent me back to the preamble to the 2013 final TRID regulations. As the CFPB explained, neither RESPA nor TILA defines the term “business day.” As a result, for reasons that have never been clear to me, Regulation X which implements RESPA and Regulation Z which implements TILA contain separate definitions of a business day.

Most importantly, Regulation Z applies a definition of business days which includes calendar days except Sunday and legal public holidays specified in § 5 USC 6103. This is the section of law amended by Congress last week. As a result, from a strict compliance standpoint, June 19th was a national holiday and not a business day for disclosure purposes. This means that your credit union runs the risk of making loans that are out of compliance with federal regulations.

Yours truly is hopeful that common sense will prevail. Hopefully the CFPB will issue guidance clarifying that for purposes of complying with federal regulations. Lenders will not be deemed to be out of compliance for counting Juneteenth as a business day in 2021.

NY to Release Diversity and Inclusion Document to State Regulated Institutions

The Department of Financial Services will shortly release a memorandum to state chartered institutions explaining the department’s expectations as it relates to diversity and inclusion in the workplace. This publication is similar to one issued last October related to climate change initiatives. Its purpose is not to impose specific mandates at this time but to begin a discussion about the requirements that should be imposed on banks, credit unions, and mortgage lenders. When it comes to the efforts they are making to bring more diversity to middle and upper management. Stay tuned.

June 21, 2021 at 9:33 am Leave a comment

Yankee Game ends before 11 PM(!) and RESPA Guidance outlines acceptable marketing agreements

I actually have some good news this morning. First, not only did the Yankees win, but they did it in a game that didn’t end at 12:30 in the morning (I will talk more about that later in the blog. I’m sure my sports fan out there can’t wait). Secondly, because I got to go to bed at a reasonable time, I was able to spend my first hour of the day this morning reviewing an important revision of a previous guidance issued by the CFPB dealing with that dreaded regulatory trip wire, commonly referred to as Section 8 of Real Estate Settlement Procedures Act – otherwise known as RESPA (yes, I had to get out more even before the pandemic).

Let’s take a not-so-pleasant trip down memory lane to the halcyon days of the very first benign dictator of consumer protection, former Jeopardy Champion Richard Cordray. In 2015, the CFPB issued a guidance which strictly defined the contours of legal marketing agreements under Section 8 that only those companies with huge legal budgets and the desire to fight would continue the aggressive use of these contracts. On October 7th, the CFPB formally rescinded this 2015 bulletin. In doing so, it pointed out that marketing servicer agreements are explicitly authorized.

Also on October 7th, the CFPB issued updated Q&As on how to comply with Section 8. Although the Q&As are helpful, to me, they underscore just how fact-sensitive the anti-kickback and referral provisions of Section 8 are. One of the new questions reads in part as follows:

“Are gifts and promotions allowed under Section 8?” It depends…

I know how much you guys hate that answer, but in complying with Section 8, it is better to think of the statute and regulations as a framework for ensuring that real estate settlement providers are getting reasonably compensated for services actually performed, as opposed to simply driving business your way. There will always be grey areas, but you and your company can stay within the bounds of legality as long as your goal is to comply with the law as opposed to devising clever ways to circumvent it. 

Now back to baseball. I know many of my most faithful readers are fans. This year, baseball has changed its format so that teams play a playoff game every single day until the series is over. What this means is there is a price to be paid when teams make five to six pitching changes, guaranteeing that a game lasts at least three and a half hours. As someone who loves baseball, but also loves his sleep, the MLB should cap the number of pitchers that can be on an active roster, and stipulate that no East coast baseball game can start later than 7:30 PM. I’m sure the commissioner is taking notes.

October 9, 2020 at 9:24 am Leave a comment

Are You Getting Ready For New York’s Servicing Regulations?

On December 18, 2019 New York’s Department of Financial Services finalized regulations which impose requirements on mortgage loan servicers greater than those mandated under Federal law. Although I previously mentioned these regulations, I’ll mention them again because mandatory compliance starts in March and they require changes in some of your procedures.

The first question is: to whom do they apply? The regulation defines a mortgage servicer as any entity servicing a mortgage loan in the state “whether or not required to be registered pursuant to §590 of New York’s banking law”. This means that, as far as New York State is concerned, this regulation applies to both Federal and State chartered credit unions. For those of you with mortgage CUSOs, this distinction doesn’t matter much because CUSOs are state corporations, but for those of you who are federally chartered institutions you may wish to contact your attorney and clarify the extent to which these regulations may impact your institution.

