President Barack Obama surprised the mortgage lending industry and friend and foe alike with a controversial decision to make a recess appointment of Richard Cordray as director of the Consumer Financial Protection Bureau, even though Congress technically remains in session. Assuming the recess appointment of Cordray proceeds without a challenge (see related story on page 2), it’s now “game on” for the CFPB and the mortgage lending industry, according to Christopher Willis, a partner in the Atlanta office of the Ballard Spahr law firm. “Unless the appointment is successfully challenged, this move will open up a whole range of powers to the bureau, including the power to regulate non-bank players and the authority to act under the ‘unfair, deceptive or abusive’ provisions in the Dodd-Frank Act,” he said. “That sets the stage for whether someone wants to challenge that power.”
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It didn’t take long for the Consumer Financial Protection Bureau to get its regulatory groove on after President Obama made a recess appointment of Richard Cordray as the agency’s first director. Just hours after the appointment was announced Jan. 4, Cordray revealed the newly empowered bureau was beginning its supervision of non-bank mortgage lenders and other non-bank entities.“One difficulty we faced until now was that, without a director, we were unable to address all the problems we were created to tackle. In particular, we lacked the ability to supervise financial institutions other than big banks – like non-bank mortgage lenders and servicers and payday lenders,” Cordray said in a speech. “Many of these institutions had no regular federal oversight in the run-up to the financial crisis. They led a race to the bottom that pushed aside responsible businesses, including community banks and credit unions, and greatly harmed consumers. “I am pleased to say that we will now be able to exercise the full authorities granted to us under the law and begin to supervise these non-banks,” the new director added.
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President Obama’s contentious recess appointment of Richard Cordray, his nominee to head the Consumer Financial Protection Bureau, sets the stage for legal challenges by mortgage lenders affected by actions of the CFPB. One interesting angle that has emerged in discussions with industry attorneys so far is the possibility that, sometime in the future, an aggrieved mortgage lender or servicer that becomes the focus of a CFPB enforcement action could block it by challenging the legality of the action. A company might be able to do so on the basis that the bureau may have acted unlawfully by utilizing an authority it really didn’t have because the CFPB director might not have been legally confirmed by the Senate. “There are issues with this appointment,” said Anne Canfield, executive director of Canfield & Associates, the first of which is the question of whether the Senate is in session or in recess.
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The Countrywide Financial legacy continues to sour for Bank of America, which recently was compelled to agree to pay $335 million to settle charges that Countrywide allowed pricing discrimination against African American and Hispanic borrowers, along with unchecked steering to subprime loans, when similarly qualified Caucasian borrowers were given prime loans at lower cost. It’s the largest fair lending settlement to date. This is the first time that the Justice Department has alleged and obtained relief for borrowers who were steered into mortgages because of their race or national origin, government officials said. The settlement – which requires court approval – mandates that Countrywide implement policies and practices to prevent discrimination if it returns to the lending business during the next four years. Countrywide currently operates as a subsidiary of Bank of America but does not originate new loans.
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When it comes to contemplating the wide range of mortgage lending compliance challenges in 2012, it might be useful to borrow from former Defense Secretary Donald Rumsfeld: there are “knowns,” things we know and things we know we don’t know, and there are “unknowns,” things we don’t know that we don’t know.In terms of some of the “knowns,” the mortgage servicing exam procedures released back in October by the Consumer Financial Protection Bureau provide a roadmap for some of the emphasis areas mortgage lenders can expect from their new regulator, according to Christopher Willis, partner in the Atlanta office of Ballard Spahr. “I think fair lending is going to be a very big emphasis area for them,” he said. The recent settlement between the Department of Justice and Bank of America “sets the stage for that to continue to be a very public, very big issue. And that was an origination case; that wasn’t even a servicing case.“And if you read the mortgage servicing exam procedures, the CFPB is saying they want to apply fair lending analysis to things like foreclosures and loan modifications,” he added. “I think that’s going to be a major source of activity.”
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This past week, a majority of participants in an Inside Regulatory Strategies online poll were dismissive of the Consumer Financial Protection Bureau and whether it’s needed and ought to be kept around. Participants were asked, “based on the agency’s regulatory pronouncements and announcements to date, how do you think the agency is doing?” As of press time, 43 percent agreed that, “It’s not needed and should be closed down.” Another 29 percent agreed that, “It’s doing the best it can, but it needs a permanent director.” The remaining 29 percent sided with the view that, “It’s too early to tell what kind of job the CFPB is doing.” No one agreed with the position that, “It’s doing a good job of balancing consumer protections with regulating the mortgage industry.”
