Mortgage Banking Update - May 1, 2025

May 1 – Read the newsletter below for the latest Mortgage Banking and Consumer Finance industry news, written by Ballard Spahr attorneys. In this issue, we explore why lenders must remain vigilant in compliance efforts, examine the winding down of the VA's VASP program, cover the reintroduced legislation to prohibit 'trigger leads' in the mortgage industry, and much more.

Podcast Episode: Everything You Want to Know About the CFPB as Things Stand Today, and Lots More – Part 2

Our podcast show is Part 2 of a repurposed interactive webinar that we presented on March 24 featuring two of the leading journalists who cover the CFPB – Jon Hill from Law360 and Evan Weinberger from Bloomberg Law.

Our show begins with Tom Burke, a Ballard Spahr consumer financial services litigator, describing in general terms the status of the 38 CFPB enforcement lawsuits that were pending when Rohit Chopra was terminated. The cases fall into four categories: (a) those which have already been voluntarily dismissed with prejudice by the CFPB; (b) those which the CFPB has notified the courts that it intends to continue to prosecute; (c) those in which the CFPB has sought a stay for a period of time in order for it to evaluate whether or not to continue to prosecute them where the stay has been granted by the courts; and (d) those in which the CFPB's motion for a stay has been denied by the courts or not yet acted upon.

Alan Kaplinsky then gave a short report describing a number of bills introduced this term related to the CFPB. Alan remarked that the only legislative effort which might bear fruit for the Republicans is to attempt to add to the budget reconciliation bill a provision subjecting the CFPB to funding through Congressional appropriations. Such an effort would need to be approved by the Senate Parliamentarian. Finally, Alan expressed surprise that the Republicans, in seeking to shut down the CFPB, have not relied on the argument that the CFPB has been unlawfully funded by the Federal Reserve Board since September 2022 because there has been no "combined earnings of the Federal Reserve Banks" beginning then through the present. (Dodd-Frank stipulates that the CFPB may be funded only out of such "combined earnings"). For more information about that funding issue, listen to Alan's recent interview of Professor Hal Scott of Harvard Law School who has written prolifically about it. On April 13, Professor Scott published his third op-ed in the Wall Street Journal, in which he concluded:

Joseph Schuster then briefly described what has been happening at other federal agencies with respect to consumer financial services matters. Joseph and Alan reported on the fact that President Trump recently fired without cause the two Democratic members of the Federal Trade Commission leaving only two Republican members on the Commission. He took that action despite an old Supreme Court case holding that the language in the FTC Act stating that the President may remove an FTC member only for cause does not run afoul of the separation of powers clause in the Constitution. The two Democratic commissioners have sued the administration for violating the FTC Act provision, stating that the President may only remove an FTC commissioner for cause. The President had previously fired Democratic members at the Merit Systems Selection Board and National Labor Relations Board. President Trump based his firings on the belief that the Supreme Court will overrule the old Supreme Court case on the basis that the "termination for cause" language in the relevant statutes is unconstitutional. After the recording of this webinar, the DC Circuit Court of Appeals stayed, by a 2-1 vote, a district court order holding that President Trump's firing of the Democratic members of the NLRB and Merit Systems Selection Board was unlawful. That order was subsequently overturned by the court of appeals acting en banc. Subsequently, Chief Justice Roberts stayed that order. In light of these developments, it seems unlikely that the two FTC commissioners will be reinstated, if at all, until the Supreme Court decides the case. Also, after the recording of this webinar, the Senate confirmed a third Republican to be an FTC commissioner. For those of you who want a deeper dive into post-election developments at federal agencies other than the CFPB, please register for our webinar titled "What Is Happening at the Federal Agencies (Other Than the CFPB) That is Relevant to the Consumer Financial Services Industry?", which will occur on May 13, 2025.

Joseph then discussed developments at the FDIC where the FDIC withdrew the very controversial brokered deposits proposal, the 2023 corporate governance proposal, the Change-in-Bank- Control Act proposal and the incentive-based compensation proposal. He also reported that the FDIC rescinded its 2024 Statement of Policy on Bank Merger Transactions and delayed the compliance date for certain provisions in the sign and advertising rule.

