The Consumer Financial Protection Bureau’s most recent supervisory highlights publication featured issues relating to the Fair Credit Reporting Act, loan originator compensation and in-person debt collection that should be on mortgage lenders’ and debt collectors’ radar.
Where do marketplace lenders and secondary loan market participants find themselves on the issue of preemption of state usury laws after the June 27 denial of the petition for a writ of certiorari in Madden v. Midland by the U.S. Supreme Court?
In Madden v. Midland, the US Court of Appeals for the Second Circuit refused to follow the “valid-when-made” rule when considering the scope of federal preemption of state usury laws under the National Bank Act. The court held that the NBA did not bar the application of state usury laws to a national bank’s assignee. In considering the applicability of the National Bank Act to a loan in the hands of a non-bank assignee, the Second Circuit considered a number of cases upholding preemption of state usury laws under the National Bank Act but invoked a seemingly new rule for applying section 85 of the National Bank Act (permitting a national bank to charge interest at the rate permitted by its home state). The Second Circuit concluded that preemption is only applicable where the application of state law to the action in question would significantly interfere with a national bank’s ability to exercise its power under the National Bank Act. The court reasoned further that where a national bank retained a “substantial interest” in the loan, the application of the state usury law would conflict with the bank’s power authorized by the National Bank Act.
An act passed by Congress last year makes changes to IRS Form 1098 (Mortgage Interest Statement) starting in tax year 2016 (reported commencing in calendar year 2017). Internal Revenue Code Section 6050H(b)(2)(D) requires that a Form 1098 include “the amount of outstanding principal on the mortgage as of the beginning of the calendar year” as well as the date of origination of the mortgage loan. Earlier this month, the IRS released a revised Form 1098 which repeats the language quoted in the previous sentence without further elaboration. A question had been raised as to whether the amount of outstanding principal as of January 1 needed to be updated to reflect a monthly payment received after January 1 but which is credited as of January 1. The Credit Union National Association is reporting that the IRS has clarified that any payments received after January 1 (such as during the grace period for receipt of monthly payments) are not to be reflected in the outstanding balance as of January 1, nor is a payment that is received prior to January 1 but rejected for insufficient funds after January 1 to be added back to the outstanding balance as of January 1.
Mortgage lenders must make sure that their systems are updated to provide the revised Form 1098 starting next year.
Many consumer-facing businesses have learned to identify high-risk Prop 65 targets: soft, flexible plastics; faux and colored leathers; and any kind of brass or metal that may contain lead or other heavy metals. But businesses need to take action to avoid Prop 65 liability based on a new culprit: bisphenol-A (BPA) that may be lurking in your cash register receipts and other thermal papers. Continue Reading
Google announced on May 11 that effective on July 13, 2016 it will ban all payday loan advertisements from its site. Google was responding to concerns raised by consumer advocates who argued that the lending practice exploits the poor and vulnerable by offering them immediate cash that must be repaid at exorbitant interest rates. Google joins Facebook in prohibiting such advertisements. The decision marks the first time that Google has announced a global ban on advertisements for a broad category of financial products.
In a news conference today President Obama addressed rules and proposed regulations announced Thursday intended to help the U.S. fight tax evasion and other crimes connected to anonymous offshore companies and accounts. The announcements come after a month of intense review by the administration following the first release of the so-called Panama Papers, millions of documents stolen or leaked from Panamanian law firm Mossack, Fonseca. The papers have revealed a who’s who of international politicians, business leaders, sports figures and celebrities involved with financial transactions accomplished through anonymous shell corporations.
Mortgage servicers are heavily regulated. Usually, the worst that can be said is that the laws and regulations are many, complex, and onerous. Sometimes, however, they are contradictory. Continue Reading
In Yvanova v. New Century Mortgage Corporation et al, the Supreme Court of California reversed the Court of Appeal’s ruling, and held that a borrower plaintiff who has been subject to a nonjudicial foreclosure has standing to bring an action for wrongful foreclosure based on an allegedly void deed of trust assignment (without making any determination as to whether the alleged facts established a void assignment). In so doing, the Supreme Court came down solidly in favor of the “aggrieved” borrower thus settling, at least in California and likely other non-judicial foreclosure states, the issue regarding the standing of such a plaintiff to challenge the acts of a securitization trust. Since the financial crisis there have been several cases considering the standing issue, most notably the California Court of Appeal decisions in Glaski v. Bank of America, N. A. (2011) 198 Cal. App. 4th 256 (holding the plaintiff had standing to challenge the authority of the beneficiary to foreclose) and Jenkins v. JP Morgan Chase Bank, N.A. (2013) 216 Cal. App. 4th 497 (holding the plaintiff had no standing to enforce the terms of the agreements allegedly violated). The Supreme Court stated “On the narrow question before us – whether a wrongful foreclosure plaintiff may challenge an assignment to the foreclosing entity as void- we conclude Glaski provides a more logical answer than Jenkins.” Continue Reading
On December 29, 2015, CFPB Director Richard Cordray sent a letter to the president of the Mortgage Bankers Association regarding implementation of the CFPB’s Know Before You Owe mortgage disclosure rule (more commonly known as the Truth in Lending and RESPA integrated disclosure rule, or TRID) responding to concerns raised by the MBA. The letter addressed concerns that technical TRID violations are resulting in extraordinarily high rejection rates by secondary market purchasers of mortgage loans by stating that rejections based on “formatting and other minor errors” are “an overreaction to the initial implementation of the new rule” and that the risk to private investors from “good-faith formatting errors and the like” is “negligible.” Continue Reading
For some time now, the residential lending community has been concerned that the Consumer Financial Protection Bureau has taken unclear positions with respect to marketing services agreements (MSA’s) in its enforcement actions, leaving residential lenders unsure as to how to proceed. Some lenders, including Wells Fargo Bank and Prospect Mortgage Company, have responded to this uncertainty by terminating all of their MSA’s. The Mortgage Bankers Association and other groups had requested that the CFPB provide some clarity as to its position on MSA’s, and the CFPB responded by issuing a press release and a compliance bulletin with respect to MSA’s on October 8.