HPA Compliance Is Back in the CFPB’s Crosshairs

On March 12, 2019, the Consumer Financial Protection Bureau (CFPB) issued the Winter 2019 edition of its Supervisory Highlights report, detailing key examination findings that were discovered during the second half of 2018. The report covers a number of product lines, including automobile loan servicing, deposits and remittances, but spends the most time discussing issues uncovered during mortgage servicing examinations. This demonstrates both that the bureau remains focused on the mortgage servicing industry and that it continues to identify significant issues during the course of its reviews.

 

One noteworthy mortgage servicing issue that is highlighted by the CFPB relates to compliance with the Homeowners Protection Act (HPA). This is also an area where the CFPB previously provided interpretation and compliance guidance in the form of Bulletin 2015-03. HPA compliance failures have also been described at least four times in prior Supervisory Highlights editions since the CFPB begin publishing them. Given the CFPB’s repeated focus on HPA compliance, servicers would be well served to reevaluate their own policies and practices in light of the most recent guidance.

 

In the Winter 2019 Supervisory Highlights report, the CFPB explained that it had determined that entities were not properly disclosing denial reasons in connection with private mortgage insurance (PMI) cancellation requests. The CFPB found that entities were sometimes providing inaccurate denial reasons and, in some scenarios, were also providing incomplete denial reasons and misrepresenting the “conditions for PMI removal.”

 

Complying with the HPA in the manner in which the CFPB expects when denying a PMI cancellation request is challenging to say the least. The CFPB has made it clear that, not only must your data and reasoning supporting the denial be accurate, but you also must communicate all possible reasons why a request was denied. For example, it would not be sufficient to just state as the denial reason that the LTV threshold has not been met if the borrower also does not meet other applicable requirements, such as a good payment history or certification that there aren’t any subordinate liens on the property. Rather than evaluating under a waterfall approach and only identifying the particular requirement that the borrower was unable to satisfy (like in a typical loss mitigation evaluation), the CFPB instead expects mortgage servicers to evaluate the borrower against all criteria and specify all requirements that are not yet satisfied.

 

Although not directly addressed in the Winter 2019 Supervisory Highlights, servicers should also be mindful of how investor guidelines for PMI cancellation may come into play and how that interacts with the federal law baseline set forth through the HPA. Ensuring that all applicable investor and federal law criteria are accounted for within PMI notices can quickly make those letters confusing and cumbersome. However, the CFPB expects that the appropriate letters must clearly explain all requirements that may apply to a borrower in order to have PMI cancelled and, if applicable, all reasons why a borrower has not met those standards.

 

Interestingly, rather than frame these types of reason for denial issues as HPA violations, the CFPB refers to them as being deceptive practices, a clear reference to the prohibition in the Dodd-Frank Act on unfair, deceptive and abusive acts or practices. The CFPB notes in a footnote that it was unable to classify these practices as actual HPA violations because the servicer was responding to verbal cancellation requests, and the HPA technically only applies to written cancellation requests. Nevertheless, this public warning from the CFPB should spark servicers to review their PMI cancellation letter templates and their policies and procedures surrounding denials of PMI cancellation requests to ensure they align with the CFPB’s expectations. Practices that go above and beyond what is minimally required, such as responding to verbal cancellation requests, are not immune from criticism and should also be scrutinized.