Mortgage Loand: Reverse Mortgages (CFPB: June Roundup)

In June the CFPB shifted its focus from forward mortgages to reverse and allowed consumers to view raw credit card complaint data submitted to the nation's largest banks. The CFPB also requested information on private student loans and potential threats to elderly consumers and finalized its regulation on protecting privileged information provided to the Bureau during the course of an examination.

MORTGAGE LOANS

Reverse Mortgages

Reverse mortgages are special home loans that allow borrowers who are 62 or older to access the equity they have built up in their homes. These loans do not require monthly payments and are repayable upon the borrower's death, the sale of the home or if the homeowner moves. Only about 700,000 reverse mortgage loans are originated each year, and nearly all are Home Equity Conversion Mortgages ("HECM") insured by the Federal Housing Administration.

Dodd-Frank requires that the CFPB to study reverse mortgage loans for the purpose of: (i) providing an authoritative resource on reverse mortgage products, consumers and markets; (ii) identifying and assessing consumer protection concerns; and (iii) exploring critical unanswered questions and updating the public body of knowledge to reflect new market realities. With these goals in mind, the CFPB's Reverse Mortgage Report finds as follows:

• Reverse mortgages are complex products are difficult for consumers to understand;
• Reverse mortgage borrowers are using the loans in different ways than in the past, which increase risks to consumers;
• Product features, market dynamics, and industry practices also create risks for consumers;
• Counseling, while designed to help consumers understand the risks associated with reverse mortgages, needs improvement to be able to meet these challenges; and
• Some risks to consumers appear to have been adequately addressed by regulation, but remain a matter for supervision and enforcement, while other risks still require regulatory attention.

In addition to publishing the Report, the Bureau published a Notice and Request for Information seeking detailed information from the public on the factors that influence reverse mortgage consumers' decision-making, use of loan proceeds, longer-term outcomes of a decision to obtain the mortgage, differences in market dynamics and business practices among the origination channels. Comments are due August 31. A copy of the Report can be accessed here:

http://files.consumerfinance.gov/a/assets/documents/201206_cfpb_Reverse_Mortgage_Report.pdf

Additionally, the Office of Older Americans released a four-page consumer guide to reverse mortgages and a new and improved set of answers to common reverse mortgages questions on "Ask CFPB." A copy of the guide is available here:

http://www.consumerfinance.gov/blog/understanding-reverse-mortgages/

and the reverse mortgage FAQs are available here:

http://www.consumerfinance.gov/askcfpb/search?selected_facets=category_exact:Mortgages&selected_facets=tag_exact:reverse%20mortgage

Mortgage Servicing

The Bureau along with the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the National Credit Union Administration, and the Office of the Comptroller of the Currency (together "the Agencies") issued guidance to address mortgage servicer practices that may pose risks to homeowners who are serving in the military. Specifically, the guidance addresses servicing issues relevant for homeowners who have received military Permanent Change of Station ("PCS") orders.

The Agencies have particular concerns about the following practices, which could mislead or otherwise cause harm to homeowners with PCS orders:

• Failing to provide homeowners with PCS orders with accurate, clear, and readily understandable information about available assistance options, including the Making Home Affordable Program and programs offered by or through Fannie Mae, Freddie Mac, the Federal Housing Administration, the Department of Veterans Affairs, and the Department of Agriculture-Rural Development.
• Asking homeowners with PCS orders to waive their legal rights under the Servicemembers Civil Relief Act or any other law as a prerequisite to providing information to the homeowner about available options or evaluating the homeowner's eligibility for assistance.
• Advising homeowners with PCS orders who are current on their loans and able to make the monthly payment to intentionally skip making payments to create the appearance that they are having financial difficulties to obtain assistance.
• Failing to provide a reasonable means for homeowners with PCS orders to obtain information on the status of their request for assistance.
• Failing to timely communicate the servicer's decision regarding requests for assistance from homeowners with PCS orders and failing to include an explanation of the reason for the denial, where required, so that the homeowner has an opportunity to address any deficiencies, if applicable.

