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During a session on June 11 at October Research, LLC’s 10th Annual National Settlement Services Summit, or NS3, a panel of industry leaders — including the man largely responsible for designing the Consumer Financial Protection Bureau’s (CFPB) new integrated mortgage disclosure forms — charted a course for implementation of what they called “a sea change for the mortgage loan origination process.”

The discussion moved from a review of how the new rules came to be, advised attendees on what they should be doing right now to prepare for the changes and previewed what is to come in the next year as the Aug. 1, 2015, implementation deadline looms.

How we got here

Richard Horn, a partner with Dentons US LP and former senior counsel and special advisor in the CFPB’s Office of Regulations — and importantly, the leader of the final rulemaking and form design — kicked off the session by offering a history of the rulemaking and a description of the consumer testing process.

In part one of this two-part series, RESPA News reviewed the history of the new RESPA/Truth in Lending Act mortgage disclosure forms. In part two, find out where we are currently with the forms and where we are headed.

Where we are

Chuck Cain, senior vice president and agency manager for WFG National Title Insurance Co.’s Midwest Region, called the Consumer Financial Protection Bureau’s (CFPB) new disclosure forms a “sea change” in the way mortgage transactions are handled and discussed the importance of managing relationships with lenders and other closing table participants — and served up some of his more sober comments with a side of comic relief.

“This is going to be a sea change,” Cain said during a June 11 session at October Research, LLC’s 10th Annual National Settlement Services Summit (NS3). “This is not going to be like the change to the 2010 HUD-1 Settlement Statement. This is not just a change in the form. This is a change in the structure of the closing process. We’re going to be in a whole new world about how things work, including a three-day period in which a borrower is going to get the opportunity to review the closing disclosure before consummation of the transaction.

Affiliated business arrangements (AfBA) are not a new concept. They have been around for approximately 30 years, and the laws governing AfBAs really have not changed during that time.

So what has changed? Why are AfBA’s such a concern right now?

The major change that has taken place in the affiliated business world in the last few years is the designation of a new regulator. The Department of Housing and Urban Development (HUD) had the authority to interpret and enforce RESPA until July 2011, when the Consumer Financial Protection Bureau (CFPB) took over.

The CFPB has already filed AfBA-related enforcements actions, and the agency is clearly on the lookout for RESPA violation connected to affiliated businesses. 

To determine whether or not your AfBA is lawful and can withstand regulatory scrutiny, you need to understand RESPA and the statute’s specific affiliated business requirements.

Sections 8(a) and (b) overview

You probably already have an idea of what RESPA Sections 8(a) and (b) are all about. Here’s a brief refresher.

Section 8(a) provides that no one can give and no one can accept a fee, kickback or thing of value pursuant to any agreement that settlement service business will be referred to any person. The agreement can be oral or even implied.

Section 8(b) states that no one can give and no one can accept a portion or split of a charge that was made or received for a settlement service other than for services actually performed.

“[What] settlement services [are] was resolved a long time ago,” said Mitchel Kider, chairman and managing partner at Weiner Brodsky Kider PC, at October Research, LLC’s 2014 National Settlement Services Summit. “It’s any service provided in connection with a real estate settlement, including, without limitation, a number of things — the origination of mortgage loans, mortgage broker services, real estate agent services and title services.”

The Consumer Financial Protection Bureau (CFPB) issued guidance regarding mortgage brokers transitioning to a “mini-correspondent” lender model. The CFPB said it is concerned that some mortgage brokers may be shifting to the mini-correspondent model under the mistaken belief that identifying themselves as such would automatically exempt them from consumer protection rules affecting broker compensation.

The guidance describes how the bureau evaluates mortgage transactions involving mini-correspondent lenders. It explains who must comply with the broker compensation rules, regardless of how they may describe their business structure.

“Before the financial crisis, consumers seeking mortgages were steered toward high-cost and risky loans that were not in the consumer’s interest,” said CFPB Director Richard Cordray. “The CFPB’s rules on mortgage broker compensation are intended to protect consumers from this type of abuse. We are putting companies on notice that they cannot avoid those rules by calling themselves by a different name.”

The Consumer Financial Protection Bureau (CFPB) issued an interpretive rule to clarify that when a borrower dies, the name of the borrower’s heir generally may be added to the mortgage without triggering the bureau’s ability-to-repay rule.

“Losing a loved one should not mean also losing your home,” said CFPB Director Richard Cordreay. “The interpretive rule makes it clear that when family members inherit property, they can take over the mortgage without jumping through unnecessary hoops. This gives heirs an opportunity to work with the lender to pay off the loan or seek a loan modification.”

The Federal Housing Administration (FHA) published a mortgagee letter reminding lenders participating in the agency’s Home Equity Conversion Mortgage (HECM) program to make certain senior borrowers are fully informed of all their options when applying for reverse mortgages.  