The changes are too numerous to provide a blog sized summary, so I’m just going to highlight a few of the changes to demonstrate why you need to be cognizant of these new regulations. For example, §419.6 has extensive requirements dealing with how you communicate with your members, particularly when it comes to loss mitigation. For example, now you must maintain a toll-free number that enables persons to speak with a “living person” during regular business hours who can instruct callers on how to submit written complaints. Presumably this means that those of you planning on using zombies are out of luck.  While there is already a similar Federal mandate, New York’s is more extensive.

§419.7 will look awfully similar to those of you familiar with Federal loss mitigation requirements, but there are some important distinctions. For example, under this regulation servicers shall assign a single point of contact to any person who is 30 days delinquent or has requested a loss mitigation option, whichever is earlier. Under Federal regulations, delinquency information must be sent if the borrower is 45 days or more delinquent [see 1026.41 (d)(8)]. This is one example of how your periodic disclosures will have to be modified. Make sure your statement provider is aware of these changes.

These are not academic distinctions but litigation tripwires. One of the largest areas of mortgage litigation involves allegations that, but for a lender’s lack of compliance with servicing regulations, the borrower would not have lost their home.

Perhaps the section of the regulations that has gotten the most attention involves § 419.11 which codifies a servicers obligation to perform due diligence on 3rd party vendors. Importantly, this new section requires servicers to have policies and procedures requiring 3rd party providers to comply with the servicers’ applicable policies and procedures as well as state and Federal regulations. This reinforces the need for institutions subject to New York’s cyber security regulations to have strong vendor contracts.

Now, enjoy your day, get to work and in the immortal words of Sgt. Phil Esterhaus “Let’s be careful out there”.

February 19, 2020 at 10:07 am Leave a comment

CFPB Clarifies TRID Liability

 

Well, I’m back for another fun-filled year trying to help you stay up-to-date on the issues that could most affect your credit union.  If, like your faithful blogger, you have spent a good chunk of the last week and a half engaged in pursuits that have little if anything to do with banking, here is a quick look at an important development you may have missed.

On December 29, the CFPB offered its opinion regarding the increased liability mortgage lenders face as a result of the “Know Before You Owe” mortgage disclosure rule that took effect in October in response to a letter from the Mortgage Bankers’ Association.  In a nutshell, the Bureau does not believe that lenders face greater liability.  This is certainly one to keep in the file.  Dodd-Frank mandated that homeowner disclosures required by the Truth in Lending Act and RESPA be combined into a single regulatory framework.  Since RESPA and TILA have historically imposed different penalties for compliance failures, lenders have been justifiably concerned about how much liability they face when they make a mistake implementing this new regulation.

Among the key points from the Bureau are “as a general matter” legal liability will be based on the accuracy of final closing disclosures and not on initial loan estimates.    According to the Bureau, this means that “a corrected closing disclosure could, in many cases” forestall private liability.

In response to concerns that the regulation has made it more difficult to sell mortgages in the secondary market, the Bureau stresses that if investors are rejecting loans based on formatting “and other minor errors,” they are doing so for reasons unrelated to potential liability.

While the Bureau’s clarifications are welcome, the issues raised by concerned lenders, including credit unions, will ultimately be resolved by the Courts.  In other words, while the CFPB’s interpretation of Dodd-Frank may provide persuasive authority, it is far from the final word on the issue.

On that note, welcome back.

 

January 4, 2016 at 8:20 am 1 comment

Are Your Marketing Agreements Illegal?

When it comes to mortgage marketing agreements, be afraid, be very, very afraid. That’s my takeaway from a memo released by the CFPB yesterday.

Using less subtlety than Donald Trump at a press conference, the Bureau that Never Sleeps released a compliance bulletin stressing that it is deeply concerned about the repeated use of marketing agreements that violate RESPA’s ban on kickbacks in return for mortgage business. In the memo, it stresses that it has discovered repeated instances of marketing agreements being used to circumvent RESPA’s ban.

Anyone involved with a marketing agreement would be well advised to make sure that it is complying with the law both on paper and in practice. As the Bureau explains, “any agreement that entails exchanging a thing of value for referrals of settlement service business involving a federally related mortgage likely violates RESPA whether or not an MSA or some related arrangement is part of the transaction.” As a result, it is not enough to simply have a marketing agreement in place, you have to be able to demonstrate that it does not result in payments for work not performed or otherwise tied to the volume of business generated by the agreement.

