CFPB Revises Loan Originator Rule and HOEPA Rule Guides

The Consumer Financial Protection Bureau (CFPB) recently issued revised versions of the small entity compliance guides for the Loan Originator Rule and the Home Ownership and Equity Protection Act (HOEPA) Rule.

While some of the most well-known provisions of the Loan Originator Rule are the provisions addressing loan originator compensation, the rule also defines the concept of a loan originator and addresses qualification and other requirements related to loan originators. Among various changes, the guide for the Loan Originator Rule is revised to reflect (1) the broadening of an exemption from the concept of a loan originator with regard to retailers of manufactured and modular homes and their employees made by the Economic Growth, Regulatory Relief, and Consumer Protection Act (Act), which was adopted earlier this year (2) the process for contacting the CFPB with informal inquiries about the rule, and (3) that the TILA/RESPA Integrated Disclosure (TRID) rule is now in effect (the prior version of the guide was issued in March 2015 and the TRID rule became effective in October 2015).

Among various changes, the guide for the HOEPA Rule is revised to reflect (1) the broadening of the exemption from the concept of a loan originator made by the Act (which is noted above), as this can affect the requirement to include loan originator compensation in points and fees for purposes of the points and fees threshold under the HOEPA rule, and (2) the process for contacting the CFPB with informal inquiries about the rule.

Note that for purposes of the points and fees cap to determine qualified mortgage loan status under the ability to repay rule, the definition of "points and fees" set forth in the HOEPA rule is used. As a result, corresponding changes likely will be made to the provisions of the small entity compliance guide for the ability to repay rule to reflect that the Act's broadening of the exemption from the concept of a loan originator with regard to retailers of manufactured and modular homes and their employees may affect the calculation of points and fees for qualified mortgage purposes. The current version of such guide was issued in March 2016, and the version of the guide on the CFPB's website includes a notice that the guide has not been updated to reflect the Act.

- Richard J. Andreano, Jr.

Conforming Loan Limits Increase for 2019

The Federal Housing Finance Agency (FHFA) recently announced a nearly 7% increase in the conforming mortgage loan limits for 2019.

For non-high cost areas in the continental United States, the maximum loan amount for a one-unit home will increase from $453,100 to $484,350. For high-cost areas in the continental United States, the maximum loan amount for a one-unit home will increase from $679,650 to $726,525.

For non-high cost areas in Alaska and Hawaii, the maximum loan amount for a one-unit home will increase from $679,650 to $726,525. There is no higher limit for high-cost areas in Alaska and Hawaii, as the states do not have any high-cost areas in 2019. (In 2018, there are high-cost areas in Alaska and Hawaii, and the maximum loan limit in those areas for a one-unit home is $1,019,475.)

FHFA provides by a jurisdiction-by-jurisdiction list of maximum loan amounts and also a map of the United States showing maximum loan amounts by jurisdiction.

Fannie Mae and Freddie Mac each issued releases addressing the implementation of the new loan limits.

- Richard J. Andreano, Jr.

CFPB/Fed/OCC Increase Exemption Thresholds for Appraisal Requirement, Regs Z and M

The Consumer Financial Protection Bureau, Fed, and Office of the Comptroller of the Currency have published notices in the Federal Register announcing that they are increasing three exemption thresholds that are subject to annual inflation adjustments. Effective January 1, 2019, through December 31, 2019, these exemption thresholds are increased as follows:

- Wendy Angus-Anderson

Banking Agencies Propose Rule to Increase Appraisal Exemption Transaction Value

The FDIC, Federal Reserve Board and Comptroller of the Currency are proposing a rule to implement a rural property appraisal exemption under the Economic Growth, Regulatory Relief, and Consumer Protection Act (the Act) and also increase the appraisal exemption based on transaction value from $250,000 to $400,000.

As we reported previously, the Act amends the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA) to exclude a loan made by a bank or credit union from the FIRREA requirement to obtain an appraisal if certain conditions are met. The conditions are that the property is located in a rural area, the transaction value is less than $400,000, the institution retains the loan in portfolio, subject to exceptions, and, not later than three days after the Closing Disclosure is given to the consumer, the mortgage originator or its agent has contacted not fewer than three state-licensed or state-certified appraisers, as applicable, and documented that no such appraiser, as applicable, was available within five business days beyond customary and reasonable fee and timeliness standards for comparable appraisal assignments, as documented by the mortgage originator or its agent.

The federal banking agencies propose to implement the exemption under the Act by simply adding to the list of exempted transactions in their respective appraisal regulations a transaction that "is exempted from the appraisal requirement pursuant to the rural residential exemption under 12 U.S.C. 3356." In short, the agencies will implement the exemption by simply referencing the statutory provision.

