Looking Ahead to 2024
Enforcement efforts are anticipated to extend in 2024 and can doubtless mirror anticipated trade progress (e.g., complete mortgage origination quantity is anticipated to extend to $1.95 trillion in 2024 from the $1.64 trillion anticipated in 2023).
The CFPB will doubtless focus its efforts on RESPA violations, force-placed insurance coverage, and time-barred loans.
Key Trends From 2023
In 2023, Goodwin tracked 14 publicly introduced enforcement actions associated to mortgage origination and mortgage servicing. These 14 actions (ten federal and 4 state) produced recoveries of greater than $87 million. Of these recoveries, $25 million was attributable to a federal motion alleging improper mortgage mortgage funds by a fee processing firm and $24 million was attributable to a federal motion alleging False Claims Act violations. Although 14 actions is greater than the seven tracked final 12 months, it displays a basic lower within the variety of mortgage origination and servicing enforcement actions over the previous 9 years — from a number of dozen per 12 months in 2015, 2016, and 2017 to a mere 13 in every of 2019 and 2021. The quantity recovered in 2023 was additionally considerably lower than the $37.3 billion recovered the prior 12 months and is the bottom annual restoration quantity within the 9 years that Goodwin has tracked such exercise.
In the News
Statements from the CFPB in 2023 recommend three areas through which the Bureau could focus its efforts within the coming 12 months: RESPA violations; force-placed insurance coverage; and time-barred loans.
CFPB Advisory Opinion Notes RESPA Issues With Mortgage Comparison Websites
Regarding RESPA — particularly, its prohibition on kickbacks for settlement-service referrals — the CFPB issued an advisory opinion in February about potential RESPA points related to mortgage comparability web sites. The opinion didn’t set up any new legislation or guidelines, nevertheless it did perform as a warning to market members that displaying or benefitting from “non-neutral” content material on a web based mortgage comparability platform may, within the Bureau’s view, violate RESPA. Listing a number of examples of doubtless violative conduct, the opinion cautioned towards steering clients to at least one service supplier over one other based mostly on something apart from impartial standards, which could quantity to illegal referral exercise. The Bureau’s opinion, based on Director Chopra’s accompanying statement, was “part of a broader all-of-government effort to end the illegal biasing of ostensibly neutral platforms.”
CFPB Signals Anticipated Monitoring of Mortgage Servicer Compliance Regarding Force-Placed Insurance
Regarding force-placed insurance coverage, Chopra gave public remarks in November, through which he anticipated that the rising frequency and severity of pure disasters might precipitate issues with home insurance coverage wants. Specifically, if present protection is revoked or canceled by insurers unwilling to cowl sure hazards in sure areas, mortgage servicers could select to power place property insurance coverage and cost the home-owner for it. Recognizing the potential for abuse, noting the availability of insurance coverage choices, and emphasizing the discover necessities already in place for force-placing insurance coverage, Chopra made clear that the CFPB can be “carefully monitoring” mortgage servicers for compliance with guidelines regulating force-placed insurance coverage.
CFPB Issues Guidance Regarding Debt-Collection Efforts on Time-Barred Mortgages
Regarding time-barred loans, the CFPB clarified, in guidance issued in April, that bringing or threatening to convey an motion to foreclose a time-barred mortgage could violate the FDCPA. The opinion was issued “in light of a series of actions by debt collectors attempting to foreclosure on silent second mortgages, also known as zombie mortgages” however pertains to any mortgage on which the statute of limitations has expired. It warns that any debt collector lined underneath the FDCPA could also be in violation of that legislation if it tries to implement a time-barred mortgage mortgage, even when the debt collector didn’t know the debt was time-barred.
New York’s Foreclosure Abuse Prevention Act Leads to Court Split on Its Retroactive Applicability
Separate from regulatory exercise, legislative acts in at the very least one state have affected the mortgage servicing trade. Signed into legislation on December 30, 2022, New York’s Foreclosure Abuse Prevention Act (FAPA) strictly cabins the deadlines for commencing mortgage foreclosures by amending 5 New York procedural guidelines and the state’s General Obligations Law.
According to its sponsor, the intent of the act was to overturn sure precedent deciphering these guidelines and legal guidelines. Most considerably, FAPA invalidated the holding of Freedom Mortgage v. Engel, 37 N.Y.3d 1 (Feb. 18, 2021), a case through which New York’s highest court docket concluded {that a} mortgage holder could revoke a previous election to speed up an installment debt (acceleration is usually a precursor to foreclosures), thereby preserving the choice to speed up once more sooner or later. By undoing Engel, and different precedent too, FAPA takes away this and comparable choices from foreclosing plaintiffs.