RESPA bans the giving or accepting of any fee, kickback or thing of value in return for the referral of mortgage business. It does not, however, prohibit the payment of services actually furnished or performed.  Since its inception in 1974, its goal has been clear, but its implementation less so. Simply put, at what point are the services performed by a third party substantial enough to be considered work performed under the statute. While nothing in the statute explicitly prohibits marketing agreements, in the memo the CFPB provides examples of the type of activities that run afoul of the law.

For example, it highlighted an investigation of a title insurance company that paid fees based in part on how many referrals it received from the companies with which it was marketing. In addition, the Bureau has discovered cases where companies are paid even though they have failed to provide some or all of the services for which they were under contract. A third example involved a title company that had entered into an unwritten agreement with individual loan officers in which it paid for referrals by defraying the loan officers’ marketing expenses.

Keep in mind that ultimately the CFPB is providing these examples not simply to stress the illegality of the specific practices but to stress the type of arrangements that could result in violations of RESPA. The bottom line is this, if you have a marketing agreement for mortgage services under which the compensation you receive or give is in any way tied to the volume of referrals you receive or generate, you should strongly consider revising or ending the contract. Further, if you have a marketing agreement that is not tied to the volume of work generated, then you should be able to document what work is actually being performed and the compensation provided. This is one area where you would be well advised to seek legal advice as my blog is, of course, no substitute for such advice.

If I sound a bit paranoid this morning, it’s because I am. Over the years, RESPA has been less than rigorously enforced. The CFPB has given us fair notice that those days are over.

October 9, 2015 at 8:29 am Leave a comment

Putting Teeth In Kickback Prohibitions

RESPA has always prohibited kickback schemes.  Specifically, RESPA explains that ”No person shall give and no person shall accept any fee, kickback, or thing of value pursuant to any agreement or understanding, oral or otherwise, that business incident to or a part of a real estate settlement service involving a federally related mortgage loan shall be referred to any person.” 12 U.S.C.A. § 2607 (West).  But figuring out where the line is between legitimate salesmanship and illegal kickbacks has always been a gray area and RESPA enforcement has always been a tad lax.

Yesterday provided examples of how RESPA says what it means and means what it says.  The Bureau That Never Sleeps and the Maryland AG sued originators over an alleged referral kickback scheme         (http://www.consumerfinance.gov/newsroom/cfpb-and-state-of-maryland-take-action-against-pay-to-play-mortgage-kickback-scheme/).  Closer to home,   Governor Cuomo and New York’s Department of Financial Services proposed tough new regulations that would, among other things, prohibit title insurance companies from providing meals and entertainment expenses to loan originators (http://www.dfs.ny.gov/insurance/r_prop/rp208t.pdf).

First, let’s talk about the RESPA violation.  The CFPB and the Maryland AG are suing Genuine Title, a now defunct Maryland company that offered closing services.  It’s alleged that the company provided loan officers with marketing services “including purchasing, analyzing, and providing data on consumers, and creating letters with the loan officers’ contact information” and that in return, the loan officers would refer homebuyers to Genuine Title.

RESPA stands for the simple proposition that you can’t get something for nothing.  If an originator is getting a fee for doing nothing more than referring business, then something is wrong.

As for New York State, it is moving to clamp down hard on title insurance practices that it believes drive up the cost of title insurance and limit consumer choice.  The Governor doesn’t always get quoted in DFS press releases.  Here is an indication of how strongly the administration feels about the amount of gift giving going on in the title insurance industry.

“New Yorkers should not have to foot the bill for outrageous or improper expenses made by title companies just to refinance or close on their home,” Governor Cuomo said. “Our administration will not stand for that kind of abuse in the title insurance industry, and these new regulations will help ensure that New Yorkers are protected from unfair charges and get the most bang for their buck.”

The proposed regulations would prohibit title insurers from offering inducements to get business including:  meals and beverages; entertainment, including tickets to sporting events, concerts, shows, or artistic performances; gifts, including cash, gift cards, gift certificates, or other items with a specific monetary face value; travel and outings, including vacations, holidays, golf, ski, fishing, and other sport outings; gambling trips, shopping trips, or trips to recreational areas, including country clubs; parties, including cocktail parties and holiday parties and open houses.  THIS IS NOT THE COMPLETE LIST

Suffice it to say it’s about to get a lot less fun dealing with title insurers in NYS.

Here is a link to the proposal:  http://www.dfs.ny.gov/insurance/r_prop/rp208t.pdf

NCUA Board meeting today

Here is a quick reminder that the NCUA is having a board meeting today.  Among the issues on the agenda are a vote on a final rule amending common bond requirements for associations and  proposed regulations for IOLTA accounts.  Remember that federal law now authorizes credit unions to open up Interest on Lawyer Trust Accounts. The regulation will presumably describe what accounts are similar enough to IOLTAs that they can also be offered by credit unions.

