New Guidance on Mortgage Rules

In advance of the January 10th effective date for many of the Title XIV mortgage rules under the Dodd-Frank Act, the CFPB released new guidance materials covering the mortgage rules. The guidance is largely intended for consumers and consumer advocates. The guidance materials include: a “fact versus fiction” guide regarding the Ability-to-Repay and Qualified Mortgage rule;1 sample letters for borrowers to send to mortgage servicers; mortgage tips for buyers, owners, and borrowers facing foreclosure; answers to frequently asked borrower questions; and a reference guide for housing counselors.2

In addition to issuing the new guidance, the CFPB held a training event on January 10th in Phoenix for housing counselors, legal aid attorneys, and other advocates on the new mortgage servicing rules. The training event featured remarks from Director Richard Cordray.3 Director Cordray also made appearances on the Daily Show with Jon Stewart and in the editorial pages of the USA Today, advocating for the CFPB’s new mortgage rules.4 

OIG Identifies Audit Activities for 2014

On January 6th, the Office of Inspector General (OIG) for the CFPB released its updated Work Plan.5 According to the report, the OIG has several pending and planned projects for reviewing CFPB activities. Among other things, the OIG expects to complete the following notable projects in the first quarter of 2014:

  • Evaluation of CFPB’s compliance with Section 1100G of the Dodd-Frank Act, which requires the CFPB to describe the impact of any proposed rule on the cost of credit for small entities;
  • Evaluation of the CFPB’s supervision program; and
  • Audit of the CFPB’s public consumer complaint database. 

CFPB May Revisit Small Bank QM Exemptions

As reported by the American Banker, in a discussion hosted by the National Association of Realtors on January 7th, Director Richard Cordray suggested that the CFPB could consider expanding exemptions for small creditors from the Ability-to-Repay and Qualified Mortgage (“ATR/QM”) rule after it goes into effect. Cordray stated: “We will be sensitive to considering whether we got the [exemption] line right, whether we should put it in a different place…Let’s see how they’re working…and if we see something that’s dramatically out of balance with what we expect in this market, we want to hear it from the realtors, we want to hear it from the community bankers, the credit unions, anybody who has line of sight on this market in order to think about what that means.”

Under the ATR/QM rule, creditors with less than $2 billion of assets that make 500 or fewer mortgages in a year are exempt from certain of the rule’s requirements and restrictions. Cordray continued: “We’ve asked [industry] to continue to provide us with information as we go about these changes and how the market changes. There will be other changes in the market, of course, that go well beyond and have nothing to do with our rules: Interest rates will go up and down over time, the economy will go up and down over time, the interest people have in renting versus owning will change in various ways over time; so we will monitor all that as we go.”

Extension of Debt Collection Rule Comment Period

The CFPB has extended the comment period for its Advance Notice of Proposed Rulemaking about debt collection practices, which was originally published on November 12, 2013.6 The comment period has been extended from February 10, 2014 to February 28, 2014.

Updates to Mortgage Servicing and Origination Exam Procedures

On January 10th, the CFPB issued revised examination procedures for mortgage servicing and mortgage origination.7 The revised procedures reflect updates to the CFPB’s mortgage rules made over the course of 2013 after the rules were originally issued. 

CFPB Issues Human Capital Report to Congress

In January the CFPB issued its third annual report to Congress on its human capital.8 Section 1067 of the Dodd-Frank Act requires the CPFB in its first five years to submit an annual report to Congress that covers, among other things, its plans for training and development of its workforce and its recruitment retention plan. According to the report, as of the end of the fourth quarter of fiscal year 2013, the CFPB had 1,302 employees.

CFPB Actions to Enforce RESPA

On January 16th, the CFPB entered a consent order with a mortgage lender and its former owner and current president to pay $81,076 for allegedly engaging in an illegal kickback scheme in violation of the Real Estate Settlement Procedures Act (RESPA).RESPA prohibits the giving and receiving of kickbacks for referrals of real estate settlement-service business involving federally-related mortgages. The CFPB alleged that the mortgage lender had entered into an agreement with a bank in which the mortgage lender paid an inflated lease payment for renting office space within the bank. In exchange, the bank allegedly referred potential borrowers to the mortgage lender. The settlement amount includes disgorgement of proceeds in an amount of $27,076 and a $54,000 civil penalty paid to the CFPB.