Joseph then discussed developments at the OCC where it (and the FDIC) announced that it would no longer use "reputation risk" as a basis for evaluating the safety and soundness of state-chartered banks that it supervises. The OCC, also, conditionally approved a charter for a Fintech business model to be a national bank and withdrew statements relating to crypto currency risk.

Finally, Joseph discussed how state AGs and departments of banking have significantly ramped up their enforcement activities in response to what is happening at the CFPB.

The podcast ended with each participant expressing his view on what the CFPB will look like when the dust settles. The broad consensus is that the CFPB will continue to operate with a greatly reduced staff and will only perform duties that are statutorily required. It is anticipated that there will be very little rulemaking except for rules that the CFPB is required to issue – namely, the small business data collection rule under 1071 of Dodd-Frank and the open banking rule under 1033 of Dodd-Frank. The panel also felt that the number of enforcement lawsuits and investigations will measurably decline with the focus being on companies engaged in blatant fraud or violations of the Military Lending Act.

This podcast show was hosted by Alan Kaplinsky, the former practice group leader for 25 years and now senior counsel of the Consumer Financial Services Group.

If you missed Part 1 of our repurposed webinar produced on March 24, click here for a blog describing its content and a link to the podcast itself. In short, Part 1 featured Jon Hill from Law360 and Evan Weinberger from Bloomberg Law, who chronicle the initiatives of CFPB Acting Directors Scott Bessent and Russell Vought and DOGE to dismantle the CFPB and the status of the two lawsuits brought to enjoin those initiatives. Ballard Spahr Partners John Culhane and Rich Andreano give a status report on the effort of Acting Director Vought to nullify most of the final and proposed rules and other written guidance issued by Rohit Chopra. The podcast concludes with John and Rich describing the fact that supervision and examinations of banks and nonbanks is nonexistent.

To listen to this episode, click here.

Consumer Financial Services Group

Podcast Episode: Private Civil Consumer Financial Services Litigation to Partially Fill CFPB Void – Part 1

The podcast is Part 1 of a re-purposed webinar we produced on March 25 titled, "The Impact of the Election on the CFPB – Part 4." As a result of the diminishing impact of the CFPB on enforcing the consumer financial services laws, we expect that void to be filled by state government enforcement agencies and private civil litigation, including class and mass actions. Our webinar will focus on private civil litigation. Our featured guest for this webinar was Ira Rheingold, Executive Director of the National Association of Consumer Advocates. He was joined on the panel by Thomas Burke, Dan McKenna, Jenny Perkins, Joseph Schuster, and Melanie Vartabedian, litigators in our firm's Consumer Financial Services Group.

The podcast began with Ira observing that state enforcement agencies and plaintiffs' class action lawyers will be taking a careful look at enforcement actions voluntarily dismissed by the CFPB to ascertain whether the complaints should be refiled by them in federal or state court.

We then proceeded to discuss the following areas where the panelists are predicting an increase in private civil litigation during 2025 and beyond:

1. Increased FCRA litigation, especially in ID Theft (Jenny, Ira).
2. The use of AI and corporate responsibility for ensuring that it does not create unfair or discriminatory practices (Ira).
3. Increased retail bank litigation, including EFTA claims (Ira, Tom).

Part 2 of this repurposed webinar will be released on Thursday, May 1.

Alan Kaplinsky, the former chair for 25 years and now senior counsel of the Consumer Financial Services Group, hosted the podcast show.

For our podcasts repurposed from webinars that we produced as part of our series entitled "The Impact of the Election on the CFPB" Part 1 (regulations and other written guidance), click here and here; Part 2 (supervision and enforcement), click here and here; Part 3 (state AGs and departments of banking), click here and here.

To listen to this episode, click here.

Consumer Financial Services Group

Staying the Course on Compliance: Why Lenders Can't Afford to Let Their Guard Down

HousingWire spoke with Ballard Spahr Partner Richard J. Andreano, Jr., for a piece examining the implications of a regulatory environment in flux as a result of changes at the Consumer Financial Protection Bureau (CFPB) and why lenders should stay vigilant rather than let up on compliance. Rich is practice leader of the firm's Mortgage Banking Group.

