April 2018 Update Print

Legislative Update

MBA of Greater Philadelphia Quarterly Report

The Quarterly Newsletter of the Mortgage Bankers Association of Greater Philadelphia.

This is the premier edition of the Quarterly Newsletter of the Mortgage Bankers Association of Greater Philadelphia.  We hope you find it both enlightening and enjoyable.  If you have any comments or suggestions to improve it, please send them to us.  Our hope is to make our Newsletter as useful to our members as possible.

The Mortgage Bankers Association of Greater Philadelphia is a trade organization comprised of Mortgage Bankers, Mortgage Brokers, Banks, Credit Unions, Servicing companies and affiliated industry service providers. We have been committed to maintaining a presence as the leading real estate finance trade association in the Greater Philadelphia region since 1939.  Get more information here.

LET’S GET TOGETHER – DINNER WITH SECRETARY OF BANKING

Mortgage Bankers Association of Greater Philadelphia Past Presidents Dinner.  On Thursday evening, April 19, 2018, the Mortgage Bankers Association of Greater Philadelphia will hold its Annual Past Presidents Dinner at The Radnor Hotel in Wayne, PA.  The keynote speaker at the dinner, which is scheduled to take place from 6:00 PM until 9:00 PM, will be the Hon. Robin L. Wiessmann, Secretary of the Pennsylvania Department of Banking and Securities.  At the dinner, Mortgage Bankers Association of Greater Philadelphia’s past Presidents will be honored and the future of the industry and the Association will be discussed.  For more details concerning the dinner and to register to attend, click HERE.  Directions to the hotel can be found HERE.

 

MBAGP NEWS AND EVENTS

April 19 Past Presidents Dinner – please bring your nominations for the 2018-19 Board of Governors. 

June 11 Golf outing announcement

Join the Mortgage Bankers Association of Greater Philadelphia at North Hills Country Club for a noon tee off, followed by our dinner meeting at 6.  Votes for the new board nominees will be cast, and potentially for our new, modernized bylaws.

Other happenings

Membership dues were sent out at the beginning of the year as we adjusted to our new management software, Starchapter.  Please make sure to log in and renew your membership, as well as update any contact information that may have changed.

You must opt in to receive email announcements, so many of your colleagues may not have received our save the date notices or legislative updates.  Please make sure to share this news with them!  If you need help logging in, please send an email to info@mbagp.org.

Have you seen our new look?  The Mortgage Bankers Association of Greater Philadelphia received a facelift this year.  Check out mbagp.org to see it.

MORTGAGE BANKERS ASSOCIATION OF GREATER PHILADELPHIA NAMES REED SMITH, LLP NEW LEGISLATIVE COUNSEL

The Mortgage Bankers Association of Greater Philadelphia has named a team from Reed Smith, LLP as Mortgage Bankers Association of Greater Philadelphia’s new Legislative Counsel.  The team is headed by Leonard A. Bernstein and includes members of Reed Smith’s Financial Services Regulatory (FSR) Group, for which Len serves as Chair.  Among the other team members are Bob Jaworski, Travis Nelson, Maria Earley and Roberta Torian.  Information about the team can be found here.  

One of the first tasks performed by the Reed Smith team on behalf of the Mortgage Bankers Association of Greater Philadelphia was to contact representatives of the Pennsylvania Department of Banking and Securities to obtain information about a pending bill to require servicers of residential mortgages to become licensed, including the likelihood and anticipated time frame for its passage.  The team also arranged to have one of those representatives participate in a call with some of the Mortgage Bankers Association of Greater Philadelphia’s officers to explain the bill and the DOBS’ plans to implement it, and prepared a detailed summary of the bill’s provisions for circulation to all Mortgage Bankers Association of Greater Philadelphia members.  More about the bill, which has since become law, can be found below.

We at the Mortgage Bankers Association of Greater Philadelphia look forward to a long and beneficial relationship with Len and his team, and are confident that their efforts as our Legislative Counsel will be of great value to our members. 

WHAT’S HAPPENING IN HARRISBURG?

PA Enacts New Mortgage Servicer Licensing Act; DOBS Proposes Implementing Regulations, Announces Date It Will Begin Accepting Applications and Deadline To Apply 

On December 22, 2017, Gov. Tom Wolf signed Senate Bill 751 into law (Act 81 of 2017, codified as 7 Pa. C.S.A. 6101 et seq.).  Act 81 amends the Mortgage Licensing Act (MLA) to require most mortgage loan servicers to obtain a separate license from the DOBS to engage in servicing activities and, once licensed, to comply with servicing regulations to be adopted by the DOBS.  Those regulations have now been proposed. According to a press release issued by the DOBS on January 23, 2018, servicer license applications will be accepted beginning on April 1, 2018 through the Nationwide Multistate Licensing System (NMLS), with the deadline to apply set at June 30, 2018.  Continuing to service loans after that date without having applied for the license can lead to penalties of up to $10,000 per violation.