Since FAPA’s enactment, owners in foreclosures actions have invoked the act in an try to influence courts that the actions towards them at the moment are premature and must be dismissed. New York trial courts are break up on whether or not FAPA can apply retroactively with out violating the state and federal constitutions, and not one of the state’s 4 appellate divisions has determined that subject but. Every trial court docket to carry that FAPA applies retroactively has additionally concluded that FAPA is constitutional. In distinction, courts refusing to use FAPA retroactively have cited the shortage of a transparent expression of retroactive intent and/or constitutional points that might come up if FAPA have been to use retroactively, notably the violation of due course of.
At the present price, a call from New York’s Court of Appeals on FAPA’s retroactivity is years away.
2023 Enforcement and Litigation Highlights
CFPB’s Summer 2023 Supervisory Highlights Identifies Areas of Focus for Bureau Examiners
In Supervisory Highlights, the CFPB summarized its 2023 efforts to establish and proper mortgage servicing violations, which have been primarily associated to loss mitigation, akin to failure to look at mortgage modification or forbearance functions in a well timed manner, failure to repeatedly keep a single level of contact for patrons looking for loss mitigation assist, and numerous errors in required notices, together with obscure denial causes, lacking Spanish-language translations, or incorrect fee particulars. The Bureau’s supervisory efforts additionally addressed some comparatively minor mortgage-origination points, akin to making certain that mortgage originators are compensated on the identical price whether or not the mortgage was originated in-house or brokered out, and adjusting servicing software program to allow correct rounding of numbers when disclosing phrases of variable rate of interest loans.
Beyond these efforts, the CFPB and different regulatory companies litigated a handful of civil actions associated to mortgage origination and servicing in 2023. The CFPB introduced a federal motion alleging redlining in African American neighborhoods in Chicago nevertheless it was dismissed. DOJ actions have been extra profitable. One DOJ motion, which centered on alleged redlining focusing on Black and Hispanic neighborhoods in Philadelphia, resulted in a $3 million settlement and consent order. Another, which alleged comparable conduct towards a mortgage lender in Jacksonville, Florida, produced a $9 million settlement. In state court docket actions, the Massachusetts Division of Banks secured a settlement with a California financial institution over allegations of deceptive advertising and marketing, and the New Jersey Division of Consumer Affairs settled claims {that a} mortgage servicer violated state shopper fraud rules with unsolicited telemarketing and premature fee functions, amongst different actions. The important instances are summarized under.
Massachusetts Division of Banks Enters Into Consent Order With Mortgage Lender
In January, the Massachusetts Division of Banks (DOB) entered right into a consent order with a California-based mortgage lender, Broker Solutions Inc. According to the DOB, the corporate, which was licensed as a mortgage lender in Massachusetts, had allowed a separate firm to make use of its government-issued mortgage license quantity. The DOB argued that this might mislead customers into considering the 2 firms weren’t separate and distinct, in violation of 940 Code of Massachusetts Regulations (CMR) 8.06(1), which bans unfair or misleading practices in promoting.
Massachusetts requires mortgage lenders to be licensed by the DOB, which points individual mortgage lender licenses. The DOB alleged that the mortgage lender entered into an settlement in October 2019 that allowed the separate entity to show its model alongside the mortgage lender’s license quantity on sure webpages and advertising and marketing supplies. The DOB additional alleged that these ads have been deceptive or had the power or capability to mislead customers into considering that the mortgage lender and the separate entity weren’t separate and distinct firms, which is a violation of 940 CMR 8.06(1) and allegedly facilitates unlicensed mortgage lender and mortgage dealer exercise.
Pursuant to the consent order, the mortgage lender agreed to pay a $25,000 administrative penalty and to chorus from future facilitation of unlicensed mortgage lending or brokerage exercise.
CFPB Secures Ban on Mortgage Lending Activities Based on Repeated Deceptive Conduct
In February, the CFPB introduced that it had entered right into a consent order with mortgage lender RMK Financial Corp. (doing business as Majestic Home Loan), resolving allegations that the lender had engaged in “a series of repeat offenses,” together with violating a 2015 order prohibiting it from partaking in what the CFPB alleged was misleading promoting. According to the CFPB, Majestic Home Loan despatched ads to army households falsely claiming the corporate was affiliated with the Department of Veterans Affairs (VA) and the Federal Housing Administration in violation of the CFPA, Regulation N, TILA, and Regulation Z. Further, the CFPB alleged that the corporate had misled debtors regarding key phrases of the loans, akin to rates of interest and month-to-month fee quantities, and misrepresented mortgage necessities and potential refinancing choices.
Pursuant to the consent order, Majestic Home Loan was completely banned from partaking in mortgage-lending actions and can pay a $1 million penalty into the CFPB’s sufferer reduction fund.
