Sam Gendusa May 6, 2016

Newsletter - May 2016

The Consumer Federal Protection Bureau (CFPB) is locked in a litigation battle with top-5 mortgage servicer PHH, and the decision in the case will be big news when it comes down.

Interestingly, after oral arguments were made a few weeks ago, we got some insight into how the case is shaping up, and we can begin to put forth informed speculation about how the case will impact the mortgage industry.

According to Compass Point, an independent financial firm that is analyzing the court case, they feel “there is a 75% probability that the CFPB's $103M increase to the original PHH fine will be substantially reduced or vacated entirely.” So things are looking good for PHH. But in what ways?

Legal blog, Lexology, believes the judges were sympathetic toward PHH, specifically on 3 key points:

  1. CFPB’s single director leadership is troubling. The judges seemed to agree that the leadership structure of CFPB gives the director too much consolidated power without proper oversight.
  2. CFPB’s interpretation of RESPA is flawed. The judges seemed to agree that the CFPB could not simply walk away from the interpretation of RESPA given by Federal Housing and Urban Development (HUD), which the industry has been using for years.
  3. CFPB’s position on statute of limitations is wrong. The judges also seemed to agree that the CFPB cannot declare that statutes of limitation DO apply in court, but DO NOT apply in cases the CFPB challenges in administrative hearings.

Compass Point says this all leads in an important direction…

“Our view is that a CFPB loss in this case would force a near-term retrenchment of the bureau’s enforcement and rule-making efforts which would be viewed positively for auto lenders, the entire mortgage complex, student loan servicers, and payday lenders.”

A good many of you out there may welcome this news as a step in the right direction. It may well turn out to be, but there is something else to keep in mind: any shift in policy or interpretation comes with risk. And risk is, well, RISKY. You need to be sure your documentation is 100% above-board, clear and trackable to protect your portfolio.

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