CFPB Forum - Participants

CFPB Forum is the online website and discussion forum for news and views regarding the CFPB.

CFPB Forum has a Group on LinkedIn.

CFPB Forum is not associated or affiliated with the Consumer Financial Protection Bureau (CFPB).*


POWERED BY: LENDERS COMPLIANCE GROUP

Friday, December 7, 2012

CFPB's Company Portal for Consumer Complaints

In September 2011, the Consumer Financial Protection Bureau (CFPB) issued its Company Portal Manual (Manual). The Manual gave instructions on the use of the special access portal, known as the Company Portal (Portal). The Portal allows financial institutions to view and respond to complaints in the CFPB consumer complaint database. At that time, the Portal was enabled to take consumer complaints about credit cards and provider resources for distressed homeowners.*

Since the inception of the Portal, my firm has responded to numerous requests from clients to help them navigate its rather labyrinthine pathways. Thus, we have obtained considerable experience in guiding our clients from point of contact with the CFPB to point of resolution. In most instances, resolution of the complaint was achieved. While the CFPB continues to acquire statistics about the nature of the complaints, we also have become familiar with how best to respond to the complaints and have kept our own database.

When I cite statistics in this article, the time frame that I am writing about is July 21, 2011 to June 1, 2012. More recent statistics have not yet been officially announced by the CFPB. However, it is known that this database is updated on a daily basis. Retroactive data is expected shortly.

I would like you to become more familiar with the Portal and learn how to set up your access to it. Of course, in a magazine column, I can only offer a generic (rather than a detailed) description. I encourage you to explore the Portal, download the most recent Manual – I give the hyperlinks below - and, most importantly, draft and implement complaint management procedures for using it. Regulators will surely expect as much! 

Statistics

By this point, the CFPB has staffed a Consumer Response team. The Consumer Response team, or “Consumer Response” as it has become known, began taking consumer complaints about credit cards on July 21, 2011; it began handling mortgage complaints on December 1, 2011; and it began accepting complaints about bank products and services, private student loans, and other consumer loans on March 1, 2012. Over the next year, the CFPB expects to handle consumer complaints on all products and services under its authority.

According to the CFPB, between July 21, 2011, and June 1, 2012, the CFPB received approximately 45,630 consumer complaints, including approximately:
  • 16,840 credit card complaints,
  • 19,250 mortgage complaints,
  • 6,490 bank products and services complaints, and
  • 1,270 private student loan complaints.
Approximately 44 percent of all complaints were submitted through the CFPB’s website and 11 percent via telephone calls. In the same period, referrals from other regulators and agencies accounted for 39 percent of all complaints received. (The rest were submitted by mail, email, and fax.)

Furthermore, the CFPB has notified the public that more than 37,120 complaints (81 percent) of complaints received as of June 1, 2012, have been sent by Consumer Response to companies for review and response. The remaining complaints have been referred to other regulatory agencies (9 percent), found to be incomplete (4 percent), or are pending with the consumer or the CFPB (6 percent).

Companies have already responded to approximately 33,000 complaints or 89 percent of the complaints sent to them for response. 

Common Complaints

In a June 2012 report, the CFPB stated that the most common type of mortgage complaint is about problems consumers have when they are unable to pay, such as issues related to loan modifications, collection, or foreclosure. The example given was where a "consumer confusion persists around the process and requirements for obtaining loan modifications and refinancing, especially regarding document submission timeframes, payment trial periods, allocation of payments, treatment of income in eligibility calculations, and credit bureau reporting during the evaluation period."

The "shelf life" of documents provided as part of the loan modification process was cited as of particular concern to consumers. The CFPB asserts: "though consumers must provide documents within short time periods and income documentation generally remains valid for up to 60 days, lengthy evaluation periods can result in consumers having to resubmit documentation - sometimes more than once. This seems to contribute to consumer fatigue and frustration with these processes."

Other common types of mortgage complaints are those about making payments, such as issues related to loan servicing, payments, or escrow accounts. Here, the example given is where "consumers express confusion about whether making timely trial period payments will guarantee placement into a permanent modification. Issues related to applying for the loan, such as the application, the originator, or the mortgage broker, are also amongst the most common type of mortgage complaints."

In the CFPB's view, "consumers filing complaints about problems when they are unable to pay generally appear to be driven by a desire to seek agreement with their companies on foreclosure alternatives." 

Screening Process

This is a generic outline of the Consumer Response process:

1) Consumer Response screens all complaints submitted by consumers based on several criteria, such as whether the criteria include the complaint falling within the CFPB’s primary enforcement authority, whether the complaint is complete, or whether it is a duplicate of a prior submission by the same consumer.

2) Screened complaints are then sent via a secure web portal to the appropriate company. If appropriate, the complaint is posted to the Portal within approximately three days of receipt, along with a request for a response within 15 calendar days.

Wednesday, November 21, 2012

CFPB and FTC: Warning Letters - Misleading Advertisements

The Consumer Financial Protection Bureau (CFPB), in coordination with the Federal Trade Commission (FTC), has issued warning letters to twelve mortgage lenders and mortgage brokers advising them to remove or revise misleading advertisements. The warnings concern advertisements that target veterans, seniors, and other consumers.*

Additionally, the CFPB announced that it has begun formal investigations of six companies believed to have committed more serious violations of the law.

After reviewing hundreds of mortgage advertisements, the FTC staff has also sent warning letters to twenty companies, warning them that their ads may be deceptive. The FTC sent its warning letters to real estate agents, home builders, and lead generators, urging them to review their advertisements for compliance with the Mortgage Acts and Practices Advertising Rule and the FTC Act.

The collaboration between the CFPB and the FTC are characterized as a "sweep" - a review conducted by these agencies of about 800 "randomly selected mortgage-related ads across the country, including ads for mortgage loans, refinancing, and reverse mortgages." The agencies looked at ads in newspapers, on the Internet, and from mail solicitations, and advertisements that were the subject of consumer complaints.

I really can't emphasize enough how important it is to control all the advertising your firm publishes - and I mean advertisements in any media. Just adopting a policy and procedure is insufficient.

In my view, several components must be included in advertising compliance:

a formally adopted policy and procedure;
an advertising manual that is signed for and attested to by the employee;
checklists, model forms, ad formats, and authorizations;
an easy reference guide for employees;
periodic training;
and auditing.

If you are not implementing at least these risk management practices, you are certainly falling short of the controls you need to manage the regulatory challenges posed in advertising of mortgage loan products.
______________________________________________________

IN THIS ARTICLE
The Sweep
The Rule
The Warning
The Remedy
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The Sweep

The following problems were identified by the sweep:

Potential misrepresentations about government affiliation.
For example, some of the ads for mortgage products contained official-looking seals or logos, or have other characteristics that may be interpreted by consumers as indicating a government affiliation (i.e., advertisements containing statements, images, symbols, and abbreviations suggesting that an advertiser is affiliated with a government agency).

Potentially inaccurate information about interest rates.For example, some ads promoted low rates that may have misled consumers about the terms of the product actually offered. These are advertisements offering a very low “fixed” mortgage rate, without discussing significant loan terms (i.e., advertisements “guaranteeing” approval and offering very low monthly payments, without discussing significant conditions on these offers).

