TRUTH IN LENDING ACT

January 12, 2015

TILA-RESPA implementation deadline triggering warning signs for industry

The TILA-RESPA Integrated Disclosure Rule’s implementation date is beginning to cause heightened concern and worry for those involved in the residential lending industry. One reason is the emerging news that a number of the 3rd party vendors engaged to write the loan originator system “LOS” software may not be able to do so until April, May, June, or even worse that some of the LOS systems that are rolled out may not be in compliance when the residential lender implements the LOS into their system. One reason for the delay by these vendors is that they were busy designing and creating other software to address the Qualified Mortgage “QM” rule that went into effect on Jan. 1, 2014 and only now are the turning to the TILA-RESPA integration.

Kate Larson, Regulatory Counsel, with the Consumer Bankers Association wrote an article for InformationWeek on the “2015 Banking Regulatory Outlook” on Jan. 7, 2015 in which she stated “Despite their diligent efforts, many of our members are concerned their systems will not be ready by the August 2015 deadline because of the limited number of vendors in the market.”

The downstream impact of a delayed LOS system integration is causing many banks and mortgage bankers to have to reassess their risks associated with their third party vendor management compliance obligations with respect to the TILA-RESPA Rule. Many banks and mortgage bankers to whom we have spoken will only be utilizing one title vendor because they are concerned about the integration timeline and do not want to be left shut down in whole or in part on or after August 1st, 2015 as a result of spreading their compliance across to many vendors.

There are simply to many lenders, banks, credit unions, mortgage brokers, and others who are relying on the limited number of mortgage software companies to integrate the new TILA-RESPA LOS system. Several of the TILA-RESPA disclosure task force groups we serve on are sensing real concern by the various trade associations.

On the title side of the business, many of the title software companies have finished or are finalizing their software systems to address the compliance of their title vendors. However, finalization of these systems depend on the mortgage LOS systems integration, testing that integration, and educating the employees of both the lenders and title vendors.

The CFPB has been adamant that they will not delay the implementation date of this rule and even if by some miracle the CFPB suspends enforcement for 6 months (similar to what HUD did with the 2010 RESPA Reform Rule) this will not provide sufficient safeguards because the secondary market may not purchase loans that are not in compliance with new TILA-RESPA Rule. In sum, if something is out of compliance then the lenders face claims by investors that they have violated the reps. and warrants under their repurchase agreements, thus leaving them exposed to future mortgage buy-back claims.

We are hearing that a few of the biggest banks will be completely ready by the end of Feb. 2015 as they went in-house and designed their LOS systems due to concerns about meeting the implementation rule deadline. However, let’s hope the 3rd party LOS software companies can get their systems in place, integrated & tested with their title vendor(s), and all the staff trained well in advance of August 1st, 2015.
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September 29, 2014

Wells Fargo announces RESPA-TILA Integrated Disclosure Form Plans

by Marx Sterbcow

Wells Fargo announced that effective August 1, 2015 it will control the generation and delivery of the borrower’s Closing Disclosure form in anticipation of the TILA-RESPA Integrated Disclosure Rule. The new Closing Disclosure is a mix of the existing Truth-in-Lending (TIL) disclosure and the Settlement Statement (HUD-1). Wells Fargo stated in the Wells Fargo Settlement Agent Communications newsletter on September 24, 2014 they will be taking over this process in order to meet internal compliance and governmental regulator compliance expectations on the bank.

Wells Fargo said the reason they will be delivering the Closing Disclosure Form is because they want to maintain evidence the borrower received the disclosure at least three days prior to the closing since this is a critical compliance requirement they must meet. The bank disclosed that having readily accessible data for internal and external compliance audits was another major reason for this decision.

Wells Fargo disclosed that their view under the new rules is “…that the settlement agent continues to be responsible for the Seller’s information and will prepare and deliver the Seller’s Closing Disclosure. A copy must be provided [by the Settlement Agent] to Wells Fargo for our loan file in order to comply with the final rules.”

August 29, 2014

CFPB ENFORCEMENT: IS THE CFPB LOOKING AT RESIDENTIAL MORTGAGE ONLINE LEAD GENERATION COMPANIES?

by Marx Sterbcow

The Consumer Financial Protection Bureau often provides subtle clues as to where they may be headed on the enforcement front and on November 6, 2013 they addressed the topic on their website about online Lead Generation and consumer safety involving payday loans. The topic “Is applying for a payday loan online safe?”

The CFPB stated that anytime a consumer gives out sensitive personal and financial information on the Internet there are risks involved to the consumer. They warned consumers that if a consumer applies online for a payday loan online, the consumer could be increasing their risk significantly. The CFPB stated the reason for this is because many websites that advertise payday loans are not lenders. They are businesses known as “lead generators” which make money primarily by finding customers for lenders.

