Mortgage Banking Update - November 30, 2012

Ballard Spahr LLP

[Authors: Richard J. Andreano, Jr., John D. Socknat, Michael S. Waldron]

CFPB and FTC Announce Joint Action Against Mortgage Advertisers

Mortgage advertisers are being urged to review their marketing materials in warning letters recently sent to them by the CFPB and FTC. The agencies say the intent of the letters is to ensure that such materials comply with the Mortgage Acts and Practices-Advertising Rule (Regulation N) and other applicable law. The CFPB and FTC discussed the letters during a November 19, 2012, press call with members of the media.

The CFPB indicated that it sent letters to about a dozen mortgage lenders and brokers and is investigating six companies whose violations may be more serious. The FTC indicated that it sent letters to 20 companies and has also opened investigations.

The agencies’ actions followed a joint review of about 800 ads across the country for mortgage loans, refinancings, and reverse mortgages that appeared in a variety of media, including websites, Facebook, direct mail, and newspapers. Some of the ads were brought to the agencies’ attention by complaining consumers. According to the CFPB, its review focused on ads by mortgage lenders and brokers targeting older Americans or veterans, while the FTC’s review focused on ads by home builders, real estate professionals, and lead generators.

Examples of the types of problems the CFPB and FTC identified in the ads included potential
misrepresentations about government affiliation, inaccurate or misleading promotions of low interest rates, misleading statements about the costs of reverse mortgages, and
misleading advertisements suggesting pre-approval to receive a certain amount of money in connection with a refinancing or reverse mortgage.

Ballard Spahr will host a webinar, "Advertising Dos and Don'ts for Mortgage Lenders and Brokers," on December 6, 2012, from 12:00 to 1:00 PM ET.

- Richard J. Andreano, Jr.

Temporary Exemptions Adopted for Mortgage Disclosures

As expected, on November 16, 2012, the Consumer Financial Protection Bureau adopted a temporary exemption for certain mortgage disclosure requirements added by the Dodd-Frank Act. This exemption will allow the disclosures to be implemented along with the proposal to integrate the Real Estate Settlement Procedures Act and Truth in Lending Act disclosures. Without the temporary exemption, the disclosures would be required as of January 21, 2013.

When the CFPB issued in July its massive proposal to integrate the RESPA and TILA disclosures, it also proposed to temporarily exempt the mortgage industry from compliance with 12 new disclosures the Dodd-Frank Act added to RESPA and TILA. This approach would avoid the need for the CFPB to amend the existing RESPA and TILA documents to incorporate the new disclosures by January 21, 2013, only to replace the existing disclosures a short time later with the new integrated disclosures. Thus, the approach saves both time and money for the CFPB and the industry, and avoids potential consumer confusion and costs. The approach also affords the CFPB the opportunity to assess the new disclosures in connection with consumer testing of the integrated disclosures. Dodd-Frank imposes no deadline for the adoption of the integrated disclosures.

The temporary exemption applies to the following disclosures (the first is under RESPA and the remaining ones are under TILA):

  • Appraisal management fee optional disclosure
  • Negative amortization feature warning
  • State anti-deficiency protection disclosure
  • Partial payment acceptance policy disclosure
  • Mandatory escrow account disclosure
  • Waiver of escrow at consummation disclosure
  • Monthly payment disclosure for a variable rate loan with an escrow account
  • Repayment analysis disclosure of monthly payment (with escrow payment)
  • Settlement charges disclosure
  • Mortgage originator fees disclosure
  • Wholesale rate disclosure
  • Total interest as a percentage of principal disclosure

The disclosures are reflected in the proposed Loan Estimate and/or proposed Closing Disclosure that are the centerpiece of the integrated mortgage disclosure proposal. Based on consumer testing, however, the CFPB is considering not adopting the last two of the listed disclosures, and it requested comment on this consideration.

We will be closely following the rulemaking efforts of the CFPB in connection with the integrated disclosures, and the broader mortgage loan provisions of Dodd-Frank Title XIV.

- Richard J. Andreano, Jr.