Potentially misleading statements concerning the costs of reverse mortgages.For example, some ads for reverse mortgage products claimed that a consumer will have no payments in connection with the product, even though consumers with a reverse mortgage are commonly required to continue to make monthly or other periodic tax or insurance payments, and may risk default if the payments aren’t made.

Potential misrepresentations about the amount of cash or credit available to a consumer.For example, some ads contained a mock check and/or suggested that a consumer has been pre-approved to receive a certain amount of money in connection with refinancing their mortgage or taking out a reverse mortgage, when a number of additional steps would customarily need to be completed before the consumer would qualify for the loan.

____________________________________

The Rule

The Mortgage Acts and Practices Advertising Rule ("MAP-AD Rule" or "MAP Rule"), known as Regulation N since rulemaking authority for it transferred from the FTC to the CFPB, is applied to advertising compliance relating to mortgage loan products. (We have discussed the MAP Rule previously. See, for instance, our September 2, 2011 newsletter, FTC: Adopts Mortgage Advertising Rule.)

The MAP Rule prohibits material misrepresentations in advertising or any other commercial communication regarding consumer mortgages. The FTC and the CFPB share enforcement authority over non-bank mortgage advertisers such as mortgage lenders, brokers, servicers, and advertising agencies. Mortgage advertisers that violate the MAP Rule may be required to pay civil penalties. HUD mortgagees may be subject to additional sanctions by the Mortgagee Review Board.

The MAP Rule was issued as a Final Rule by the FTC on July 22, 2011 (the day after the CFPB received its enumerated authorities) and given the compliance effective date of August 19, 2011. On July 21, 2011, the Commission’s rulemaking authority for the MAP Rule transferred to the CFPB, but the FTC, the CFPB, and the states all have authority to enforce the MAP Rule.

It applies to all entities within the FTC’s jurisdiction that advertise mortgages - mortgage lenders, brokers, and servicers; real estate agents and brokers; advertising agencies; home builders; lead generators; rate aggregators; and others. The MAP Rule, however, does not cover banks, thrifts, federal credit unions, and other entities that are outside the Commission’s jurisdiction.

The MAP Rule lists 19 examples of prohibited deceptive claims, including misrepresentations about the:   
- existence, nature, or amount of fees or costs to the consumer associated with the mortgage;
- terms, amounts, payments, or other requirements relating to taxes or insurance associated with the mortgage;
- variability of interest, payments, or other terms of the mortgage;
- type of mortgage offered;
- source of an advertisement or other commercial communication; and
- consumer’s ability or likelihood of obtaining a refinancing or modification of a mortgage or any of its terms.

Wednesday, November 7, 2012

CFPB: Mortgage Originator Violations

Yesterday, I outlined for you the features of the CFPB's requisites of a Compliance Management System (CMS). My observations were based on the CFPB's newsletter, entitled Supervisory Highlights: Fall 2012, an issuance to the public and the financial services industry about its examination program, including the concerns that it finds during the course of its completed work, and the remedies that it has obtained for consumers who have suffered financial or other harm.

There are other important areas covered in the newsletter that I would now like to briefly discuss: 

Violations relating to Credit Reporting, and

Violations by Mortgage Originators

Fair Lending Compliance 

These subjects are very nuanced and complex, involving many aspects of regulatory compliance mandates. Necessarily, my remarks will be limited to the kinds of observations that the CFPB has indicated as principal concerns with respect to these matters.
_____________________________________________________

IN THIS ARTICLE

Violations relating to Credit Reporting
Violations by Mortgage Originators
Fair Lending Compliance
Library
_____________________________________________________

Violations relating to Credit Reporting

The Fair Credit Reporting Act (the FCRA) regulates the collection, use, and dissemination of consumer report information, and promotes the accuracy, fairness, and privacy of information held by the nation’s credit bureaus.

As you many know, the CFPB examines financial institutions for their compliance with the FCRA’s requirements for handling consumers’ credit information. Among other things, the FCRA and its implementing regulation, Regulation V, generally require entities that provide consumer information to credit bureaus to establish and implement reasonable written policies and procedures regarding the accuracy and integrity of the consumer information they furnish to these entities.

A party’s failure to comply with the FCRA may cause significant consumer harm.

According to the CFPB's most recent announcement on its examination findings, its examiners have discovered one or more instances in which a financial institution’s employees did not have sufficient training or familiarity with the requirements of the FCRA to implement it properly.

Such deficiencies resulted in a failure implement the following actions:

- Communicate appropriate and accurate account information to the credit bureaus.

- Indicate when account information had been disputed by consumers.

- Determine whether disputes had been fully investigated.

Findings by the CFPB noted that companies were unaware of the potential and actual violations of the FCRA, and, therefore, they repeatedly failed to respond to communications from consumers about their accounts.

The remedial actions mandated by the CFPB included (1) implementing procedures for properly reporting consumer credit disputes to all credit bureaus, (2) taking action on all disputes reported directly to the financial institution and correcting errors where appropriate, and (3) deleting information regarding customers, as appropriate, upon completion of their credit dispute investigations.
_________________________________

Violations by Mortgage Originators

CFPB examiners have found significant violations of Real Estate Settlement Procedures Act (RESPA) and Truth in Lending Act (TILA).

Violations under RESPA have included failures to make proper and complete disclosures to consumers of costs and other terms of a transaction due to inadequate or improper completion of the Good Faith Estimate and the HUD-1 settlement statement.

Violations under TILA have included failures to provide accurate interest rate disclosures, and payment amounts and schedules, as well as disclosures regarding late payments, security interests, and assumption policies.

One aspect of the CFPB's examination, it should be mentioned, is to review a company's policies and procedures with respect to RESPA and TILA. Those financial institutions that do not maintain an accurate and current set of such policy statements should expect to receive an adverse finding.

Specifically, where financial institutions have violated RESPA and/or TILA, they have been directed to implement appropriate policies, procedures, and monitoring to prevent recurrence of the violations, and to ensure that any third-party vendors, including mortgage brokers, are identified and included in the company’s oversight program. The relevant policies and procedures should provide guidelines to ensure that proper Good Faith Estimate and HUD-1 disclosures are provided to consumers, and that consumers are not improperly charged. In fact, where appropriate, the CFPB has actually directed that consumers receive a corrected HUD-1, and, just as in state banking examinations, where customers are improperly charged, a financial institution will be directed to provide reimbursement to the consumer.
_________________________________

Fair Lending Compliance

Another area of concern is compliance with the Home Mortgage Disclosure Act (HMDA), and its implementing regulation, Regulation C.

In our newsletter yesterday, I discussed deficiencies of fair lending compliance programs and some "common features" of well developed programs. The CFPB utilizes HMDA data in the course of its review of such programs, and it may seek corrective action or relief, as appropriate, in cases that demonstrate fair lending violations.

Tuesday, November 6, 2012

CFPB: Compliance Management System

On October 31, 2012, the CFPB issued its first issue of Supervisory Highlights: Fall 2012, a newsletter to the public and the financial services industry about its examination program, including the concerns that it finds during the course of its completed work, and the remedies that it has obtained for consumers who have suffered financial or other harm.

