2013 – Page 3 – Consumer Financial Services Watch

Affiliated Business Arrangements Remain a Target for the CFPB under RESPA

Oct 30 2013

After announcing two RESPA consent orders in June 2013 targeting affiliated business arrangements (“AfBAs”), the CFPB is again taking aim at AfBAs. In a lawsuit filed in federal district court in Kentucky, the CFPB alleges that a law firm and three of its attorney principals gave impermissible referral fees to owners and managers of real estate and mortgage brokerage companies through profit distributions made by title insurance AfBAs owned by the attorneys and the real estate and mortgage brokerage companies. Because the CFPB alleges these AfBAs were not structured according to RESPA’s requirements, the CFPB is seeking to disgorge all monies received by the attorneys related to settlement services provided in connection with referrals, including profit distributions from the AfBAs. Read More

Federal Regulators Alleviate Fair Lending Concerns Regarding QM Origination

Oct 23 2013

By: Stephanie C. Robinson, Andrew L. Caplan

Recognizing that many creditors will be inclined to originate only “qualified mortgages” (“QM loans”) when the CFPB’s ability-to-repay rule takes effect in January, five federal regulators yesterday announced that a creditor’s decision to offer only QM loans will not elevate the creditor’s fair lending risk, absent other factors. Read More

Mortgage Servicers: Don’t Forget ECOA’s Valuation Rule

Oct 21 2013

By: Nanci L. Weissgold, Kerri M. Smith

Mortgage loan servicers are toiling away at executing all the new servicing requirements in the CFPB’s Regulation Z and Regulation X amendments by the January 10, 2014 deadline. Given this overwhelming task, it is understandable that some servicers may not be as familiar with the CFPB’s ECOA Valuation Rule amending Regulation B. The Rule, which imposes an obligation to furnish a copy of valuations to borrowers of first-lien loans and to provide notice to borrowers of this right, may apply to a servicer’s loss mitigation efforts.

HUD Issues QM Proposal for Comment: There is a “There” There

Oct 07 2013

By: Phillip L. Schulman, Jonathan D. Jaffe, Krista Cooley, Andrew L. Caplan

This week, the United States Department of Housing and Urban Development (“HUD”) weighed in on its proposed version of a Federal Housing Administration (“FHA”) Qualified Mortgage (“QM”). Although the Consumer Financial Protection Bureau (“CFPB”) rules gave FHA-insured loans QM status on a temporary basis until 2021 (subject to certain conditions, discussed below), it looks like HUD wanted to get its version finalized by January 2014, when the CFPB’s QM rules take effect. As discussed more fully in this alert, HUD’s proposed QM Rule (the “HUD Proposed Rule”) would give QM status to all single family, forward FHA-insured loans. Title II insured loans, however, would be required to meet the CFPB’s 3% limit for points and fees.

In an attempt to expedite synchronization of the HUD QM definition with implementation of the CFPB Final Rule, HUD shortened the usual 60-day comment period to 30 days. As such, comments on this proposal are due by Wednesday, October 30, 2013.

To read the full alert, click here.

Report Elder Abuse to Authorities, Federal Regulators Tell Financial Institutions

Oct 01 2013

By: David L. Beam, *Anjali Garg

*Ms. Garg is a law clerk and not admitted to the practice of law.

Federal privacy laws do not prohibit a financial institution from reporting suspected elder abuse to the authorities. That’s the key takeaway from a new interagency guidance issued by seven federal regulatory agencies on September 23. Read More

Rulemaking Dictating Loan Terms Is Coalescing Around the CFPB’s Qualified Mortgage Standard, but the Future of Loans Outside of This Standard Remains in Question

Sep 18 2013

By: Laurence E. Platt, Stanley V. Ragalevsky, Sean P. Mahoney

Since the enactment of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) government regulation has been pushing the mortgage banking industry toward homogenized residential mortgage loans with characteristics that the government considers “safe.” While this sounds simple enough, it has become complicated with at least three rulemaking processes dictating potentially different standards for residential mortgage loans:

• the “qualified mortgage” or “QM” definition in the Ability-to-Repay and Qualified Mortgage Standards rule (the “ATR Rule”) promulgated by the Consumer Financial Protection Bureau (“CFPB”) under Section 129C of the Truth in Lending Act;

• the “qualified residential mortgage” or “QRM” definition under the securitization risk retention rules (the “Risk Retention Reproposal”) reproposed by a consortium of regulatory and housing agencies under Section 941 of the Dodd-Frank Act; and

• the revised bank capital rules promulgated by bank regulators in accordance with Basel III (the “Basel III Rules”).