"In general, while some proposed rules may stall or disappear under the current administration, others could return in revised form," Rich said. "Lenders need to be prepared to pivot quickly if and when that happens."

Read the full article here (Subscription may be required).

Richard J. Andreano, Jr.

CFPB Rescinds Enforcement, Supervisory Priority Documents, Outlines New Priorities for 2025

The CFPB is rescinding its existing enforcement and supervision priority documents, according to a memo sent to bureau staff by CFPB Chief Legal Officer Mark Paoletta.

The CFPB will focus its enforcement and supervision resources on pressing threats to consumers, particularly service members, their families, as well as veterans, Paoletta wrote, in a memo to bureau employees.

The CFPB also will shift its supervisory efforts back to depository institutions. He noted that in 2012, 70 percent of the bureau's supervision focused on banks and depository institutions and 30 percent on nonbanks. He said those figures have "flipped," adding that more than 60 percent of the CFPB's supervision are focused on nonbanks and less than 40 percent on banks and depository institutions. "The bureau must seek to return to the 2012 proportion and focus on the largest banks and depository institutions," Paoletta wrote.

It is not at all surprising that the majority of the CFPB's supervisory efforts have "flipped" since 2012 in light of the fact that the bureau's supervisory jurisdiction for nonbanks has increased significantly since 2012, with the promulgation of rules establishing larger nonbank participants in various segments of the consumer financial services market.

Supervision shall decrease the number of "events" by 50 percent, according to Paoletta. "The focus should be on conciliation, correction, and remediation of harms subject to consumer complaints," he added. In referring to "events," we assume that Paoletta is referring to examinations.

Paoletta emphasized that the "bureau will focus on actual fraud against consumers, where there are identifiable victims with material and measurable consumer damages as opposed to matters based on the bureau's perception that consumers made 'wrong' choices."

In addition, the bureau will focus on redressing tangible harm by getting money back to consumers, rather than imposing penalties merely to fill the CFPB's penalty fund.

Mortgages will be singled out as the highest priority category.

The Trump administration has targeted the CFPB for significant downsizing, but those efforts have been tied up in federal court. In congressional testimony, bureau officials have conceded that the agency will continue to fulfill its statutory duties.

In his memo, Paoletta outlined other top bureau priorities, including:

• Respecting federalism by, among other things, deprioritizing duplicative enforcement where states have ample regulatory and supervisory authority.
• Minimizing duplicative enforcement where another federal regulator is currently engaged in or has concluded enforcement.
• Coordinating exams with other federal regulators.
• Eliminating supervision outside of the bureau's authority, e.g., no supervision of M&A, just because regulated entities are involved, and no interjecting itself into bankruptcy supervision, an apparent reference to CFPB Bulletin 2023-01, regarding student loan debts and bankruptcy.
• Ceasing supervision under novel legal theories. "It will focus on areas that are clearly within [the bureau's] statutory authority," the memo states.
• Pursuing only matters with proven actual intentional racial discrimination and actual identified victims. "Such matters shall be brought to the leadership's attention and maximum penalties will be sought," Paoletta wrote.

With regard to fair lending, the memo provides that the bureau "will not engage in or facilitate unconstitutional racial classification or discrimination in its enforcement of fair lending law." Specifically, the memo provides that:

• "The Bureau will not engage in redlining or bias assessment supervisions or enforcement based solely on statistical evidence and/or stray remarks that may be susceptible to adverse inferences," according to the memo. (The former statement appears to indicate an end to disparate impact enforcement solely through statistical analyses, and the latter statement is an apparent reference to the Townstone Financial matter.)
• "The Bureau will pursue only matters with proven actual intentional racial discrimination and actual identified victims," the memo states. "Such matters shall be brought to the leadership's attention and maximum penalties will be sought."

He went on to specify the areas that the bureau will deprioritize, including:

• Medical debt.
• Peer-to-peer platforms and lending.
• Student loans
• Remittances.
• Consumer data.
• Digital payments.
• Loans or other initiatives for "justice involved" individuals.

It seems clear that under these new priorities, the CFPB will be able to cut its supervisory and enforcement staff significantly. However, it is unclear whether this memo will be considered a "particularized assessment," which the D.C. Circuit recently stated is required to reduce staff.

