OCC Updates Mortgage Banking Booklet in Comptroller's Handbook

The Office of the Comptroller of the Currency (OCC), which supervises federally-chartered banks and savings associations, has issued an updated “Mortgage Banking” booklet, which is part of the larger Comptroller’s Handbook.  The new booklet replaces the earlier version issued in March 1996, examination procedures issued in March 1998, and Section 750 of the former Office of Thrift Supervision’s Examination Handbook, issued in November 2008.

The updates include modifications to address significant changes to the primary and secondary mortgage market and regulatory developments, including the Dodd-Frank Wall Street Reform and Consumer Financial Protection Act of 2010 and major revisions to Regulations X and Z.  The booklet provides guidance to national banks and federal savings associations (FSAs) on mortgage portfolio risk management and examination procedures.

CFPB Prepares to Overhaul Home Mortgage Disclosure Act Rules

The Consumer Financial Protection Bureau (CFPB) is preparing to make significant revisions to the regulations promulgated under the Home Mortgage Disclosure Act of 1975 (HMDA)  (Regulation C) by requiring home mortgage lenders to disclose far more information to regulators.  In its first step toward these revisions, the CFPB is convening a Small Business Review Panel (as required by the Small Business Regulatory Enforcement Fairness Act) to seek input from small lenders on the proposed changes before commencing rulemaking.

As mandated by Section 1094 of the Dodd-Frank Consumer Financial Protection Act of 2010 (Dodd-Frank), CFPB will revise the HMDA regulations to require lenders to report additional information that could alert regulators to issues in the home mortgage marketplace.  This information would include the scheduled term of the loan, total points and fees, rate spreads, information on promotional interest rates, prepayment penalties and non-amortizing features, property value and location information, and the applicant’s or borrower’s age and credit score.

In addition to the revisions mandated by Dodd-Frank, the CFPB is considering asking lenders to include more underwriting and pricing information, such as the  APRs and rate spreads, the risk-adjusted, prediscounted interest rates, total origination charges, and total discount points, to enable regulators to better understand new developments in all segments of the housing finance market.  The CFPB is also considering requiring lenders to provide regulators with explanations of rejected loan applications, whether the lenders considered particular loans to be “Qualified Mortgages” under the CFPB’s Ability-to-Repay rule, combined loan-to-value ratios, and borrowers’ debt-to-income ratios.

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Ninth Circuit Remands FCRA Case – Actual Injury Not Required for Article III Standing

On Tuesday, the Ninth Circuit remanded Robins v. Spokeo, Inc., Case No. 2:10-cv-05306-ODW-AGR on the basis that the district court erred in finding that the Plaintiff, Thomas Robins (“Robins”), did not have Article III “injury-in fact” standing to file his suit alleging violations of Fair Credit Reporting Act (“FCRA”) §§1681b(b)(1), 1681e(b), and 1681j(a).

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Fourth Circuit Lets Consumers Orally Dispute Validity of Debts

In a per curiam decision which vacated the lower court’s dismissal of a consumer class action under the federal Fair Debt Collection Practices Act (FDCPA), the U.S. Court of Appeals for the Fourth Circuit, in a case of first impression in that circuit, found that debt collection notices violate the FDCPA if they require consumers’ disputes of the validity of debts to be in writing.  In Clark v. Absolute Collection Service, Incorporated, No. 13-1151, ___ F.3d ___ (4th Cir., Jan. 31, 2014), the court held that section 1692g(a)(3) of the FDCPA does not explicitly or implicitly require consumer’s disputes to be in writing.

Section 1692g(a)(3) of the FDCPA requires that debt collectors send written notices to consumer debtors containing “…a statement that unless the consumer, within thirty days after receipt of the notice, disputes the validity of the debt, or any portion thereof, the debt will be assumed to be valid by the debt collector….”  However, pursuant to section 1692g(b) of the FDCPA, when a consumer “notifies the debt collector in writing” (emphasis added) that he or she disputes a debt, the debt collector must cease collection activity until verification of the debt is obtained and mailed to the consumer.

In this case, the debt collector issued collection notices stating, among other things, that “ALL PORTIONS OF THIS CLAIM SHALL BE ASSUMED VALID UNLESS DISPUTED IN WRITING WITHIN THIRTY (30) DAYS….” (Emphasis added).  The debt collector argued that its collection notices comply with section 1692g(a)(3) of the FDCPA because it imposes “an inherent writing requirement” because consumers’ oral notices would waive important protections under sections 1692g(a)(4), 1692g(a)(5) and 1692g(b), producing what the debt collector contended was an absurd result.  This position has been adopted by the U.S. Court of Appeals for the Third Circuit (Graziano v. Harrison, 950 F.2d 107 (3d Cir. 1991)) but rejected by the Second and Ninth Circuits (Hooks v. Forman, Holt, Eliades & Ravin, LLC, 717 F.3d 282 (2d Cir. 2013); Camacho v. Bridgeport Fin. Inc., 430 F.3d 1078 (9th Cir. 2005)).

In adopting the position of the Second and Ninth Circuits, the Fourth Circuit found that the plain meaning of FDCPA section 1692g(a)(3) should be enforced as written–without a requirement that disputes be in writing–and does not produce absurd results.  The court noted that oral disputes under section 1692g(a)(3) trigger statutory protections for consumers which are independent of those under sections 1692g(a)(4), 1692g(a)(5) and 1692g(b).

Failure to Request and Obtain Required USDA Loan Guarantee Requires ECOA Adverse Action Notice

In the case of Cross v. Prospect Mortgage, LLC, No. 1:12-cv-1455 (E.D. Va., Nov. 27, 2013), a federal district court found that a mortgage lender violated the Equal Credit Opportunity Act (ECOA) when the lender failed to provide the borrower with an “adverse action” notice stating that the lender did not obtain a requested U.S. Department of Agriculture Rural Development (USDA-RD) loan guarantee. Accordingly, the court granted the plaintiff-borrower’s motion for summary judgment on her ECOA claim.

The borrower had applied for a USDA-RD guaranteed mortgage loan to refinance her existing home mortgage loan. The lender did obtain a required pre-closing conditional loan guarantee commitment from USDA. The conditional commitment contemplated a residential mortgage loan with a principal balance of $397,800 and a 5.0% interest rate, requiring the borrower to pay $5,000 in cash at closing for closing costs. However, prior to closing, the borrower requested that the lender modify the loan to finance all of the closing costs, and the lender agreed to do so subject to an increase in the interest rate to 5.375%. The borrower accepted this higher rate, and the lender advised her that the changed loan terms would require USDA approval prior to closing. The parties proceeded to close, and the borrower paid a $7,956 USDA loan note guarantee fee, which was itemized on the HUD-1 settlement statement. However, the lender apparently never sought or received from USDA a new pre-closing approval of the new loan terms. Apparently the lender knew then that the USDA would not guarantee the loan, yet it did not disclose this fact to the borrower. Continue reading this entry