Articles Posted in THE CONSUMER FINANCIAL PROTECTION AGENCY (CFPA)

The Dodd-Frank Update and The Legal Description legal publications at October Research, LLC have teamed up to host a 90-minute federal regulatory outlook webinar for mortgage, title insurance and settlement services professionals. This in-depth training features two top compliance attorneys who will educate participants on significant regulations impacting the industry in 2014. The webinar will be held on Tuesday, December 10, 2013 from 2:00-3:30 PM EST.

Speakers Mitch Kider, of Weiner Brodsky Kider PC, and Marx Sterbcow, of The Sterbcow Law Group, will define significant regulations, what companies should be doing now to prepare and what the regulatory landscape will look like as we move into yet another year of complying with thousands of pages of new and existing regulations. Topics will include:

•CFPB enforcement actions: Who’s at risk and what to expect;

The Consumer Financial Protection Bureau “CFPB” released the “Integrated Mortgage Disclosures under the Real Estate Settlement Procedures Act (Regulation X) and the Truth In Lending Act” (Regulation Z) proposed rule today. The CFPB is asking the public to comment on the rule on or before November 6, 2012 with the exception of 12 CFR 1026.1(c) and 1024.4 in which comments are due on or before September 7, 2012. The Dodd-Frank Wall Street Reform and Consumer Protection Act directed the CFPB to issue proposed rules and forms that combine certain disclosures that consumers recieve in connection with applying for and closing on a mortgage loan under the TILA and RESPA. The CFPB has proposed to amend Regulation X (RESPA) and Regulation Z (TILA) to establish new disclosure requirements and forms in Regulation Z for most closed-end consumer credit transactions secured by real property.

To read a copy of this proposed rule please click the link below. Warning the document is 1099 pages so becareful before hitting the print button on your computer!
http://www.regulations.gov/#!documentDetail;D=CFPB-2012-0028-0001
If you care to comment on the proposed rule the comment form can be accessed by clicking the link below:
http://www.regulations.gov/#!submitComment;D=CFPB-2012-0028-0001 Continue reading

On April 13, 2012 the Consumer Financial Protection Bureau (CFPB) issued Bulletin 2012-03 titled “Service Providers”. The CFPB stated that it expects supervised banks and nonbanks to oversee their business relationships with their service providers in a manner that ensures compliance with Federal consumer financial law, which is designed to protect the interests of consumers and avoid consumer harm.

The term “Service Provider” is defined in Section 1002(26) of the Dodd-Frank Act as “Any person that provides a material service to a covered person in connection with the offering or provision by such covered person of a consumer financial product or service.” (12 U.S.C. Section 5481(26)). A “Service Provider” may or may not be affiliated with the person to which it provides services.”

The Consumer Financial Protection Bureau in its bulletin states that the CFPB “recognizes that the use of service providers is often an appropriate business decision for supervised banks and nonbanks. Supervised banks and nonbanks may outsource certain functions to service providers due to resource constraints, use service providers to develop and market additional products or services, or rely on expertise from service providers that would not otherwise be available without significant investment.”

The CFPB’s bulletin expresses concerns about the lack of liability by the lender to the consumer for third party behavior. “The mere fact that a supervised bank or nonbank enters into a business relationship with a service provider does not absolve the supervised bank or nonbank of responsibility of complying with Federal consumer financial law to avoid consumer harm. A “service provider” that is unfamiliar with the legal requirements applicable to the products or services being offered, or that does not make efforts to implement those requirements carefully and effectively, or that exhibits weak internal controls, can harm consumers and create potential liabilities for both the service provider and the entity with which it has a business relationship.” The Consumer Financial Protection Bureau states that “depending on the circumstances, legal responsibility may lie with the supervised bank or nonbank as well as with the supervised service provider.”

In short the CFPB now expects supervised banks and nonbanks to make sure the service providers comply with the law. The CFPB by issuance of this bulletin has effectively put the entire real estate industry on notice that if they want to do business in the future they had better make sure their internal controls are in place otherwise the supervised bank or nonbank will cease doing business with you.
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Daniel Fisher of Forbes Magazine wrote an article today titled ” “Sleeper” Case Asks Whether Plaintiffs Can Sue Without An Injury.” Mr. Fisher’s article highlights the Edwards v. First American case and discusses the positive impact a Supreme Court’s ruling would have for corporations facing civil and class action lawsuits from consumers who might have a hard time showing actual injury in fact damages.