The Bureau expressed concern that the online application or form that consumers filled out could be sold to a lender who offers to make the consumer a loan. The Bureau also indicated they have concerns as well that multiple lenders or other service providers could pay for this information causing the them to contact or email the consumer.

August 29, 2014

Marx Sterbcow achieves the AV Preeminent Rating from Martindale-Hubbell

by Marx Sterbcow

New Orleans, LA (PR Newswire) August 29, 2014 – Martindale-Hubbell® has confirmed that attorney Marx David Sterbcow has been given an AV Preeminent Rating, Martindale-Hubbell’s highest possible rating for both ethical standards and legal ability.

The AV Preeminent rating is an objective indicator designed to help buyers of legal services identify, evaluate and select the most appropriate lawyer. The reviews are based on evaluations of lawyers by other members of the bar and the judiciary in North America. AV Preeminent® (4.5-5 out of 5) is a significant rating accomplishment – a testament to the fact that a lawyer’s peers rank him or her at the highest level of professional excellence.

Mr. Sterbcow and his firm have had an extensive real estate and financial services law practice since the firm was founded in 2004. He represented the National Association of Mortgage Brokers in its suit against the Federal Reserve Board and has litigated matters involving RESPA, mortgage fraud, and antitrust in several federal jurisdictions. Mr. Sterbcow is also listed to Superlawyers and New Orleans Magazine’s Top Lawyers.

August 15, 2014

CFPB CONSENT ORDER INVOLVING MORTGAGE ADVERTISING AND RESPA

by Marx Sterbcow

The Consumer Financial Protection Bureau announced they entered into a Consent Order (File No. 2014-CFPB-0010) with Atlanta-based Amerisave Mortgage Corporation; Novo Appraisal Management Corp.; and Patrick Markert on August 12, 2014 for violating a series of laws including Section 1031 and 1036 of the Consumer Financial Protection Act of 2010 (CFPA), Section 8 of the Real Estate Settlement Procedures Act (RESPA), the Truth in Lending Act (TILA), and the Mortgage Acts and Practices Rule (MAP Rule).

The CFPB found that Amerisave Mortgage Corp., which operates primarily as an online lender, designed its website to advertise and quote mortgage rate information in a deceptive bait and switch lending manner towards consumers. The Bureau stated that Amerisave advertised specific mortgage products online by listing specific mortgage rates in rate tables publicized through the website of an unrelated third-party company (“Rate Publisher”) which compiles rate quotes and other information of mortgage lenders who use its service.

Amerisave advertised lower rates than they were actually providing to consumers but once the consumers contacted them for those rate the consumers wound up paying higher rates than what Amerisave advertised. Amerisave also ran banner or display ads on various websites advertising lower rates as well to consumers.

December 10, 2013

2014 REGULATORY OUTLOOK: COMPLIANCE, ENFORCEMENT, AND PRESSURE POINTS WEBINAR

by Marx Sterbcow

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;

October 31, 2013

Office of the Comptroller of the Currency releases Vendor Management Bulletin

by Marx Sterbcow

On October 30, 2013, the Office of the Comptroller of the Currency “OCC” issued a bulletin on “Risk Management Guidance” which will have wide ranging implications for all vendors of national banks and federal savings associations. The bulletin provides new guidance for assessing and managing compliance risks associated with third-party relationships. A 3rd party relationship is any business arrangement between a banks and another entity, by contract or otherwise.

3rd party relationships include activities that involve outsourced products and services, use of independent consultants, networking arrangements, merchant payment processing services, services provided by affiliates and subsidiaries, joint ventures, and other business arrangements where the bank has an ongoing relationship or may have responsibility for the associated records. Affiliate relationships are also subject to sections 23A and 23B of the Federal Reserve Act (12 USC 371c and 12 USC 371c-1) as implemented in Regulation W (12 CFR 223). Third-party relationships generally do not include customer relationships.

The OCC stated that it “expects a bank to practice effective risk management regardless of whether the bank performs the activity internally or through a third party. A bank’s use of 3rd parties does not diminish the responsibility of its board of directors and senior management to ensure that the activity is performed in a safe and sound manner and in compliance with applicable laws.”

