Alston & Bird Consumer Finance Blog

Consumer Loan

Georgia Amends its Residential Mortgage and Installment Loan Laws

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A&B Abstract:

On May 2, 2022, Georgia Governor Brian Kemp signed HB 891 and SB 470 into law.  HB 891, effective July 1, 2022, updates various laws enforced by the Georgia Department of Banking and Finance (the “Department”) including, among other things, by amending (1) certain exemptions from licensure under the Georgia Residential Mortgage Act (“GRMA”), and (2) the Georgia Installment Loan Act (“GILA”) to impose a new licensing obligation to service installment loans subject to the GILA.   Similarly, SB 470, which took effect immediately, amends the GRMA’s provisions regarding felony restrictions for employees of mortgage licensees.

Changes to Licensing of Mortgage Lenders and Brokers

HB 891 made several changes to Title 7 of the Georgia Code, including several amendments to the GRMA, but perhaps one of the most notable changes with respect to mortgage lending involves the creation of a new exemption from licensure under the GRMA for persons holding loans for securitization into a secondary market.  Specifically, as of July 1, 2022, any person who purchases or holds closed mortgage loans for the sole purpose of securitization into a secondary market, is expressly exempt from licensing, provided that such person holds the individual loans for less than seven days. Note that the statute further defines “person” as any individual, sole proprietorship, corporation, LLC, partnership, trust, or any other group, however organized. As written, the new exemption language suggests that persons holding loans as part of the securitization process for longer than 7 days could not rely on the exemption. Note that the GRMA’s existing definition of a “mortgage lender” includes a “person who directly or indirectly…holds, or purchases mortgage loans” and the GRMA contains an existing exemption for any person who purchases mortgage loans from a mortgage broker or mortgage lender solely as an investment and who is not in the business of brokering, making, purchasing, or servicing mortgage loans.

HB 891 also amended an existing exemption from licensure applicable to certain natural persons under an exclusive written independent contract agreement with a mortgage broker who is, or is affiliated with, an insurance company or broker dealer. Under the exemption, as amended, a natural person otherwise required to be licensed is exempt from licensure as a mortgage lender or broker, when under an exclusive written independent contractor agreement with a licensed mortgage broker, so long as the mortgage broker satisfies certain expanded criteria, including, among others  (1) maintaining an active mortgage broker license, (2) maintaining full and direct financial responsibility for the mortgage activities of the natural person, (3) maintaining full and direct responsibility for the natural persons education, handling of consumer complaints, and supervision of the natural person’s mortgage activities, (4) having listed securities for trade and meeting certain market capitalization requirements, (5) being licensed as an insurance company or registered as a broker-dealer, and (6) being licensed as a mortgage lender or broker in ten or more states. The exemption previously applied to certain natural persons employed by the subsidiary of certain financial holding companies. Notably, to maintain the exemption, the natural person must, among other things (1) be licensed as a mortgage loan originator in Georgia and work exclusively for the licensee, the parent company if the licensee is a wholly owned subsidiary, or an affiliate of the licensee if both the affiliate and licensee are wholly owned subsidiaries of the same parent company, and (2) be licensed as an insurance agent or registered as a broker-dealer agent on behalf of the licensee, the parent company if the licensee is a wholly owned subsidiary, or an affiliate of the licensee if both the affiliate and licensee are wholly owned subsidiaries of the same parent company.

HB 891’s amendments to the GRMA’s licensing provisions follow SB 470, which provided welcome changes to the GRMA’s felony restrictions. As amended, Georgia law now provides that the Department may not issue or may revoke a license or registration if it finds that the mortgage loan originator, broker, or lender, or any person who is a director, officer, partner, covered employee or ultimate equitable owner of 10% or more of the mortgage broker or lender or any individual who directs the affairs or establishes policy for the mortgage broker or lender applicant, registrant, or licensee, has been convicted of a felony in any jurisdiction or of a crime which, if committed in Georgia, would constitute a felony under Georgia law.  Previously, Georgia law arguably prohibited a licensee from retaining any individual convicted of a felony that could be deemed an employee or agent of the licensee. As amended, the employee restriction is relaxed to apply only to a “covered employee,” a newly defined term that means an employee of a mortgage lender or broker “involved in residential mortgage loan related activities for property located in Georgia and includes, but is not limited to, a mortgage loan originator, processor, or underwriter, or other employee who has access to residential mortgage loan origination, processing, or underwriting information.” Notably, the restriction no longer applies to an “agent” of a licensee.