The Edwards case stems from a real estate settlement procedures act (RESPA) class action where the Edwards’ were required to purchase a title insurance policy from First American. First American’s actions allegedly violated Section 8(c)(2) of RESPA where the federal rules state that affiliated businesses can’t require that borrowers use their affiliated businesses and the civil penalty for violating this rule is treble damages on all fees paid to First American plus attorney’s fees.

The US Supreme Court is looking at standing to sue under Article 3 of the US Constitution in the Edwards case. “First American argues Edward suffered no harm and therefore has no standing to sue under Article III of the Constitution. Under Article III federal courts are limited to hearing “cases” or “controversies” and the Supreme Court has since decided that means somebody who has suffered actual harm or is in imminent danger of it.

Reporter Avi Salzman with Barron’s is reporting that Bank of America may file for bankruptcy protection for it’s Countrywide subsidiary if litigation costs from Countrywide threaten Bank of America. Bank of America is the parent company of Countrywide but it is a separate legal entity. If Bank of America (NYSE: BAC) decides to declare bankruptcy it would only affect the Countrywide division not the entire company.

If Bank of America does file for bankruptcy protection for Countrywide it could have a material impact on on-going litigation involving RESPA, TILA, and other legal actions across the United States involving Countrywide. The purchase by Bank of America is widely viewed as one of the worst acquisition decisions in corporate American history.

The United States Supreme Court granted First American Financial Corporation’s Writ of Certiorari it filed in the Denise P. Edwards et al. v. First American Financial Corporation, et al. RESPA class action lawsuit today (June 20, 2011). The Supreme Court will now decide whether a plaintiff has standing to sue, on behalf of a nationwide class, when a plaintiff asserts that a real estate company violated the Real Estate Settlement Procedures Act of 1974 (RESPA) without showing the RESPA violation affected the services rendered.

The Edwards lawsuit accuses First American and others of operating an illegal kickback scheme which violated Section 8 of RESPA. The Supreme Court decision will focus strictly on Question 2 presented in the Writ of Certiorari. The issue presented in Question 2 is whether the a privte purchaser of real estate has standing to sue under Article III, Sec. 2 of the United States Constitution.

The case is First American Financial v. Edwards, 10-708.
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The US Department of Housing and Urban Development’s (HUD) Real Estate Settlement Procedures Act (RESPA) Division released its latest RESPA ROUNDUP newsletter (Volume 5, April 2011). The newsletter asks and answers one question each on HUD-1 Line 803 tolerance violations, credit report charges, what happens if a loan originator fails to issue a Good Faith Estimate “GFE”, and clarifies 4506-T “Tax Transcript Fees” disclosure.

Question #1. HUD-1 Line 803 tolerance violation

Does zero tolerance for HUD-1 Line 803 (see “adjusted origination charges”; 24 CFR § 3500.7(e)(1)(iii)) mean that loan originators must double the cure of a tolerance violation of Line 801 or Line 802 because each tolerance violation on those Lines also results in an increase in the Adjusted Origination Charge on Line 803?

No. Correcting a Line 801 or Line 802 tolerance violation will serve to correct a tolerance violation that stems from the calculation of Line 803.

Loan originators should carefully monitor their own charges to avoid tolerance violations. However, if the loan originator fails to correct Line 801, 802 or consequently Line 803 tolerance violations before settlement, the loan originator can effectuate a cure within 30 days by listing and describing a credit in either the 200 Series on Page 1 or in a blank line in the 800 Series on Page 2. Whether the cure is shown in the 200 Series or 800 Series, the settlement agent should include a notation of P.O.C.(lender), to indicate that the lender has made a payment of a specified amount to correct a potential tolerance violation.

Whether the cure is shown in the 200 Series on Page 1 or the 800 Series on Page 2, a cure to correct a tolerance violation on Lines 801 and/or 802 will serve to correct the tolerance violation on Line 803.

After the revised HUD-1 has been prepared by the settlement agent, the settlement agent must provide the revised HUD-1 to the borrower and lender, and, as appropriate, to the seller.”

Question #2. Credit Report Charges

“The regulations provide that the only charge that a loan originator may impose on a potential borrower before issuing a GFE is a charge limited to the cost of a credit report (see 24 CFR §§ 3500.7(a)(4) and (b)(4) “…the [loan originator] may, at its option, charge a fee limited to the cost of a credit report”). Only after a loan applicant both receives a GFE and indicates an intention to proceed with the loan covered by the GFE may the loan originator collect fees beyond the cost of a credit report.