It was nice seeing so many of you at the State GAC over the last couple of days.  Great job!

 

 

April 30, 2015 at 9:13 am Leave a comment

What Is An Application? Does Anyone Really Care?

The answer to the first question is that our good friends at the CFPB have provided us with a definition of application for purposes of sending out mortgage disclosures that takes effect next August.  The answer to the second question is if your credit union offers mortgages, then you should.

First, some background.  Who could forget last December when the CFPB unleashed a host of Dodd-Frank mandated regulations reshaping the regulatory framework for mortgages.  I know you all now know what a QM mortgage is, but you’re not quite done yet.  The CFPB also released regulations that integrated mortgage disclosures mandated by both the Truth in Lending Act and RESPA.  Starting next August, the GFE and early TIL will be replaced with a single document titled the Loan Estimate.  If you were like me, you looked at the 900 pages of this proposal, noted that the effective date wasn’t until August of 2015 and put it at the bottom of your to-do list.  Now, it is time to get focused.  There a lots of operational decisions that need to be made beyond simply calling up your vendor and finding out if it will be ready to send out the new disclosures.

One of the most basic and important changes made by the CFPB has to do with the definition of application.  Under existing law, lenders have to give a borrower a good faith estimate of the mortgage costs within three business days of receiving a mortgage application.  Under existing regulations, an application is received when a lender has the borrower’s name, monthly income, social security number, the property address, an estimate of the value of the property, the requested mortgage loan and — here’s the key part — “any other information deemed necessary by the loan originator.”  The catch-all provision is crucial since it gives lenders the ability to provide general loan estimates without being bound by a GFE.

Flash forward to August of next year and that catch-all provision will no longer be included in the definition of application.  Instead, any time a credit union receives the other six pieces of information, the application has been received and the GFE clock starts ticking.  Now, many lenders use more than these six pieces of information in making lending determinations.  So what are they going to do?

First, a GFE is not the same as making a mortgage determination.  If, as verifying information comes in, you determine the applicant isn’t qualified for a mortgage loan, you don’t have to give him one.  Second, you can continue to prequalify members without requesting the six pieces of information.

But there is a more subtle way in which the CFPB is still allowing lenders flexibility in terms of when an application becomes an application.  As the CFPB explains in the preamble to the regulation, “the definition of an application may not have a significant impact on a creditor’s ability to delay provision of a Loan Estimate, because the creditor can simply sequence its application process to delay collection of some or all of the six pieces of information that would make up the definition of an application.”  For example, let’s say there are two additional pieces of information beyond the six in the definition that you have to specifically ask for before providing a GFE.  The CFPB is allowing institutions to ask for those two pieces of information before the other six.  You can find this quote at the bottom of page 79766 of the Final Regulation.  I would actually save the specific page in my mortgage file.  The ability to sequence isn’t all that clear from the language of the regulation or its official interpretation.

This is just one example of operational questions that have to be considered by your credit union and then communicated to your vendor.  There are several other key compliance issues impacted by this regulation and with regulators in summer mode, I will be passing on tidbits in the days and weeks to come.  I know this is not exciting stuff, but it’s time to stop procrastinating.

 

June 30, 2014 at 8:39 am 1 comment

CFPB’s wolf in sheep’s clothing

When it comes to the CFPB, I am beginning to feel a lot like the kid in high school who realizes that the object of his affection has been nice to him just because she wanted help with her homework.  Yesterday, the CFPB came out with its long-awaited regulations mandated by Dodd-Frank to combine separate mortgage disclosures mandated by RESPA and Regulation Z.  This is one of the few really good ideas to come out of Dodd-Frank and with its several rounds of public tests, I was looking forward to a straight forward regulation demystifying the home buying process with simple and easy disclosures.  Oh, how naive I was!

I haven’t gotten through the 1,300 pages of proposed regulations including the proposal to amend HOEPA, but what’s clear is that the CFPB is seeking to inflict yet another major overhaul of mortgage regulations that will have a major operational impact on mortgage lenders.  For example, the Bureau is proposing changing the definition of APR.  This is more than one of those mind-numbing technical changes that makes Regulation Z a cure for insomnia.  As explained by the Bureau, by adding fees into the APR calculation that were previously excluded, mortgage lenders will find their APRs higher than they were previously, and these rates may even start hitting triggers mandating even more regulatory protections.