It is written as an Executive Summary, and it will not refer to any specific institution. But it will "signal to all institutions the kinds of activities that should be carefully scrutinized for compliance with the law."

According to the CFPB, it has already taken non-public supervisory actions against financial institutions participating in the credit card, credit reporting, and mortgage markets, confirming "remedial relief" to 1.4 million consumers, and causing the affected financial institutions to correct illegal practices. Importantly, and in consequence to the CFPB's examinations and actions, financial institutions were required to adopt effective policies and procedures to ensure that violations do not recur and, especially, mandating that they implement a robust Compliance Management System (CMS). 

The CFPB maintains that an effective CMS is a "critical component of a well-run financial institution."

After a brief discussion about the CMS concept, I should like to outline these three significant findings derived from the CFPB's examinations:
- Comprehensive CMS Deficiencies Found Through CFPB Supervisory Activities
- Deficiencies Related to Failure to Oversee Affiliate and Third-party Service Providers
- Deficient Fair Lending Compliance Programs
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IN THIS ARTICLE
Compliance Management System
Comprehensive CMS Deficiencies
Failure to Oversee Affiliate and Third-party Service Providers
Deficient Fair Lending Compliance Programs
Library
___________________________________________________

Compliance Management Systems

I consider the term Compliance Management System to be a proxy for the term mortgage risk management. Our firm was founded on the premise that such risk management was the best way to ensure a financial institution's safety and soundness with respect to mortgage banking. At the time, there was only the term "risk management", a catch-all term that was overly broad. So I coined the term "mortgage risk management" to bring mortgage compliance into greater focus, expertise, and application.

Over the years, the prudential regulators and state banking departments have included much guidance in preparedness for their mortgage banking examinations. And now the CFPB has further elaborated the crucial and central importance of managing risk and examination readiness. As recently as July 2012, I published a magazine article about The Rules of Operational Risk, in order to bring into strong relief the practical matters and unique circumstances of mortgage risk management.

The CFPB's conception of a well-conceived CMS is certainly consistent with the foundational features of mortgage risk management.

Both the CFPB and mortgage risk management require effective internal controls and oversight, training, internal monitoring, consumer complaint response, independent testing and audit, third-party service provider oversight, recordkeeping, product development and business acquisition, and marketing practices.

Mortgage risk management and the CMS both expect the development, maintenance, and integration of mortgage compliance practices across a financial institution's framework and applied to its entire loan product and service lifecycle.

As the CFPB states:
"Without such a system, serious and systemic violations of Federal consumer financial law are likely to occur. Further, a financial institution with a deficient CMS may be unable to detect its own violations. As a result, it will be unaware of resulting harm to consumers, and will be unable to adequately address consumer complaints."
__________________________

Comprehensive CMS Deficiencies

The CFPB has issued findings for financial institutions lacking an effective CMS across the entire consumer financial portfolio, or in which the company failed to adopt and follow comprehensive internal policies and procedures. In these instances, the finding held that this condition resulted in "a significant breakdown in compliance and numerous violations of Federal consumer financial law."

The corrective action required an adopting of appropriate policies and procedures, and establishing an effective CMS to ensure legal compliance, which had to include the "enhancement" of financial institutional regulatory knowledge and expertise to help ensure proper monitoring of business activities and prompt identification of potential risks to consumers.

In this regards, educating about and training employees in a company's policies and procedures should be fully implemented and routinely followed. I suggest a schedule of on-going education and training modules, given to both new hires and all active, affected personnel.

Tuesday, October 23, 2012

CFPB's Five Year Strategic Plan

Recently, the Consumer Financial Protection Bureau (CFPB) published for comment on its website its draft Strategic Plan for 2013 - 2018 (Plan).

According to the CFPB, the plan includes the following four goals:

(1) Prevent financial harm to consumers while promoting good practices that benefit them.

(2) Empower consumers to live better financial lives.

(3) Inform the public, policymakers, and the CFPB’s own policymaking with data-driven analysis of consumer finance markets and consumer behavior.

(4) Advance the CFPB’s performance by maximizing resource productivity and enhancing impact. For each goal, the plan identifies outcomes to be achieved and how progress will be measured.

Submit comments to StrategyPlanComments@cfpb.gov before October 25, 2012. 

__________________________________________________

IN THIS ARTICLE
Goals, Strategies, and Metrics
Goal 1: Prevent Financial Harm to Consumers
Goal 2: Empower Consumers to Live Better Financial Lives
Goal 3: Inform The Public
Chart: Data Sources and Data Outputs
Goal 4: Maximizing Resources and Impact
Library
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Goals, Strategies, and Metrics

The Plan outlines these goals, strategies, and metrics:

- Four strategic goals that outline what the CFPB aims to achieve.

- Desired outcomes in support of its goals.

- Strategies that state the actions the CFPB will take to accomplish our outcomes.

- Performance measures that CFPB will track against specific targets in order to assess its progress toward achieving its outcomes.

- Indicators that the CFPB will track and use to assess progress toward achieving our outcomes. 

(Unlike performance measures, indicators do not reflect targets.)

Goal 1

Prevent Financial Harm to Consumers while Promoting Good Practices

The CFPB stated that, prior to Congress enacting the Consumer Financial Protection Act (CFPA) as Title X of the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act (Public Law 111-203, dated July 21, 2010), consumer financial protection had not been the primary focus of any one Federal agency, and no agency had effective tools to set the rules for and oversee the whole market.

Per the CFPB, the result was a system without sufficiently effective rules or consistent enforcement of the law. The CFPB believes that the consequences can be seen both in the 2008 financial crisis and in its aftermath.

The CFPB increased accountability in government by consolidating consumer financial protection authorities that had existed across seven different federal agencies into one, the Consumer Financial Protection Bureau. In addition to establishing the CFPB's enforcement powers, the CFPA gives the CFPB the authority to supervise and examine many financial institutions that were not previously subject to Federal oversight, such as nonbank mortgage companies, payday lenders, and private education lenders.

With the consolidation of existing and new federal authorities under one roof, the CFPB seeks to be properly focused and equipped to prevent financial harm to consumers while promoting practices that benefit consumers across financial institutions.

Goal 2

Empower Consumers to Live Better Financial Lives

This second goal of the CFPB is "to arm consumers with the knowledge, tools, and capabilities they need in order to make better informed financial decisions by engaging them in the right moments of their financial lives, in moments when the consumer is most receptive to seeking out and acting on assistance."

The CFPB plans to develop and maintain a variety of tools, programs, and initiatives that provide targeted, meaningful, and accessible assistance and information to consumers at the moment they need it.

To reify this goal, the CFPB has predicated two outcomes.

Outcome # 1:

The first outcome will collect, monitor, respond to, and share data associated with consumer complaints and inquiries about consumer financial products or services.

The CFPB has asserted that the consumer response function is central to its mission. The CFPB would provide direct assistance to consumers, in real-time, through its Consumer Response team. (See our October 4, 2012 article on Consumer Complaints and the Consumer Response team.) This team hears directly from consumers about the challenges they face in the marketplace and brings their concerns to the attention of the financial institutions that the CFPB regulates for investigation and resolution.