Alan S. Kaplinsky, John L. Culhane, Jr., and Richard J. Andreano, Jr.

Appeals Court Temporarily Bars Mass Firings at CFPB

The U.S. Circuit Court of Appeals for the District of Columbia has upheld a temporary injunction issued by Judge Amy Berman Jackson of the U.S. District Court for the District of Columbia prohibiting the CFPB from firing more than 1,400 employees, leaving only about 200 employees at the agency.

The order comes as the latest development in a suit brought by the National Treasury Employees Union, which represents many CFPB employees, and other groups, challenging the Trump administration's efforts to reduce the agency's operations.

Judge Jackson had issued the injunction after finding that the CFPB's mass firings affected more employees than a mass layoff plan that she had attempted to enjoin earlier in the litigation.

The appeals court had subsequently issued a stay partially blocking that ruling, giving the Trump administration some flexibility, saying the agency could fire those employees who, after "a particularized assessment," were determined to be nonessential for CFPB operations.

The agency's assertion that it had conducted such assessments did not persuade Judge Jackson. The appeals court is now allowing Jackson's injunction blocking the firings.

The appeals court said that as a result of the dispute over Jackson's decision, it would be best to uphold that injunction. The court said it would ensure that the plaintiffs can receive "meaningful final relief" if they prevail in the suit.

The appeals court also clarified that a "particularized assessment" of employees means that a CFPB official responsible for the RIF must determine that each office can perform its required duties without the employees scheduled to be terminated. However, the circuit court ultimately concluded that it was best to restore the preliminary injunction against the firings "rather than continue collateral litigation over the meaning and reviewability of the 'particularized assessment'" requirement imposed by this court's stay order.

The attempted firings followed a memo by CFPB Chief Legal Officer Mark Paoletta stating that the bureau was rescinding its existing enforcement and supervisory priority documents. The agency, he said, would focus its enforcement and supervision priorities on pressing threats to consumers, in particular service members, their families, and veterans.

After the CFPB released the mass firing plan, Jackson said, "We're not going to disburse 1,483 people into the universe and have them be unable to communicate with the agency anymore until we have determined whether that is lawful or not."

Jackson barred officials from carrying out any mass firing or cutting off employees' access to agency computer systems. The administration vigorously opposed the decision.

Jackson had scheduled a hearing starting on April 29. However, the appeals court has scheduled oral arguments for May 16, so Jackson canceled her hearing.

Judge Neomi Rao, a President Trump appointee, dissented from the decision, saying that the appeals court's ruling "hamstrings" the CFPB and leaves a "lack of judicially manageable standards." She said that Jackson's order is an "abuse of discretion" that presents "serious separation-of-powers concerns."

"The lack of judicially manageable standards in this posture is a reason to leave execution of the laws to the Executive, not the courts," she wrote.

The appeals court said it will consider the separation-of-powers argument and other arguments raised by the parties at the May 16 hearing.

Richard J. Andreano, Jr. and John L. Culhane, Jr.

Trump Administration Appeals Ruling That Blocked CFPB Firings

The Trump administration has appealed an order by a federal district court judge blocking the CFPB from firing 1,483 employees effective in June 2025 and cutting off their access to CFPB work systems on April 18, 2025.

Judge Amy Berman Jackson of the U.S. District Court for the District of Columbia last week barred the CFPB from dramatically reducing its staffing, saying she is concerned that CFPB officials are ignoring her earlier order, as modified by the D.C. Circuit Court of Appeals, that keeps the agency in existence until she rules on the merits of a lawsuit filed by the National Treasury Employees Union and others challenging plans to dismantle the agency.

In the current order, she said the agency's "Reduction in Force announced by Acting Director Vought on or about April 17, 2025, is SUSPENDED and it may NOT be implemented, effectuated, or completed in any way until this court has ruled on plaintiffs' motion to enforce the preliminary injunction, and the defendants are PROHIBITED from discontinuing any employee's access to work systems, including email and internal platforms."