Another example has to do with narrowing the criteria of what constitutes an application.  This is an important issue because once a credit union gets all the information it needs, the early disclosure requirements kick in.  Under the new rule, credit unions will have less flexibility in determining what information is necessary when receiving a mortgage application. 

My personal favorite is its proposal to require that final closing documents be provided at least three days before closing with some exceptions.  This sounds great in theory, but in practice homebuyers are already frustrated by the difficulty of coordinating closing dates between banks and lawyers.  Have fun explaining to them that their closing has to be delayed so that they have adequate time to review documents on a house they have already committed to buying. 

This is by no means a definitive list.  I simply want you to realize if you haven’t already that what the CFPB proposed yesterday has a lot more to do with engineering a major operational overhaul of traditional mortgage practices than it does with “streamlining” duplicative regulations.  The big winners will, of course, be your vendors who will have to update your computer software to accommodate these changes.  I am not at all convinced that even with the disclosure changes, which are worthwhile, that these regulations will do much to help the American consumer.  In fact, the more difficult we make providing a mortgage, the more likely it is that people with poor to average credit will find it difficult to buy a house.  To be blunt, for many institutions, the compliance costs and risks may not be worth the benefits.

What did the Federal Reserve know and when did they know it?

The LIBOR scandal (see yesterday’s blog) is making its way across the Atlantic.  It is being reported this morning that the Federal Reserve knew as early as 2007 that the LIBOR was being manipulated by Barclays.  Unless you believe that Barclays was the only bank with its hand in the cookie jar, this means that the Federal Reserve was so anxious to help out the big banks that they looked the other way while they manipulated an index that impacts virtually every consumer in the country. 

July 10, 2012 at 7:34 am Leave a comment

On lawsuits and pixie dust

Good morning folks!  There is a lot of little news I want to get to, but I can’t resist a few comments on the lawsuit that was filed by a community bank in Texas challenging the Constitutionality of the CFPB.  I haven’t been able to read the complaint yet, but one summary I read suggested that the lawsuit also challenges the legality of President Obama’s recess appointment of Richard Cordray as its Acting Director. 

Listen, I can be as critical of the CFPB as anyone, but one of the reasons I’ve always been on the conservative side of judicial issues is because I believe the more judicial restraint you have, the more issues you leave to the elected branches of government.  Like it or not, Congress passed Dodd-Frank.  Congress did give the Bureau enormous powers, but the powers are no greater than those previously exercised by the bureaucracies whose powers it subsumed and there is a mechanism for its regulations to be overturned if enough other regulators believe they are inappropriate.  Let’s face it, the CFPB is here to stay.  Even if the Republicans managed to take over the Senate, they won’t have the votes needed to pass any legislation dissolving it.  If people don’t like the CFPB, they should take it out on their legislators instead of running to the courthouse.  By the way, this is not to say that there aren’t some legitimate issues surrounding the legality of recess appointments, but the Bureau itself is here to stay.

CFPB Updates Progress on Mortgage Disclosures

Not everything that the CFPB wants to do is bad for business.  Yesterday at a House Committee meeting CFPB’s ubiquitous Deputy Director Raj Date provided an update on the Bureau’s efforts to consolidate Truth in Lending and RESPA mortgage disclosures.  A proposed regulation will be out by July 21, but as many of you probably already know, the CFPB has gone through several rounds of testing of proposed new forms.  There is no area of regulation that better exemplifies the need for regulatory streamlining than mortgage disclosures.  As Mr. Date himself commented “[t]he information on these forms is overlapping and the language is inconsistent. Not surprisingly, consumers often find the forms to be confusing. It is also not surprising that lenders and settlement agents find the forms burdensome to provide and explain.”  If the Bureau does a good job with this regulation it could go a long way toward showing people the value of having a CFPB with the authority to consolidate duplicative regulations.

Moody’s Downgrades Bank Debt

Moody’s yesterday downgraded the credit ratings of the nation’s largest banks, including Goldman Sachs, JP Morgan-Chase, and Morgan Stanley.  The downgrade had been rumored for months so its practical impact is somewhat muted.  Still, it’s another embarrassing blow to the banking industry. 

Joint Guidance on Assistance for Servicemembers with Permanent Change of Station Orders Released

Federal regulators, including the NCUA, released a guidance on efforts that financial institutions should take in assisting members of the armed services subject to mandatory transfer orders.  The guidance points out that servicers should work with affected individuals to make sure that they are aware of government programs that may assist them.

June 22, 2012 at 8:04 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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