Tag: Mortgage

CFPB Launches Public Inquiry into Rising Mortgage Closing Costs and ‘Junk Fees’

Go-To Guide:
  • The Consumer Financial Protection Bureau (CFPB) has launched a public inquiry into rising mortgage closing costs, seeking to understand the reasons behind the increase, identify who benefits, and find ways to reduce costs for both borrowers and lenders.
  • This inquiry, part of a broader effort against “junk fees,” aims to gather public input on the impact of these fees on consumers’ financial health and the mortgage lending market, with a focus on third-party costs, fee beneficiaries, and the evolving nature of these expenses.

On May 30, 2024, the CFPB issued a new request for information (RFI) from the public regarding “why closing costs are increasing, who is benefiting, and how costs for borrowers and lenders could be lowered.”

As part of a wider effort targeting what both the CFPB and the Biden administration refer to as “junk fees,” the CFPB is focusing on evaluating how these fees affect consumers’ financial health and the broader impact on mortgage lenders. This follows the CFPB’s continued expression of interest in “junk fees,” on which GT reported in a May 2024 blog post.

“Junk fees and excessive closing costs can drain down payments and push up monthly mortgage costs,” CFPB Director Rohit Chopra said in a separate press release. “The CFPB is looking for ways to reduce anticompetitive fees that harm both homebuyers and lenders.”

The Request for Information

According to a recent CFPB analysis, mortgage closing costs surged by over 36% from 2021 to 2023. The CFPB alleges that these unavoidable fees can strain household budgets and limit the ability to afford a down payment, while also hindering lenders from offering competitive mortgage options due to the higher costs they must absorb or pass on.

The CFPB is seeking public input to address these concerns and make mortgage costs more manageable. Some key areas of interest include:

  • Competitive pressure. The CFPB aims to evaluate the extent to which consumers or lenders currently apply competitive pressure on third-party closing costs, seeking to understand market barriers that limit competition.
  • Fee beneficiaries. The CFPB aims to identify the beneficiaries of required services and determine whether lenders have control or influence over the third-party costs that are transferred to consumers.
  • How fees are evolving and their impact on consumers. The CFPB seeks details on which expenses have surged the most in recent years and the factors driving these increases, such as the higher prices for credit reports and credit scores. Additionally, the CFPB is interested in understanding how closing costs affect housing affordability, access to homeownership, and home equity.

Takeaways

The CFPB oversees numerous laws and regulations concerning mortgage lending and real estate settlement, such as the Truth in Lending Act, the Fair Credit Reporting Act, and the Real Estate Settlement Procedures Act. The insights gained from this inquiry are poised to shape rulemaking, guidance, and various policy initiatives moving forward.

The CFPB invites comments and data from the public and stakeholders within 60 days of the RFI being published in the Federal Register.

We have provided ongoing analysis and commentary on this issue as it has developed. See below more context on legislative and regulatory efforts to curb “junk fees”:

Zeba Pirani contributed to this article

©2024 Greenberg Traurig, LLP. All rights reserved.
For more on the CFPB, visit the NLR Financial Institutions & Banking section.

When Your Business Partner Uses Company Money to Purchase Assets for Himself, You Have a Remedy – If You Don’t Wait Too Long

Minority owners of closely-held businesses are often shocked to learn what their business partner – usually the majority owner – has been doing with the company’s money.  In some cases, an investigation reveals that your worst suspicions are true, and your partner has actually started a competing company on the side.  But diverting assets and resources can often have results other than an active, competing business.  Sometimes embezzlement is as simple as company funds being used to purchase assets – such as real estate – in which you, of course, have no ownership interest.  This can be done by having the jointly-owned company purchase the land outright, or make the mortgage payments on property your business partner has cut you out of.  Either way, joint money is being used to subsidize your partner’s solo venture.

I have had clients come to me believing that because they do not have an ownership interest in an asset, they cannot possibly have any rights to it, or in it.  But that is not necessarily true.  For example, in New Jersey, if you are a 1/3 owner of a company, and the 2/3 majority owner uses company money to buy real property, you may have an excellent argument that you should be legally recognized as a 1/3 owner of the property, or at least be entitled to 1/3 of any profits or proceeds from it. Similarly, if company monies are used to start a competing company, you may be entitled to be awarded 1/3 ownership of that competing company, or at least damages equaling 1/3 of that company’s profits.

