The Office of the Comptroller of the Currency published on October 30, 2013 a new Guidance relating to risk management for third party relationships. This Guidance rescinds OCC Bulletin 2001-47, “Third-Party Relationships: Risk Management Principles” and OCC Advisory Letter 2000-9, “Third-Party Risk.” Prior to the formation of the Consumer Financial Protection Bureau, OCC-regulated institutions were subject to the rescinded Guidance and Advisory Letter, and OTS-regulated institutions were subject to Thrift Bulletin 83 (since rescinded), “Interagency Guidance on Weblinking: Identifying Risks and Risk Management Techniques,” but non-bank lenders were not subject to similar requirements with respect to their relationships with third party vendors. The CFPB then published its vendor management guidance last year. The OCC’s new Guidance is the first published by a bank regulator since the CFPB published its guidance, and is therefore the first view we have of current regulatory thinking since that time. This new Guidance, which is considerably more detailed than the CFPB’s guidance, may therefore be useful to both banks and non-bank lenders as to the types of things they should consider in building a robust vendor management policy. Among the highlights of the Guidance:
The Consumer Financial Protection Bureau is considering new rules to govern debt collection practices that could radically change the debt collection regulatory landscape and for the first time include creditors that are collecting their own debt. Third-party debt collectors are currently subject to the Fair Debt Collection Practices Act, but this law does not apply to creditors that originate and collect their own debt.
On August 15 the Consumer Financial Protection Bureau released updates to its examination procedures in connection with the new mortgage regulations that were issued in January. These updates offer valuable guidance on how the CFPB will conduct examinations for compliance with the Truth in Lending Act and the Real Estate Settlement Procedures Act.
On May 29, 2013, the Consumer Financial Protection Bureau (CFPB) issued a final rule amending its Ability to Repay/Qualified Mortgage (ATR/QM) rule, originally issued on January 10, 2013.
The final rule addresses the following:
- Removes compensation to individual loan originator employees from the calculation of the points and fees limit for purposes of both the QM and Home Ownership and Equity Protection Act (HOEPA) rule;
- Establishes a new smaller creditor portfolio QM;
- Loosens requirements for smaller creditors originating balloon loan QMs for two years; and
- Establishes new exemptions from the ability to repay requirements for credit extended under Emergency Economic Stabilization Act programs, community-focused lending programs and by certain non-profit creditors.
On May 17, 2013, the Consumer Financial Protection Bureau (“CFPB”) issued a consent order to Paul Taylor Homes Limited, Paul Taylor Corp. and Paul Taylor individually (altogether “Taylor”) based on the CFPB’s findings that Taylor entered into a sham joint venture arrangement with Benchmark Bank that resulted in Taylor receiving compensation for referrals in violation of Section 8 of RESPA. According to the CFPB’s findings, the joint venture had no employees (all work was done on behalf of the joint venture by an employee of Benchmark Bank), did not have its own office space, did not advertise to the public, and conducted no origination business outside of the referrals that it received from Taylor. All 32 loans originated by the joint venture between the time of its formation in March 2010 and the date of the consent order were funded by Benchmark Bank. Continue Reading
In Pfeiffer v. Countrywide Home Loans, — Cal.Rptr.3d —-, 2012 WL 6216039 (Dec. 13, 2012), mortgage borrowers filed a damages claim against a trustee for violating the federal Fair Debt Collection Practices Act (“FDCPA”) and an injunction claim against a lender to halt a foreclosure they claimed was wrongful. The trial court sustained the defendants’ demurrer to both claims without leave to amend. The California Court of Appeal affirmed as to the first claim, but reversed as to the second.
The California Homeowner Bill of Rights (“HBR”) goes into effect on January 1, 2013. The HBR revamps California’s non-judicial foreclosure statutes granting borrowers additional rights. It was designed to correct perceived abuses by lenders and servicers.
The HBR applies only to first lien mortgages or deeds of trust that are secured by owner-occupied residential real property. It does not protect: (i) entity borrowers; (ii) borrowers who purchased investment property; (iii) borrowers who are already in bankruptcy; (iv) borrowers who have already surrendered their property ; or (v) borrowers who have contracted with someone whose primary business is advising on how to delay or prevent foreclosure. Continue Reading
In Gale v. First Franklin Loan Services, 686 F.3d 1055 (9th Cir. 2012), the Ninth Circuit held that a borrower has no right under the federal Truth in Lending Act (“TILA”) to require a loan servicer to identify the owner of a loan obligation. TILA requires a servicer to identify the owner of the loan only when the servicer owns the loan, and only when the servicer owns the loan by assignment.
In Skov v. U.S. Bank N.A., 2102 WL 2549811 (June 8, 2012), the Court of Appeal reversed the trial court’s decision to sustain a demurrer against plaintiff Andrea Skov’s second amended complaint, holding that she had stated a claim for violation of Civil Code Section 2923.5, which requires a lender to contact a defaulted borrower to discuss alternatives to foreclosure before starting a nonjudicial foreclosure by recording a notice of default. This opinion discusses issues of (1) judicial notice, (2) MERS’ ability to foreclose, and (3) the pleading of a violation of Section 2923.5.
In Herrera v. Federal National Mortgage Association (2012) 205 Cal.App.4th 1495, the California Court of Appeal joined other courts in rejecting the plaintiffs’ attempt to avoid their mortgage obligations on the grounds that Mortgage Electronic Registration Systems (MERS) is a sham. MERS is a private company that operates an electronic registry to track servicing rights and ownership of mortgage loans. Lenders use MERS to facilitate their transactions and avoid having to record assignments and pay recording fees relating to mortgages. The case confirms that MERS has the authority to assign promissory notes and deeds of trust and that its use is legitimate.