For example, if the loan originator’s cost for a credit report is an $8.75 charge from a third party, the total amount that the loan originator can charge the borrower before the GFE is issued is $8.75. In this case, the actual charge of the credit report listed on Line 805 of the HUD-1 is $8.75.

Alternatively, pursuant to 24 CFR § 3500.8(b)(2), the loan originator’s cost for a credit report may also be calculated, charged, and disclosed on the GFE and HUD-1 as an average charge, as long as all of the requirements in 24 CFR § 3500.8(b)(2) are met. This section provides, in part: “The average charge for a settlement service shall be no more than the average amount paid for a settlement service by one settlement service provider to another settlement service provider on behalf of borrowers and sellers for a particular class of transactions involving federally related mortgage loans….””

Question #2: What if the Loan Originator fails to issue a Good Faith Estimate “GFE”?

If a loan originator fails to deliver a GFE in clear violation of 24 CFR § 3500.7(a) and (b), the loan originator will have significant potential tolerance violations at settlement. See RESPA § 3500.7(e).

Where the loan originator has not provided the consumer with a GFE, when completing the HUD-1 comparison chart the loan originator’s instructions to the settlement agent must indicate that the settlement agent must fill in the GFE columns with $0 and the HUD-1 columns with the actual charges from Page 2 of the HUD-1. If this results in one or more tolerance violations, the loan originator may cure the tolerance violation(s) by reimbursing the borrower the amount by which the tolerance was exceeded at settlement or within 30 calendar days after settlement.

As with other compliance areas, loan originators should adopt policies and procedures to ensure that GFEs are delivered timely, in accordance with the requirements of RESPA.

Question #4: 4506-T “Tax Transcript Fees”

The fee for obtaining a tax transcript using IRS Form 4506-T, “Request for Transcript of Tax Return” is an administrative charge that is part of processing and underwriting that should be disclosed as part of Block 1, “Our Origination Charge,” on the GFE regardless of whether the charge is paid to a third party or directly to the IRS.
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The United States Department of Treasury has hired Richard Cordray to lead the Enforcement Division of the Consumer Financial Protection Bureau (CFPB) which was created under the Dodd-Frank Bill. Richard Cordray was elected as the Ohio Attorney General in 2008. Cordray has filed numerous lawsuits during his tenure as the Ohio Attorney General, most notably against AIG, Marsh & McLennan, Bank of America, and Merrill Lynch which resulted in more than 2.5 billion dollars in settlements.

Given Cordray’s history it appears that he will be focusing on federal preemption of nationally chartered banks and the problems state regulators have had with their inability to enforce laws. The doctrine of preemption was used by the Office of Comptroller of the Currency as a way to stop states from enforcing rules and regulations against nationally chartered banks. He has pledged to jointly work with state attorney generals while at the CFPB in his investigations which could significantly hamper nationally chartered banks argument of federal preemption against state laws. Cordray and The American Bankers Association have opposing stances on the bank preemption issue. The underlying premise is that nationally chartered banks who engage in abusive and fraudulent tactics better be prepared for an onslaught of litigation and penalties when the enforcement team starts working with the states.

Richard Cordray’s reputation is that of a staunch advocate for consumer rights against financial services companies who break the law. Cordray is responsible for selecting the enforcement team and preparing for the exercise of enforcement powers. RESPA enforcement under Cordray appears to be a priority based on his past history and Section 6 of RESPA is a prime target for future regulatory enforcement action by the CFPB.

On November 23, 2010, the Office of General Counsel’s Helen Kanovsky with the Department of Housing and Urban Development “HUD” responded to public comments HUD received on the “Home Warranty Companies’ Payments to Real Estate Brokers and Agents” Interpretive Rule it published on June 25, 2010. HUD’s response was very clear that the interpretive RESPA rule they issued in June did not need to be changed. However, HUD did provide some clarification to the public by providing additional guidance relating to matters covered in the interpretive rule and from the public’s comments. HUD’s answered seven questions as listed below:
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The National Association of Realtors (NAR) and the Department of Housing and Urban Development (HUD) collaborated to produce a series of videos on YouTube.com which are geared at educating future home buyers on the real estate buying process. The joint effort was unveiled at the National Association of Realtors 2010 National Conference in New Orleans last week.

The first 10 minute video “Shopping for your home” features HUD associate deputy assistant secretary Teresa Baker Payne explaining the home buying process.

The second 12 minute video “Shopping for your loan” features HUD deputy assistant secretary for FHA Vicki Bott explaining what home buyers need to look for when shopping for their mortgage loan and includes a consumer friendly approach to the Good Faith Estimate “GFE.”