The proposed firings follow a Wednesday memo by CFPB Chief Legal Officer Mark Paoletta stating that the bureau was rescinding its existing enforcement and supervisory priority documents. The agency, he said, will focus its enforcement and supervision priorities on pressing threats to consumers, in particular, service members, their families, and veterans. The bureau, Paoletta wrote, will shift its supervisory efforts back to depository institutions.

The planned Reduction in Force would leave the bureau with about 200 employees.

In its appeal, the Trump administration said Jackson had no basis for her ruling:

"As defendants explained in their emergency motion, there is no basis under this court's Stay Order to allow plaintiffs or the district court to second-guess defendants' determination that the employees subject to the reduction in force are unnecessary to the performance of defendants' statutory duties—let alone to conduct an inquisition into the basis for that determination." Paoletta also wrote a declaration that the bureau has been undertaking a review of the bureau's activities and staffing. He wrote that the Court of Appeals allowed the bureau to eliminate positions after a "particularized assessment."

He wrote that the bureau had conducted that review.

"Over the course of this review, leadership has determined to take the Bureau in a new direction that would perform statutory duties, better align with administration policy, and right-size the Bureau," he wrote. "Leadership has discovered many instances in which the Bureau's activities have pushed well beyond the limits of the law."

He wrote that a bureau of about 200 persons "allows the Bureau to fulfill its statutory duties and better aligns with the new leadership's priorities and management philosophy."

A chart listing the firings shows that several CFPB offices would be abolished. For instance, the 89 employees of the Midwest Region supervision office, the 95 employees of the Northeast Region supervision office, and the 82 employees of the West Region supervision office would all be terminated.

The Southeast Region supervision office would continue to exist, but the number of employees would decrease from 109 to 48 employees. "Bureau leadership also determined to reorganize Supervision to concentrate all personnel in the Southeastern region due to proximity to headquarters and relatively lower cost of living," Paoletta wrote.

The number of employees in the bureau's Division of Enforcement would decrease from 248 to 50.

In addition, several other offices would be abolished, including the Office of Planning and Strategy, which had 16 employees, the Communications division, which had 11 employees, and the External Affairs division, which had 13 employees.

John L. Culhane, Jr., Richard J. Andreano, Jr., and Alan S. Kaplinsky

HUD Further Revises Servicing and Claims Requirements and Loss Mitigation Options

In January 2025 the U.S. Department of Housing and Urban Development (HUD) issued Mortgagee Letter 2025-06 revising servicing and claims requirements and loss mitigation options for FHA insured mortgage loans effective February 2, 2026.

HUD recently issued Mortgagee Letter 2025-12 further revising the requirements and options effective October 1, 2025. The revisions apply to all FHA Title II forward mortgage loans.

HUD provides the following explanation for the further revisions:

In addition to the changes noted above, other changes made by the Mortgagee Letter and the related attachment that contains amendments to HUD Handbook 4000.1 are the following:

• The FHA-Home Affordable Modification Program Options and currently published Standard Pre-Foreclosure Sale and Standard Deed-in-Lieu of Foreclosure options will remain suspended through September 30, 2025, except for nonborrowers who acquired title through an exempted transfer. The options will expire on September 30, 2025.
• The COVID-19 Recovery Loss Mitigation Options are extended through, and will expire on, September 30, 2025.
• HUD determined that "certain language access provisions are unnecessarily burdensome." HUD removed the provisions, and modified another provision. Specifically,
• The language accessibility provisions that Mortgagee Letter 2025-06 added to section (III.A.1.a.ii(D)) of Handbook 4000.1 were removed.
• The requirement that a servicer transferring servicing inform the transferee servicer of the borrower's language preference was made optional.
• The Loss Mitigation Waterfall is updated.
• Borrower compensation under the Pre-Foreclosure Sale option is reduced from $7,500 to $3,000, which was the amount prior to the changes made by Mortgagee Letter 2025-06.
• Borrower compensation under the Cash For Keys option is reduced from $7,500 if the borrower vacates the property within 30 days of notice to vacate, and from $5,000 if the borrower vacates the property within 60 days of the notice to vacate, to $3,000, which was the amount prior to the changes made by Mortgagee Letter 2025-06.
• Borrower compensation under a Deed in Lieu Agreement is reduced from $7,500 to $3,000, which was the amount prior to the changes made by Mortgagee Letter 2025-06.