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Dozens of mortgage lender groups have jointly submitted amici curiae briefs before the Supreme Court of the United States in Magner v. Gallagher, a case in which the high court will address whether the disparate impact theory of discrimination is applicable under the Fair Housing Act or whether plaintiffs have to prove intentional discrimination instead.The Independent Community Bankers of America, the Consumer Mortgage Coalition and the American Financial Services Association argued jointly that proof of discriminatory intent is required to establish a violation of the act.The American Bankers Association, the Consumer Bankers Association, the Financial Services Roundtable and the Housing Policy Council joined dozens of state banking groups to argue that the text of the law provides no basis for claims of disparate impact, and that lenders are not subject to disparate-impact claims under the FHA.The International Municipal Lawyers Association, the National League of Cities and the League of Minnesota Cities sided with the mortgage lending industry...
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In Commonwealth Property Advocates LLC v. MERS, the 10th Circuit Court of Appeals in Denver recently ruled that Mortgage Electronic Registration Systems, Inc. must be granted the right to foreclose.The 10th Circuit Court of Appeals unanimously ruled that “by the clear language of the deeds of trust, MERS has the authority to foreclose and sell the property on behalf of both the original lender and the ‘lender’s successors.’”The judges rejected all of the plaintiff’s arguments that MERS lacked the authority under state law to foreclose, noting that the Utah Court of Appeals had previously decided this issue and found that MERS has the ability to foreclose and act as the beneficiary on a Utah deed of trust. The court also noted that the Utah Supreme Court declined to review the Utah Court of Appeals case.Read More
California. Late last month, the state Department of Real Estate warned consumers about illegal loan modification schemes and urged victims to submit formal complaints. The most common ploy is for a scammer to guarantee a loan mod in exchange for a fee paid ahead of time (which is against the law in the state), and then to do little or nothing to obtain the loan mod for the borrower once the fee has been paid. The DRE advised consumers who are looking for a loan mod to never pay an upfront fee for such services, and to be wary of guaranteed success. Indiana. The state Department of Financial Institutions recently expanded the purpose of Title 750, Article 9 of the Indiana Administrative Code to conform the mortgage lending regulation to state and federal laws, rules and regulations, as well as policies and guidance from state and federal authorities. The DFI also revised the IAC to specify that an expunged criminal conviction does not result in an automatic denial or revocation of a mortgage lender or originator’s license. However, the underlying facts of the crime at issue can still be considered.
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U.S. Supreme Court.Oral Arguments in RESPA Case Scheduled. The U.S. Supreme Court has scheduled oral arguments in the RESPA case, Tammy Foret Freeman, et vir, Petitioners v. Quicken Loans, Inc. for Tuesday, Feb. 21, 2012.The SCOTUS is expected to decide whether a plaintiff has to prove that an unearned fee for a real estate settlement service was divided between two or more persons. Industry attorney observers say the court’s ruling will probably determine the ability of the mortgage lending industry to decide on its own what to charge borrowers at the point of origination.Also, parties in the case are said to have finalized the arguments they will present.Consumer Financial Protection Bureau. Raj Date Named Deputy Director. New Consumer Financial Protection Bureau Director Richard Cordray has named Treasury Special Advisor Raj Date the bureau’s first deputy director. Date had been leading the day-to-day operations of the CFPB since it launched in July. Date’s background includes more than a decade in the financial services industry. He first joined the CFPB as head of the bureau’s Research, Markets, and Regulations division and was later named the special advisor for the agency.
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Wells Fargo last week agreed to a $940,056 settlement with Maryland’s attorney general over allegedly deceptive marketing of adjustable rate mortgages originated by Wachovia and Golden West Financial, both of which Wells acquired in 2008.According to the agreement, Wachovia and Golden West offered borrowers a choice among several programs. Borrowers could choose a traditional, 30-year fixed rate, fully amortizing loan; a traditional, 15-year fixed rate, fully amortizing loan; a loan with payments of interest only; or a loan with payments that were less than the interest actually due. According to the Maryland Consumer Protection Division, Wachovia and Golden West did not fully explain to “Pick-a-Payment” borrowers who chose the fourth option that their minimum payments would not cover the full interest and that their principal debt would actually increase over time.Wells has agreed to consider loan modifications for Maryland homeowners who have “Pick-a-Payment” contracts via the Home Affordable Modification Program. If the homeowner is not eligible for a HAMP loan mod, then Wells will tap its own proprietary loan mod program. The Consumer Protection Division will contact consumers who may be eligible for restitution under the settlement.
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