Changes to Installment Loan Licensing

HB 891 also amended the GILA to require licensure for persons engaged in servicing of installment loans.  Before the amendments, the GILA only imposed a licensing obligation on persons who advertise, solicit, offer, or make installment loans to individuals in amounts of $3,000 or less.  As amended, any person that services installment loans made by others, excluding loans made by affiliated entities, is also required to obtain a license. HB 891’s amendments also added a number of new exemptions from licensure, including for (1) retail installment transactions engaged in by retail installment sellers and retail sellers, as those terms are defined, and (2) transactions in which a lender offers a consumer a line of credit of more than $3,000 but the consumer utilizes $3,000 or less of the line, so long as there are no restrictions that would limit the consumer’s ability to utilize more than $3,000 of the line at any one time. Additionally, the GILA’s provisions relating to tax on interest has been repealed and reenacted and now requires that installment lenders remit to the Department a fee of 0.125 percent of the gross loan amount on each loan made on or after July 1, 2022, and such fee becomes due on the making of any loan subject to the GILA. This revised fee replaces the prior fee of three (3) percent of the total amount of interest on any loan collected. The statute clarifies that the per loan fee must be paid by the licensee and cannot be passed through to the borrower as an additional itemized fee or charge. The method by which a licensee pays the fee is subject to further clarification via Department regulations.

Takeaway

Mortgage lenders and brokers should review the GRMA, as amended, to determine whether, and if so how, the amendments impact their licensing obligations or their policies with respect to employee background checks in Georgia. Additionally, entities servicing installment loans subject to the GILA, which are originated by non-affiliates, must now obtain a license. Licensees should also take note of the new per loan fee requirements in lieu of prior tax payment regulations.

New CFPB Chief Rohit Chopra Confirmed by Senate and Takes Immediate Action Against Big Tech Firms

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A&B Abstract:

On September 30, 2021, the Senate confirmed Rohit Chopra to serve as director of the Consumer Financial Protection Bureau (CFPB) in a 50-48 vote along party lines. He had been serving as a member of the Federal Trade Commission (FTC) where he had been a vocal critic of big tech companies and advocated for increased restitution for consumers. He previously served as the CFPB’s private education loan ombudsman under former CFPB Director Richard Cordray. Prior to that, he had worked closely with Sen. Elizabeth Warren on the CFPB’s establishment. Consistent with his past practices, Chopra’s CFPB has now ordered six Big Tech companies to turn over information regarding their payment platforms.

Expectations for Chopra’s CFPB

President-elect Biden announced Chopra as his choice to lead the CFPB before Inauguration Day, and the Biden Administration subsequently referred his nomination to the Senate in February. Chopra succeeds Kathy Kraninger, who became Director in December 2018 after having served as a senior official at the Office of Management and Budget. She led the CFPB for two years before the incoming Biden Administration demanded her resignation on January 20. It is expected that Chopra will aggressively lead the CFPB and unleash an industry crack down. The October 21, 2021 order issued to Big Tech regarding payment products appears to be the first step in that plan. Additionally, credit reporting companies, small-dollar lenders, debt collectors, fintech companies, the student loan industry, and mortgage servicers are among the financial institutions expected to face scrutiny from Chopra’s CFPB. Prior to the Big Tech inquiry, the CFPB, under interim leadership, had already taken initial steps to implement pandemic-era regulations and to advance the Biden administration’s priorities. It is also expected that the enforcement practices under former-Director Cordray will be revived under a Chopra-led CFPB.

