Mortgage Lending, Servicing + Banking

On June 20, six federal financial services regulators issued the final automated valuation model (AVM) rule. The AVM rule, initially proposed in June 2023 and discussed here, aims to implement the quality control standards mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act). The final AVM rule is largely identical to the proposed rule and is set to take effect on the first day of the calendar quarter following 12 months after its publication in the Federal Register.

On May 30, the U.S. Supreme Court unanimously decided Cantero, reaffirming and elaborating on the Barnett Bank preemption standard, and remanding the case to the Second Circuit for further proceedings. Cantero addressed whether a New York law requiring the payment of at least 2% per annum interest on mortgage escrow deposits was preempted by federal law as to national banks. The Supreme Court held that the Second Circuit erred when it failed to apply the preemption standard articulated in Barnett Bank of Marion County, N.A. v. Nelson, which was incorporated by Congress into the Dodd-Frank Act. The Court rejected the lower court’s holding “that federal law preempts any state law that ‘purports to exercise control over a federally granted banking power,’ regardless of ‘the magnitude of its effects.’” The Court also rejected the approach argued by the petitioners, explaining it would “yank the preemption standard to the opposite extreme, and would preempt virtually no non-discriminatory state laws that apply to both state and national banks.”

On June 18, a Colorado federal court granted the plaintiff trade groups’ motion for a preliminary injunction, effectively halting the enforcement of Colorado’s H.B. 1229 with respect to loans made by out-of-state state-chartered banks.

On May 30, the Consumer Financial Protection Bureau (CFPB or Bureau) issued a request for information (Request) regarding alleged “junk fees” in closing costs charged by mortgage lenders and related settlement service providers. The Bureau is accepting public comments until August 2, 2024.

On May 29, the Department of Veterans Affairs (VA) announced a targeted foreclosure moratorium on VA-guaranteed loans intended to allow servicers sufficient time to implement the Veterans Affairs Servicing Purchase (VASP) program. Servicers may begin implementing the VASP program beginning May 31, 2024, and the VA expects servicers will fully implement the program no later than October 1, 2024.

Kansas Governor Laura Kelly signed House Bill (HB) 2247 into law, bringing significant changes to the Kansas Mortgage Business Act and the Uniform Consumer Credit Code (UCCC). The changes brought about by HB 2247 will largely become effective on January 1, 2025. However, those changes standardizing threshold amounts consistent with federal law will become effective on July 1, 2024.

In an unpublished decision, the U.S. Court of Appeals for the Ninth Circuit recently affirmed the decision of a California district court finding that the furnisher conducted a reasonable investigation under the Fair Credit Reporting Act (FCRA) when it updated its credit reporting to more accurately reflect the plaintiffs’ payment history.

On April 24, the Consumer Financial Protection Bureau (CFPB or Bureau) released a special edition of its Supervisory Highlights report focusing on examinations of the residential mortgage servicing market that were completed between April 1, 2023 and December 31, 2023. According to the report, the CFPB found instances of mortgage servicers charging illegal fees, such as prohibited property inspection fees, and sending deceptive notices to homeowners. Examiners also found servicers violating Regulation X’s loss mitigation rules.

The U.S. Court of Appeals for the Ninth Circuit recently reversed a district court’s ruling, which had denied a motion to compel arbitration of Opportunity Financial (OppFi) on the basis that the arbitration clause was substantively unconscionable due to the choice of law provision in the loan agreement containing the arbitration clause. The Ninth Circuit vacated the decision and directed the district court to refer the matter to arbitration.