Ah, lawsuits, rising rates, 10-year anniversaries, volatility, low margins, cold weather, rate and term refis vanishing, voluminous application forms, “right-sizing,” … and all we want to do is help borrowers who we know are going to repay their loans, right? Let’s take a brief look at what is on reader’s minds from a legal perspective, and see what some states are up to.
Here’s a note earlier this week from Jonathan Jenkins of Jenkins Kayayan LLP. “Rob, ten years after Lehman Brothers’ spectacular collapse, the LBHI liquidating trust has begun its third wave of repurchase litigation against its former correspondent lenders.
“Last night (October 1, 2018), on the eve of a status conference set for 2:00 pm this afternoon (October 2) in LBHI’s main bankruptcy proceeding (In Re Lehman Brothers, 08-13555) and each of the 100+ individual adversary proceedings against correspondent lenders (we represent Sierra Pacific Mortgage Company, Inc. in 16-AP-1341), the LBHI estate began filing Motions for Leave to File Third Amended Complaints against current defendants in the U.S. Bankruptcy Court for the Southern District of New York.
“This latest, but long-anticipated, action by the LBHI estate is attempting to add into the mix billions of dollars’ worth of RMBS repurchase/indemnification claims — which LBHI recently settled against private-label RMBS litigants — to the existing litigation which, until now, has focused primarily on conforming loans sold to Fannie/Freddie. It appears most defendants are seeing the RMBS loans at least double or triple their potential litigation exposure, and an entirely new wave of correspondents will likely be hauled into the litigation as well.
“Unfortunately, responses to Lehman’s motions are due by October 15, 2018, making this a time-critical issue for everyone involved.”
Ike Suri, Chairman & CEO of FundingShield and Pelican Point Investment Group, LLC, opined on the recent activities in Connecticut and gave a summary of the “CATIC debacle” with the Attorneys General. “From the lender’s view, lenders have an assumed cost of vendor management and compliance checks to assure that reps/warrants of closing parties are in fact valid, getting this for free from and underwriter (UW) would be getting something for free which is a RESPA violation per the CT AG. Lenders have a cost to vet agents and have to deal with agents across multiple UWs, having a single UW being the vetting party for closing parties across multiple UWs clearly creates room for anti-competitive practices of the vetting agent (CATIC is this case) being the body that approves agents that are affiliated with them as an underwriter created the ability for CATIC to allegedly induce non CATIC agents to sign up with them as the lenders were becoming reliant on CATICs approval.
“From the underwriter’s view, underwriters conduct their own internal review to approve and provide ongoing checks to keep closing agents and settlement / escrow parties approved and affiliated. To ‘blanketly’ say that lenders requirements to satisfy their own diligence standards are met per the OCC or CFPB by virtue of the work the underwriter does is not an endorsement that UW can make due to the fact that passing this on is giving a service for free.
“Further having an UW being the body that approves agents that are affiliated with them as an underwriter created the ability for CATIC to allegedly induce non CATIC agents to sign up with them as the lenders were becoming reliant on CATICs approval. This was creating a dynamic on the market that non CATIC agents were being pushed to join CATIC as CATIC would place more onerous diligence requirements on behalf of the lender for non CATIC affiliated agents than those that were already CATIC agents. This was deemed to be anti-competitive. Underwriters want a level playing field where they can compete on service and quality of agents in the market, not by having parties who violate RESPA.”
Ike wrapped up with a note about Fundingshield and other services. “Services should allow lenders to seamlessly approach closing party vetting and compliance checks while also conducting wire fraud prevention to assure lenders are working with valid/verified parties, have coverage from title insurance underwriters, are funding actual accounts of closing parties and not being impacted by wire fraud attempts from cyber criminals or negligence or fraud by closing agents or their staff. They should be able to work with agents affiliated with any underwriter that meets a lenders risk criteria, and able to handle the purchase market dynamic where there is a need to be able to interface with any closing party that the buyer or agent may be working with, our solutions help this dynamic faced by lenders to create less restrictions on bringing in business to close loans. Our services can do this on a pay-per-loan-closed basis, aligning the cost to diligence agents affiliated with any underwriter and prevent fraud as a lender closes loans and earn revenue. And Fundingshield has software that allows lenders to set up diligence criteria to assess closing parties according to your standards.”
State lending law and regulation changes just don’t stop
It’s tough to follow changes on a national level impacting lenders as well as every change that states make in your footprint. It’s expensive as well.
Amended provisions under New Jersey’s Residential Mortgage Lending Act will be effective on November 22, 2018. The updated provisions make several substantive changes and make it easier for residential mortgage lenders and brokers to comprehend and comply with the requirements of the RMLA.
Some changes include the allowance of the New Jersey Department of Banking and Insurance (Department) to issue “transitional MLO licenses.” Depository institutions and New Jersey-licensed mortgage companies may sponsor individuals licensed in New Jersey as MLOs (including transitional MLOs). MLO applicants who have been convicted of (or pled guilty or nolo contendere to) a disqualifying felony are eligible for an MLO license if the conviction or plea has been expunged. An existing prohibition against persons licensed as title insurance producers from also being licensed under the RMLA is removed. At least two of the eight hours of continuing education needed to renew an individual RMLA license must relate to New Jersey residential mortgage lending laws and regulations.
Pennsylvania has enacted provisions regarding the foreclosure of vacant and abandoned properties which will now be referred to as the Vacant and Abandoned Real Estate Foreclosure Act. The purpose of the Act is to accelerate foreclosure proceedings on vacant and abandoned properties, as these properties often present a danger to the health, safety, and welfare of a community. The terms “vacant property,” “vacant and abandoned property,” and other relevant terms are defined at the outset of the Act.
