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Mortgage Lending: 8.11.2 TILA Remedies

Violating TILA’s rules for disclosing finance charges and the limits on originator compensation can lead to an award of actual and statutory damages, attorney fees, and costs. In some circumstances borrowers may also have the right to rescind their mortgage. The availability of TILA remedies varies by type of loan, and the use of rescission, in particular, can be complex. TILA’s remedies are discussed in greater detail in NCLC’s Truth in Lending.693

Mortgage Lending: 14.7.4 Requirement That the Agreement Tend to Diminish or Defeat FDIC’s Interest in an Asset

Another limitation on the applicability of section 1823(e) is that the agreement must be one that “tends to diminish or defeat” the FDIC’s interest in an asset that it acquires under section 1823 and the statute, 12 U.S.C. § 1821, that governs the insurance fund and receivership. Courts have analyzed this requirement closely and have often refused to apply section 1823(e) because of failure to meet this criterion.546

Mortgage Lending: 8.12 The Lender’s Obligation to Monitor Third Parties

Federal bank regulators have long recognized that lenders’ reliance on third parties carries significant risks. Consequently, banking agencies have repeatedly required lenders to monitor the riskiness of loans they acquire and the performance of third parties with whom the creditors contract.

Mortgage Lending: 12.2 Loans with Precomputed Interest

Many sellers of manufactured homes and modular homes offer or arrange installment loans that use precomputed interest. Home improvement loans from sources other than traditional banks often use precomputed interest as well. In a precomputed loan the borrower is considered to owe the entire amount of the loan—plus all the interest—as of the day the loan is made. If the loan is paid off before maturity, there is a recalculation of the amount due that will reflect a rebate of unearned interest. In general, both precomputed loans and conventional mortgages produce the same results.

Mortgage Lending: 12.5 Foreclosure Rescue Scams

Foreclosure rescue scams target homeowners already facing foreclosure or who are in financial distress. These scams typically come in three varieties. The first might be called “phantom help,” in which a rescuer charges outrageous fees for little or no assistance. A common form of this scam is to falsely promise assistance in obtaining a mortgage loan modification for a hefty up-front fee.

Mortgage Lending: 12.7.3 Restricting Access to Equity to Preserve Affordability

There are other purchase assistance methods that do not directly share equity in a property; instead they restrict the consumer’s ability to access the equity, in return for making the purchase more affordable, and keeping it affordable for future purchasers.74 One version is a deed restriction that limits the resale price of the home to ensure that it remains affordable. Nonprofit organizations and local governments have used this method when purchasing or building affordable housing.

Mortgage Lending: 12.8.1 Introduction

Property Assessed Clean Energy (PACE) is a loan program for homeowners to finance energy efficiency, water conservation, hurricane hardening, and renewable energy home improvements. Property owners finance specific improvements by contracting for the loan amount to become an assessment on the property’s tax bill.

Mortgage Lending: 12.8.2 Financing Terms

The PACE industry claims that the super-priority position of PACE liens translates into lower costs for homeowners, by limiting risk to investors and avoiding underwriting costs. But this has not proven to be true, as some PACE loans are more costly than comparable loan products available in the private mortgage market. The PACE financing structure, involving multiple entities that participate in the municipal bond and securitization process, has resulted in above-market interest rates and high costs and fees being imposed on borrowers.

Mortgage Lending: 12.8.3 Regulation of PACE

Industry participants in PACE lending take the view that the loans are exempt from the consumer credit protections provided by the Truth in Lending Act (TILA) and Regulation Z, as well as other state and federal laws dealing with credit transactions. While PACE lenders typically provide some form of loan disclosures, they do not provide the TILA-RESPA integrated disclosure (TRID) disclosures relevant to home-secured transactions or comply with relevant TILA substantive protections.

Mortgage Lending: 12.9.1 Introduction

Manufactured homes are an important source of housing, particularly for lower-income Americans. Financing the purchase of these homes presents some unique legal issues. New manufactured homes are typically sold by a dealer and then later sited either on land owned by the consumer or in a manufactured home community where the consumer pays rent for a lease of the site.

Mortgage Lending: 9.10.8 Manufactured Home Financing

Federal first mortgage interest rate preemption applies to residential manufactured-home loans,471 but only if the creditor complies with certain consumer protections set forth in a federal banking agency rule.472 Two key requirements of the rule are that there can be no prepayment penalties in such credit,473 and all rebates must be computed by the actuarial method.474

Mortgage Lending: 12.9.4 TILA, RESPA, and the Federal Rebate Statute’s Applicability to Manufactured Home Installment Sales

Despite being considered personalty for purposes of state law, manufactured home installment sales are covered not only by the Truth in Lending Act (TILA)’s disclosure requirements, but also by TILA’s substantive provisions dealing with mortgage loans.163 These substantive mortgage provisions apply to “residential mortgage loans,” which are closed-end mortgages secured by a dwelling.164 TILA defines a “dwelling” to include manufactured homes.165

Mortgage Lending: 14.1 Introduction

A host of legal issues confront borrowers when a bank fails and the Federal Deposit Insurance Corp. (FDIC) is appointed its receiver. First are procedural hurdles: when a bank fails the FDIC sets up an administrative claims process. Many claims against a failed bank will be barred if the claimant fails to exhaust this administrative claims process.

Second are special substantive defenses that the FDIC can assert. These special defenses are collectively but somewhat imprecisely known as the D’Oench doctrines.

Mortgage Lending: 14.2.3 The Federal Housing Finance Agency’s Role

If the Federal Housing Finance Agency (FHFA) is appointed as conservator or receiver for one of the government-sponsored enterprises such as Fannie Mae or Freddie Mac, it plays a role similar to that which the FDIC plays in the case of banks, and there is a similar administrative claims process.25 On September 6, 2008, the FHFA became conservator of Fannie Mae and Freddie Mac.26 The administrative claims process only applies when one of the government-sponsored enterprises is in receivership

Mortgage Lending: 14.3.2.2 The FDIC Must Publish and Mail Notice to the Failed Bank’s Creditors

Once the FDIC is appointed receiver of a failed bank, it must publish a notice to the depository’s creditors three times, informing them to present their claims by a claims bar date.38 The claims bar date must be at least ninety days after the date of the first publication of this notice.39 In addition, the receiver must mail a similar notice to any “creditor shown on the institution’s books.”40 Courts have held that notice to the creditor’s

Mortgage Lending: 14.3.5.2 Distinction Between a Claim and an Affirmative Defense

What constitutes an affirmative defense as opposed to a counterclaim is not entirely clear. Courts have the right to relabel a counterclaim as an affirmative defense and vice versa.129 In National Union Fire Insurance Co. of Pittsburgh, Pennsylvania v. City Savings, the Third Circuit adopted a definition of “defense” from Black’s Law Dictionary: “That which is offered and alleged by the party proceeded against in an action or suit, as a reason in law or fact why the plaintiff should not recover or establish what he seeks.

Mortgage Lending: 14.3.5.5 Practical Considerations

In light of the differences in federal circuit court decisions, it is important to evaluate which circuit a case is likely to be litigated in before determining whether to advise a consumer to exhaust the administrative claims process for an affirmative defense.

Mortgage Lending: 14.3.6.1 Courts Retain Jurisdiction over Pre-Receivership Suits

There is broad consensus among the federal circuit courts that the requirement of exhaustion of administrative remedies is significantly different for a suit that was filed before the bank went into receivership. The United States Supreme Court has held that subject matter jurisdiction is ordinarily determined at the time a case is filed, and is not affected by later events.177