The FHA's mortgage letter also reinforces the agency’s prohibition against misleading or deceptive advertising and that this prohibition extends to misleading or deceptive descriptions of the HECM program.

FHA’s guidance is intended to protect HECM borrowers from misleading advertising and presentations that appear to limit their options rather than informing them of the full range of available HECM offerings.

The American Land Title Association (ALTA), the national trade association of the land title insurance industry, announced that its Board of Governors recommends that title professionals take steps to implement ALTA’s “Title Insurance and Settlement Company Best Practices” and conduct a self-assessment no later than September 2014.

“An ongoing compliance management program is essential to protecting the integrity of the real estate transaction,” said Michelle Korsmo, ALTA’s chief executive officer. “Reducing settlement risk and safeguarding consumer money has always been a keystone of the title and settlement business.”

In September 2013, the Consumer Financial Protection Bureau (CFPB) published an interim final rule that established procedures for issuing temporary cease and desist orders. On June 16, the bureau adopted the interim rule without change. The regulation takes effect on July 28.

The bureau indicated that it received one comment letter on the interim final rule, and the letter did not contain specific suggestions pertaining to the rule.

When Nick Nicholson, incoming president of the American Escrow Association, started out in the escrow business, computers were not part of the transaction. Technology has improved the process, but with new technology and a push toward e-transactions, it is important to prepare now to protect your company and your customers from cyber theft and other concerns. During October Research, LLC’s 2014 National Settlement Services Summit (NS3), he shared ways to create the model escrow office of the future.

“The industry is completely changing,” Nicholson said. “We’ve got the new integrated disclosures, e-signings, e-notarizations, e-closings. Pretty soon the consumer is going to be able to stay at home and do the entire closing.”

In fact, it is already happening in some instances. Nicholson said he was speaking at a Realtor conference, discussing the future with integrated disclosures and e-signings, and one Realtor said she had electronically closed a refinance, telling him how great it was that she could signed her and her husband’s names while her husband was in the other room watching a game.

The case of Henson v. Fidelity National Financial Inc. made waves a couple of months ago when District Judge Otis Wright decided that the phrase “for services actually performed” contained in RESPA Section 8(c)(2) refers specifically to “settlement services.”

The case is still playing out in the courts.

Most recently, plaintiff Keith Turner filed a motion to certify a class of “all persons nationwide who, in connection with a transaction involving a federally related mortgage loan in which the real estate settlement was handled by a Fidelity subsidiary, were charged an overnight delivery fee during the time when Fidelity had an agreement with FedEx, UPS or OnTrac.”

A Michigan state court dismissed a borrower’s state-law claims because her RESPA claim was pending in federal court. The appeals court reversed and remanded the decision.

Toyna Knight obtained a loan from Prime Financial in September 2007 to purchase real property located in Michigan. She executed a note and granted a mortgage to Prime, and Bank of America NA (BofA) was assigned to service the note.

Knight alleged that when she received her bank statement in December 2009, the account number listed for her loan had been changed. She sent a QWR to BofA, requesting information about a change to her account.

When a mortgage loan borrower filed suit against her servicer for failing to respond to her qualified written request (QWR), a federal appeals court determined that her letters were not valid QWRs because they were mailed to the wrong address.

According to the court, Patricia Roth has been in default on her mortgage loan since September 2008. In April 2011, Roth’s attorney sent two letters to CitiMortgage, requesting specific information about her mortgage. The letters both stated that they were QWRs. CitiMortgage replied to the letters, acknowledging the questions regarding servicing, but noting that Roth’s immediate concern was obtaining financial assistance. Roth’s attorney sent another QWR, stating that CitiMortgage’s response did not comply with RESPA.

The Consumer Financial Protection Bureau (CFPB) proposed a new policy that would allow consumers to publicly complain about financial products and services by sharing their personal account of an incident on the bureau’s online Consumer Complaint Database. 

The bureau said that publishing consumer narratives would provide important context to the complaint, help the public detect specific trends in the market, aid consumer decision-making, and drive improved consumer service.

“The consumer experience shared in the narrative is the heart and soul of the complaint,” said CFPB Director Richard Cordray. “By publicly voicing their complaint, consumers can stand up for themselves and others who have experienced the same problem. There is power in their stories, and that power can be put in service to strengthen the foundation for consumers, responsible providers and our economy as a whole.”

Consumer Financial Protection Bureau (CFPB) Director Richard Cordray testified before the House Financial Services Committee on June 18 for a hearing titled “The Semi-Annual Report of the Consumer Financial Protection Bureau.” During the hearing, Rep. Ed Royce, R-Calif., noted that he has been hearing criticisms that the CFPB is conducting regulation of financial products and services through enforcement actions and guidance bulletins rather than through notice and comment rulemakings.

“I’ve been told that other federal agencies often enlist the use of advisory opinions to help businesses seeking clarifications on specific practices,” Royce said. “Would the CFPB consider issuing similar advisory opinions? Because then you might have them know on the front end exactly what was expected and what wasn’t.”