The provisions define the criteria required to deem a property as vacant and abandoned. It specifies required indicators of abandonment as certified by a municipality or in a judicial proceeding. Regarding vacancy, the provision states that a property can be presumes vacant if it was found to be vacant after two inspections. It also states the steps required for notifications after each inspection.
A vacant and abandoned property is not subject to mediation, conciliation or diversion. Any disclosures required to be sent to the owner of the vacant property can be placed in a conspicuous location on the mortgaged property if no alternate mailing address is discoverable.
The Indiana Department of Financial Institutions published its annual consumer credit fees schedule. The fees are effective from July 1, 2018 through June 30, 2019. Fees are established for the following entities: Licensed Lender, Mortgage, Licensed Lender, Credit Sellers/Lessor, Depository Institutions, Licensed Lender, Small Loan Lenders, Rental Purchase Providers, Debt Management Company, Pawnbroking, Money Transmitter, Check Cashers, Mortgage Loan Originator and Hoosier Traditional Mortgage. The published chart includes fee types, fee amounts, statutory reference, and due dates.
The Conference of State Bank Supervisors (CSBS) announced that the Minnesota Department of Commerce began using the National SAFE Mortgage Loan Originator (MLO) Test with Uniform State Content bringing the total number of state agencies that use the test to 59. The test combines both the national and state testing requirements of the SAFE Act. Previously, Minnesota licensees had to take two tests: one national and one state.
The new test replaces the separate, state-specific tests. A license applicant who passes the National SAFE MLO Test with Uniform State Content will not need to take any additional state-specific tests to hold a license within participating states. Minnesota Commerce Commissioner Jessica Looman said, “The Minnesota Department of Commerce is committed to ensuring a strong, competitive and fair licensing program for the financial services industry. Under the uniform test, Minnesota professionals can become licensed as loan originators efficiently and affordably, obtaining licenses nationwide by taking a single exam.” The SAFE Mortgage Licensing Act of 2008 requires all MLOs to be registered or state-licensed through the Nationwide Multistate Licensing System and Registry (NMLS). More information on the National SAFE MLO test with Uniform State Content is available here.
Vermont has enacted provisions that constructs the framework within which commitment letters are to be issued in Vermont and encourages complete and timely disclosure of information to ensure consumer protection. The regulation establishes the form of the commitment letter and the content it should contain. All lenders must issue a commitment letter in connection with every mortgage loan; the regulation goes on to outline general requirements for the content contained in the commitment letter.
If the lender is required to issue a closing disclosure under Federal Regulation Z, the lender has the option to issue a short form commitment letter. In the case of a reverse mortgage loan the content of the commitment letter is also outlined. All commitment letters must be delivered to the borrower no less than three business days prior to the closing unless an exception applies.
Oklahoma has recently passed Senate Bill 1493, effective on November 1, 2018, amending its provisions regarding supervised lenders and the sale of goods by licensees. The updated provisions first explain that in general, licensees who are authorized to make supervised loans may not engage in the business of making sales of goods at any location where supervised loans are made. The Bill then lays out several exceptions.
First, licensees may make sales of goods through vending machines at the location where supervised loans are made which must be separated from any location in which merchandise is sold or displayed and must be accessible only by a passageway that is not open to the public. Second, licensees may sell other goods approved by the Administrator of the Department of Consumer Credit that are paid for by a consumer in cash, and not with the proceeds of a loan by the licensee who is also making the sale.
The Bill then clarifies that a sale of goods or services pursuant to a lender credit card or similar arrangement made at a place of business other than that of a licensee is not a violation of the provisions. And in addition, an occasional sale of property used in the ordinary course of the business of the licensee, or a sale of items repossessed by the licensee does not violate these provisions.
PECANS IN THE CEMETERY
On the outskirts of a small town, there was a big old pecan tree just inside the cemetery fence. One day, two boys filled up a bucketful of nuts and sat down by the tree, out of sight, and began dividing the nuts.
“One for you, one for me, one for you, one for me,” said one boy. Several dropped and rolled down toward the fence. Another boy came riding along the road on his bicycle. As he passed, he thought he heard voices from inside the cemetery, so he slowed down to investigate. Sure enough, he heard, “One for you, one for me, one for you, one for me…”
He just knew what it was. He had been going to Sunday School all his life. He jumped back on his bike and rode off. Just around the bend he met an old man with a cane, hobbling along.
“Mister, come here quick,” said the boy, “You won’t believe what I heard! Satan and the Lord are down at the cemetery dividing up the souls!”
The man said, “Beat it kid, can’t you see it’s hard for me to walk.” When the boy insisted though, the man hobbled slowly to the cemetery.
Standing by the fence they heard, “One for you, one for me. One for you, one for me.”
The old man whispered, “Boy, you’ve been tellin’ me the truth. Let’s see if we can see the Lord!”
Shaking with fear, they peered through the fence, yet were still unable to see anything. The old man and the boy gripped the wrought iron bars of the fence tighter and tighter as they tried to get a glimpse of the Lord.
At last they heard, “One for you, one for me. That’s all. Now let’s go get those nuts by the fence and we’ll be done…”
They say the old man had the lead for a good half-mile before the kid on the bike passed him.
Visit www.robchrisman.com for more information on our industry partners, access archived commentaries, or to subscribe to the Daily Mortgage News and Commentary. If you’re interested, visit my periodic blog at the STRATMOR Group web site. The current blog is, “The Rise of the Credit Unions.” If you have both the time and inclination, make a comment on what I have written, or on other comments so that folks can learn what’s going on out there from the other readers.
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