Mortgage Lending: 4.6.3 Substantive Prohibitions
Certain mortgage terms are prohibited in HOEPA loans:
Certain mortgage terms are prohibited in HOEPA loans:
Fair lending statutes generally prohibit discrimination against certain groups of people.
Four key CROA prohibitions apply to any “person” and not just to credit repair organizations.432 These restrictions have important potential applications to loan churning, appraisal fraud, and falsification of the consumer’s income.433 Yet some courts have refused to give meaning to the Act’s explicit extension of these prohibitions to any person.
Civil liability for violations of CROA includes actual damages or the total amount the consumer paid to the credit repair organization, whichever is greater, plus reasonable attorney fees.444 Punitive damages are specifically authorized.445 Despite the Act’s inclusion of this provision for civil liability, of a disclosure requirement of the right to sue a credit repair organization that violates the Act, and of a prohibition on the waiver of any right under CROA,
The federal Racketeer Influenced and Corrupt Organizations Act (RICO)450 provides powerful civil remedies, including attorney fees and treble damages, to victims subjected to a broadly defined range of “racketeering activity” or to the collection of an “unlawful debt.”451 The use of RICO in consumer cases is discussed in more detail in NCLC’s Federal Deception Law.452
The Servicemembers Civil Relief Act (SCRA) provides special protections for military service personnel on active duty and their dependents.481 The Act requires lenders to reduce the interest rate on debts that were owed before the servicemember went on active duty—including mortgage loans—to six percent.482 It also provides protections against default judgments, tolling of the statute of limitations for claims by and against the servicemember, restrictions on eviction from residential proper
No discussion of mortgage origination would be complete without a discussion of mortgage brokers.
Federal law provides an interest rate cap for federally insured state-chartered banks, savings associations, and credit unions: the higher of a federal rate, the institution’s home state rate, or the rate of the state where the loan is made.511 While the Federal Deposit Insurance Corp. and the National Credit Union Administration have certain regulatory authority over such institutions, there are no extensive federal regulations governing their ability to make home mortgages.
The Consumer Financial Protection Act gives the Bureau of Consumer Financial Protection522—commonly known as the Consumer Financial Protection Bureau or CFPB—a number of different forms of rulemaking authority concerning consumer financial services. These include regulations interpreting specific consumer credit statutes; rules prohibiting unfair, deceptive, or abusive acts or practices; rules requiring certain disclosures; and rules providing for consumers’ right to obtain certain information.
An important area of CFPB authority is its ability to write rules to prevent unfair, deceptive, or abusive acts or practices (UDAAP authority) in connection with a broad array of consumer financial products and services.537 The Act includes definitions of “unfair”538 and “abusive.”539 It does not define “deceptive,” but the Federal Trade Commission (FTC)540 and a large body of decisions under
The CFPB can prescribe rules to ensure that the features of consumer financial products are fully, accurately, and effectively disclosed so that consumers understand the costs, benefits, and risks associated with the product.545 The CFPB is authorized to issue model disclosure forms that may be used by creditors and that will then provide a safe harbor for the creditor.546 The CFPB may also permit creditors to experiment with trial disclosures, also under a safe harbor.
CFPB rulemaking authority concerning UDAAP, disclosures, and the right to information relates to “covered persons” and “consumer financial products and services.” A consumer financial product or service is a product or service offered or provided for use by consumers primarily for personal, family, or household purposes.552 A financial product or service means one of a number of listed activities (with certain exceptions):
There are private rights of action for violations of many of the regulations enacted under the “enumerated statutes,” listed in § 4.14.2, supra.
The CFPB has authority to enforce its rules over banks and credit unions with $10 billion or more in assets (and all of their subsidiaries).567 Banking regulators have enforcement power over smaller institutions.568 CFPB enforcement authority also extends to other aspects of the mortgage industry (including brokers, lenders, and servicers), the “larger participants in a market for other consumer financial products or services,”569 and any oth
CFPB rules do not preempt state law, except to the extent that the state law is inconsistent with the CFPB rule and then only to the extent of the inconsistency.577 The Consumer Financial Protection Act specifies that state law is not inconsistent with a CFPB rule if it provides greater protections.
E-Sign has an unusual reverse preemption provision that allows it to be overridden by a state’s adoption of a uniform version of UETA.610 For consumer transactions, this is most relevant to the issue of whether the E-Sign consent provision applies to documents required to be provided to the consumer in writing (writings required by federal law are always covered by E-Sign). However, almost all states either explicitly preserved E-Sign’s protections when they adopted UETA, or did not adopt a uniform version of UETA after E-Sign was passed.
E-Sign overrides the requirement in many state credit statutes that the consumer be given a copy of the contract or other information in writing, but only if the consumer explicitly consents in the manner required by E-Sign.643 The consumer’s consent must meet a set of strict requirements which require specific disclosures and, most importantly, the consent must be provided by the consumer in a manner that reasonably demonstrates that the consumer can access information in the electronic form that will be used to provide the information tha
There are several important considerations regarding the validity of electronic signatures.
A critical factor in whether the HPA applies is whether the insurance is required.689 But there is little case law directly addressing this issue. In Dwoskin v. Bank of America,690 an unpublished Maryland district court case, the lender purchased mortgage insurance on the plaintiffs’ loans after closing and without notifying the plaintiffs.
The lender or servicer must automatically terminate borrower-paid PMI at one of two points:
If the insurance has not already been canceled or automatically terminated, and if the borrower is current, the lender or servicer must cancel PMI when the loan reaches the month after the midpoint of the mortgage amortization period.746 The midpoint is halfway through the scheduled life of the loan.
If the loan is modified, all of the cancellation and termination dates must be recalculated based on the modified loan terms.749 A loan modification, such as those made under traditional loss mitigation programs, does not qualify as a refinanced loan under the HPA,750 so a loan modification does not trigger any PMI-related disclosures.751 But the borrower will continue to receive the HPA-required annual disclosure.