The Mortgage Bankers Association's President and CEO Bob Broeksmit, CMB, released the following statement regarding the HUD actions:

Richard J. Andreano, Jr.

HUD Modifies Exclusive REO Listing Period and Eliminates Exclusive Sales Period

Recently, the U.S. Department of Housing and Urban Development (HUD) issued Mortgagee Letter 2025-13 to revise the exclusive listing period for certain parties in connection with HUD real estate owned (REO) properties, and eliminate the exclusive sales period for the same parties in connection with the FHA loan claims without conveyance of title (CWCOT) post foreclosure sales process. The REO provisions of the Mortgagee Letter must be implemented for all HUD REO properties listed for sale on or after May 30, 2025. The CWCOT provisions of the Mortgagee Letter may be implemented immediately but must be implemented for all post-foreclosure sales associated with defaulted FHA-insured mortgages scheduled to occur on or after May 30, 2025.

In Mortgagee Letter 2022-01, HUD expanded the exclusive listing period for HUD REO properties for owner-occupant buyers, HUD-approved nonprofits, and government entities from 15 to 30 days.

In Mortgagee Letter 2022-08, HUD established an exclusive 30-day sales period for owner-occupant buyers, HUD-approved nonprofits, and government entities as part of the CWCOT post-foreclosure sale process.

HUD explains in Mortgagee Letter 2025-13 that these changes were made to make more properties "available directly to future homeowners or to future homeowners via programs run by HUD-approved" nonprofits or government entities. HUD then states:

HUD decided to return the exclusive listing period for HUD REO properties for owner-occupant buyers, HUD-approved nonprofits, and government entities back to the previous 15 days. HUD also decided to eliminate the exclusive sales period for owner-occupant buyers, HUD-approved nonprofits, and government entities as part of the CWCOT post-foreclosure sale process, and to provide that mortgagees that utilize the post-foreclosure sales efforts must list the property for sale to all third parties for a 60-day period. Previously the 60-days sales period for all third parties ran after the expiration of the exclusive 30-day period for owner-occupant buyers, HUD-approved nonprofits, and government entities.

Richard J. Andreano, Jr.

VA Winding Down VASP Program

As previously reported, last year the U.S. Department of Veterans Affairs (VA) launched a Veterans Affairs Servicing Purchase (VASP) program, which VA characterized as a "last-resort tool" for VA home loan borrowers facing severe financial hardships. Pursuant to the program, VA purchases defaulted VA loans, modifies the loans, and then places them in the VA-owned portfolio as direct loans.

In Circular 26-25-2, VA announced that as of May 1, 2025, it is rescinding the VA Home Retention Waterfall that includes VASP as the final option and will stop accepting VASP submissions, including new VASP Trial Payment Plans (TPPs). VA advises that it will allow active TPPs to continue through August 31, 2025, and will purchase successful loans, subject to VA's determination that funds remain available for VASP.

The Circular sets forth the following key dates' wind down procedures:

• As soon as practicable but no later than April 30, 2025, at 11:59 p.m. EDT, servicers are to discontinue use of the VA Home Retention Waterfall outlined in VA Servicer Handbook, M26-4, Appendix F.
• On May 1, 2025, VA will no longer accept submissions for new VASPs in the VALERI application. Submissions for new VASPs reported through April 30, 2025, at 11:59 p.m. EDT will be evaluated against the VASP qualifying criteria, and if accepted, VA will review for a VASP Payment, subject to VA's determination that funds remain available for VASP.
• Veterans can continue making payments and complete VASP TPPs for any loans with an accepted VASP TPP event reported through April 30, 2025, at 11:59 p.m. EDT. After April 30, 2025, at 11:59 p.m. EDT, VA will not accept resubmissions of failed VASP TPPs.
• Servicers are to report the VASP TPP Complete event in the VALERI application for all completed VASP TPPs. The VASP TPP Complete event should be reported when the TPP fails or the final payment is received; however, any active TPP where the VASP TPP Complete event is not received by August 31, 2025, at 11:59 p.m. EDT will be canceled.
• Servicers are to upload VASP required documents into the VALERI application not later than 6 business days after the VASP Payment Process is launched. Beginning May 1, 2025, VASP submissions will be denied when the servicer does not meet the deadline, and there will be no opportunity to resubmit. Servicers are responsible for monitoring pending submissions to ensure the appropriate documents are uploaded timely prior to the deadline.
• For VASPs that were timely submitted by April 30, 2025, at 11:59 p.m. EDT, and have ongoing active TPPs, VA will review pending VASP Payment processes for all successful submissions received through August 31, 2025, at 11:59 p.m. EDT, subject to VA's determination that funds remain available for VASP. No VASP payments will be issued after September 30, 2025, 11:59 p.m. EDT.

