Catagory:Bureau of Consumer Financial Protection (CFPB)

By: Laurence E. Platt

Title issues that arise by virtue of the controversial use of eminent domain could impair the sale or insurance of residential mortgage loans but have received scant attention. A city seizes “underwater” loans through eminent domain, waves its magic wand, says Abracadabra or Bibbidi Bobbidi Boo, and then the mortgage lien of the prior loan holder evaporates into thin air. The city is free to write down loan principal and, for a fee, arrange for private interests to refinance the no longer underwater loan for a grateful borrower. In this land of make believe, the prior holder accepts the city’s offer of reasonable compensation without a fight. Yeah, right! The more likely result is that holders of seized mortgages will resort to litigation to stop the governmental seizure of their loans. Regardless of the ultimate outcome of that litigation, the mere filing of litigation could cloud title on the new refinancings and make them unmarketable and uninsurable. Read more to see why.

To read the full alert, click here.

By: Phillip L. Schulman, Krista Cooley

The use of statistical sampling to evidence compliance violations without actually performing loan level reviews is at the center of a new enforcement regime that the U.S. Department of Housing and Urban Development (“HUD” or “Department”) announced on Tuesday it is considering to monitor and sanction Federal Housing Administration (“FHA”) approved mortgagees. The announcement, published as a Notice in the Federal Register, raises a host of questions, not the least of which is how HUD will implement these proposed enforcement efforts given the potential draconian consequences for FHA program participants. Those who already perceive that the risks of doing business with the federal government are increasingly excessive, should sit up and take notice. HUD has offered lenders 60 days to comment on the Notice, and lenders would be wise to carefully consider the changes and make their voices heard.

 To read the full alert, click here.

By: Thomas H. Petrides , John L. Longstreth

In a victory for the Mortgage Bankers Association (“MBA”), a federal Court of Appeals has vacated an “Administrator’s Interpretation” issued in 2010 by the U.S. Department of Labor Wage and Hour Division (“DOL”) regarding the non-exempt status of mortgage loan officers. This court decision reinstates a prior Opinion Letter issued by the DOL in 2006 that had concluded loan officers in the mortgage banking industry generally may qualify as exempt from overtime under the administrative exemption of the federal Fair Labor Standards Act (“FLSA”). MBA had challenged the contrary 2010 Interpretation because it had been issued by the DOL without first conducting the “notice and comment” rulemaking process required under the Administrative Procedure Act (“APA”). The Appeals Court agreed with the MBA, but took no position on the merits of whether mortgage loan officers may in fact qualify under the administrative exemption to be exempt from the payment of overtime wages. Thus, the DOL may subsequently readopt the 2010 Interpretation after conducting the proper rulemaking procedures. In the interim, however, mortgage industry employers may choose to rely on the 2006 Opinion Letter to potentially escape overtime liability regarding their loan officers if they follow the guidance of that letter.

To read the full alert, click here.

By: Kristie D. Kully , Andrew L. Caplan

On May 29, 2013, the CFPB finalized certain amendments to its January 2013 Ability to Repay/Qualified Mortgage Rule. In addition to clarifying how loan originator compensation will be factored into the QM’s three percent limit on points and fees (as discussed in a recent K&L Gates Consumer Financial Services Watch blog post), the May 2013 amendments (which will become effective at the same time as the QM Rule, in January 2014) will exempt new categories of creditors and transactions from the Rule’s ability to repay requirements; expand the definition of QM to include a new set of loans made by small portfolio lenders; and create a two-year window in which certain balloon payment loans will enjoy QM status, without requiring that such loans be made to borrowers in rural or underserved areas. Read More

By: Jonathan D. Jaffe , Kristie D. Kully , David A. Tallman,  Andrew L. Caplan , Eric Mitzenmacher

The Consumer Financial Protection Bureau (“CFPB”) issued a true game changer on January 10, 2013, with its Ability to Repay and Qualified Mortgage Rule (the “Final Rule” or the “Rule”). Some industry observers seem to consider Chicken Little an optimist—not only is the sky falling, but the earth is trembling and the seas boiling. But everyone appears to agree that the Rule has caused the ground to shift beneath our feet. As we describe in this Client Alert, the Final Rule will almost certainly result in fewer borrowers qualifying for mortgages, and will likely result in higher interest rates for many who do qualify.

To read the full alert, click here.