Mortgage Servicing – Page 3 – Consumer Financial Services Watch

You Had Me at “Hello” Letter: Second Circuit Concludes That a RESPA Transfer-of-Servicing Letter Can Be a Communication in Connection with Collection of Debt

Sep 22 2015

By: Brian M. Forbes, Gregory N. Blase, Roger L. Smerage, Edward J. Mikolinski

Sometimes it is just not that easy to say “hello.” A recent decision from the United States Court of Appeals for the Second Circuit highlights the uncertainty mortgage servicers face with respect to Fair Debt Collection Practices Act (“FDCPA”) compliance when notifying borrowers of changes in loan servicing rights, as required by the Real Estate Settlement Procedures Act (“RESPA”). Often the first communication from a new servicer to a borrower is a RESPA transfer-of-servicing letter—sometimes referred to as a “hello” letter. Under the FDCPA, however, a debt collector—which can include a mortgage servicer when the loan serviced was in default at the time servicing rights were acquired—must provide a debt-validation notice within five days of the “initial communication with a consumer in connection with the collection of [a] debt.” See 15 U.S.C. § 1692g(a). Given the multiple regulatory obligations applicable to communications with borrowers, it is no surprise that litigation often ensues (often in the form of class action litigation for statutory damages), and courts struggle to make sense of the various (and sometimes competing) obligations imposed by the FDCPA and RESPA.

In Win for CFPB, Federal Court Clarifies Scope of “Substantial Assistance” and “Service Provider” Provisions of Dodd-Frank Act

Sep 08 2015

In the first court decision to opine on the “service provider” and “substantial assistance” provisions of the Dodd-Frank Act, a federal district court in Georgia denied a motion to dismiss brought by payments processors who had been sued by the Consumer Financial Protection Bureau (“CFPB”) for their role in an alleged phantom debt collection scheme. The decision addresses two novel areas of the CFPB’s jurisdiction – its ability to enforce the prohibition against unfair, deceptive, and abusive acts and practices (“UDAAPs”) against “service providers,” and its ability to go after those individuals and entities that “knowingly or recklessly provide substantial assistance” to the commission of a UDAAP. While grounded in the specific facts pled in the CFPB’s detailed complaint, the opinion nevertheless provides insight into how the federal courts may interpret these provisions, and serves as a warning sign to companies about the importance of implementing robust compliance programs.

HUD’s Proposal to Terminate FHA Insurance Policies Could Terminate the FHA Program

Sep 01 2015

By: Krista Cooley, Kathryn M. Baugher

If there is anything that galls servicers of government-insured loans, it is the forfeiture or curtailment of all accrued interest from mortgage insurance claims resulting from the failure to foreclose fast enough within artificially created state time lines. At first glance, the U.S. Department of Housing and Urban Development (“HUD” or the “Department”) listened to the complaints of servicers who argued that they should not be penalized for pursuing foreclosure avoidance options or experiencing delays in the legal system beyond their control. HUD’s proposed regulation regarding changes to the Federal Housing Administration’s (“FHA”) single-family mortgage insurance claim filing process includes proposals that pro rate the curtailment of interest based on actual delays caused by the servicer, proposing to eliminate the complete forfeiture of accrued interest for only one day of delay. So far, so good, but HUD did not stop there. HUD also proposed the complete extinguishment of an FHA insurance policy if the servicer does not complete foreclosure within a new set of artificial time lines. Read together, HUD’s reform is to provide servicers with more accrued interest if they do not foreclose fast enough, unless, of course, HUD invalidates the whole insurance policy—the loss of both principal and interest—by virtue of HUD’s subjective definition of unreasonable delays. Few servicers think that is progress.

This proposal raises significant questions and concerns for FHA mortgagees that hold and service FHA-insured loans, many of which could have a chilling effect on FHA lending and servicing activities if HUD were to implement the proposed claim filing deadline as proposed and without significant changes to HUD’s claim filing guidelines and procedures.

Recent Legislative Developments Will Create Headaches and Increase Financial Risks for Mortgage Servicers and Originators

Jul 24 2015

By: J. Stephen Barge, Kenneth S. Wear, Christine M. Green

Two recent legislative developments, which have largely gone unnoticed, will dramatically raise the stakes for mortgage servicers and originators who file IRS Forms 1098. First, the Trade Preferences Extension Act of 2015, signed into law on June 29, 2015, more than doubled the financial penalties imposed for filing IRS Forms 1098 with incorrect information. Second, proposed legislation approved by the Senate Finance Committee on July 21, 2015 to extend certain expired tax provisions (a so-called “extenders bill”) would require servicers to include new information on IRS Form 1098. Although the extenders bill’s new required information may be relatively straightforward in basic situations, delinquent and modified loans present unique challenges. With the new increased penalties in place, the stakes to get it right have never been higher. Because there is scant IRS guidance upon which servicers may rely regarding various information reporting issues, it will be increasingly critical for the IRS to adhere to the legal standard that penalties do not apply when a servicer adopts and follows reasonable reporting methods in good faith.