COMPLAINT DATABASE

Beta Test

Consumers are now able to access individual-level consumer complaint data received by the CFPB regarding credit cards. Historically, these types of complaints were available only to the financial institution, its regulator and law enforcement agencies or to the public via a Freedom of Information Act request. Although no consumer-identifying data is available, the database is comprised of:

• Complaint ID: This is the unique identifier for the complaint.
• Product: The type of product the consumer identified in the complaint.
• Submission Type: How the complaint was submitted to the CFPB (i.e., Web, mail or agency referral).
• Date Received: The date the CFPB received the complaint.
• Zip Code: The consumer's reported residential zip code.
• Issue: The issue the consumer identified in the complaint.
• Date Sent to Company: The date the CFPB sent the compliant to the company.
• Company: The company about which the complaint was made.
• Company Response: How the company responded to the complaint (i.e., closed with monetary relief, closed with nonmonetary relief, in progress, etc.)
• Response Timely: Whether the company provided a timely response (yes/no).
• Consumer Dispute:Whether the consumer disputed the company's response (yes/no).

Consumers can manipulate the available data to produce charts and tables highlighting the issues and companies on which they want to focus. A sample data manipulation is attached for your information and the raw data via a beta test site is available here:

https://data.consumerfinance.gov/dataset/Credit-Card-Complaints/25ei-6bcr

Note that this version of the Consumer Complaint Database is a first draft "beta" test. The Bureau is entertaining the idea of adding narrative fields (to the extent they do not include personally-identifiable information), more sub-product and sub-issue data fields, regular and normalized data visualizations, and expanded data tools. The Bureau also intends to expand the searchable database of complaint resolutions to other consumer credit products in the near future.

Final Policy

On June 19, the CFPB issued a final policy statement to provide guidance on how the Bureau plans to exercise its discretion to publicly disclose certain credit card complaint data, without including personally identifiable information. The Bureau plans to disclose the data in two ways:

• First, the Bureau plans to issue its own periodic reports; and
• Second, the Bureau will provide the public with access to an electronic database describing complaints filed.

The Bureau hopes that the periodic reports that it publishes are sufficient to overcome any misunderstanding by the public of the raw data in the database. Pursuant to the report issued in June 2012, the Bureau notes the following:

• Between July 21, 2011, and June 1, 2012, the CFPB received approximately 45,630 consumer complaints, including approximately 16,840 credit card complaints, 19,250 mortgage complaints, 6,490 bank products and services complaints, and 1,270 private student loan complaints.
• Approximately 44 percent of all complaints were submitted through the CFPB's website and 11 percent via telephone calls.

Referrals from other regulators and agencies accounted for 39 percent of all complaints received. The rest were submitted by mail, email, and fax.

• Companies have already responded to approximately 33,000 complaints or 89 percent of the complaints sent to them for response.
• Consumers are asked to notify the CFPB within 30 days if they want to dispute a company's response. Consumers have disputed approximately 5,940 company responses (19 percent) to complaints.

Although the Bureau did make certain concessions regarding the disclosure of data to the public, the Bureau failed to adopt other suggestions offered by commenters. Specifically, the Bureau failed to adopt a policy to remove unconfirmed complaints from the database, instead arguing that the "marketplace of ideas" should determine whether to give merit to the complaint:

Several also argued that complaints resolved without any showing of company fault should be excluded as lacking foundation. One trade association stated that releasing unverified complaint data deprives issuers of due process. Privacy and consumer groups commented that the lack of verification presented only minimal risks to issuers because there are controls to ensure that complaints must come from actual cardholders, and issuers are given adequate time to dispute their identification.

The Bureau agrees with industry commenters that its complaint process does not provide for across the boar verification of claims made in complaints. However, as it has previously indicated, the Bureau plans to specifically disclaim the accuracy of complaints when the data are made available to consumers. Outside of its own affirmative data reporting, the Bureau will allow the marketplace of ideas to determine what the data show.