The OCC released the bulletin in response to the on-going concern that banks were continuing to increase the number and complexity of third party relationships with both foreign and domestic 3rd parties. Specifically they highlighted:
(1) outsourcing entire bank functions to third parties, such as tax, legal, audit, or information technology operations;
(2) outsourcing lines of business or products;
(3) relying on a single third party to perform multiple activities, often to such an extent that the third party becomes an integral component of the bank’s operations;
(4) working with third parties that engage directly with customers;
(5) contracting with third parties that subcontract activities to other foreign and domestic providers;
(6) contracting with third parties whose employees, facilities, and subcontractors may be geographically concentrated; and (7) working with a third party to address deficiencies in bank operations or compliance with laws or regulations.

The OCC is concerned that the quality of risk management over third-party relationships may not be keeping pace with the level of risk and complexity of these relationships. The OCC has identified instances in which bank management has:
(1) failed to properly assess and understand the risks and direct and indirect costs involved in third-party relationships.
(2) failed to perform adequate due diligence and ongoing monitoring of third-party relationships.
(3) entered into contracts without assessing the adequacy of a third party’s risk management practices.
(4) entered into contracts that incentivize a third party to take risks that are detrimental to the bank or its customers, in order to maximize the third party’s revenues.
(5) engaged in informal third-party relationships without contracts in place.

These examples represent trends whose associated risks reinforce the need for banks to maintain effective risk management practices over third-party relationships.
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October 14, 2013

MARX STERBCOW TO SPEAK AT THE 2013 ANNUAL CONFERENCE FOR THE NATIONAL COUNCIL OF STATE HOUSING AGENCIES

by Marx Sterbcow

Marx Sterbcow, Managing Attorney of the Sterbcow Law Group LLC, has been selected to speak on a panel at the National Council of State Housing Agencies’ 2013 Annual Conference & Showplace at the New Orleans Marriott Hotel on Tuesday, October 22, 2013 from 9:30am-10:45am. The panel entitled “Dodd-Frank Update: Are You Ready?” will consist of Howard Zucker of Hawkins Delafield, Charles Carey of Mintz Levin, and will be moderated by Lee Ann Smith who runs the single family programs for the Oklahoma Housing Finance Agency.

August 15, 2013

RESPA CLASS ACTION: INFORMATIONAL INJURY IS SUFFICIENT TO PROVE STANDING

by Marx Sterbcow

The 8th Circuit Court of Appeals overturned a district court decision in the Charvat v. Mutual First Federal Credit Union case. The case involved a violation of the Electronic Fund Transfer Act (“EFTA”) 15 U.S.C. §1693 where the Charvat’s made several ATM withdrawals from two Nebraska banks. The 8th Circuit stated “The EFTA requires ATM operators to provide two forms of notice, one “on or at” the ATM machine and another on-screen during the ATM transaction, if the bank operators charged a ATM transaction fee. The ATM machines in question failed to provide the required notice disclosure on the “on ATM machine” and this was the basis for the class action.

The 8th Circuit held that “[D]ecisions by this Court and the Supreme Court indicate that an informational injury alone is sufficient to confer standing, even without an additional economic or other injury.” The 8th Circuit further stated that Charvat identified a variety of instances where the denial of a statutory right to receive information was sufficient to establish standing and cited to the Fed. Election Comm’n v. Akins case and more importantly the Dryden v. Lou Budke’s Arrow Fin. Co. which was a Truth-In-Lending Act case.

The citing of the Dryden case is particularly important because the 8th Circuit said ” “f [borrower] proved that the disclosure provisions of [TILA] and Regulation Z were violated in connection with the January 26 transaction, [lender] is liable for statutory damages.”).” The 8th Circuit said the EFTA creates a right to a particular form of notice before an ATM transaction fee could be levied. If that notice was not provided and a fee was nonetheless charged, an injury occurred, and the statutory damages are directly related to the consumer’s injury.”

December 10, 2012

CONSUMER FINANCIAL PROTECTION BUREAU AND DEPARTMENT OF JUSTICE ANNOUNCE AGREEMENT ON FAIR LENDING LAWS ENFORCEMENT

by Marx Sterbcow

The Consumer Financial Protection Bureau “CFPB” and the United States Department of Justice “DOJ” formally entered into an Memorandum of Understanding Agreement “MOU” pursuant to Section 1054(d)(2)(B) of the Dodd-Frank Wall Street Reform and Consumer Protection Act which mandated the two agencies to establish an agreement between themselves to help prevent enforcement conflicts and help streamline fair lending law litigation under Federal law. The MOU involves Federal fair lending laws such as the Equal Credit Opportunity Act, Home Mortgage Disclosure Act, and Truth In Lending Act.

The MOU outlined three key areas for this cooperative agreement:

1. Information sharing and confidentiality issues: the agencies will be sharing information in matters that the CFPB refers to the Justice Department, in joint investigations under the ECOA, and in order to coordinate fair lending enforcement. The MOU establishes strict confidentiality protections for this shared information.