Significantly, the agencies also propose to increase the exemption based on the value of a transaction from $250,000 to $400,000. The agencies advise that the decision to propose an increase in the transaction value exemption is based on consideration of available information on real estate transactions secured by single 1-to-4 family residential property, supervisory experience, comments received from the public in connection with the Act, and rulemaking to increase the appraisal threshold for commercial real estate appraisals. If this proposed exemption is adopted, it will significantly reduce the importance of the rural property exemption added by the Act.

With both proposed exemptions, banks still would need to obtain an appropriate evaluation of the real property collateral that is consistent with safe and sound banking practices.

The comment period will run 60 days from the publication of the proposal in the Federal Register.

- Richard J. Andreano, Jr.


Trade Groups Urge Reauthorization of Flood Insurance Program

With the November 30, 2018, expiration date for the National Flood Insurance Program (Program) looming, industry trade groups sent a letter to Congressional leaders urging Congress to extend the Program.

As we reported previously, the Program was set to expire on July 31, 2018 and Congress voted on that date to extend the Program until November 30, 2018. Basically Congress kicked the can down the road until after the midterm elections.

As noted by the trade groups in their letter, "Congress has yet to pass a long-term extension of the NFIP, as debate continues regarding options for reforming the program. This has already resulted in a series of seven stop-gap extensions and two brief lapses in 2017 and 2018. The NFIP is currently the main source of flood insurance in the United States, and Americans deserve certainty and stability in the flood insurance marketplace to be able to protect their homes and loved ones."

A long-term, sensible reform of the Program is long overdue. The continued kicking of the can down the road by Congress through temporary extensions of the Program is not good policy for communities at risk or taxpayers.

- Richard J. Andreano, Jr.


Initial Release of Public Use File With Data From the National Survey of Mortgage Originations

The Consumer Financial Protection Bureau (CFPB) and Federal Housing Finance Agency (FHFA) have released the first public use file containing data from the National Survey of Mortgage Originations. The NSMO is a component of the National Mortgage Database (NMDB®) program, which we reported on previously.

Since 2014, the CFPB and FHFA have sent approximately 6,000 surveys each quarter to consumers who recently obtained mortgage loans to obtain feedback on their experiences during the origination process, their perception of the mortgage market and their future expectations. The recently issued public use file reflects data from the first 15 quarterly waves of surveys, and covers nearly 25,000 loans originated from 2013 to 2016.

Letters are sent to consumers randomly selected for the survey in both English and Spanish, and consumers who elect to complete a survey may do so in English or Spanish. The current version of the survey contains 94 questions. Topics addressed by the questions include the shopping process, factors regarding the consumer’s selection of the mortgage lender and mortgage loan, the application process, satisfaction with the lender and origination process, whether the consumer experienced certain issues at the loan closing (such as whether the loan documents were not ready or whether the consumer felt rushed or was not given time to read documents), information regarding the consumer (including demographic and income data), whether the consumer expects changes in household income or expenses, whether the consumer expects any changes in employment status, and transaction details (such as purpose for the loan, down payment amount, sources of funds for down payment, factors influencing decision to refinance, interest rate and whether rate is fixed or adjustable, parties who contributed to the payment of closing costs, the type of property and other property details).

FHFA Deputy Director Sandra Thompson stated that "The goal of the survey is to obtain information to help improve lending practices and the mortgage process for future borrowers." CFPB Acting Director Mick Mulvaney stated that "These data will allow greater transparency, accountability, and effectiveness around borrowers' mortgage experiences." The surveys are intended to address the FHFA obligation under the Housing and Economic Recovery Act to conduct monthly mortgage surveys of all residential mortgages, and the CFPB obligation under Dodd-Frank to monitor the primary mortgage market, including through the use of survey data.

- Richard J. Andreano, Jr.

SCOTUS Decision in Unsolicited Fax Case Could Have Broader TCPA Implications

The U.S. Supreme Court's grant of the petition for certiorari in a case involving the Telephone Communication Protection Act (TCPA) prohibition on unsolicited fax advertisements could have significant implications for the Federal Communication Commission’s (FCC) anticipated ruling on what constitutes an automatic telephone dialing system (ATDS) under the TCPA.

