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Mortgage Lending: 6.11.4.1 Structure of the Former Rule; Comparison to the OCC’s Current and Former Preemption Rules

The former OTS preemption rule regarding extensions of credit is available as companion material to this treatise. It begins with a statement that the OTS occupies the entire field of lending regulation for federal savings associations, so these institutions may extend credit as authorized under federal law without regard to state laws except as provided in the savings clause of the regulation.

Mortgage Lending: 6.11.4.6.2 Use of UDAP claim to enforce federal law

The Seventh Circuit held that the fact that state law created liability for violation of a federal requirement that did not itself provide a private remedy was not a basis for preemption.751 A state UDAP claim that merely enforced an existing federal requirement could hardly be said to “impose requirements”752 on a federal savings association, so the OTS preemption rule should not apply at all.753

Mortgage Lending: 13.3.3.1 The Nature of Complete Preemption

The doctrine of complete preemption is a rare but important exception to the rule that a case raising only state law claims cannot be removed to federal court simply because federal law might preempt those claims. When a federal statute completely preempts a state law cause of action, then a claim that comes within the scope of the federal statute, even if pleaded solely in terms of state law, is in reality a federal claim and is removable.64

Mortgage Lending: 2.3.3.2 Simple Versus Compound Interest

The amount of interest resulting from the I = Prt formula is described as either simple or compound. When interest is computed only on the principal, it is simple interest. If unpaid interest is added to the principal first, before doing any computations, the result is compound interest.115 This is what happens in a savings account. There, the account holder earns interest. That interest is added to the original balance.

Mortgage Lending: 6.2.2.1 Overview of the Barnett Bank Standard

National banks, though federally created, are also subject to state laws in certain circumstances.

The Supreme Court held in Barnett Bank that the National Bank Act does not “deprive States of the power to regulate national banks, where (unlike here) doing so does not prevent or significantly interfere with the national bank’s exercise of its powers.”24 The Court characterized the test as whether the state law is in “irreconcilable conflict” with federal law.25

Mortgage Lending: 1.6.1 Overview

Securitization is the process of bundling loans and selling, in the form of securities, the right to receive a portion of the future income stream coming from the debtors’ payments on the loans.432 Mortgages have been securitized through a variety of means for over a century.433 The modern securitization of residential mortgages, however, has its roots in the 1970s, when the Ginnie Mae guaranteed the first residential mortgage-backed securities (RMBS) by pooling Veterans Administration and Feder

Mortgage Lending: 7.6.7.1 Overview

Of all the appraisal regulations described in § 7.6.4, supra, only the Truth in Lending Act provisions (TILA)783 offer a private right of action. Claims for TILA violations are discussed in another NCLC treatise.784 But other violations may support a variety of other causes of action.

Mortgage Lending: 7.6.2.1 Appraisals

An appraisal is “the act or process of developing an opinion of value.”619 Real estate appraisals must be prepared by a state licensed or certified appraiser. There are three classifications of appraiser qualification. Licensed residential real property appraiser is the lowest (not including trainees) and certified general real property appraiser is the highest.

Mortgage Lending: 7.6.4.1 Overview

Appraisals and appraisers are governed by a combination of federal law, state law, and USPAP. States handle the administrative role of licensing or certifying appraisers. Federal law prohibits federally regulated lenders from using appraisers that are not appropriately licensed or certified or that do not follow USPAP, requires appraisers to be independent, and imposes other limits or exemptions for certain types of loans. USPAP is the industry standard for how appraisals are to be done. It is, by law, the generally accepted appraisal standard.

Mortgage Lending: 7.6.4.4 Appraisal Standards for Higher-Priced Mortgage Loans

Regulations issued under the Truth in Lending Act set some additional requirements for appraisals done in connection with higher-priced mortgage loans,708 including that the appraisal be done by a licensed appraiser who conducts a physical inspection of the interior of the home in accordance with the standards in the Uniform Standards of Professional Appraisal Practice.709 As a result, a lender making a higher-priced mortgage loan cannot rely solely on a broker price opinion or an automated

Mortgage Lending: 7.6.1 Overview

No responsible lender will make a mortgage loan without first determining the value of the real property offered as collateral. The process of making that determination is called collateral or property valuation. Lenders are not the only ones to rely on property valuations. Sellers, buyers, borrowers, insurers, taxation authorities, servicers, secondary market players, and others rely on property valuation for many reasons.

Mortgage Lending: 7.6.3.1 Appraisal Fraud

During the years leading up to the last foreclosure crisis, many appraisers felt pressure to appraise property at values predetermined by lenders. In fact, over 9100 appraisers signed a petition asking the Federal Financial Institutions Examination Council to “hold the lenders responsible for this type of violation and provide for a penalty on any person or business who engages in the practice of pressuring appraisers to do dishonest appraisals that do not provide for independent judgment.”655 The petition stated that:

Mortgage Lending: 11.4.1 Seller’s Title

A major concern for buyers is marketability of the title to the property—both at the outset of the contract and upon payment in full of the contract price. On the front end, a prospective buyer can order a title search or abstract to determine whether there are any preexisting liens, encumbrances, or other clouds on the title (although, in practice, this rarely happens).94 Alternatively, the buyer may request that the seller prove the status of the title before signing the contract.

Mortgage Lending: 11.4.2 Preexisting and Post-Contract Liens

Another common problem for buyers is that they may contract to buy a property that is subject to an existing mortgage, lien, or other encumbrance. Often the seller obtained a mortgage to purchase the property or mortgaged the property at some point thereafter to finance repairs or improvements, or for some other reason. Occasionally, the seller’s mortgage secures a debt that exceeds the purchase price under the land installment contract. Generally the buyer takes the property subject to all existing recorded liens or encumbrances.99

Mortgage Lending: 13.8.3 No Holder in Due Course in Land Installment Sales

In a land installment sale the seller is the originating creditor, and the credit obligation will be evidenced by a detailed contract with many conditions written into the contract, not the least of which is that if the consumer pays in full then the seller will turn over the land.338 To be negotiable, an instrument must contain a written promise to pay money that must be unconditional and there must be no other undertaking.

Mortgage Lending: 1.3.5.5 The Impact on Post-Crisis Origination Practices

Aside from the number of foreclosures, credit rationing was one of the most obvious effects of the crisis on the housing market. Consumer credit for new mortgages soon became hard to find.206 At the peak of the last mortgage boom, in 2005, lenders originated over seven million purchase-money mortgages for the year.207 By 2008 that number had dropped to about three million, and it settled to a low of about two and a half million in 2011.208

Mortgage Lending: 8.4.6.1.1 General

Section 2607(c) of RESPA carves out separate treatment for “affiliated business arrangements” (originally called “controlled business arrangements”).

Mortgage Lending: 8.4.8.2 Common Law Analogues to the Type of Harm Congress Made Actionable by Section 2607

Spokeo and Ramirez hold that an intangible harm is sufficiently “concrete” to support Article III standing if it has a close relationship to a harm traditionally recognized as a basis for a lawsuit in English or American courts.385 In practice, this will most often mean looking for a “common-law analogue.”386 In addition to monetary injury, there are a number of common-law analogues for the harm caused by a section 2607 violation.

Mortgage Lending: 9.3.5 Limits As to DIDA Preemption for Manufactured-Home Credit

DIDA first lien preemption only applies to a manufactured-home loan or credit sale if the credit transaction complies with certain federal consumer protection regulations.91 These regulations govern the refund of pre-computed finance charges; prepayment penalties; late charges; deferral fees; balloon payments; and the consumer’s right to notice before repossession, foreclosure, or acceleration.92