The Consumer Response team is tasked also to learn from the experiences of already operating complaint centers, for instance, by using the historical data from the FTC's Consumer Sentinel network, which is a collection of consumer complaint data from a variety of contributors, to inform its approach to handling complaints.

Performance metrics are applied by deriving data from complaint volume, the percentage of complaints routed through the dedicated company portal, and the complaint cycle time (i.e., intake cycle time, from receipt to company referral; company cycle time, from referral to company response; consumer cycle time, from company closure response to dispute; investigations cycle time, from investigations queue to closure).

Wednesday, October 10, 2012

Loan Originator Compensation: Past is Prologue - Part I

In the economic sphere an act, a habit, an institution, a law
produces not only one effect, but a series of effects.
Of these effects, the first alone is immediate;
it appears simultaneously with its cause; it is seen.
The other effects emerge only subsequently; they are not seen;
we are fortunate if we foresee them.
What Is Seen and What Is Not Seen[i]
Frédéric Bastiat

Since April 6, 2011, mortgage loan originators (MLOs) have struggled to comply with the many requirements imposed on them by the MLO compensation provisions of the Truth in Lending Act (TILA),[ii] as amended by Title XIV of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank). That date was the compliance effective date.[iii] Prior to that date, however, there were considerable and persistent efforts made to postpone its implementation. I tracked the burgeoning protests and litigation in a series of articles[iv] and newsletters.[v] Associations resisted these TILA revisions on behalf of their membership. The National Association of Mortgage Brokers (NAMB) and the National Association of Independent Housing Professionals (NAIHP) sued the Federal Reserve Board of Governors (FRB). Amicus briefs were filed. Many members of Congress, from both sides of the aisle, also protested aspects of the new MLO compensation requirements. All for naught!*

April 6, 2011 arrived. Resistance was futile!

The FRB had issued final rulemaking and official staff commentary with respect to the loan originator compensation rules and anti-steering provisions, but further guidance came to a virtual full stop on January 26, 2011, when the FRB issued its Compliance Guide for Small Entities on Loan Originator Compensation and Steering.[vi] After that, the FRB offered some conference calls, a webinar – which ostensibly cleared up some confusion, while causing other confusion – and provided occasional updates of the oral, rather than the written, official variety.

In the meantime, the Consumer Financial Protection Bureau (CFPB) received its “enumerated authorities” on July 21, 2011. From that date forward, the CFPB was in charge of promulgating and administering these compensation guidelines.

And on October 6, 2011 - exactly six months to the day when the rule became effective - the first examination guidelines for loan originator compensation were promulgated.[vii] In the State Nondepository Examiner Guidelines for Regulation Z - Loan Originator Compensation Rule, issued by the Multi-State Mortgage Committee (MMC),[viii] we were given a pretty good idea of the direction that federal and state regulators would be taking in their regulatory examinations for loan originator compensation.[ix]

For the most part, my firm’s clients were prepared for implementation of the compensation rule, but we spent hundreds of hours preparing them for it, consisting of many conferences and meetings, which included very comprehensive reviews of employment agreements, compensation plans, disclosures, policies and procedures, and many other details, both logistical and systemic.

Inevitably, I felt mortgage loan originators needed more information than was readily available. So, we consolidated our knowledgebase and offered the FAQs Outline - Loan Originator Compensation, a compendium of questions and answers about the MLO compensation requirements, first published on March 21, 2011 with 142 FAQs and 35 pages. About a year later, after 20 updates, the FAQs Outline was up to 450 FAQs and 147 pages![x]

In this article, the first in a two-part series, I will consider the recent CFPB proposal, issued on August 17, 2012, which contains certain proposed rules governing mortgage loan originations, especially relating to the MLO compensation guidelines in Regulation Z, the implementing regulation of TILA. Comments for this proposal are due by October 16, 2012.[xi]

In the second part of this series, I will explore these proposals in considerable depth, specifically their clarification of and expansion on existing regulations governing MLO compensation and qualifications.

The CFPB does plan to implement new laws, including a restriction on the payment of upfront discount points, origination points, and fees on most mortgage loan transactions. For this reason, I will conclude this article with a brief, generic outline of certain proposals. To some extent, these new proposals exemplify the hurly-burly, roller-coaster ride we’ve been jaunting about on, in the on-going, elusive quest to implement the MLO compensation rule.

Small Business Review Panel

There is only one difference between a bad economist and a good one:
the bad economist confines himself to the visible effect;
the good economist takes into account both the effect that can be seen
and those effects that must be foreseen.
What Is Seen and What Is Not Seen[xii]
Frédéric Bastiat

The CFPB is required to certify that a proposed rule will not have a significant, adverse, economic impact on a substantial number of small entities.[xiii] The Small Business Regulatory Enforcement Fairness Act (SBREFA) provides the basis for a review, inasmuch as, among other things, “small businesses bear a disproportionate share of regulatory costs and burdens.”[xiv] In order to comply with this requirement, the CFPB convened and chaired a Small Business Review Panel to consider the impact of the proposal and obtain feedback from representatives of the small entities that would be subject to the rule. When preparing the proposed rule and an initial regulatory flexibility analysis, the CFPB is expected to consider this panel’s findings.

The panel consisted of representatives from the CFPB, the Chief Counsel for Advocacy of the Small Business Administration (SBA), and the Administrator of the Office of Information and Regulatory Affairs within the Office of Management and Budget (OMB).[xv] On the panel were so-called small entity representatives (SERs), individuals who represent the business entities that would be subject to the CFPB’s proposal.[xvi] On July 11, 2012, the panel issued its report.[xvii]

Here are certain, salient topics that were reviewed by the panel:
  • Payment of Discount Points
  • Payment of Origination Points and Fees in Creditor-Paid Compensation
  • Payment of Origination Points and Fees in Brokerage-Paid Compensation
  • MLO Retirement Plans, Profit-Sharing, and Bonuses
  • Pricing Concessions and Point Banks
  • MLO Qualification and Training Requirements
Let us now consider the panel’s suggestions, concerns, resolutions, and recommendations.

Friday, October 5, 2012

CFPB's Company Portal for Consumer Complaints

Last year, we notified you about the Company Portal Manual (Manual) issued by Consumer Financial Protection Bureau (CFPB). The Manual gave instructions on the use of the special access portal, known as the Company Portal (Portal). The Portal allows financial institutions to view and respond to complaints in the CFPB consumer complaint database. At that time, the Portal was enabled to take consumer complaints about credit cards and provider resources for distressed homeowners.

Since the inception of the Portal, we have responded to numerous requests from clients to help them navigate its rather labyrinthine pathways. Thus, we have obtained considerable experience in guiding our clients from point of contact with the CFPB to point of resolution. In most instances, resolution of the complaint was achieved. While the CFPB continues to acquire statistics about the nature of the complaints, we also have become familiar with how best to respond to the complaints and have kept our own database.

When I cite statistics in this article, the time frame that I am writing about is July 21, 2011 to June 1, 2012. More recent statistics have not yet been officially announced by the CFPB. However, it is known that this database is updated on a daily basis. Retroactive data is expected shortly.
I would like you to become more familiar with the Portal and learn how to set up your access to it. Of course, in an article I can only offer a generic, rather than a detailed, description. I encourage you to explore the Portal, download the most recent Manual, and, most importantly, draft and implement complaint management procedures for using it. Regulators will surely expect as much!