The petitioner in PDR Network v. Carlton & Harris Chiropractic sent a fax in 2013 to a West Virginia chiropractor offering a free copy of the Physicians' Desk Reference. The chiropractor declined the offer and sued PDR in West Virginia federal court, alleging that PDR had violated the TCPA by sending it an unsolicited fax advertisement. PDR moved to dismiss, arguing that the fax was not an "unsolicited advertisement" because it offered the desk reference for free rather than for purchase. The chiropractor disagreed, arguing that the fax was an "unsolicited advertisement" because a 2006 FCC rule interpreted the term to include "facsimile messages that promote goods or services even at no cost."

Applying step one of a Chevron deference analysis, the district court found that the TCPA's definition of "unsolicited advertisement" was unambiguous, and therefore it was not required to defer to the FCC's interpretation. Concluding that the TCPA only prohibited faxes with a commercial aim, it granted PDR's motion to dismiss. The U.S. Court of Appeals for the Fourth Circuit reversed, ruling that the Hobbs Act precluded the district court from "even reaching the step-one question [of Chevron]" and required it to defer to the FCC rule.

The Supreme Court has granted certiorari to decide whether the Hobbs Act required the district court to accept the FCC's TCPA interpretation. The Hobbs Act provides a mechanism for judicial review of certain agency orders, including all FCC final orders under the TCPA. An aggrieved party can challenge such an order by filing a petition in the court of appeals for the judicial circuit where the petitioner resides or has its principal office or in the U.S. Court of Appeals for the District of Columbia Circuit. Under the Hobbs Act, such courts have "exclusive jurisdiction" to "enjoin, set aside, suspend (in whole or in part), or to determine the validity of" the orders to which the Act applies, including TCPA interpretations by the FCC.

In addition to the Hobbs Act question, PDR's certiorari petition presented the question of whether faxes must have a commercial nexus to a firm's business to be prohibited by the TCPA. However, the Supreme Court only granted certiorari to decide the Hobbs Act question. Therefore, an affirmance would leave in place the Fourth Circuit’s reading that the FCC's rule created a "per se rule" that a fax promoting free goods or services is an "advertisement." While such a result could contribute to the filing of additional TCPA litigation regarding unsolicited advertisements, it could also eliminate further TCPA litigation over the TCPA's ATDS definition should the FCC—which is revisiting the definition in light of the D.C. Circuit's ACA International decision—adopt a narrow reading. 

If the Supreme Court were to reverse the Fourth Circuit, however, a future district court might consider itself free to apply a Chevron analysis to the FCC's narrow reading. In Marks v. Crunch San Diego, the U.S. Court of Appeals for the Ninth Circuit recently found that the ATDS definition is ambiguous and based on an examination of the "context and structure of the [TCPA's] statutory scheme," concluded that Congress intended to regulate devices that make automatic calls, including automatic calls dialed from lists of recipients. A district court might follow Marks to conclude that although it must proceed to step two of a Chevron analysis because the ATDS definition is ambiguous, the FCC's narrow interpretation is not reasonable or permissible because it conflicts with the "context and structure of the [TCPA's] statutory scheme."

Ballard Spahr's TCPA Team assists clients in navigating the complex and challenging issues that arise under the TCPA. The Team, which comprises regulatory attorneys and litigators, defends clients against TCPA class and individual actions, and counsels on TCPA compliance and avoiding liability, including reviewing policies and practices and helping to design text message, prerecorded, and autodialed-call campaigns. It also assists clients in commenting on regulatory proposals and handling scrutiny from regulators, including preparing for examinations, responding to investigations, and defending against enforcement actions.

Ballard Spahr's Consumer Financial Services Group is nationally recognized for its guidance in structuring and documenting new consumer financial services products, its experience with the full range of federal and state consumer credit laws, and its skill in litigation defense and avoidance, including pioneering work in pre-dispute arbitration programs.

- Alan S. Kaplinsky, John L. Culhane, Jr., Stefanie H. Jackman, and Daniel JT McKenna

CFPB Files SCOTUS Amicus Brief; Argues FDCPA Does Not Apply to Nonjudicial Foreclosure Proceedings

The Consumer Financial Protection Bureau (CFPB) has filed an amicus brief in the U.S. Supreme Court in support of the respondent/law firm defendant in Obduskey v. McCarthy & Holthus LLP, et al., a Tenth Circuit decision that held that a law firm hired to pursue a nonjudicial foreclosure under Colorado law was not a debt collector as defined under the Fair Debt Collection Practices Act (FDCPA). The Supreme Court granted certiorari in June 2018 to review the Tenth Circuit's decision and resolve a circuit split on whether the FDCPA applies to nonjudicial foreclosure proceedings. Because the Supreme Court's decision in Obduskey will determine whether the FDCPA's protections apply in countless nonjudicial foreclosure actions, it could have a significant financial impact on the mortgage industry.