After his confirmation, Chopra stated an intent to focus on safeguarding household financial stability, echoing prior statements regarding his commitment to ensuring those under foreclosure or eviction protections during the pandemic are able to regain housing security. He has also declared an intent to closely scrutinize the ways that banks use online advertising, as well as take a hard look at data-collection practices at banks. In his remarks related to the market-monitoring order issued to Big Tech, Chopra was critical of the way companies may collect data and his concern that it may be used to “profit from behavioral targeting, particularly around advertising and e-commerce.”

Just one week later, Chopra delivered remarks in his first congressional hearing as Consumer Financial Protection Bureau director. In his prepared statements before both the House Committee on Financial Services and the Senate Committee on Banking, Housing, and Urban Affairs, he cited mortgage and rent payments, small business continuity, auto debt, and upcoming CARES Act forbearance expirations as problems he plans to address. He also stated an intent to closely monitor the mortgage market and scrutinize foreclosure activity. And, echoing his action from a week earlier, Chopra reiterated an intent to closely look at Big Tech and emerging payment processing trends. Chopra also noted a lack of competition in the mortgage refinance market and stated an intent to promote competition within the market.

Although appointed to a five year term, the CFPB director serves at the pleasure of the president after a landmark decision last year from the Supreme Court.

Takeaway

Industry participants, including credit reporting companies, small-dollar lenders, debt collectors, fintech companies, the student loan industry, and mortgage lenders and servicers can anticipate additional scrutiny in the coming months and years from the CFPB. As Chopra gets settled into his new role, we will be keenly watching where he turns his attention to next.

Biden-Harris Administration Announces Extension of COVID-19 Foreclosure Moratorium

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A&B Abstract:

Today, the Biden Administration announced an extension of the foreclosure moratorium for federally-backed mortgage loans (the “Presidential Announcement”). To implement the Presidential Announcement, the federal agencies (i.e., HUD/FHA, USDA, and VA) and GSEs (i.e., Fannie Mae and Freddie Mac) have announced (or are anticipated to announce) extensions of the foreclosure moratorium until July 31, 2021.

Presidential Announcement

According to the Presidential Announcement, the three federal agencies that back mortgages – the Department of Housing and Urban Development (HUD), Department of Veterans Affairs (VA), and Department of Agriculture (USDA) – will extend their respective foreclosure moratorium for one, final month, until July 31, 2021. Similarly, the Federal Housing Finance Agency (FHFA) will announce that it has extended the foreclosure moratorium for mortgages backed by Fannie Mae and Freddie Mac until July 31, 2021.

The Presidential Announcement goes on to provide that once the moratoria end, HUD, VA, and USDA will take additional steps to prevent foreclosures on mortgages backed by those agencies until borrowers are reviewed for COVID-19 streamlined loss mitigation options that are affordable, while FHFA will continue to work with Fannie Mae and Freddie Mac to ensure that borrowers are evaluated for home retention solutions prior to any referral to foreclosure.

In addition, the Presidential Announcement notes that HUD, VA, and USDA will also continue to allow homeowners who have not taken advantage of forbearance to date to enter into COVID-related forbearance through September 30, 2021, while homeowners with Fannie Mae or Freddie Mac-backed mortgages who have COVID-related hardships will also continue to be eligible for COVID-related forbearance.

Finally, the Presidential Announcement indicates that HUD, VA, and USDA will be announcing additional steps in July to offer borrowers payment reduction options that will enable more homeowners to stay in their homes.