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IN THIS ARTICLE
Statistics
Common Complaints
Screening Process
Flow Chart
Step-by-Step Procedures
CFPB Response
Company Response
Monetary Relief
Specifying Relief and Status
Government Portal
Requesting Access
Login
Viewing Complaints
Technical Assistance
Library

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Statistics

By this point, the CFPB has staffed a Consumer Response team. The Consumer Response team, or “Consumer Response” as it has become known, began taking consumer complaints about credit cards on July 21, 2011; it began handling mortgage complaints on December 1, 2011; and it began accepting complaints about bank products and services, private student loans, and other consumer loans on March 1, 2012. Over the next year, the CFPB expects to handle consumer complaints on all products and services under its authority.

According to the CFPB, between July 21, 2011, and June 1, 2012, the CFPB received approximately 45,630 consumer complaints, including approximately:

- 16,840 credit card complaints,

- 19,250 mortgage complaints,

- 6,490 bank products and services complaints, and

- 1,270 private student loan complaints.

Approximately 44 percent of all complaints were submitted through the CFPB’s website and 11 percent via telephone calls. In the same period, referrals from other regulators and agencies accounted for 39 percent of all complaints received. (The rest were submitted by mail, email, and fax.)

Furthermore, the CFPB has notified the public that more than 37,120 complaints (81 percent) of complaints received as of June 1, 2012, have been sent by Consumer Response to companies for review and response. The remaining complaints have been referred to other regulatory agencies (9 percent), found to be incomplete (4 percent), or are pending with the consumer or the CFPB (6 percent).

Companies have already responded to approximately 33,000 complaints or 89 percent of the complaints sent to them for response.

Common Complaints

In a June 2012 report, the CFPB stated that the most common type of mortgage complaint is about problems consumers have when they are unable to pay, such as issues related to loan modifications, collection, or foreclosure. The example given was where a "consumer confusion persists around the process and requirements for obtaining loan modifications and refinancing, especially regarding document submission timeframes, payment trial periods, allocation of payments, treatment of income in eligibility calculations, and credit bureau reporting during the evaluation period."

The "shelf life" of documents provided as part of the loan modification process was cited as of particular concern to consumers. As the CFPB asserts: "though consumers must provide documents within short time periods and income documentation generally remains valid for up to 60 days, lengthy evaluation periods can result in consumers having to resubmit documentation - sometimes more than once. This seems to contribute to consumer fatigue and frustration with these processes."

Other common types of mortgage complaints are those about making payments, such as issues related to loan servicing, payments, or escrow accounts. Here, the example given, is where "consumers express confusion about whether making timely trial period payments will guarantee placement into a permanent modification. Issues related to applying for the loan, such as the application, the originator, or the mortgage broker, are also among the most common type of mortgage complaints."

In the CFPB's view, "consumers filing complaints about problems when they are unable to pay generally appear to be driven by a desire to seek agreement with their companies on foreclosure alternatives."

Monday, October 1, 2012

CFPB Proposes New Servicing Rules - RESPA

Recently, the Bureau of Consumer Financial Protection (Bureau) issued proposed rules (Proposal) to amend Regulation X, which implements the Real Estate Settlement Procedures Act (RESPA) and the official interpretation of the regulation.

The proposed amendments implement the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) provisions regarding mortgage loan servicing. Specifically, this proposal requests comment regarding proposed additions to Regulation X to address seven servicer obligations:
1) Correct errors asserted by mortgage loan borrowers; 
2) Provide information requested by mortgage loan borrowers;
3) Ensure that a reasonable basis exists to obtain force-placed insurance;
4) Establish reasonable information management policies and procedures;
5) Provide information about mortgage loss mitigation options to delinquent borrowers;
6) Provide delinquent borrowers access to servicer personnel with continuity of contact about the borrower's mortgage loan account; and
7) Evaluate borrowers' applications for available loss mitigation options.
The Proposal would modify and streamline certain existing servicing-related provisions of Regulation X. For instance, it would revise provisions relating to:
1) A mortgage servicer's obligation to provide disclosures to borrowers in connection with a transfer of mortgage servicing, and
2) A mortgage servicer's obligation to manage escrow accounts (including the obligation to advance funds to an escrow account to maintain insurance coverage and to return amounts in an escrow account to a borrower upon payment in full of a mortgage loan).
The Bureau proposes 'companion' regulations implementing amendments to the Truth In Lending Act (TILA) in Regulation Z (the 2012 TILA Servicing Proposal). We will provide an outline of the 2012 TILA Servicing Proposal in a subsequent newsletter.
Comments Due: On or before October 9, 2012.
____________________________________________________
IN THIS ARTICLE
Scope
Nine Major Topics
Small Servicers
Library
____________________________________________________

Scope
  • The Proposal generally applies to closed-end mortgage loans, with certain exceptions.
  • Under the Proposal, open-end lines of credit and certain other loans, such as construction loans and business-purpose loans, are excluded.
  • Under the 2012 TILA Servicing Proposal, the periodic statement and adjustable-rate mortgage (ARM), disclosure provisions apply only to closed-end mortgage loans, but the prompt crediting and payoff statement provisions apply both to open-end and closed-end mortgage loans.
  • Reverse mortgages and timeshares are excluded from the periodic statement requirement, and certain construction loans are excluded from the ARM disclosure requirements.
  • The Bureau is seeking comment on whether to exempt small servicers from certain requirements or modify certain requirements for small servicers.
Nine Major Topics

The Proposal covers nine major topics, as follows:
   
1. Periodic billing statements.
Dodd-Frank generally mandates that servicers of closed-end residential mortgage loans (other than reverse mortgages) must send a periodic statement for each billing cycle. These statements must meet the timing, form, and content requirements provided for in the rule. The Proposal contains sample forms that servicers could use.

The periodic statement requirement generally would not apply for fixed-rate loans if the servicer provides a coupon book, so long as the coupon book contains certain information specified in the rule and certain other information is made available to the consumer. The proposal also includes an exception for small servicers that service 1000 or fewer mortgage loans and service only mortgage loans that they originated or own.
   
2. Adjustable-rate mortgage interest-rate adjustment notices.
Servicers would have to provide a consumer whose mortgage has an adjustable rate with a notice 60 to 120 days before an adjustment which causes the payment to change. The servicer would also have to provide an earlier notice 210 to 240 days prior to the first rate adjustment. This first notice may contain an estimate of the rate and payment change. Other than this initial notice, servicers would no longer be required to provide an annual notice if a rate adjustment does not result in an increase in the monthly payment. The Proposal contains model and sample forms that servicers could use.
   
3. Prompt payment crediting and payoff payments.
As required by Dodd-Frank, servicers must promptly credit payments from borrowers, generally on the day of receipt. If a servicer receives a payment that is less than a full contractual payment, the payment may be held in a suspense account. When the amount in the suspense account covers a full installment of principal, interest, and escrow (if applicable), the Proposal would require the servicer to apply the funds to the oldest outstanding payment owed. A servicer also would be required to send an accurate payoff balance to a consumer no later than seven business days after receipt of a written request from the borrower for such information.