The amicus brief represents the second CFPB amicus brief filed under Acting Director Mick Mulvaney's leadership (the first was filed in the Seventh Circuit) and the first CFPB amicus brief filed in the Supreme Court under his leadership. Most significantly, the amicus brief appears to be the first amicus brief filed by the CFPB in which it has supported the industry position.

In its amicus brief, the CFPB points to FDCPA Section 1692a(6) which defines the term "debt collector" to include, for purposes of Section 1692f(6), someone whose business is principally the "enforcement of security interests." Section 1692f(6) provides that it is an unfair or unconscionable collection practice to take or threaten to take nonjudicial action to effect dispossession of property under specified circumstances. The CFPB argues that it follows from this "limited-purpose definition of debt collector" that, except for purposes of Section 1692f(6), enforcing a security interest, is not, by itself debt collection and to read the provision differently would render the "limited-purpose definition…superfluous."

Based on these provisions, the CFPB contends that because enforcement of a security interest by itself is generally not debt collection under the FDCPA, a person cannot violate the FDCPA by taking actions that are legally required to enforce a security interest. According to the CFPB, "[t]hat is dispositive here because the initiation of a Colorado nonjudicial-foreclosure proceeding undisputedly was a required step in enforcing a security interest." (The CFPB observes in a footnote that, although not implicated in Obduskey, actions clearly incidental to the enforcement of a security interest, even if not strictly required by state law, also would not constitute debt collection.) The CFPB asserts that deeming the initiation of a nonjudicial foreclosure proceeding to be debt collection "could bring the FDCPA into conflict with state law and effectively preclude compliance with state foreclosure procedures. No sound basis exists to assume Congress intended that result."

- John L. Culhane, Jr.


CFPB Issues Spring 2018 Semi-Annual Report

The Consumer Financial Protection Bureau (CFPB) has issued its Spring 2018 Semi-Annual Report to Congress covering the period October 1, 2017, through March 31, 2018.

At 41 pages, the new report is even shorter than the CFPB's last semi-annual report (which was 55 pages) and continues what appears to be a goal under Acting Director Mulvaney's leadership of issuing semi-annual reports that are substantially shorter than those issued under the leadership of former Director Cordray. Like the prior semi-annual report under Mr. Mulvaney's leadership, and also in contrast to the reports issued under former Director Cordray's leadership, the new report does not contain any aggregate numbers for how much consumers obtained in consumer relief and how much was assessed in civil money penalties in supervisory and enforcement actions during the period covered by the report.

Pursuant to Section 1017(a)(1) of the Dodd-Frank Act, subject to the Act's funding cap, the Federal Reserve System (Fed) is required to transfer to the CFPB on a quarterly basis "the amount determined by the [CFPB] Director to be reasonably necessary to carry out the authorities of the Bureau under Federal consumer financial law, taking into account such other sums made available to the Bureau from the preceding year (or quarter of such year.)" The new report references the January 2018 letter sent by Mr. Mulvaney to former Fed Chair Yellen requesting no funds for the second quarter of Fiscal Year 2018.

Mr. Mulvaney has, however, sent letters to Fed Chair Jerome Powell requesting funds transfers for the third and fourth quarters of FY 2018 and for the first quarter of FY 2019. The amounts requested are, respectively, $98.5 million, $65.7 million, and $172.9 million. (In contrast, former Director Cordray's final transfer request, which was for the first quarter of FY 2018, sought a transfer of $217.1 million.) Two of Mr. Mulvaney's letters included the following statement:

"By design, this funding mechanism [created by Section 1017(a)(1)] denies the American people their rightful control over how the Bureau spends their money, which undermines the Bureau's legitimacy. The Bureau should be funded through Congressional appropriations. However, I am bound to execute the law as written." 

The new report indicates that the CFPB had 1,671 employees as of March 31, 2018, representing a slight increase in the number of employees (1,627) as of March 31, 2017. The new report does not discuss any ongoing or past developments of significance beyond those we have covered in previous blog posts.

- Barbara S. Mishkin


Trade Groups Support Confirmation of Kraninger as CFPB Director

A number of housing and financial industry trade groups, including the Mortgage Bankers Association and Real Estate Services Providers Council, Inc. (RESPRO®), recently sent a letter to Senators Mitch McConnell (R-KY) and Charles E. Schumer (D-NY) supporting the confirmation of Kathleen Kraninger as CFPB Director.

The trade groups state that Ms. Kraninger "has the ability to lead and manage a large government agency, like the Bureau, which is tasked to ensure consumers’ financial interests are protected," and "also fulfill the equally important role of ensuring businesses have the necessary compliance support to further those interests."

