Lender TILA Duty of Care and Anti-Steering Prohibition Violations Will Trigger Civil Liability.
Passed earlier this year, the Dodd-Frank Wall Street Reform and Consumer Protection Act directed the Consumer Financial Protection Bureau (CFPB) to issue rules to establish stronger protections for residential homeowners facing foreclosures (but not involving HELOCs). THE CFPB has done just that, enacting rules effective January 10, 2014 which, among other things, (1) restrict dual-tracking; (2) require lender notification about foreclosure alternatives (called “loss mitigation options”) for borrowers missing 2 consecutive payments; (3) provide delinquent borrowers with direct, early, ongoing access to lender employees helping them through the loss mitigation process; (4) require the loan servicer to consider all foreclosure alternatives, ranging from payment deferments to loan modifications; and (5) ban a foreclosure sale until all alternatives are considered, including response to a loan modification proposal if received 37 days before a scheduled foreclosure sale.
However, this same Act also has some new civil liability provisions. For example, mortgage originators are liable for violations of new Section 129B of the Truth in Lending Act (TILA), including duty of care provisions (such as mistakes in calculating borrower income) and the prohibition against steering incentives to particular mortgage products (such as those based on yield premium spreads). The new civil liability sections are onerous, requiring maximum civil liability in an an amount which is the greater of actual damages or an amount equal to 3 times the total amount of compensation/gain to the lender for the involved loan, plus costs and reasonable attorney’s fees.
HAT TIP–We give a “hat tip” to Jeff Lazerson, a dog walker in co-contributor Mike’s neighborhood, who owns Mortgage Grader in Laguna Niguel, is a regular radio guest on L.A.’s Money 101, and writes a weekly column in the Sunday “Real Estate” section of The Orange County Register on mortgage rates. Jeff recently attended the mortgage bankers’ regulatory countdown conference for the Act in Washington, D.C., meeting many attorneys describing new features of the law (including the new civil liability provisions). Thanks, Jeff.