Magazine article Mortgage Banking

2014's Compliance Cornucopia: A Quick Look in the Rear-View Mirror at Last Year's Court Rulings and Regulatory Actions Affecting the Mortgage Industry from States Far and Wide

Magazine article Mortgage Banking

2014's Compliance Cornucopia: A Quick Look in the Rear-View Mirror at Last Year's Court Rulings and Regulatory Actions Affecting the Mortgage Industry from States Far and Wide

Article excerpt

"Legal and compliance" are terms that have dominated risk-management conversations in the mortgage industry for nearly a decade, and continued to do so in 2014. After the financial crisis and implementation of the Dodd-Frank Wall Street Reform and Consumer Protection Act, the sheer amount of regulatory change has challenged lenders of all sizes and in all locations, regardless of their product mix or distribution strategies. [paragraph] Looking in the rear-view mirror, 2014 reflects continuing (and increasingly novel) challenges to foreclosures, ranging from "show me the note" to defenses based on lack of good faith and fair dealing by servicers. Lenders and servicers face an avalanche of litigation on force-placed insurance, loan modification and loss-mitigation issues. Fair lending litigation hasn't ebbed, either, with emerging discrimination theories being tested by plaintiffs, consumer advocates and the administration. Piling on, the elephant in the room is unfair, deceptive or abusive acts or practices (UDAAP)--an imprecise standard that presages an unpredictable enforcement culture based on "abusive" acts and practices. [paragraph] Finally, licensing, despite the streamlined uniformity promised by the Nationwide Mortgage Licensing System (NMLS[R]), continues to be resource-intensive and expensive, and a deep font of regulatory penalties.

As a longtime observer of the mortgage regulatory environment and legal adviser to lenders, I predict legal and regulatory ramp-up will continue, as the aforementioned issues work their way through the system and new challenges emerge. Future regulatory targets may include data breaches in the mortgage industry, migration of credit transacting to social media, loan payments and fees via mobile payments, and even mortgage lending involving virtual currencies such as Bitcoin.

What follows is a sampling of 2014 state regulatory developments and important state court decisions; some you may know, some not.

There is good news and bad news here, but a truism in mortgage compliance is that knowledge is power--because you can't adapt to what you don't know.

Around the states

Arizona's anti-deficiency law won't constrain lenders that foreclose unoccupied homes owned by home builders, despite a law protecting owners of one- to two-unit family dwellings from deficiency judgments. This protection won't apply if a property is owned by a home builder and mortgaged after Dec. 31, 2014, for construction of a home intended for sale, or if the property wasn't completed or occupied before foreclosure.

The Arkansas Supreme Court held that a first-mortgage foreclosure does not terminate a condominium association's interest in unpaid assessments. Unlike 20 other states, Arkansas does not have a superpriority lien law for unpaid assessments, but the Arkansas Supreme Court affirmed a circuit court ruling that a foreclosure purchaser is jointly and severally liable with the seller for assessments owed by the seller up to the time of conveyance. A foreclosing lender is jointly liable with the former owner for unpaid assessments accruing before foreclosure.

Colorado outlawed dual-tracking of foreclosure and loss mitigation; homeowners can halt foreclosures while pursuing loss-mitigation efforts. A borrower with a completed loss-mitigation application may request the public trustee stop a foreclosure sale. Servicers must appoint a single point of contact (SPOC) for delinquent borrowers.

Connecticut residential mortgage servicers will be licensed by the Department of Banking, effective Jan. 1, 2015. Banks, credit unions and certain operating subsidiaries are exempt, but transfer of servicing disclosures and servicing-related fee schedules apply to them.

Borrowers in Connecticut are entitled to plain-English fee schedules. Servicers may not misapply loan payments, insure property when the borrower has insurance, collect private mortgage insurance (PMI) after it is no longer required, retain unearned insurance premiums or fail to issue satisfactions. …

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