Fourth Circuit Rejects FDCPA Challenge to Prerecorded Calls Seeking Location Information

The U.S. Court of Appeals for the Fourth Circuit recently affirmed, in an unpublished opinion, a district court's entry of summary judgment in favor of a debt collector that was sued by the debtor’s brother-in-law over the collector’s repeated prerecorded calls to him. The plaintiff claimed that the calls, which the collector made in an effort to locate the debtor, violated the Fair Debt Collection Practices Act (FDCPA).

The FDCPA provides that when communicating with a third party to obtain location information, a debt collector may not do so more than once without a request by that party, unless the debt collector "reasonably believes" that the initial response was erroneous or incomplete, and that the third party has correct or complete location information. In Worsham v. Account Receivable Management, Inc., the Fourth Circuit found, even assuming the debt collector's calls constituted “communications” (an issue the Fourth Circuit did not decide), there was no violation of the FDCPA.

The Fourth Circuit held there was no material issue of fact concerning the reasonableness of the debt collector's belief that the plaintiff (1) had given an incomplete response by pressing a number to indicate he was not the debtor and then hanging up the phone before speaking with the collector's live representative, and (2) would know the debtor's location based on his phone number appearing as a possible contact. Accordingly, the Fourth Circuit found that the debt collector was entitled to summary judgment on the plaintiff's claim that the collector had violated the FDCPA by calling him more than once to obtain location information.

The plaintiff had also alleged that the debt collector's calls violated the FDCPA's prohibitions on third-party communications and placing calls without meaningful disclosure of the caller's identity. The Fourth Circuit found that summary judgment was properly granted on these claims because both FDCPA prohibitions include an exception for calls seeking location information permitted by the FDCPA.

The plaintiff did not appeal the district court's summary judgment ruling on his claim that the calls violated the Telephone Consumer Protection Act. The Federal Trade Commission has ruled that the TCPA's prohibition on prerecorded calls to residential phone lines excludes debt collection calls and, based on the FCC's ruling, the district court had granted the debt collector's motion for summary judgment on the TCPA claim. But the plaintiff did appeal the ruling on his claim that the calls violated the Maryland Telephone Consumer Protection Act. The Fourth Circuit found that summary judgment was properly granted on this claim because the Maryland statute did not create a cause of action based on the TCPA violation alleged by the plaintiff.

Lawyers in Ballard Spahr's Consumer Financial Services Group regularly consult with their clients engaged in consumer debt collection on compliance with the FDCPA and state debt collection laws. The group also has vast experience in defending all manner of TCPA lawsuits, and has counseled a number of clients on establishing auto-dialing and monitoring protocols.

Last month, the Consumer Financial Protection Bureau issued its final rule defining larger participants of a market for consumer debt collection. The rule is effective January 2, 2013, and the CFPB is expected to begin examinations of qualifying entities then or soon thereafter. Our Consumer Financial Services Group has created a team of lawyers who have already conducted compliance reviews for debt collectors and debt buyers in anticipation of their first CFPB examinations.

- Barbara S. Mishkin

Welcome to Glen Trudel

We are pleased to welcome Glen P. Trudel, a noted consumer financial services and banking lawyer, as our new partner in Wilmington, Delaware. Glen's arrival expands Ballard Spahr's already formidable consumer financial services and banking regulatory capabilities into one of the nation’s important financial centers.

As a member of our Consumer Financial Services Group, Glen will counsel financial institutions on regulatory and transactional matters. He has significant experience in the acquisition and divestiture of credit card and other financial portfolios. He also advises state and federal banking entities on formation and licensing issues in Delaware and on operational and outsourcing issues.

Glen joins us from the Wilmington office of Connolly Bove Lodge & Hutz LLP, where he was a partner. He is a former Senior Vice President and Counsel at MBNA America Bank, N.A. (now part of Bank of America), where his work focused on affinity and joint marketing agreements, credit card portfolio acquisitions, and federal and state regulatory matters.

Arizona Establishes Mortgage License Conversion Processes

Arizona recently established processes for the conversion of certain mortgage licenses. New Department of Financial Institution regulations allow Mortgage Broker licensees to convert their license to a Commercial Mortgage Broker License. Additionally, the new regulations provide the process for conversion of a Mortgage Banker License to a Mortgage Broker License. These regulations become effective December 2, 2012.

Matthew Saunig

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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