The logic is obvious – 1/3 of the money improperly used effectively belongs to you.  However, many business owners suspect something like this for years but fail to act, usually because they think it’s too late once the money is gone.  If you believe money is unaccounted for in your own company, you are entitled to answers.  If you can’t understand why your business partner is suddenly devoting time to other business ventures, but will not explain to you what he is doing, you are entitled to answers.  If you do a search and learn that your business partner owns real estate, and you can’t understand how he paid for it and want to know if any of your money was used, you are entitled to answers.  You can get those answers in court – but the fact that you are entitled to do so should help you get them without resorting to a disruptive and expensive judicial filing.

When, exactly, you learned of the embezzlement will impact how long you have to take action before it is legally too late.  So if you have suspicions, don’t wait to seek legal advice.  You just may have more rights than you realize.

©2022 Norris McLaughlin P.A., All Rights Reserved
For more content on business law, please visit the NLR White Collar Crime & Consumer Rights section.

Appellate Court Tells CitiMortgage It Can’t Force “Repurchase” Of What No Longer Exists

A recent decision by the United States Court of Appeals for the Eighth Circuit offers some vindication for mortgage companies still facing “repurchase” demands made by the banks to which they sold residential mortgages in the years leading up to the financial crisis that began in 2007 and accelerated in 2008.  In CitiMortgage, Inc. v. Equity Bank, N.A., No. 18-1312 (8th Cir. 2019), the Eighth Circuit (which has appellate jurisdiction over the federal district courts of Arkansas, Iowa, Minnesota, Missouri, Nebraska, and the Dakotas) reached the common-sense conclusion that a plaintiff cannot require a defendant loan originator/seller to “repurchase” a loan extinguished by foreclosure.  In such a circumstance, the court reasoned, there simply is nothing left to repurchase.  In so holding, the Eighth Circuit affirmed the judgment of the United States District Court for the Eastern District of Missouri  — a court that, despite being CitiMortgage’s consistently chosen forum for repurchase and contractual indemnification claims against loan sellers, had granted summary judgment to the defendant, Equity Bank, on this issue.

The relevant factual background is as follows. CitiMortgage filed suit against Equity, demanding that Equity repurchase 12 residential mortgage loans. CitiMortgage had notified Equity that it needed to take action under the cure-or-purchase provision in the parties’ Agreement.  The Eighth Circuit affirmed the district court’s holding that Equity’s duty to repurchase was limited to the six loans that had not gone through foreclosure. For the loans that had not gone through foreclosure, the court affirmed the district court’s holding that Equity breached the Agreement. The court rejected Equity’s claims that CitiMortgage’s letters lacked the necessary detail to trigger its duty to perform, and that CitiMortgage waited too long to exercise its rights. But, as to the six loans that had gone through foreclosure, the court affirmed the district court’s holding that Equity owed nothing to CitiMortgage.

As part of its analysis detailing the reasons that Equity could not be required to repurchase loans already foreclosed upon, the Eighth Circuit faulted CitiMortgage for never explaining what, exactly, Equity was supposed to repurchase. We have regularly made that argument when defending clients against repurchase claims and likewise, have never gotten a satisfactory response as to what our client could repurchase.   Typically, in tacit acknowledgment of the merit of that argument, plaintiffs make sure to do something that the appellate court intimated CitiMortgage should have done in this case.  That is to seek instead what is usually an alternative contractual remedy, indemnification.   Perhaps because it considered the repurchase provision in its contract with Equity more likely to generate a significant damages award (this contract’s repurchase provision established a “repurchase price formula” favorable to CitiMortgage), CitiMortgage opted in this case to seek only the remedy of “repurchase.”

To be sure, a plaintiff’s decision to seek an “indemnification” remedy also creates obstacles to recovery in most cases of this type.  Among those obstacles are many of the same statute of limitations problems that parties asking for repurchase face, as well as substantial questions about the circumstances under which the party seeking indemnification incurred the liability for which it is seeking payment.  Relatedly, whether a particular alleged loan defect can fairly be said to have caused the plaintiff’s monetary loss is typically very much in question when a plaintiff aggregator seeks indemnification from a defendant loan seller. Many battles over such issues remain to be fought, but, in the meantime, the Eighth Circuit’s recognition that a party cannot repurchase what no longer exists is a welcome development for residential mortgage loan originators.

© 2019 Bilzin Sumberg Baena Price & Axelrod LLP

HUD Says “No” to DACA Recipients

For some time the mortgage industry, without success, has asked the US Department of Housing and Urban Development to provide a clear answer to the question of whether Deferred Action for Childhood Arrival (DACA) recipients are eligible for FHA loans.  HUD finally provided a clear answer in responding to an inquiry from Representative Pete Aguilar (D-CA): “DACA recipients remain ineligible for FHA loans.”