Federal Agency and GSE Announcements

In addition to the foregoing, the USDA and the GSEs issued the following guidance today implementing the Presidential Announcement:

  • USDA:  Today, the USDA issued a brief press release announcing a one-month extension, through July 31, 2021, of the moratorium on foreclosure from properties financed by USDA Single-Family Housing Direct and Guaranteed loans. Beyond July 31, 2021, the USDA indicated that it would continue to support homeowners experiencing financial hardship due to the pandemic by making loss mitigation options available to help keep them in their homes.
  • Fannie Mae LL-2021-02:  Today, Fannie Mae updated LL-2021-02 to extend the moratorium on foreclosures with respect to Fannie Mae loans through July 31, 2021.  Specifically, servicers must continue the suspension of the following foreclosure-related activities through July 31, 2021. Servicers may not, except with respect to a vacant or abandoned property: (1) initiate any judicial or non-judicial foreclosure process, (2) move for a foreclosure judgment or order of sale, or (3) execute a foreclosure sale.  All other guidance set forth in LL-2021-02 remains the same.
  • Freddie Mac Guide Bulletin 2021-23:  Similarly, today Freddie Mac issued Guide Bulletin 2021-23, which announces an extended effective date for the COVID-19 foreclosure moratorium.  Specifically, Freddie Mac is extending the foreclosure moratorium last announced in Guide Bulletin 2021-8. Servicers must suspend all foreclosure actions, including foreclosure sales, through July 31, 2021. This includes initiation of any judicial or non-judicial foreclosure process, motion for foreclosure judgment or order of sale. This foreclosure suspension does not apply to mortgages on properties that have been determined to be vacant or abandoned.

As of today, we are not aware of any formal announcement by HUD or VA regarding the implementation of the Presidential Announcement. However, we anticipate that both HUD and VA will issue guidance consistent with the above announcement in short order.

Takeaway 

The takeaway from today’s announcements is that, except with respect to vacant and abandoned properties, all foreclosure-related activities that could constitute the initiation of any judicial or non-judicial foreclosure process, movement for a foreclosure judgement or order of sale, or execution of a foreclosure sale should continue to be paused until the expiration of the extended foreclosure moratorium.  Moreover, the Presidential Announcement suggests that additional guidance will be issued by the federal agencies permitting borrowers who have not yet taken advantage of a COVID-19 forbearance to do so through September 30, 2021 and announcing additional steps in July to offer borrowers additional payment reduction options to enable more homeowners to stay in their homes. Accordingly, servicers should continue to monitor for any additional guidance from the federal agencies and GSEs regarding the foreclosure moratorium or other COVID-19-related borrower relief.

FTC Seeks Comment on Proposed Changes to FCRA Rules for Motor Vehicle Dealers

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A&B ABstract: The FTC is seeking public comment on proposed changes to five FCRA rules aimed at clarifying that these rules, as promulgated by the FTC, apply only to motor vehicle dealers, as equivalent rules promulgated by the CFPB will apply to other entities.

The Federal Trade Commission (“FTC”) has announced it is seeking public comment on proposed changes to existing rules implementing parts of the Fair Credit Reporting Act (“FCRA”). According to the FTC, the proposed changes would clarify that five FCRA rules promulgated by the FTC apply only to motor vehicle dealers.

This clarification is needed because after the Dodd-Frank Act transferred to the Consumer Financial Protection Bureau (“CFPB”) the FTC’s rulemaking authority under certain portions of the FCRA, the FTC rescinded several of its FCRA rules, which had been replaced by rules issued by the CFPB. However, the FTC retained rulemaking authority for other rules to the extent the rules apply to motor vehicle dealers (as defined in the Dodd-Frank Act) that are predominantly engaged in the sale and servicing of motor vehicles, the leasing and servicing of motor vehicles, or both.

In particular, the rule changes (each of which are addressed in separate Notices of Proposed Rule Making) would apply to the following five rules:

  1. The Address Discrepancy Rule (16 CFR Part 641), which outlines the obligations of users of consumer reports when they receive a notice of address discrepancy from a nationwide consumer reporting agency (“CRA”);
  2. The Affiliate Marketing Rule (16 CFR Part 680), which gives consumers the right to restrict a person from using certain information obtained from an affiliate to make solicitations to the consumer;
  3. The Furnisher Rule (16 CFR Part 660), which requires entities that furnish information to CRAs to establish and implement reasonable written policies and procedures regarding the accuracy and integrity of the information relating to consumers provided to a CRA;
  4. The Pre-screen Opt-Out Notice Rule (16 CFR Parts 642 and 698), which outlines requirements for those who use consumer report information to make unsolicited credit or insurance offers to consumers; and
  5. The Risk-Based Pricing Rule (16 CFR Part 640), which requires those who use information from a consumer report to offer less favorable terms to consumers to provide them with a notice about the use of such data.