New Flood Insurance Coverage and Escrow Requirements

Jul 01 2015

By: Kerri M. Smith, Christopher G. Smith

Last week, federal regulators issued long-awaited flood regulations implementing the Biggert-Waters Flood Insurance Reform Act of 2012 (“Biggert-Waters”) and Homeowner Flood Insurance Affordability Act of 2014 (“HFIAA”). To those following the legislative and regulatory developments for federally mandated flood insurance, there won’t be any big surprises in the final rule. Indeed, in both Biggert-Waters and HFIAA, Congress prescribed relatively clear and specific requirements; thus, in responding to comments, the agencies were largely able to rely on statutory language to shape the new obligations. In a few instances, the agencies added clarity through new definitions or additional explanations, but largely the agencies followed the statutes’ road map.

Recent Developments in State Mortgage Servicing Laws

Jun 30 2015

By: Costas A. Avrakotos, Kerri M. Smith, Francis L. Doorley

New laws in Hawaii, Louisiana, Nevada, and Rhode Island will have consequences for mortgage servicers operating in those states. Recently enacted legislation in Hawaii and Nevada imposes new licensing and compliance obligations on servicers. In addition, legislation in Louisiana and Rhode Island set to go into effect has licensing implications for those entities that are mere holders of mortgage servicing rights (“MSRs”), but that do not actually service the loans.

New York DFS Provides Further Clarifications on New Debt Collection Regs

Jun 25 2015

By: Steven M. Kaplan, Gregory N. Blase, Christopher E. Shelton

The New York Department of Financial Services (“DFS”) has updated its FAQ on the debt collection regulations that took effect on March 3, 2015. We analyzed the regulations in a client alert and covered an earlier version of the FAQ in a previous blog post.

New York DFS Clarifies New Debt Collection Regulations

Feb 23 2015

By: Steven M. Kaplan, Gregory N. Blase, Christopher E. Shelton

Responding to industry questions about New York’s new debt collection regulations, most of which take effect on March 3, 2015, the Department of Financial Services has published a detailed FAQ on its website. We previously analyzed the regulations in a client alert.

As we anticipated in our alert, the FAQ confirms that “debt servicers, including companies that service student loans, home equity loans or mortgages … who collect or attempt to collect a debt that was not in default at the time it was obtained for collection are not” subject to the regulations. This parallels how the federal Fair Debt Collection Practices Act (“FDCPA”) is interpreted.

Navigating HUD’s New Single Family Housing Policy Handbook

Feb 17 2015

By: Phillip L. Schulman, Holly Spencer Bunting, Krista Cooley, Emily J. Booth-Dornfeld, Christa Bieker

Last fall the Department of Housing and Urban Development (“HUD”) issued the first section of its new Single Family Housing Policy Handbook (“Single Family Handbook” or “Handbook”). The Single Family Handbook is designed to achieve a consolidated, authoritative source of single-family housing policy. In addition to consolidating all policy into a single document, the Handbook makes numerous substantive changes to Federal Housing Administration (“FHA”) requirements. The Handbook will be effective for FHA-insured loans with case numbers assigned on and after June 15, 2015. This client alert analyzes key changes introduced by the Handbook.

To read the full alert, click here.

United States Supreme Court: TILA Does Not Require Consumers To File A Lawsuit Within Three Years In Order To Assert A Right To Rescind

Jan 21 2015

By: Brian M. Forbes and Gregory N. Blase

For several years, federal courts have struggled with the question of whether a consumer who wishes to rescind a loan pursuant to the federal Truth in Lending Act (“TILA”) may do so by sending a notice of rescission within three years after the closing date, or whether the statute also requires the consumer to file a lawsuit within that three-year time period. On January 13, 2015, the United States Supreme Court, in Jesinoski v. Countrywide Home Loans, Inc., No. 13-684, slip op. (U.S. Jan. 13, 2015), resolved that question and held that sending a written notice of rescission within three years after closing is sufficient to exercise the right of rescission under TILA; the statute does not require a consumer to also file a lawsuit within that timeframe.

Catagory:Mortgage Servicing