Alston & Bird Consumer Finance Blog

Mortgage Loans

NYDFS Proposes Overhaul to Mortgage Loan Servicer Business Conduct Rules

By

The New York Department of Financial Services has proposed significant changes to the mortgage servicer business conduct rules found in Part 419 of the Superintendent’s Regulations.  The proposed changes represent the first major changes to Part 419 since its adoption nearly 10 years ago.  Some of the significant proposed changes to Part 419 include:

  • Adding new provisions governing affiliated business arrangements, which would include a requirement that such relationships be negotiated at market rate, restrictions on certain kick-backs and a requirement to provide borrowers with a written disclosure of the relationship;
  • Restricting a servicer from charging a property valuation fee to a borrower more than once in a 12-month period;
  • Broadening a servicer’s duty of fair dealing to include ability to repay requirements for loan modifications and that a servicer consider foreclosure alternatives;
  • Broadening the protections available to delinquent borrowers and borrowers seeking loss mitigation assistance to more closely align with the CFPB’s Mortgage Servicing Rules, including a requirement that acknowledgment notices be delivered more quickly than under the current rules and providing borrowers with additional time to accept or reject a loss mitigation offer; and
  • Detailed third party vendor management requirements, which would require a servicer to maintain policies and procedures overseeing third party providers generally and more specific requirements for overseeing counsel and trustees of foreclosure proceedings.

Our June 20 client advisory provides greater detail on the proposed changes to Part 419.  In the meantime, we note that the deadline for comment on the proposal is June 29, 2019.  Mortgage servicers should take this opportunity to review the proposed changes to Part 419 against their current operations to determine the impact these rules would have if adopted in their current form.

Alston & Bird Publishes Article in “Mortgage Compliance Magazine” Addressing Key Debt Collection Challenges Raised Under the Fair Debt Collection Practices Act as a Major Focus for Industry in 2019

By

In February 2019, Alston & Bird Partner Nanci Weissgold and Senior Associate Anoush Garakani, wrote an article published in “Mortgage Compliance Magazine,” in anticipation of the Consumer Financial Protection Bureau’s (“CFPB”) recent Proposed Rule implementing the FDCPA.  The article brings to the attention of the mortgage servicing industry the complex issues faced when applying the Fair Debt Collection Practices Act (“FDCPA”) to modern debt collection practices and the labyrinth of additional requirements created by state collection agency laws.

The article explores updates on recent court cases addressing the scope of the federal FDCPA as well as a refresher on state collection agency laws.  The article highlights the inconsistent state collection agency laws across the country and discusses several important questions that mortgage servicers should consider in applying these laws to their mortgage servicing activities.

The article can be found here on our website.

Ninth Circuit Approves Request for Interlocutory Appeal in McShannock v. JP Morgan Chase Bank N.A.

By

On April 23, 2019, the Ninth Circuit approved a request for an interlocutory appeal in McShannock v. JP Morgan Chase Bank N.A.,[1] to resolve a split amongst the district courts on the reach of preemption under the Home Owners Loan Act (“HOLA”), which governs federal savings banks (“FSBs”). Given that the majority of cases involving HOLA preemption arise in the Ninth Circuit, other courts look to it for guidance. As a result, the outcome in this appeal could redefine the scope of HOLA preemption nationwide.

The issue on appeal is whether HOLA preemption for a loan originated by an FSB applies to conduct occurring after the loan is transferred to a national bank. Currently, district courts within the Ninth Circuit “have taken three distinct positions on this issue.”[2]

  • The first position is that HOLA preemption attaches to loans originated by FSBs and extends to all subsequent loan-related conduct (even if the loan was transferred to a non-FSB such as a national bank).
  • The second position is that that HOLA preemption cannot be asserted by a non FSB at all.
  • The third position is that HOLA preemption attaches to loans originated by FSBs but extends only to loan-related conduct by an FSB and not all subsequent loan related conduct.

While there are three distinct positions, the fight in the interlocutory appeal will be over whether the first or third position is correct. As the district court in McShannock explained, the majority of district courts in the Ninth Circuit have taken the first position, but in the last several years, “the third position represents the current trend of court rulings.”[3]

Advocates for the first position argue that it is the majority approach, that OTS Opinion Letters indicate that HOLA preemption should extend to all subsequent loan-related conduct, and that the OTS’s interpretation of HOLA is consistent with the statute’s rationale and legislative purpose.[4] Also, a number of courts have followed the first position where the loan agreement for the loan at issue expressly indicates that it would be governed by HOLA, thus incorporating HOLA preemption into the terms of loan.

On the other hand, advocates for the third position argue that it has been “the virtually universal trend . . . [for] the last four years,”[5] that HOLA’s legislative history does not indicate that Congress intended HOLA preemption to apply sold to non-FSB entities, and that this lack of Congressional intent undermines the persuasiveness of the OTS’s interpretation of HOLA.[6]

Reviewing these arguments, the McShannock district court adopted the third position. If the McShannock decision is upheld on appeal, it will cement a major shift in the Ninth Circuit’s HOLA preemption jurisprudence, which could have far-reaching implications on cases across the country involving loans originated by FSBs.

Alston & Bird LLP will continue to track developments in this case.

[1] Case No. 19-80030 (Dkt. Entry 15) (9th Cir. Apr. 23, 2019).
[2] See Kenery v. Wells Fargo, N.A., No. 5:13-CV-2411-EJD, 2014 WL 129262, at *3 (collecting cases and describing in detail the split among the district courts).
[3] McShannock v. JP Morgan Chase Bank N.A., 354 F. Supp. 3d 1063, 1075 (N.D. Cal. 2018).
[4] See Metzger v. Wells Fargo Bank, N.A., 2014 WL 1689278 (C.D. Cal. Apr. 28, 2014) (explaining the various rationales for attaching HOLA preemption to FSB-originated loans for their duration).
[5] McShannock, 354 F. Supp. 3d at 1074 (quoting Plaintiffs’ briefing at 6).
[6] See id. at 1074–77 (explaining the various rationales for attaching HOLA preemption only to loan-related conduct by an FSB rather than all subsequent loan-related conduct).

Alston & Bird Issues Client Alert on Ohio Division of Financial Institution Guidance Requiring Mortgage Loan Servicer Registration for Passive Secondary Market Investors in Ohio MSRs

By ,

On March 12, Alston & Bird Partner Nanci Weissgold, and Senior Associate Lisa Lanham issued a Client Alert on Ohio Division of Financial Institution’s (“Division”) guidance on clarification of legislative amendments (as enacted by HB 489 and currently in effect as of March 20, 2019) to the Ohio Residential Mortgage Lending Act (“RMLA”), that requires mortgage loan servicers to be registered under the RMLA.  The Division answered the industry’s question as to whether the registration requirement would apply to passive secondary market investors in Ohio Mortgage Servicing Rights (“MSRs”).  Accordingly, the Division issued answers to its Frequently Asked Questions to provide guidance and explicitly stated that even though a passive secondary market investor in MSRs is not conducting any direct servicing activities, it is still required to be licensed or registered as a mortgage servicer under the RMLA amendments.

The Client Alert can be found here on our website.