HUD policy, currently reflected in HUD Handbook 4000.1, provides that “[n]on-U.S. citizens without lawful residency in the U.S. are not eligible for FHA-insured Mortgages.”  In its letter to Representative Aguilar, HUD addresses the legal status of DACA recipients by referencing statements made by the Department of Homeland Security Secretary when DACA was established:

“In establishing DACA on June 15, 2012, Janet Napolitano, then the Secretary of Homeland Security, made clear that DACA is merely an exercise of ‘prosecutorial discretion’ and ‘confers no substantive right, immigration status or pathway to citizenship.’ Secretary Napolitano further stated that ‘[o]nly Congress, acting through its legislative authority, can confer these rights.’”

We will have to see if HUD’s reliance on the status of DACA recipients to advise that they are not eligible to receive FHA loans prompts Congress to address their immigration status.

 

Copyright © by Ballard Spahr LLP
Learn more about DACA issues on the National Law Review Immigration page.

Bank of America’s Inconsistent Positions re: Faulty Residential Mortgage-backed Securities

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Bank of America recently moved to dismiss a lawsuit filed by Ambac Assurance Corp. in New York state court, alleging $600 million in damages for fraudulent inducement in connection with payments it made under policies insuring faulty residential mortgage-backed securities issued by Countrywide. In its complaint filed at the end of 2014, Ambac claims that it insured securities in eight RMBS trusts worth $1.68 billion at the height of the housing boom from 2005 to 2007, in reliance on Countrywide securities offerings that contained false and misleading information. Ambac contends it would have never insured the transactions had it known Countrywide failed to follow strong underwriting guidelines as it claimed. The bond insurer filed a similar lawsuit against Bank of America in 2010 which is still ongoing.

BofA Launches Stones From its Glass House

MoneyIn its motion seeking dismissal, Bank of America denigrates Ambac’s lawsuit as a “sophisticatedmonoline insurer’s hindsight effort to shift blamefor its own recklessness.” Bank of America goes on to state that Ambac, having sued every major participant in the RMBS market it did business with in the years leading up to the collapse of the housing market, is now “unwilling to accept the consequences of its own losing bets.” In its heated argument for dismissal, Bank of America is also critical of Ambac for having “access to offering documents rife with relevant disclosures” and that it was “incumbent on an insurer of its size and sophistication” to conduct its own due diligence.

Like a chameleon that changes its colors to conform to the surrounding environment, Bank of America appears to be changing positions to meet the needs of each case. The use of the defenses cited above are astounding considering that Bank of America itself (which can easily be regarded as a “sophisticated” financial institution engaged in a “hindsight effort to shift blame,” because it is “unwilling to accept the consequences of its own losing bets”) has alleged in various lawsuits and pre-litigation payment demands that correspondent lenders misrepresented the quality of the loan products it structured, such as stated income loans, no doc loans, and “fast and easy” loans. Countrywide originated such loans on a retail basis, and also was a voracious purchaser from correspondent lenders and other parties during the housing boom. In these lawsuits, Bank of America engages in revisionist history by attempting to shift the blame onto correspondent lenders for its own recklessness. For each transaction, Countrywide, a bank of considerable size and sophistication, had access for years as purchaser and usually servicer, to documents that contained the same alleged “misrepresentations” and “defects” that form the very questionable basis for its lawsuits filed years later.

Correspondent lenders defending buyback lawsuits brought by Bank of America should consider the bank’s use of these key defenses as a validation of the merit of those defenses. In any such lawsuit, correspondent lenders now have an even greater ability than they already did to hold Bank of America’s strikingly inconsistent positions against it.

Recent Consumer Financial Protection Bureau (CFPB) Developments

Rules Creating Exemptions to the ATR Rule Finalized

The Consumer Financial Protection Bureau (CFPB) recently finalized rules that modified and created specific exemptions to the CFPB’s Ability-to-Repay Rule. The rules have three main effects.

  1. They exempt certain community development lenders and nonprofits—specifically those that lend only to low- and moderate-income consumers, and make 200 or fewer such loans per year—from the ATR Rule.
  2. They facilitate lending by community banks and credit unions that have less than $2 billion in assets, and make 500 or fewer first lien mortgages per year.
  3. They no longer require that compensation paid by a broker or lender to a loan originator counts towards the Dodd-Frank points and fees limits.

These changes to the ATR Rule will take effect on January 10, 2014.