Addressing concerns regarding the CFPB, the trade groups state, "Our members believe the Bureau must improve its examination, enforcement, rulemaking and guidance processes to assist with regulatory compliance and bring certainty in the marketplace. As evidenced during the Senate Banking Committee confirmation hearing, Ms. Kraninger's testimony conveyed a commitment to such actions along with a thoughtful review of the law for corresponding administrative actions."

As we reported previously, the Senate Banking Committee voted to approve Ms. Kraninger's nomination as CFPB Director, but the full Senate has not acted on the nomination. If the Senate does not act on Ms. Kraninger’s nomination during the lame-duck session, the nomination will be returned to President Trump. Once the new Congress convenes next year, the President could re-nominate Ms. Kraninger or nominate another individual for CFPB Director. As we reported previously, under the Federal Vacancies Reform Act, Mick Mulvaney can continue to serve as Acting CFPB Director for a 210-day period if Ms. Kraninger's nomination is returned or rejected, and once another nomination is made, he could serve as Acting Director during the Senate's consideration of the second nomination.

- Richard J. Andreano, Jr.


Bank Trade Groups Petition Fed to Engage in Rulemaking on Role of Supervisory Guidance

The American Bankers Association and the Bank Policy Institute have sent a letter to the Board of Governors of the Federal Reserve System (Fed) to petition the Fed to engage in rulemaking to clarify the Fed's September 2018 "Interagency Statement Clarifying the Role of Supervisory Guidance" (the "Interagency Statement"). The Interagency Statement was issued jointly by the Fed, FDIC, NCUA, OCC and CFPB with the stated purpose of "explain[ing] the role of supervisory guidance and to describe the agencies' approach to supervisory guidance."

The letter states that the petition is made pursuant to section 553(e) of the Administrative Procedure Act. That provision provides that each agency "shall give an interested person the right to petition for the issuance, amendment, or repeal of a rule." An agency must provide the grounds for the denial of a petition and a denial can be appealed to a court.

In their letter, the trade groups express concern that the Interagency Statement "may leave room for examiners to continue to base examination criticisms on matters not based in law." An example given is that "some examiners may continue to retain existing [matters requiring attention (MRAs) and matters requiring immediate attention (MRIAs)] based on agency guidance, on the theory that the Interagency Statement is not retroactive." They state that there is also "a concern that examiners might defeat the purpose of the Statement by replacing guidance-based examination criticisms with MRAs and MRIAs grounded in generic and conclusory assertions about 'safety and soundness' (as opposed to those that identify specific, demonstrably unsafe and unsound practices-the actual legal standard.)"

Finally, they observe that "the Interagency Statement's general reference to a 'criticism' or 'citation' has engendered some confusion about whether MRAs, MRIAs, and other adverse supervisory actions are covered by the Statement." (The Statement provided that "[e]xaminers will not criticize a supervised financial institution for a 'violation' of supervisory guidance. Rather, any citations will be for violations of law, regulation, or noncompliance with enforcement orders or other enforceable conditions.")

To address these concerns, the trade groups petition the Fed to take the following two specific rulemaking actions:

  • To propose and adopt, through notice and comment rulemaking, the content of the Agency Statement "as a formal expression and acknowledgment of the proper legal status of the guidance."
  • To include in such a rulemaking "a clear statement that MRAs, MRIAs, examination rating downgrades, MOUs, and any other formal examination mandate or sanction will be based only on a violation of a statute, regulation or order—that is, that they are the types of 'criticisms' or 'citations' at which the guidance is directed." For this purpose, a "violation of a statute" would include the identification of a demonstrably unsafe and unsound practice pursuant to 12 U.S.C. Section 1818(b)(1) but would not include a generic or conclusory reference to "safety and soundness." (The groups call this "a critical distinction," observing that "[i]t is essential that any examination criticisms adhere to the relevant legal standard: the statutory bar on 'unsafe and unsound' conduct, as interpreted and binding on the agencies under governing case law.")
- Barbara S. Mishkin


Did You Know?

New Jersey Expands NMLS Coverage
The New Jersey Department of Banking and Insurance has announced that it is now accepting Transitional Mortgage Loan Originator and Exempt Company Registration applications. A Transitional Mortgage Loan Originator License grants temporary authority for a loan originator licensed in another state to act as a loan originator in New Jersey for a period of up to 120 days while the loan originator satisfies the requirements for full licensure. An Exempt Company Registration is available for third-party processing and underwriting companies in order to sponsor licensed mortgage loan originators who will supervise individuals in engaging in loan processing or underwriting activities.


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