Thursday, August 2, 2012

CFPB: Schedule of Rulemaking Initiatives

We have compiled the following schedule for the salient rulemaking initiatives of the CFPB regarding mortgage compliance.

The calendar covers August 2012 through June 2013.

I hope you will find it useful.*

IN THIS ARTICLE

August 2012
September 2012
December 2012
January 2013
April 2013
June 2013

__________________________________________

August 2012

  • Appraisals: proposed rule regarding appraisal changes required by Dodd-Frank's Truth-in-Lending and FIRREA amendments.
  • Mortgage originator standards: proposed rule on mortgage originator standards.
  • Mortgage servicing: proposed rule on mortgage servicing requirements.
  • Copies of appraisals: proposed rule on copies of appraisals and other valuations to be furnished by creditors under Regulation B.
  • Remittance transfers: final additional rule on remittance transfers.

September 2012

  • Supervision of larger depository institutions and affiliates: proposed rules to clarify coordination between the CFPB and prudential regulators.

December 2012

  • Second in a series of definitions of "larger participants": final rule to include debt collectors.
  • Mandatory escrows/disclosures: final rule regarding mandatory escrow accounts and escrow account disclosures.
  • Confidential treatment: final rule on confidential treatment of privileged information.

January 2013

  • Registration of nonbank covered persons: advanced notice of proposed rulemaking on registration of certain nonbank covered persons.
 
On or by January 21, 2013
 
  • Final rules regarding appraisals (Truth-in-Lending and FIRREA).
  • Final rules on high-cost mortgages.
  • Final rule on mortgage originator standards.
  • Final rules on mortgage servicing.
  • Final rule on copies of appraisals or other valuations to be furnished by creditors under Regulation B.
  • Final ability-to-repay (ATR) rule. 
 
After January 21, 2013
 
  • RESPA/TILA disclosure integration: final rule.

April 2013

  • HMDA: initiation of implementation planning for Home Mortgage Disclosure Act changes - additional data collection.

June 2013

  • AMTPA: proposed broader Alternative Mortgage Transaction Parity Act (AMTPA) rule.
  • Regulation B lending data: initiation of implementation planning for collection of additional women- or minority-owned and small business lending data under Regulation B.

Library

Law Library Image

CFPB Library – Lenders Compliance Group

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 *Jonathan Foxx is the President & Managing Director of Lenders Compliance Group

Tuesday, July 24, 2012

Elder Financial Abuse

She was already in her late nineties, a renowned and beloved philanthropist, bearing a name that symbolizes wealth and status. Her son was already a senior citizen, when he schemed to rob her of her independence, her wealth, her properties, and her dignity. She was suffering from Alzheimer's Disease, chronic anemia, and other ailments that affect the elderly. Properties of great value were sold without the mother's knowledge, or with her dubious consent, and then no record was kept of the distribution of the proceeds. Roberta Brooke Astor died on August 13, 2007, at the age of 105.

On November 27, 2007, indictments on criminal charges were announced against Mrs. Astor's son, Anthony D. Marshall, and attorney Francis X. Morrissey Jr.

The criminal charges were grand larceny, criminal possession of stolen property, forgery, scheming to defraud, falsifying business records, offering a false instrument for filing, and conspiracy in plundering Mrs. Astor's $198 million estate. 

The trial of Marshall and Morrissey started March 30, 2009, and on October 8, 2009 the jury convicted Anthony D. Marshall of one of two charges of grand larceny, the most serious of a number of charges brought against him. The grand larceny conviction carries a mandatory prison sentence, meaning that Marshall could spend between 1 and 25 years in prison. Francis X. Morrissey Jr. was convicted of forgery.

All the money and status did not protect Brooke Astor from the depredations of her son.

If this happened to her, then, for most of the elderly, lacking the benefits of money and status, how may they hope to protect their financial interests from similar scurrilous plundering, when they are old and infirm?

The Consumer Financial Protection Bureau is involved in providing financial protection against elder abuse; indeed, it is specifically tasked with that responsibility. The Bureau's Office of Older Americans is charged by the Dodd-Frank Act with examining certifications of financial advisors who serve elderly individuals and it plans to make recommendations to Congress on how to protect older consumers. Recently, the CFPB issued an information request regarding Senior Financial Exploitation.

In considering the challenges that the elderly must face in order to avoid financial abuse, the following outline of the CFPB's recent information request should be looked upon as a set of questions, the answers to which may provide new ways and means to protect them from the snares of financial predators.
_________________________________________________

IN THIS ARTICLE
Announcing the Information Request
Categories
Senior Financial Advisor - Certifications and Designations
Providing Financial Advice and Planning Information
Senior Certification and Designation Information Sources
Financial Literacy
Financial Exploitation of Older Americans
Financial Exploitation of Older Veterans of the Armed Forces
Library
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Announcing the Information Request

Using statistics from a recent study, the Bureau noted that Americans ages 60 and up lost at least $2.9 billion to financial exploitation in 2010 and that the total increased by 12 percent between 2008 and 2010. From 2008 to 2010, there was a 12 percent increase in the amount of money scammed from seniors. Also, women are more likely than men to be victims, and exploitation is most frequently perpetrated by family members and other persons in a position of trust.

CFPB Director Richard Cordray gave a speech at the White House on June 11, 2012, discussing the issuance of an information request regarding elder financial abuse. Dodd-Frank includes provisions that are intended to directly address the needs of senior citizens. Director Cordray said that misusing credentials that certify a person as an advisor for elderly clients is elder financial abuse, which instance he cites as but one reason for the information request. According to Mr. Cordray, based on the study, for each case of elder financial abuse that is addressed, forty-two actually go unreported.

Skip Humphrey, who runs the Office of Older Americans, has stated that the Bureau plans to look specifically at the needs of senior veterans. He has also referenced pension buyout plans as a particular problem. And Naomi Karp, a policy analyst at the Office of Older Americans, has addressed the difficulty that older people may experience in finding trustworthy advice when they need it, but are suffering from age-related cognitive impairment.

Categories

The Bureau is seeking comments in response to these questions:
Evaluation of senior financial advisor certifications and designations.
Providing financial advice and planning information to seniors.
Senior certification and designation information sources.
Financial literacy efforts.
Financial exploitation of older Americans, including veterans of the Armed Forces.

Senior Financial Advisor - Certifications and Designations

1. What resources do seniors have for determining the legitimacy, value, and authenticity of credentials held by their financial advisors and planners?
  •     What sources have been found most helpful, accurate, and thorough?
    • Among other things, comments could address issues such as state or organizational level review standards, evaluation practices, or selection criteria to determine the validity of proposed senior certifications or designations.

2. How effective are the existing sources at maintaining the legitimacy, value, and authenticity of credentials held by senior financial advisors and planners?

3. How effectively do existing accountability controls deter the misuse of senior advisor credentials? Examples of accountability controls include revoking credentials, public notices of disapproval, or other disciplinary actions.

Providing Financial Advice and Planning Information

4. What resources are available to explain the subject matter expertise presented or implied by specific certifications and designations?   
  • How effective are the publicly available sources at disseminating thorough, up-to-date information?
    • How effectively are seniors able to use the available resources to select a financial advisor with appropriate knowledge to address their specific financial needs?