With regard to the discontinuance of the VA Home Retention Waterfall, referencing 38 CFR §36.4319, VA advises that servicers are "to offer the best loss mitigation option available for the borrower's individual circumstances," and "are to keep VA's preferred order of consideration in mind."

The Circular also sets forth the following changes:

• With regard to 30-year loan modifications, the requirement that there be at least a minimum 10 percent reduction in the monthly principal and interest payment is removed.
• With regard to 40-year loan modifications, the requirement that there be at least a minimum 10 percent reduction in the monthly principal and interest payment is removed, and if a 10 percent reduction cannot be achieved, the servicer must review the borrower for VASP (although as addressed above VASP is being discontinued).

Richard J. Andreano, Jr.

Legislation to Prohibit 'Trigger Leads' in Mortgage Industry Reintroduced in House, Senate

Legislation to prohibit so-called "trigger leads" in the homebuying process once again has been reintroduced in the House and Senate.

"Trigger leads" are controversial for both consumers and mortgage industry participants. When a mortgage lender orders a credit report on a consumer, the credit bureau providing the report may then alert various other mortgage lenders who have subscribed to a service of that fact, which is a good indication that the consumer is seeking a mortgage loan.

The consumer then will receive unsolicited offers from other mortgage lenders, often prompting the consumer to complain to the mortgage lender they are working with. Of course, that mortgage lender typically advises the consumer that the last thing they would do is let their competitors know that the consumer was seeking a mortgage loan.

The House and Senate legislation would amend the Fair Credit Reporting Act to prohibit consumer reporting agencies from furnishing a trigger lead except in limited circumstances. It passed the Senate during the last Congress but was not passed by the House.

Lead co-sponsors of the House bill, H.R 2808, in this Congress are Representatives John Rose, (R-Tenn.) and Ritchie Torres, (D-N.Y.). Lead cosponsors of the Senate bill, S. 1467, are Senators Bill Hagerty, (R-Tenn.), and Jack Reed, (D- R.I.).

"The legislation would protect potential homebuyers from unsolicited, predatory, sales tactics while preserving fair competition," Rose said, as he introduced the bill.

"Too often, homebuyers find themselves bombarded with unsolicited offers beginning the moment they apply for a mortgage that persist indefinitely," Torres said.

"Unsolicited phone calls caused by trigger leads have become an intolerable nuisance to many Tennesseans," said Hagerty.

And Reed said, "Consumers should not get needlessly 'spammed' with unsolicited, predatory offers just because they take a necessary step in the homebuying process."

The legislation is supported by a broad group of financial trade and consumer advocacy groups, including the Mortgage Bankers Association, the Independent of Community Bankers of America, the American Bankers Association, the National Consumer Law Center, the Consumer Federation of America, and Americans for Financial Reform.

MBA's President/CEO Bob Broeksmit, CMB, said that the MBA has worked closely with industry stakeholders and a large bipartisan group of lawmakers to push for action that would end the practice of mortgage credit leads.

"Consumers remain vulnerable to trigger leads abuses, and we believe strongly that this common-sense legislation will curb the practice while preserving its value in appropriately limited circumstances," he said.

Richard J. Andreano, Jr.

OCC, FDIC Eliminating 'Reputational Risk' From Supervision, Examinations

The OCC has removed "reputational risk" from its handbooks and guidance and the FDIC is moving to do the same.

The OCC's decision supports "the OCC's mission and its supervisory objectives to ensure that banks have appropriate and strong risk management processes for their business activities, treat customers fairly, and comply with applicable laws and regulations," the agency said, in announcing the move.