Act 81 defines a “mortgage servicer” broadly to mean anyone who directly or indirectly services a first- or subordinate-lien mortgage loan.  Exempted from this licensing requirement are MLA-licensed lenders that only service loans they have originated or own, and persons who service fewer than four mortgage loans per year.  Existing MLA exemptions for banking institutions, credit unions and attorneys apply to mortgage servicers as well.  

The primary obligation placed upon mortgage services by Act 81, besides having to obtain a servicer license, is to comply with the regulations that the DOBS will eventually adopt, which must incorporate the federal Dodd-Frank servicing regulations found in Subpart C of Regulation X (12 C.F.R. 1024.31 through .41, without regard to the limitations in 12 C.F.R. 1024.30 as to scope).  For more information about Act 81, please refer to our recent Reed Smith Client Alert on Senate Bill 751.

Why enact a new mortgage servicer licensing requirement?  If you’re wondering, the answer is that the DOBS feels that federal enforcement is receding and it therefore needs to step up its efforts in this regard to ensure there is no regulatory void.

Just In From The DOBS.  Residential loan servicers will soon be able to apply for servicer licenses in Pennsylvania.  An announcement this past Wednesday from the department indicated that servicers can begin submitting applications on April 1.  "Companies servicing a Pennsylvania mortgage without applying for a license by the deadline will be considered unlicensed and subject to enforcement action," the statement said.  To help prospective licensees, answers to frequently asked question have been posted online by the department at www.dobs.pa.gov.  Applications for licenses can be submitted online beginning April 1 through the Nationwide Multistate Licensing System at https://mortgage.nationwidelicensingsystem.org.

FOCUS ON PHILADELPHIA – DELINQUENT TAXES

Philadelphia City Councilwoman Cherrelle Parker recently introduced a bill to amend section 19-1305 of the Philadelphia Code, which authorizes the Department of Revenue to enter into installment payment agreements with Philadelphia homeowners.  Under these agreements, homeowners who are in default on their city property taxes and cannot afford to bring those taxes current can enter into an agreement with the city to pay their taxes in installments that are geared to their ability to pay.  While the homeowner complies with the agreement, all penalties and interest are tolled.  

The proposed amendment mirrors a provision that was added in October 2017 by the Department of Revenue to Section 302 of its real estate tax regulations, which governs these types of agreements.  The amendment states: “A taxpayer who is compliant with any agreement approved under this Section shall be deemed not in default on his or her real estate taxes.”

The amendment is reportedly designed, in particular, to prevent a practice allegedly engaged in by some reverse mortgage lenders in which they will pay a borrower’s past due taxes  ?  even if the borrower has entered into such an agreement  ?  issue a demand to the borrower that he/she reimburse the holder that amount within a short period of time, and then foreclose if the borrower cannot do so.  Reed Smith can assist any organization desiring to provide input on this bill.

A representative in Councilwoman Parker’s Office has indicated that the first reading of the bill by the City Council’s Finance Committee may take place at its meeting on March 19.

WHAT’S DOING IN DC?

House Passes Package Of Bills: TRID Improvement Act; SAFE Transitional License Act.  On February 14, 2018, the House of Representatives passed, as a package (HR 3978), the TRID Improvement Act and the SAFE Transitional License Act, by a vote of 271 to 145.  The combined bill now goes to the Senate for consideration, where its passage is uncertain at this time.

The TRID Improvement Act deals with the issues surrounding the manner in which the CFPB requires disclosure of owner’s and lender’s title insurance premiums on the Loan Estimate and Closing Disclosure, which does  not correlate to the way title insurance premiums are typically quoted by title insurance agents in accordance with state law or custom.  Title insurance agents typically quote the full premium rate for owner’s title insurance and a special (discounted) rate for the simultaneous issuance of lender’s title insurance, whereas TRID requires disclosure of the full premium rate for lender’s title insurance and a discounted rate for the simultaneous issuance of owner’s title insurance (calculated as the full premium rate for owner’s title insurance plus the amount the consumer must pay to simultaneously obtain lender’s title insurance less the full premium rate for lender’s title insurance). 

The bill would amend RESPA §4(a) to add the following sentence: “Charges for any title insurance premium disclosed on such forms shall be equal to the amount charged for each individual title insurance policy, subject to any discounts as required by State regulation or the title company rate filings.” 

The SAFE Transitional License Act would resolve a problem that currently faces (1) registered loan originators (LOs) who become employed by licensed mortgage companies, and (2) state-licensed LOs who become employed by licensed mortgage companies that do business in states other than those in which the LO is licensed.  The problem arises because of the length of time it takes a LO to fulfill the requirements to become licensed in a state or states.  During that period, the LO described in the first scenario is currently prohibited from originating any loans for his/her new employer, while in the second scenario, the LO is prohibited from originating any loans for his/her new employer in states in which the LO is not licensed. 