One important change that the Bureau did make in response to industry comments relates to the resolution of issues:

• Monetary v. Non-Monetary Relief. First, where an issuer provides relief to the consumer, the issuer may categorize the complaint as either ''Closed with monetary relief'' or ''Closed with non-monetary relief.'' To qualify for the ''Closed with monetary relief'' category, the company's response must provide objective and verifiable monetary relief that is measurable in response must provide the consumer with objective and verifiable relief that does not meet the definition of monetary relief.
• Closed with Explanation. Second, the Bureau has added a ''Closed with explanation'' response category, which may be used when the issuer believes that the complaint does not merit substantive relief, and instead provides a full explanation to that effect to the consumer. This category recognizes that in some instances, a thorough explanation will serve to resolve the consumer's complaint. At the same time, it allows reviewers and consumers to see in more detail how issuers, collectively and separately, resolve the complaints filed against them.

Proposed Policy

On the same day it issued the final policy, the Bureau issued a proposed policy to address databases for other product lines. This proposed policy, in large part, tracks the final policy described above. Entities in the mortgage, auto finance and consumer lending industries are advised to carefully review the final and proposed policies to determine potential effects on their own businesses. Comments are due on the proposed policy by July 19, 2012.

Protecting Older Americans

The Bureau published for comment in the Federal Register a request for information relating to potential elder abuse. According to a recent study, seniors lost at least $2.9 billion to financial exploitation in 2010. And from 2008 to 2010, there was a 12 percent increase in the amount of money scammed from seniors. The Bureau is hoping to learn more about the many ways in which older Americans are financially exploited and about the best practices for elder financial management. The Bureau is particularly interested in information on what financial education, counseling or management programs are tailored to the unique needs of older Americans, their families, and their caregivers.

REGULATIONS

Enforcement

In addition to its requests for information on reverse mortgage loans and elder abuse, the CFPB published three final and one interim final rule relating to its enforcement activities.

• Rule Relating to Investigations. This rule describes the CFPB's procedures for investigating whether persons have engaged in conduct that violates federal consumer financial law. This rule sets forth the Bureau's authority to conduct investigations, including the procedures for issuing civil investigative demands. It also describes the rights of persons from whom the CFPB seeks to compel information in investigations.
• Rule of Practice for Adjudication Proceedings. Under this rule, the CFPB can conduct administrative adjudications (hearings) to ensure or enforce compliance with federal laws and regulations.
• State Official Notification Rule. This rule is designed to help the CFPB stay informed about state-level legal developments relating to the Dodd-Frank Act. It describes the process through which state officials update the agency on certain legal actions they bring to enforce compliance with certain provisions of the Dodd-Frank Act and regulations the CFPB may issue.
• Equal Access to Justice. This rule is an interim final rule that implements the Equal Access to Justice Act, which provides that certain prevailing parties in administrative proceedings can recover attorney fees and expenses. The rule sets forth who can seek to recover these costs and how to do so. Comments are due August 28, 2012.

Privileged Information

To address concerns raised about the authority of the CFPB to request privileged information and about whether a company that acquiesces to such a request has waived its attorney client privilege, the CFPB adopted a final rule. This rule follows guidance that the CFPB previously had issued.

In January 2012, the CFPB advised the institutions that it supervises that the submission of privileged information to the CFPB does not waive any applicable privilege with respect to third parties "because entities must comply with the Bureau's supervisory requests for information, the provision of privileged information to the Bureau would not be considered voluntary and would thus not waive any privilege that attached to such information." The new rule provides supervised entities further assurances that providing privileged information to the Bureau will not adversely affect the confidentiality of such information. The new rule also makes clear that the CFPB's transfer of privileged information to another Federal or State agency does not result in a waiver of any applicable privilege.

Given this rule, the Bureau takes the position that it may request information that may be subject to the attorney-client privilege and attorney work product protection.

Outstanding Federal Register Publications

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