Effective Date of Prohibitions on Financing Credit Insurance Premiums Delayed

The CFPB has delayed the effective date of a regulation prohibiting creditors from financing credit insurance premiums secured by a dwelling. The regulation, previously effective June 1, 2013, has been delayed until January 10, 2014. The CFPB wanted to clarify how the rule applied to transactions other than those where a lump-sum premium was added to the loan amount at closing.

CFBP Seeking Comments on Possible Revisions to the Civil Penalty Rule

The CFPB is seeking comments on possible revisions to the Consumer Financial Civil Penalty Fund Rule. The CFBP uses this fund, established by the Dodd-Frank Act, to deposit civil penalties obtained in judicial or administrative actions under federal consumer financial laws. The fund can be used to pay victims of violations of federal consumer financial laws, or, if victims cannot be found, to educate consumers and provide financial literacy programs. The rule articulates the CFPB’s interpretations of what kind of victim payments are appropriate and how to otherwise allocate the funds. Comments are due on July 8, 2013.

White Paper Concerning Overdraft Practice Concerns Published

The CFPB published a white paper concerning overdraft practice concerns and institutional practices. The paper finds that a large portion of consumer checking account revenue continues to come from overdraft fees. Furthermore, those consumers who choose, let alone use, overdraft coverage have higher costs and a higher chance of having their checking accounts involuntary closed. No action, other than further research, is currently planned.

CFPB Launches New Mortgage Rule Implementation Page

The new mortgage rule implementation page is part of an effort to help lenders comply with the Dodd-Frank Act reforms and CFPB rules. Debtors and potential debtors can find potentially useful information, including quick reference charts, video guides, manuals, etc.—related to the new 2013 mortgage rules. While the CFPB’s intention for the site is to help understand the rules, the materials are not a substitute for the rules themselves.

Ryan C. Fairchild, summer law clerk at Poyner Spruill, co-authored this article.

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Google, Microsoft Assume Roles of Judge, Jury and Executioner on the Web

Published December 6, 2011 in The National Law Review an article by Nicole Kardell of Ifrah Law regarding Google, Yahoo! and Bing have suspended their accounts with hundreds of advertisers and agents associated with mortgage programs under federal investigation:

 

 

Google, Yahoo! and Bing have suspended their accounts with hundreds of advertisers and agents associated with mortgage programs under federal investigation. The move by Google and Microsoft (Microsoft powers Bing and Yahoo!) has basically shut down these businesses: Without the vehicle of the search engines, these sites cannot effectively generate traffic.

Why did Google and Microsoft cut the cord of these companies, and is there anything the companies can do? Google and Microsoft (we’ll call them the Government’s “Judge, Jury, and Executioner” or the “Enforcers”) acted upon the request of SIGTARP, a federal agency charged with preventing fraud, waste, and abuse under TARP’s Home Affordable Modification Program. (The pressure started a while back, as we wrote last March.)

SIGTARP is investigating mortgage programs that it believes have been wrongly charging “struggling homeowners a fee in exchange for false promises of lowering the homeowner’s mortgage.”

According to a source at SIGTARP, the agency handed Google and Microsoft a list of some 125 mortgage “schemes.” Apparently, the Enforcers then took that list, identified advertisers and agents associated with those mortgage programs, and opted to suspend relations with those companies (about 500 advertisers and agents for Google and about 400 for Microsoft). (SIGTARP’s announcements on these actions can be found here andhere.)

So it looks as if these companies have been penalized through government action without any adjudicative process, merely through government pressure on private companies, i.e. Google and Microsoft. (More analysis from us on this to come.)

It’s easy to understand why the Enforcers would feel pressure. Google just settled with the Department of Justice and agreed to pay more than $500 million for its role in publishing prescription drug ads from Canada. Those familiar with that settlement may see Google’s recent actions for SIGTARP as follow-on. Likely Google is more apt to buckle to the Feds quickly because of the costly settlement, but the matters are not directly related. In fact, the prescription drug settlement agreement relates to prescription drug ads only.

While the SIGTARP investigation is “ongoing,” and Google and Microsoft are continuing to cooperate with the agency, what can companies who have been caught up in this firestorm do? The Enforcers do, fortunately, have grievance processes (see, for instance, Google’s grievance process here).

Either on their own, or with some added strength through legal representation, the companies can try to make their cases regarding the content and nature of the ads at issue.

What is the next step going to be? If the Federal Trade Commission identifies, say, a group of websites that it believes are promoting bogus weight-loss schemes, will the Enforcers simply move to shut off their access to the Web, without further ado?

© 2011 Ifrah PLLC