The bill will provide these LOs with temporary authority to originate loans for their new employer in states where they are not licensed, provided they meet certain requirements.  This temporary authority would begin when the LO submits an application for a license in those states, including fingerprints and required authorizations for state and national criminal history background checks and credit reports; and would end when his/her application is approved, denied, withdrawn, or listed on the NMLS as incomplete after 120 days.

IN THE COURTS

DC Circuit Rules CFPB’s Structure Constitutional But Its RESPA Findings All Wrong!  Settlement service providers for the most part rejoiced when, on January 31, 2018, the full DC Circuit Court of Appeals, sitting en banc, issued its decision in the PHH case.  PHH had appealed an adverse Final Decision rendered by CFPB Director Cordray in an administrative enforcement action against it, and obtained a split 3-judge panel’s ruling in its favor.  Two of the three judges on the panel found the CFPB’s structure to be unconstitutional and all of them determined its RESPA rulings to be error.  The full DC Circuit reversed the former but upheld the latter. 

Factual Background.  Briefly, the case involved mortgage reinsurance arrangements between PHH and several private mortgage insurance companies (Insurers).  Under these arrangements, the Insurers would agree to purchase reinsurance from a PHH insurance affiliate, Atrium Reinsurance (Atrium), in connection with any loan made by PHH Home Loans for which the Insurer provided PMI.  

The CFPB’s Enforcement Action.  The CFPB filed a Notice of Charges against PHH in early 2014, after which an administrative hearing was held, resulting in a recommended decision by the administrative law judge upholding the charges and recommending that PHH be ordered to disgorge $6.6 million.  PHH filed objections to the ALJ’s decision.  Thereafter, the CFPB Director upheld the ALJ’s decision.  In doing so, however, he went beyond the findings of the ALJ to conclude that (1) PHH violated §8 even if the Insurers’ payments to the PHH reinsurance affiliate were “bona fide compensation … for goods or facilities actually furnished or for services actually performed,” which was contrary to prior HUD advice, (2) the RESPA 3-year Statute of Limitations did not apply, and in fact no Statute of Limitations applied, to CFPB administrative actions to enforce RESPA, and (3) the violations occurred, not when the loans closed, but every time Atrium received a monthly reinsurance premium payment from one of the Insurers.  He then ordered PHH to disgorge $109 million!

The Appeal.  PHH appealed the Director’s decision to the DC Circuit.  It argued not only that the Director’s RESPA rulings were wrong, but also that the structure of the CFPB – in particular, the fact that it is headed by a single Director who is removable by the President only for cause and is freed from both the appropriations process and meaningful oversight – is unconstitutional.  

As many expected, the 3-judge panel assigned to the appeal agreed with PHH’s arguments concerning the Director’s RESPA rulings, finding even that they were “not a close call.”  Surprisingly, however, at least to some, two of the three judges also agreed that the structure of the CFPB was unconstitutional and directed that the “removable only for cause” provision in the Consumer Financial Protection Act (CFPA), which created the CFPB, must be stricken. The CFPB immediately requested and was granted en banc review of the panel’s decision by the full DC Circuit, thereby vacating the panel’s decision.

Following oral argument, the DC Circuit ruled that the CFPB’s structure is constitutional, finding precedent in a 1935 U.S. Supreme Court decision and no meaningful distinction between the CFPB’s structure and that of a number of other independent federal agencies, including the Federal Reserve, the FTC and the OCC.  However, it also reinstated the panel’s RESPA rulings, sending the case back to the CFPB for appropriate action consistent with those rulings.

Why Significant?  The DC Circuit’s decision is a clear victory for the industry.  First, it confirms that:  (1) when RESPA says in §8(c)(2) that “[n]othing in [RESPA §8] shall be construed as prohibiting … the payment to any person of a bona fide salary or compensation or other payment for goods or facilities actually furnished or for services actually performed,” it means what it says; (2) there is in fact a period of time after which the CFPB may not pursue an enforcement action based on past conduct; and (3) where entitlement to compensation that would violate RESPA §8 is triggered by the closing of a loan, the violation occurs at the time of closing rather than when payments of such compensation are actually received.  More importantly perhaps, the Court’s decision stands for the proposition that, even if the CFPB’s narrow interpretation of RESPA §8(c)(2) was permissible, it constituted “an unlawful retroactive reversal of [HUD’s] prior position,” and, hence, denied PHH due process. In other words, persons are entitled to adequate notice in advance of being subjected to penalties for past conduct.

A WORD FROM REED SMITH

Reed Smith is truly honored to be a partner with the Mortgage Bankers Association of Greater Philadelphia.  We look forward to working with the organization and its members, both collectively and individually, for many years to come.

 

Leonard A. Bernstein

Partner

Philadelphia

+1 215 851 8143

lbernstein@reedsmith.com

 

Robert M. Jaworski

Senior Counsel

Princeton

+1 609 520 6003

rjaworski@reedsmith.com

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