To read the full alert, click here.

Request For Further Review Delays Lifting Of DOL Interpretation On Loan Officer Overtime

Sep 05 2013

By: Thomas H. Petrides, John L. Longstreth

The federal Court of Appeals’ decision in July ordering the withdrawal of a 2010 DOL Administrator’s Interpretation regarding the eligibility of mortgage loan officers to be paid overtime has been further delayed by an August 16 petition for rehearing. Several employee loan officers intervened in the case and filed a request for the full D.C. Circuit to review the July 2 decision. The DOL is also expected to file a similar request and has until September 6 to do so. Under court rules, the request automatically delays sending the case back to the district court to vacate the DOL Interpretation. There is no set time frame for the Appeals Court to rule on the rehearing request. If the court grants the request and agrees to rehear the case, the DOL Interpretation would likely remain in place until a decision on the rehearing issues. If the request is denied, the case will promptly move back to the district court to vacate the DOL Interpretation, unless a further stay is sought and obtained in connection with a request for Supreme Court review.

In the interim, the 2010 DOL Interpretation, determining that loan officers in the mortgage banking industry do not qualify as exempt from overtime under the administrative exemption of the FLSA, currently remains in place. The July 11, 2013 K&L Gates Alert discussing the appeals court decision has been updated to reflect the petition for rehearing having been filed.

To read the full alert, click here.

Township of Mount Holly: The United States Supreme Court Considers Whether the Fair Housing Act Recognizes Disparate-Impact Liability

Sep 05 2013

By: Paul F. Hancock, Andrew C. Glass, Melanie Brody, John L. Longstreth, Roger L. Smerage

On September 3, 2013, K&L Gates LLP filed a brief as amici curiae before the United States Supreme Court in Township of Mount Holly v. Mt. Holly Gardens Citizens in Action, Inc., a case in which the Court will consider whether the Fair Housing Act recognizes a disparate-impact theory of liability. The brief addresses the effect that the Court’s recognition of the disparate-impact theory would have on the residential mortgage lending industry and was filed on behalf of the American Financial Services Association, the Consumer Mortgage Coalition, the Independent Community Bankers of America, and the Mortgage Bankers Association. A copy of the as-filed brief is available here. The Court is likely to schedule oral argument in the matter for late 2013 or early 2014.

To read the full alert, click here.

K&L Gates Legal Insight: Housing Finance Reform Efforts Heat Up in Summer Session

Aug 28 2013

By: Kristie D. Kully, Andrew L. Caplan

This summer has brought a wave of housing finance reform efforts in both chambers of Congress. To date, the House and Senate have proposed different approaches to housing finance reform. The leading House proposal, introduced by Republicans, leans heavily toward privatization and would eliminate the affordable housing responsibilities of Fannie Mae and Freddie Mac. In contrast, the Senate proposal, introduced in a bipartisan effort, would combine a government backstop (arguably through more transparent means than those GSEs currently provide) with a continued attempt to fund affordable housing programs. Notwithstanding those differences, there is one common element of both proposals – a reduced government role in the housing finance sector. This core principle has been echoed by the President, who recently laid out general principles for housing finance reform that include winding down the GSEs, amplifying the role of private risk capital, and preserving the function of FHA insurance. In this alert, we summarize key aspects of several recent housing finance proposals, which we will continue to monitor once Congress reconvenes after its August recess.

To read the full alert, click here.

CFPB Brings First Action for Violations of Loan Originator Compensation Rule

Jul 25 2013

By: Jonathan D. Jaffe, Rebecca Lobenherz

On July 23, the Consumer Financial Protection Bureau (CFPB) sued a national mortgage lender and two of its officers for allegedly violating Regulation Z’s loan originator compensation rule (the LO Comp Rule or the Rule) by paying bonuses to employees for steering borrowers to loans with higher interest rates. (See here.) The case was referred to the CFPB by investigators with the Utah Department of Commerce, Division of Real Estate. This is the first publicly announced judicial action the CFPB has brought enforcing the Rule. Read More

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