"The OCC's examination process has always been rooted in ensuring appropriate risk management processes for bank activities, not casting judgment on how a particular activity may fare with public opinion," said Acting Comptroller of the Currency Rodney E. Hood. "The OCC has never used reputation risk as a catch-all justification for supervisory action. Focusing future examination activities on more transparent risk areas improves public confidence in the OCC's supervisory process and makes clear that the OCC has not and does not make business decisions for banks."

Reputational Risk received attention during the Obama Administration's Operation Choke Point, as banking regulators examined banks serving payday lenders, gun dealers, and other companies. However, more recently, there have been concerns expressed that reputational risk was considered by banking regulators evaluating institutions involved with crypto or digital assets.

In a letter to Representative Dan Meuser, (R-Pa.), chairman of the House Financial Service's Committee's Oversight and Investigations Subcommittee, Acting FDIC Chairman Travis Hill addressed the reputational issue.

"I fully agree that banking regulators should not use 'reputational risk' as a basis for supervisory criticisms," he wrote. He also wrote that a bank's supervision is critically important and that most activities that could threaten a bank's reputation would be found through traditional risk channels that supervisors already use.

"Meanwhile, 'reputational risk' has been abused in the past, and adds no value from a safety and soundness perspective as a standalone risk," Hill said, in the letter, in which he also referenced agency work on digital assets. He said the agency has done an extensive review of regulations, guidance, and other policies that address reputational risk.

"We are active working on a rulemaking to ensure supervisors do not criticize activities or actions on the basis of reputational risk, which we expect to issue in the near-future," he wrote.

On Capitol Hill, Senate Banking Committee Chairman Sen. Tim Scott, (R-S.C.), has introduced S. 875, legislation that would prevent federal banking regulators from using reputational risk as a component in supervision. The legislation would require the banking agencies to report to Congress on their elimination of reputational risk as a component of their supervision of depository institutions.

The banking industry will be pleased to see the development. Items identified as exposing a bank to reputational risk have usually generated criticism on other grounds (for example, compliance risk, operational risk) and there was a real danger that evaluating reputational risk was penalizing an institution a second time for the same deficiency.

Scott A. Coleman

Looking Ahead

What Is Happening at the Federal Agencies (Other Than the CFPB) That Is Relevant to the Consumer Financial Services Industry?

A Ballard Spahr Webinar | May 13, 2025, 12 PM ET

Speakers: Alan S. Kaplinsky, Scott A. Coleman, John L. Culhane, Jr., Joseph J. Schuster, Kristen Larson

MBA – Legal Issues and Regulatory Compliance Conference

May 14-17, 2025 | Hilton San Diego Bayfront Hotel, San Diego, CA

APPLIED COMPLIANCE TRACK: Loan Originator Compensation

May 15, 2025 – 2:30 PM PT

Speaker: Meredith Dante

APPLIED COMPLIANCE TRACK: The Complexities of RESPA Section 8 – Strategies for Compliance and Risk Management

May 15, 2025 – 4:00 PM PT

Speaker: Richard J. Andreano, Jr.

DATA PRIVACY, SECURITY AND AI TRACK: Evolving Regulatory Environment on AI in the Mortgage Industry

May 16, 2025 – 1:00 PM PT

Speaker: Gregory Szewczyk

CLOSING SUPER SESSION

May 17, 2025 – 11:15 AM PT

Speaker: John D. Socknat

ACES ENGAGE 2025

May 18-20, 2025 | The Broadmoor Resort, Colorado Springs, CO

Compliance Update PART I

May 19, 2025 – 11:00 AM MT

Speaker: Richard J. Andreano, Jr

Compliance Update PART II

May 20, 2025 – 8:40 AM MT

Speaker: Richard J. Andreano, Jr.

What Is Happening at the Federal Agencies That Is Relevant to the Residential Mortgage and Settlement Service Industry?

A Ballard Spahr Webinar | June 11, 2025, 12 PM ET

Speakers: Alan S. Kaplinsky, John L. Culhane, Jr., Matthew A. Morr, John D. Socknat

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