Senior Certification and Designation Information Sources

5. What sources of information on the fraudulent or misleading uses of senior certifications and designations are available?
  • Comments could include, among other things, references to publicly available research or data sets, suggestions for other potentially available research or data, or other information on enforcement, civil, administrative, or criminal cases.

Wednesday, July 18, 2012

Disclosure Integration, High Cost, and Counseling

On July 9, 2012, the CFPB issued its proposed integration of RESPA and TILA disclosures into the "integrated" forms, entitled "Loan Estimate" and "Closing Disclosure". These new forms are derived from the Good Faith Estimate (GFE), the Truth-in-Lending (TIL) Disclosure, and the HUD-1/1A Settlement Statement. This assemblage has been duly dubbed with the euphemism "integration".

Excluded from the forthcoming integration are reverse mortgages, home equity lines of credit (HELOCs), chattel dwelling loans, and de minimis originations consisting of loans made by creditors who make five or fewer otherwise covered loans per year.

I have covered the process of constructing these forms in several newsletters and articles, including HERE, and HERE.*

The CFPB is not expecting to finalize the integration before the end of this year. Comments are due November 6, 2012.

However, there is a comment deadline of September 7, 2012 - which will lead to rulemaking before January 2013 - regarding the extent to which the rule applies to loans previously exempted from RESPA or TILA and the further redefining of the term “finance charge” to include most costs associated with residential mortgage loans.

By its own admission, the CFPB has stated that the proposal to "broaden" the definition of a "finance charge" by adopting certain adjustments or accommodations in its HOEPA implementing regulations under Regulation Z, would "cause more loans to exceed the APR and points and fees triggers and be classified as high-cost mortgages under HOEPA."

The CFPB has also set forth proposed rules to implement Dodd-Frank amendments regarding high-cost mortgages and also to provide homeownership counseling provisions that would affect mortgage lending generally (with no exclusion for HELOCs).

The implications of these rules, taken together, are far reaching. I would suggest that you visit our Library for further information.

___________________________________________________

IN THIS ARTICLE
“Loan Estimate” and “Closing Disclosure”
Integration
High-Cost Mortgages
Homeownership Counseling
Library
___________________________________________________

“Loan Estimate” and “Closing Disclosure”

  • The Loan Estimate replaces the GFE and early TIL, while the Closing Disclosure replaces the HUD-1/1A and final TIL.
  • HUD's Special Information Booklet will still be required.
  • The CFPB's proposal would combine five pages (seven if typical appraisal and servicing disclosures were to be counted) of TILA/RESPA data into a three-page Loan Estimate, not counting the written list of available providers that must be separately provided if the creditor allows a consumer to shop for a settlement service.
  • The Closing Disclosure is five pages.

Integration

The integration not only provides an entirely new format but also reconciles certain existing differences between Regulation X, the implementing regulation of RESPA and Regulation Z, the implementing regulation of TILA.

Highlights

  • Redefines the term “application” by deleting the 7th component from the definition adopted by HUD, as outlined in its New RESPA Rule FAQs, as “any other information deemed necessary by the loan originator.”
  • Alters the coverage of the disclosure requirements so they would apply to home loans, except for the aforementioned exemptions.
  • Changes the timing and responsibility rules for providing closing disclosures.
  • Prohibits the collection of any fees other than a credit report fee, until the Loan Estimate has been received, as provided by Regulation X, instead of the broader parameter of the “credit history” fee set forth in Regulation Z.
  • Prohibits the collection of any fees other than a credit report fee, until the consumer has indicated “an intent to proceed with the loan,” as specified by the Regulation X amendments of January 2010.
  • Requires the credit report fee to be accurately described as a credit report fee, not as an “application fee.”
  • Allows preliminary estimates only if they are clearly labeled as not the Loan Estimate.
  • Continues requiring the Regulation X Special Information Booklet, and possibly incorporating material from the Regulation Z's ARM (CHARM) booklet.
  • Prohibits a creditor from requiring a consumer to verify any information the consumer provided with the application (per Regulation X).
  • Incorporates the disclosure tolerances of Regulation X, modified to extend the zero tolerance to fees paid to affiliate providers and providers for whom a consumer cannot shop.
  • Adjusts Regulation X limitations on revising Loan Estimates, including the definition of “changed circumstances.”
  • Allows a waiver of waiting periods in the event of bona fide personal emergencies.
  • Permits price averaging.
  • Requires providing certain Closing Disclosures to the seller, if a seller is a party to the transaction.
  • Requires close communication and cooperation between mortgage brokers and settlement agents who may provide disclosures, in order to ensure accurate disclosure.
  • Prohibits providing disclosures of both estimated and actual costs at the same time (viz., as revised Loan Estimate and a Closing Disclosure).
  • Requires the retention of evidence of compliance (i.e., permitting electronic file retention) for three years for Loan Estimates and five years for Closing Disclosures.
  • Requires states with existing exemptions from TILA (i.e., Maine, Connecticut, Massachusetts, Oklahoma, and Wyoming) to conform their laws if they wish to retain their exemptions.

High-Cost Mortgages

  • Balloon payments would largely be banned, and creditors would be prohibited from charging prepayment penalties and financing points and fees.
  • Late fees would be restricted to four percent of the payment that is past due, fees for providing payoff statements would be restricted, and fees for loan modification or loan deferral would be banned.

Tuesday, July 3, 2012

Next Up, Reverse Mortgages!

In a June 28, 2012 Report to Congress, the Consumer Financial Protection Bureau (the CFPB or the Bureau) published its study of reverse mortgage transactions. This study was required by Section 1076 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank).

The Report surmised that reverse mortgages are not being used as Congress originally intended, because, rather than provide income for borrowers during retirement, reverse mortgages are being provided to consumers at younger ages, thereby increasing the risk that these borrowers will go broke later in life. The study found that almost half of reverse mortgage borrowers in fiscal year 2011 were younger than 70 years of age.

Furthermore, the Report concluded that 70% of reverse mortgage borrowers withdrew all the available funds at once in lump-sum payments, which the CFPB claims can be squandered quickly, leaving borrowers with the potential to face foreclosure due to the reduced ability to pay property taxes. According to the study, nearly 10% of reverse mortgagors (as of February 2012) were at risk of foreclosure.

In its 231 page Report, the CFPB stated the following "emerging concerns":

1. Reverse mortgages are complex products and difficult for consumers to understand.

2. Reverse mortgage borrowers are using the loans in different ways than in the past, which increase risks to consumers.

3. Product features, market dynamics, and industry practices also create risks for consumers.

4. Counseling, while designed to help consumers understand the risks associated with reverse mortgages, needs improvement in order to be able to meet these challenges.

5. Some risks to consumers appear to have been adequately addressed by regulation, but remain a matter for supervision and enforcement, while other risks still require regulatory attention.

The study identified four major topics "where additional research would help determine if additional consumer education or regulatory action is needed."

Those topics are:

(a) Factors influencing consumer decisions;
(b) consumer use of reverse mortgage proceeds;
(c) the longer-term outcomes of reverse mortgages; and
(d) the differences in market dynamics and business practices among the broker, correspondent, and retail channels.