On January 29th, the CFPB also initiated an administrative proceeding against a different mortgage company for alleged violations of RESPA. The CFPB is alleging that this mortgage company violated RESPA by operating an illegal mortgage insurance kickback scheme. Specifically, the CFPB is alleging that the mortgage company implemented a mortgage reinsurance arrangement to solicit and collect illegal kickback payments through its affiliates in exchange for the referral of private mortgage insurance business. The CFPB is seeking a civil fine, a permanent injunction to prevent future violations, and restitution for consumers. 

Rule Proposed to Oversee Larger Non-bank International Money Transfer Providers

On January 23rd, the CFPB proposed a rule that would give the CFPB supervisory authority over certain non-bank international money transfer provider.10 Under the proposed rule, an entity would be a larger participant in the international money transfer market if it has at least one million aggregate annual international money transfers in a year. The Dodd-Frank Act expanded the scope of the Electronic Fund Transfer Act to add protections for consumers who send remittance transfers abroad. The CFPB’s Remittance Rule implementing these statutory provisions went into effect in October 2013. Once the rule defining larger non-bank participants in this market goes into effect, the CFPB will be able to supervise money transfer providers for compliance with the Remittance Rule. Among other things, the Remittance Rule provides certain disclosure requirements and error resolution procedures. Comments are due April 1, 2014.

Report Issued on Financial Education

The CFPB issued a report on evaluations of financial capability as part of its mandate to improve consumer financial literacy.11 The purpose of the report is to share insights on how to evaluate the effectiveness of different approaches to improving financial decision making and outcomes. For example, it discusses how to conduct strong studies and the possible policy implications for the results of these studies.

Denial of Petition to Set Aside CID

On January 22nd, the CFPB denied a payday lender’s petition to modify or set aside a civil investigative demand (CID) it had received from the CFPB.12 The CID was originally issued as part of a nonpublic investigation by the CFPB to determine whether payday lenders were engaging in unlawful acts or practices in violation of the Consumer Financial Protection Act. Among other things, in its petition the payday lender objected to the CID on the grounds that it was overbroad. Although the petition was ultimately denied, the payday lender was still successful during the process at having the scope of the CID narrowed.

Supervision Report Issued

On January 30th, the CFPB issued its Supervisory Highlights report.13 The report highlights issues that the Office of Supervision observed in the course of its examinations of the mortgage servicing market in 2013. The issues that the report highlights include unfair and deceptive practices associated with mortgage servicing transfers, including refusals of new servicers to honor trial loan modification programs that had been approved previously. The report also cites mortgage servicers for unfairly requiring consumers to waive all of their existing claims against lenders and servicers in order to obtain forbearance or loan modification agreements. The report further mentions deceptive payment processing practices relating to marketing of bi-weekly mortgage payment programs and escrow surplus refunds. It notes instances of mortgage servicers providing inaccurate information to consumer reporting agencies, in violation of the Fair Credit Reporting Act, including by miscoding short sales and trial loan modification programs as foreclosures. Finally, it mentions various other default servicing issues.

Also of note, in the report the CFPB announced changes to its examination reports and supervisory letters effective January 2014. The CFPB is changing the format of the examination reports and supervisory letters that it sends to supervised entities after conducting compliance reviews. The purpose of the changes is to: (i) facilitate drafting by examiners; (ii) simplify reports and reduce repetition; and (iii) facilitate follow-up reporting by supervised entities about actions they take to address compliance management weaknesses or legal violations found at CFPB reviews.

The chief changes are:

  • Elimination of recommendations. Any recommendations for improving currently satisfactory processes will be provided orally when examiners are on-site.
  • Elimination of the list of CFPB team members participating in a review. Reports will continue to be signed by the examiner in charge and provide regional management contact information.
  • Creation of a single section in the report that includes all of the items that the CFPB expects the entity to address when the review identifies violations of law or weaknesses in compliance management. This entire section will be referred to as “Matters Requiring Attention,” regardless of whether the CFPB is requiring specific attention by an entity’s Board of Directors. The CFPB will no longer include additional “Required Corrective Actions.” The entity receiving the report will be expected to furnish periodic progress reports to the CFPB about all Matters Requiring Attention.