CFPB ECOA Action Against Townstone Financial Dismissed
In February, a CFPB enforcement motion introduced in federal district court docket towards mortgage dealer and lender Townstone Financial Inc. and its proprietor was dismissed (CFPB v. Townstone, 2023 WL 1766484 [N.D. Ill. Feb. 3, 2023]). The CFPB had sued in July 2020, alleging underneath the ECOA and the CFPA that Townstone had discouraged potential candidates in African American neighborhoods within the Chicago metropolitan statistical space from making use of for mortgages by making feedback on native radio reveals that discouraged potential African American debtors from making use of with the lender. The court docket granted the defendants’ movement to dismiss the criticism with prejudice on the premise that the ECOA applies solely to candidates, to not potential candidates. Refusing to provide “Chevron deference” to Regulation B, which offers {that a} creditor shall not make statements to “applicants or prospective applicants that would discourage on a prohibited basis a reasonable person from making or pursuing an application,” the court docket held that the plain language of ECOA “clearly and unambiguously” prohibits discrimination towards an applicant (outlined as “a person who applies to a creditor for credit”), not a potential one. Thus, the court docket concluded that “Congress has directly and unambiguously spoken on the issue at hand and only prohibits discrimination against applicants,” and thus, it didn’t want to succeed in step two of Chevron deference to contemplate whether or not Regulation B, the company interpretation, displays a permissible building of the statute (id. at *5-*6).
The CFPB appealed the choice in April and filed its opening temporary in July. The attraction was argued in December, and a call is now pending within the Seventh Circuit Federal Appeals Court.
DOJ Addresses Allegedly Racially Discriminatory Mortgage Lending and Serving
In 2023, in 4 federal lawsuits towards mortgage lenders and servicers, the DOJ turned its consideration to the prevention of racially discriminatory conduct.
In May, the DOJ introduced that it had entered right into a settlement with ESSA Bank & Trust (ESSA), a Philadelphia-based financial institution and belief firm, over allegations that it had engaged in illegal redlining within the Philadelphia metropolitan space. In the complaint, filed contemporaneously with the consent order in U.S. District Court for the Eastern District of Pennsylvania, the DOJ alleged that ESSA’s practices violated the FHA and the ECOA by failing to adequately service majority-Black and -Hispanic neighborhoods in Philadelphia. Specifically, the DOJ alleged that ESSA excluded predominantly Black and Hispanic census tracts from its “assessment areas” (as outlined within the Community Reinvestment Act) and, due to this fact, that its lending practices didn’t meet the wants of the group that it served. The DOJ additional alleged that ESSA did not adequately employees branches in majority-Black neighborhoods with mortgage officers and didn’t interact in significant advertising and marketing and outreach in minority communities round Philadelphia. Under the consent order, ESSA agreed to determine a $2.92 million Loan Subsidy Fund for customers making use of for first mortgages, home-improvement loans, and refinance loans in majority-Black and -Hispanic census tracts in ESSA’s lending space. ESSA additionally agreed to spend at the very least $125,000 in partnership with group organizations on outreach and teaching programs and to spend at the very least $250,000 on promoting, outreach, monetary schooling, and credit score counseling inside majority-Black and -Hispanic census tracts.
In October, the DOJ introduced a $9 million agreement to resolve allegations towards mortgage mortgage originator Ameris Bank. According to the DOJ’s complaint filed within the U.S. District Court for the Middle District of Florida, from 2016 via 2021, Ameris Bank prevented offering mortgage providers to majority-Black and -Hispanic neighborhoods in Jacksonville, Florida, and discouraged folks looking for credit score in these communities from acquiring home loans. Specifically, although Ameris operates 18 branches in Jacksonville, it has by no means operated a department in a majority-Black and -Hispanic neighborhood within the metropolis, and different lenders generated functions in majority-Black and -Hispanic neighborhoods at thrice the speed of Ameris. Under the proposed consent order, Ameris Bank will make investments $9 million to extend credit score alternatives for communities of colour in Jacksonville.
In December, the DOJ was joined by the CFPB, which introduced a swimsuit towards Colony Ridge, a Texas-based developer and lender, for working an allegedly unlawful land gross sales scheme that focused Hispanic debtors. The complaint, filed within the U.S. District Court for the Southern District of Texas, alleges that Colony Ridge sells debtors “flood-prone land without water, sewer, or electrical infrastructure” after which permits them to take out loans they can’t afford, as evidenced by the truth that about one in 4 Colony Ridge loans ends in foreclosures. Colony Ridge allegedly targets Spanish-speaking debtors by promoting almost completely in Spanish, typically through social media posts that includes parts akin to nationwide flags and regional music from Latin America. The criticism alleges violations of the CFPA, the ECOA, the FHA, and, in a primary for a federal court docket motion introduced by the CFPB, the Interstate Land Sales Full Disclosure Act.