On July 2, 2012, the CFPB began the process of investigating the consumer use of reverse mortgages. This procedure begins with a Notice and Request for Information. In effect, that CFPB now seeks comment and information from the public on the aforementioned topics.

In this review of reverse mortgages, the CFPB will undertake, among other things, to identify any practice as unfair, deceptive, or abusive, and may provide for an integrated disclosure standard and model disclosures. Additionally, it will seek detailed information from the public on the factors that influence reverse mortgage consumers' decision-making, consumers' use of reverse mortgage loan proceeds, longer-term consumer outcomes of a decision to obtain a reverse mortgage, and differences in market dynamics and business practices among the broker, correspondent, and retail channels for reverse mortgages.

In this article, I will outline the scope of information that the CFPB is seeking from the public, including consumers, housing counselors, financial institutions, and others, regarding consumer use of reverse mortgages and consumer experiences during the reverse mortgage shopping process.*

Factors Influencing Consumer Decisions

The CFPB asks the following questions regarding the factors that influence consumer decisions:
1. What factors are most important to consumers in deciding whether to get a reverse mortgage?
2. What factors are most important to consumers in choosing among products? Among other things, comments could address the choice between fixed-rate, lump-sum reverse mortgages and adjustable-rate, line-of-credit or monthly disbursement reverse mortgages.
3. What factors are most important to consumers in choosing among potential lenders?

Consumer Use of Reverse Mortgage Proceeds

4. Nearly 75% of recent reverse mortgage consumers took out all of their available funds upfront in a lump sum.
   
a. What do consumers do with these funds?
b. Where do consumers place loan money that they do not use immediately? (i.e., in a savings account, an investment account, a certificate of deposit (CD), et cetera).
5. Some reverse mortgage consumers use reverse mortgage loan funds to refinance a traditional mortgage or home equity loan/line of credit.
   
a. What proportion of consumers are using reverse mortgage loan funds to refinance a traditional mortgage or home equity loan/line of credit?
b. What proportion of the loan funds are typically spent on paying off an existing mortgage?
c. Do consumers using a reverse mortgage to refinance an existing mortgage typically consider other options first (e.g. moving to a different home or a traditional refinancing)? If not, why not? If so, what factors lead them to choose a reverse mortgage instead?
   
6. Some reverse mortgage consumers use reverse mortgage loan funds to consolidate non-housing debts.
   
a. What proportion of borrowers use reverse mortgage loan funds to
consolidate non-housing debts?
b. What proportion of the loan funds are typically spent on consolidating non-housing debts?
c. What types of non-housing debts are typically consolidated (i.e., credit card, auto, medical-related debt, et cetera)?

Monday, June 4, 2012

CFPB's "Notice of Reasonable Cause"

On May 25, 2012, the Consumer Financial Protection Bureau (Bureau) issued a Proposed Rule (Rule) which, if adopted, would govern the process by which a "nonbank covered person" may become subject to the supervisory authority of the Bureau.

Under the proposed process, the Bureau would provide a nonbank covered person a notice (Notice or Notice of Reasonable Cause) stating that the Bureau may have reasonable cause to determine that such covered person is engaging, or has engaged, in conduct that poses risks to consumers with regard to the offering or provision of consumer financial products or services.

The Proposal establishes mechanisms to provide the nonbank covered person a reasonable opportunity to respond to the Notice.
 
According to the Bureau, the proposed procedures would provide a recipient of a Notice (respondent) with a more robust process than required by Section 1024(a)(1)(C) in Title X of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.

For example, as set forth now by Dodd-Frank, to satisfy the statutory requirement that the Bureau provide a reasonable opportunity to respond, the Bureau does not need to offer respondents an opportunity to participate in a supplemental oral response. The Rule, however, if adopted, would provide such an opportunity to respondents.

IN THIS ARTICLE
Responding to the Notice
Informal Conferences
Proceedings
Consent of Respondent
Determination of Supervisory Authority
__________________________________________

Responding to the Notice

The Rule would require that a Notice include a description of the basis for the assertion that the Bureau may have "reasonable cause" to determine that a respondent is a nonbank covered person that is engaging, or has engaged, in conduct that poses risks to consumers with regard to the offering or provision of consumer financial products or services.

The Notice is intended to afford a respondent the opportunity to evaluate the assertions set forth therein and to formulate an appropriate response.

The Rule would provide a respondent with two opportunities to respond to a Notice: first, in writing, and then, if requested by a respondent, through a supplemental oral response generally to be conducted by telephone.

Under the Rule, a respondent would be required to include with the written response records, documents, or other items supporting the arguments set forth in the response that a respondent wants the Bureau's Assistant Director for Nonbank Supervision (Assistant Director) and the Bureau's Director (Director) to consider.

A supplemental oral response, if requested, would provide a respondent with the opportunity to present arguments to the Bureau's Assistant Director or her or his designee.

Informal Conferences

Under the Rule, a Notice of Reasonable Cause would not constitute a notice of charges for any alleged violation of Federal consumer financial law or other law. The proceedings would be informal and would not constitute an adjudicatory proceeding under section.

In the informal process, no discovery would be permitted, a supplemental oral response would not constitute a hearing on the record, and no witnesses would be permitted to be called as part of a supplemental oral response.

Proceedings

1) The Bureau's Deputy Assistant Director for Nonbank Supervision (Deputy) would commence a proceeding by issuing a Notice.

2) The response (both written and oral, if any) would then be considered by the Bureau's Assistant Director, who would provide to the Bureau's Director a recommended determination.

3) The Director would make the final determination in any proceeding by adopting without revision, modifying, or rejecting the Assistant Director's recommended determination.

4) The result would be either an order subjecting a respondent to the Bureau's supervisory authority, or a notice stating that a respondent is not subject, as a result of the proceeding, to the Bureau's supervisory authority.

Consent of Respondent

Under the Proposed Rule there would be two ways in which a respondent could consent to the Bureau's supervisory authority:

Expedited Method: respondent may execute the consent agreement form attached to the Notice that is served on the respondent and file it with the Assistant Director in lieu of a response.

Voluntary Consent: at any time during a proceeding, a respondent may voluntarily consent to the Bureau's supervisory authority under such terms as the parties may agree.

Determination of Supervisory Authority

If a determination by the Director results in an order bringing a respondent within the Bureau's supervisory authority, the respondent would be permitted, after two (2) years (and no more than annually thereafter), to petition the Director for the termination of such an order.

However, under the Rule, where a respondent voluntarily consents to the Bureau's supervisory authority for a specified period of time, the respondent would not be permitted to petition for the termination of supervision during the period specified in the consent agreement.

A petition for termination of an order provides a method for a respondent to inform the Bureau of actions taken and progress made to reduce the risks to consumers after the issuance of the order.

Please take note: nothing in the rule affects the relief the Bureau may seek in any civil action or administrative adjudication.

Library

Law Library Image

Consumer Financial Protection Bureau

Procedural Rules To Establish Supervisory Authority
Over Certain Nonbank Covered Persons
Based on Risk Determination

Proposed Rule

Federal Register
Friday, May 25, 2012