Each of these FTC rules, as revised, will be limited in scope to apply only in relation to motor vehicle dealers, subject to certain exceptions, and those persons and entities originally covered by these rules who are not motor vehicle dealers remain subject to similar rulemakings promulgated by the CFPB. For example, with regard to the Pre-screen Opt-Out Notice Rule, the proposed amendment would replace the general term “person” with the term “motor vehicle dealers,” as defined, thus narrowing the scope of the rule to entities that are “predominantly engaged in the sale and servicing of motor vehicles, excluding those dealers that directly extend credit to consumers and do not routinely assign the extensions of credit to an unaffiliated third party.” The proposed rule amendments also reinstate certain model notices that are otherwise identical to the CFPB’s model notices applicable to certain entities that are not motor vehicle dealers.

Additionally, the FTC is seeking comment on the effectiveness of these five rules including the following considerations:

  • whether there is a continuing need for specific provisions of each rule;
  • the benefits each rule has provided to consumers;
  • what modifications, if any, should be made to each rule to benefit consumers and businesses; and
  • what modifications, if any, should be made to each rule to account for changes in relevant technology or economic conditions.

Takeaways: These proposed amendments to the relevant FCRA rules will serve to clarify the distinction between the rules applicable to motor vehicle dealers – promulgated by the FTC ­– and rules applicable to other entities, which have been issued by the CFPB.  Comments on these issues must be submitted to the FTC within 75 days from the date the notices of proposed rulemaking are published in the Federal Register. Instructions on how to file comments will be included in the notices published in the Federal Register.

New York Laws Require Forbearance for Private Mortgage Loans During COVID Emergency

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A&B ABstract

On June 17, 2020, New York Governor Andrew Cuomo signed into law two measures, effective immediately, providing for mortgage forbearances for privately backed residential mortgage loans during the COVID-19 emergency. Senate Bill 8243 (2020 N. Y. Laws 112) amends the N. Y. Banking Law by adding new Section 9-x, “Mortgage Forbearance.”  Senate Bill 8428 (2020 N. Y. Laws 126) relates to state disaster emergency and, among other provisions, amends Section 9-x as added by Senate Bill 8243. These measures apply during the covered period, beginning on March 7, 2020 and ending when no Executive Order issued in response to the COVID-19 pandemic relating to restricting public or private businesses or required postponement or cancellation of all non-essential gatherings of individuals apply in the county of the borrower’s residence.

Mortgage Forbearance

New Section 9-x of the Banking Law imposes new requirements on any New York regulated banking organization, including banks, trust companies, private bankers, savings banks, savings and loan associations, credit unions, and investment companies) and regulated mortgage servicers  (collectively, “regulated entities”)subject to supervision by the New York Department of Financial Services (the “Department”).

First, regulated entities must make applications for forbearance widely available to any qualified mortgagor who, during the covered period is in arrears or on a trial period plan or who has applied for loss mitigation. A qualified mortgagor is a natural person who (i) demonstrates financial hardship as result of COVID-19 during the covered period, (ii) whose loan is from or serviced by a regulated entity, and (iii) whose loan meets the following criteria: the loan is incurred for personal, family or household purposes, s secured by mortgage on a 1-4 family property located in New York, and is the borrower’s primary residence.  Forward and reverse mortgage as well as co-operative units are within scope.

Second, regulated entities must grant forbearance of all monthly payments due on a New York residential mortgage secured by a qualified mortgagor’s primary residence for up to 180 days with the option to extend the forbearance for up to an additional 180 days provided the borrower continues to demonstrate a financial hardship. Such forbearances may be backdated to March 7, 2020.