CFPB Enters Into $25 Million Consent Order With Payment Processor Over Unauthorized Mortgage Payments
In June, the CFPB entered right into a consent order with ACI Worldwide and one among its subsidiaries, ACI Payments (ACI), for allegedly improperly initiating roughly $2.3 billion in illegal mortgage fee transactions. ACI’s knowledge dealing with practices negatively affected practically 500,000 owners. The CFPB alleged that though this one-time occasion was found inside hours of its incidence and ACI instantly set about to reverse the misguided debits, by unlawfully processing misguided and unauthorized transactions, ACI uncovered owners to overdraft and inadequate funds charges from their monetary establishments. The order imposed, amongst different reduction measures, a $25 million civil money penalty.
New Jersey Division of Consumer Affairs Enters Into Consent Order With National Mortgage Servicer
In July, the New Jersey Division of Consumer Affairs, Office of Consumer Protection (the Division) entered right into a consent order with a nationwide mortgage servicer. According to the Division’s press launch, the corporate, which was previously licensed in New Jersey earlier than relocating to Florida, had violated the state’s shopper safety legal guidelines in its mortgage sale and servicing practices.
Based on 1,400 nationwide complaints, the Division alleged that the corporate violated the New Jersey Consumer Fraud Act, the state’s promoting rules, and the state’s telemarketing do-not-call (DNC) legislation from January 2015 to June 2022. Specifically, amongst different issues, the servicer allegedly made unsolicited telemarketing gross sales calls with out being a registered telemarketer, engaged in abusive and misleading telemarketing practices, engaged in “bait and switch” gross sales ways, didn’t well timed disburse escrow funds or apply mortgage mortgage funds (leading to unfavorable credit score reporting and late charges), and did not well timed escrow refunds and reply precisely to shopper inquiries.
Pursuant to the consent order, the corporate agreed to a $502,000 settlement, together with $365,200 in civil penalties and $136,800 in reimbursement for attorneys’ charges and prices. The consent order states that $50,000 of the civil penalties can be suspended assuming the servicer complies with the phrases of the settlement. The servicer additionally agreed to nominate a criticism coordinator and agreed that shopper complaints acquired by the Division can be forwarded to the Division’s various dispute decision unit for binding arbitration if unresolved by the servicer.
CFPB Enters Into Consent Order With Mortgage Lender Over Alleged Kickbacks
In August, the CFPB entered right into a consent order with a Florida-based mortgage lender, which agreed to pay $1.75 million into the CFPB’s sufferer reduction fund and stop allegedly unlawful actions. According to the CFPB, the mortgage lender had been offering actual property brokers and brokers with quite a few incentives — together with money funds, paid subscription providers, and catered events — with the understanding they might refer potential homebuyers to the mortgage lender for mortgage loans, in violation of RESPA and its implementing regulation. The CFPB individually entered into an order with an actual property brokerage agency, Realty Connect USA Long Island, through which the brokerage agreed to pay a $200,000 penalty and stop its alleged illegal conduct of accepting quite a few unlawful kickbacks from the mortgage lender.
CFPB Initiates Multiple Enforcement Actions Over Allegedly Inaccurate HMDA Reporting
In October, the CFPB filed one other lawsuit towards the identical mortgage lender, alleging that the corporate violated the Home Mortgage Disclosure Act (HMDA), its implementing Regulation C, the CFPA, and a recent 2019 consent order. The mortgage lender allegedly reported HMDA knowledge in 2020 that contained widespread errors, prompting the CFPB to file a lawsuit within the Southern District of Florida looking for civil penalties and injunctive reduction.
The 2019 consent order alleged that the mortgage firm deliberately submitted mortgage mortgage knowledge for 2014 via 2017 that misreported sure HMDA knowledge fields, akin to candidates’ race, ethnicity, and/or intercourse. The settlement that accompanied the 2019 consent order required the corporate to pay a civil money penalty of $1.75 million and enhance its compliance administration to forestall future violations. Despite the settlement and consent order, the CFPB alleged that in 2020, the mortgage firm “collected, recorded, and reported inaccurate HMDA data” and “did not maintain procedures reasonably adapted to avoid errors in its 2020 HMDA data submission.”
Then, in November, the CFPB entered right into a second HMDA-related consent order, this time with a nationwide financial institution, underneath which the financial institution agreed to pay a $12 million civil money penalty. In the consent order, the CFPB alleged that for at the very least 4 years, a whole bunch of the financial institution’s mortgage officers did not ask mortgage mortgage candidates sure demographic questions as required underneath HMDA, and that the mortgage originator then falsely reported that the candidates had chosen not to reply to the demographic questions.
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