Homeowners May Pay Bankers’ Future Bonuses, Courtesy of a New Regulation Proposed by the Consumer Financial Protection Bureau.
Under a proposal made by the U.S. Government, banks and other mortgage servicers would be empowered to decide whether homeowner’s insurance on mortgaged homes is “insufficient”. These same banks reportedly earn money by declaring that a homeowner’s insurance is “insufficient” and requires lender force-placed insurance. Further, the banks earn more money if the homeowner cannot afford the exorbitant higher premiums of lender force-placed insurance, and so the banks foreclose on the homeowner’s mortgage.
Under the pending proposal, written by the Consumer Financial Protection Bureau, the banks and other mortgage servicers would be immunized if they are wrong. Whether the homeowner had “sufficient” insurance coverage is at the heart of most lawsuits over lender force-placed insurance practices; if the banks are immunized for being wrong about that, they may be exposed to significantly less scrutiny by juries and judges in LFPI lawsuits. Certainly, that is what the banks at least will argue.
The official period for comments expires on Monday, March 16, 2015. As these words are written, there is time to register your own observations on the CFPB proposal. On Friday, March 13, 2015, the author filed his own comments and for your convenience, they are repeated here including the information necessary for the Government to process your comments including the CFPB Docket Number and the Regulatory Information Number (“RIN”) . Please take advantage of this unique opportunity, whether or not you agree with the following comments of this writer.
March 13, 2015
BY POSTING TO FEDERAL eRULEMAKING PORTAL
AND BY PDF ATTACHMENT TO EMAIL
Federal eRulemaking Portal: http://www.regulations.gov.
Email: [email protected].
Re: Docket No. CFPB-2014-0033.
RIN 3170-AA49.
To the Consumer Financial Protection Bureau:
These Comments concern certain amendments or changes to regulations and related forms proposed by the CFPB. The Bureau’s proposed amendments are not authorized by Congress.
The Consumer Financial Protection Bureau can act only with authority delegated by Congress. Here, the Bureau’s cited Legal Authority does not authorize the CFPB to issue a regulation that in turn authorizes a mortgage servicer to demand “evidence that the borrower has hazard insurance that provides sufficient coverage”.
These Comments address in particular the Bureau’s proposed changes to 12 C.F.R. § 1024.37(c)(2)(v)(A) and (B). The CFPB’s proposed changes to the regulation also implicate changes proposed by the CFPB to Forms in Appendix MS-3 including (A) and (B).
The CFPB’s cited “Legal Authority” for these changes references certain sections of the Real Estate Settlement Procedures Act (RESPA):
These proposed amendments and clarifications to § 1024.37 implement sections 6(k)(1)(A), 6(k)(2), 6(l), and 6(m) of RESPA.
The proposed amendments addressed here do not implement the cited sections of RESPA. (The sections relied on by the CFPB are codified in 12 U.S.C. § 2605.)
Section 6(m), or subsection 2605(m), does not authorize anything like requiring evidence that the borrower has hazard insurance that provides “sufficient” coverage.
Sections 6(k)(1)(A) and (2), or subsections 2605(k)(1)(A) and (2), refer to “the loan contract’s requirements to maintain property insurance” [emphasis added]. In that way, these two subsections of the enabling statute, taken together, allow mortgage servicers to obtain force-placed hazard insurance only when there is a reasonable basis to believe that the borrower has failed to comply with the loan contract’s requirements to maintain property or other hazard insurance. There has been no change to the provisions of the enabling statute. There is no resulting authority for changing the regulation written to implement the statute’s provisions. The proposed amendment to Section 1024.37, referencing authority conferred upon mortgage servicers to require and accept evidence of “sufficient” property or other hazard coverage, is without authority. Unless and until determined to the contrary by a Court of competent jurisdiction, the proposed amendment would as a result be void at inception because it would be issued without the required authority which has not been extended by Congress to the Bureau.
There is no arguable basis for the proposed amendment to the regulation, under Section 6(l) or subsection 2605(l), either. This provision of the statute does not authorize a change to the regulation, it has not been changed itself, and issuing such a regulation as that proposed by the Bureau would not, in this instance, implement the statute in any conceivable way.
To the contrary, paragraph 6(l)(2) which is codified as paragraph (2) of subsection 2605(l), prohibits the proposed regulatory change by implication. It provides:
(2) Sufficiency of demonstration
A servicer of a federally related mortgage shall accept any reasonable form of written confirmation from a borrower of existing insurance coverage, which shall include the existing insurance policy number along with the identity of, and contact information for, the insurance company or agent, or as otherwise required by the Bureau of Consumer Financial Protection.
There is nothing in the statute about who makes the determination of what is or is not “sufficient” coverage. There is nothing in the statute about what qualifies as “sufficient” coverage. The statute simply does not address the concept of “sufficient” coverage at all.
The statutory scheme selected by Congress is reasonably clear: A servicer is required to accept all reasonable forms of evidence of “existing insurance coverage.” Thereafter, the borrower and the servicer can each determine for themselves whether a Court of competent jurisdiction would hold that the evidence provided of “existing” coverage is evidence of “sufficient” coverage required by the mortgage loan contract.
Otherwise, the mortgage servicer’s demand under the proposed amended regulation for evidence of “sufficient” coverage may be immunized under the Interpretations promulgated by the CFPB concerning compliance with all CFPB regulations. See 12 C.F.R. 1024, Supp. I, unnumbered “Introductory Paragraph.”
The genesis of the proposed amended regulation may lie in the Bureau’s regulation which addresses the sufficiency of Flood Insurance policy limits. See Dennis J. Wall, “Lender Force-Placed Insurance Practices,” a book forthcoming later this March, in which the Bureau’s regulatory activity in the arena of Flood Insurance is discussed along with many other issues arising from lender force-placed insurance practices.
However, the source of authority for the Flood Insurance regulation is the National Flood Insurance Act, as amended. RESPA does not convey any similar authority upon the Bureau.
CONCLUSION
The proposed regulatory changes which are the subject of these Comments are the Consumer Financial Protection Bureau’s proposed amendments to12 C.F.R. § 1024.37(c)(2)(v)(A) and (B). The CFPB’s proposed changes to the regulation also implicate changes proposed by the CFPB to Forms in Appendix MS-3 including (A) and (B).
In proposing the amendments addressed in these Comments, the Consumer Financial Protection Bureau relies on sections 6(k)(1)(A), 6(k)(2), 6(l), and 6(m) of RESPA [codified as 12 U.S.C. § 2605(k)(1)(A), (2), (l), and (m)]. The Bureau’s cited Legal Authority does not authorize the CFPB to make the subject changes which the Bureau proposes to make to the regulation. In particular, the enabling statute – RESPA – does not authorize the Bureau to issue regulations that in turn authorize a mortgage servicer to determine what may constitute “sufficient” insurance coverage and receive immunity for its decision, including immunity for a servicer’s demand for “evidence that the borrower has hazard insurance that provides sufficient coverage”.
Thank you for your consideration.
Sincerely Yours,
/S/
Dennis J. Wall
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