Third, any mortgage forbearance granted by a regulated entity to a qualified mortgagor as a result of a financial hardship pursuant to Executive Order 202.9 the regulation promulgated thereunder (3 NYCRR Part 119) or Section 9-x of the Banking Law subject to post forbearance repayment requirements. Specifically, the qualified mortgagor shall have the following four options:

  • Extend the term of the loan for the length of the period of forbearance with no additional interest or late fees or penalties incurred on the forborne payment
  • Have the arrears accumulated during the forbearance period payable on a monthly basis for the remaining term of the loan without being subject to penalties or late fees as a result of the forbearance
  • Negotiate a loan modification or any other option that meets the changed circumstances of the borrower, or
  • If the borrower and regulated entity cannot reasonably agree on a mutually acceptable loan modification, the regulated entity must offer to defer arrears accumulated during the forbearance period as a non-interest bearing balloon loan payable at the maturity of the loan, or at the time the loan is satisfied through a refinance or sale of the property.  Late fees accumulated as a result of the forbearance must be waived.

The measure prohibits a regulated entity from reporting negatively to any credit bureau that the borrower has exercised any of the four post forbearance options

Significantly, Section 9-x of the Banking Law does not apply to any mortgage loan made, insured, purchased or securitized by: (i) any agency or instrumentality of the United States (such as FHA, VA or USDA); (ii) any government sponsored enterprise  (such as Fannie Mae or Freddie Mac); (iii) a federal home loan bank;  (iv) a corporate governmental  agency of the state constituted as a political subdivision and public benefit corporation; or (iv) “the rights and obligations of any lender, issuer, servicer or trustee of such obligations, including servicers for” Ginnie Mae.

Privately backed mortgage loans are also subject to New York Executive Order 202.9, which modified Subdivision two of Section 39 of the Banking Law to provide that it is an unsafe and unsound business practice for any financial institution subject to the jurisdiction of the Department to, in response to the COVID-19 pandemic, fail to grant a forbearance to any person or business who has a financial hardship as a result of the COVID-19 pandemic for a period of ninety days. The Executive Order also directed the Superintendent of the Department to promulgate emergency regulations to require that the application for such forbearance be made widely available for consumers, and such application shall be granted in all reasonable and prudent circumstances solely for the period of such emergency. These regulations are set forth in new Part 119 to 3 NYCCR. The covered period of Executive Order 202.9 was extended by subsequent executive order to be valid through July 6, 2020, unless further extended.

Capital and Liquidity

New Section 9-x of the Banking Law provides that the obligation to grant the forbearance relief required by Section 9-x is subject to the regulated entity “having sufficient capital and liquidity to meet its obligations and to operate in a safe and sound manner.” If a regulated entity determines it is not able to offer the forbearance to any qualified mortgagor, it must notify the Department within five business days of making such determination. Any such notice filed with the Department must include: (1) information about the mortgagor; (2) the reason the regulated entity determined that it was unable to offer any forbearance relief pursuant to Section 9-x; (3) information about the institution’s financial condition supporting the its determination; and (4) any other information required by the Department. Additionally, when such a notice is provided to the Department, the regulated entity must advise the mortgagor that the application for relief was denied and provide a statement that the applicant may file a complaint with the New York state department of financial services at 1-800-342-3736 or http://www.dfs.ny.gov if the applicant believes the application was wrongly denied.

Defense to Foreclosure

Section 9-x of the Banking Law, provides that adherence with Section 9-x is a condition precedent to commencing a foreclosure action stemming from missed payments which would have otherwise been subject to this section, and that a defendant may raise the violation of this section as a defense to such a foreclosure action commenced on the defendant’s property.

Takeaway

These New York measures provide protections to New York borrowers who aren’t otherwise covered by the CARES Act.  Servicers should take note of these provisions as well as similar ones in other states, such as the District of Columbia, Massachusetts and Oregon.  In the immediate term, servicers will need to quickly operationalize these new protections.  In the longer term, questions may be raised as to whether these types of measures infringe upon any private investors’ rights.