In a 71-26 vote, the Senate confirmed the nomination of Julian Castro as the new Department of Housing and Urban Development (HUD) secretary on July 9.

Castro will replace the current HUD Secretary, Shaun Donovan, who President Obama nominated as the new director of the White House Office of Management and Budget (OMB).

The Justice Department (DOJ), Department of Housing and Urban Development (HUD), and the Consumer Financial Protection Bureau (CFPB), along with 49 state attorneys general and the District of Columbia’s attorney general have reached a $968 million agreement with SunTrust Mortgage Inc. to address mortgage origination, servicing and foreclosure abuses.  

The joint agreement is the result of investigations by federal agencies, including the DOJ, HUD and the HUD Office of the Inspector General (HUD-OIG), CFPB and state attorneys general across the country, and includes recoveries for both improper mortgage origination and servicing practices. 

“SunTrust’s conduct is a prime example of the widespread underwriting failures that helped bring about the financial crisis,” Attorney General Eric Holder said. “From mortgage origination to servicing to securitization, the DOJ is attacking every facet of conduct that led to the Great Recession. We will continue to hold accountable financial institutions that, in the pursuit of their own financial interests, misuse public funds and cause harm to hardworking Americans. We expect that there will be more cases like this to come.”

Tammy Dickinson, U.S. Attorney for the Western District of Missouri, announced that a former deputy of the Los Angeles County, Calif., Sheriff’s Department has been sentenced in federal court for his role in an $11 million mortgage fraud scheme.

Arman Nshanian was sentenced by U.S. District Judge Greg Kays to three years and six months in federal prison without parole. The court also ordered Nshanian to pay $785,926 in restitution.

On July 28, Julián Castro was sworn in as the 16th Secretary for the Department of Housing and Urban Development (HUD). The brief swearing-in ceremony took place at HUD headquarters in Washington, D.C., and was administered by Chief Judge Richard Roberts of the U.S. District Court for the District of Columbia. HUD Chief of Staff Nealin Parker held the Bible during the ceremony.

Castro will now lead HUD in carrying out its mission of creating opportunity for all Americans through strong, sustainable, inclusive communities and quality affordable homes. In this role, Castro oversees 8,000 employees and a budget of $46 billion, using a performance-driven approach to achieve the department’s mission.

After a six-day trial in a mortgage fraud case, a federal jury found Leonard Williams guilty of conspiracy to commit mail and wire fraud and two counts of money laundering, U.S. Attorney Benjamin Wagner announced. The trial was held before U.S. District Judge William Shubb.

According to evidence presented at trial, from late 2006 into 2008, Williams conspired with others to carry out a mortgage fraud scheme using his companies, Diamond Hill Financial and Bay Area Real Estate Holdings. The scheme resulted in the issuance of more than $2 million in home loans, with most of the buyers ultimately defaulting.

An Ocean County, N.J., man who previously admitted his role in a $40.8 million mortgage fraud conspiracy in which he used his position as a loan officer of Wells Fargo Home Mortgage Inc. to get the company to release more than $4.6 million based on fraudulent mortgage loan applications, was sentenced to two years in prison.

Robert Serao, 48, of Bayville, N.J., pleaded guilty before U.S. District Judge Joseph Irenas in March to a charge of conspiracy to commit wire fraud. He is the 10th defendant to plead guilty in the case.

A couple who defaulted on their mortgage loan sued the holder of their note for violations of the Truth in Lending Act (TILA), arguing that the defendant failed to provide the proper disclosures. The lower court agreed with the couple, finding that rescission was available as long as the couple tendered the remaining loan funds within 90 days. The couple appealed the decision, and the appeals court affirmed the lower court’s decision.

Wilson and Joan Iroanyah closed on two loans with defendant Taylor Bean & Whitaker Mortgage Corp. in November 2006 and used their home as security. One loan was assigned to defendant Bank of New York Mellon and the second was assigned to defendant Bank of America NA (BofA).

A Strongsville, Ohio, real estate agent was sentenced to more than 10 years in prison for his role in a $3.3 million mortgage fraud scheme involving six properties in Medina, Ohio, said Steven Dettelbach, U.S. Attorney for the Northern District of Ohio.

Thomas France was sentenced to 125 months in prison and ordered to pay more than $3 million in restitution. He was previously found guilty of conspiracy and bank fraud.

Citigroup Inc. will pay $7 billion — including a record $4 billion civil penalty — to resolve federal and state claims related to the bank’s conduct in the packaging, securitization, marketing, sale and issuance of residential mortgage-backed securities (RMBS) in the lead up to the financial crisis.

As part of the settlement, announced July 14 by the Justice Department, Citigroup acknowledged it made serious misrepresentations about the mortgage loans it securitized in RMBS. The resolution also requires Citigroup to provide relief to underwater homeowners, distressed borrowers and affected communities through a variety of means including financing affordable rental housing developments for low-income families in high-cost areas.