The Latest in "Firm Offer" News
The Firm serves as coordinating counsel to the Mortgage Bankers Association in the so-called “firm offer of credit” class
actions, so each issue we track the developing case law under the FCRA relating to this latest Pet Rock of the class action
bar.
Many of these cases feature a plaintiff named “Murray.” The newest Murrays involve rulings on summary judgment motions in Murray v. HSBC Auto Fin., Inc., 2006 U.S. Dist. LEXIS 74128 (N.D. Ill. Sept. 27, 2006) and Murray v. IndyMac Bank, F.S.B., 2006 U.S. Dist. LEXIS 82217 (N.D. Ill. Nov. 7, 2006). In both cases, plaintiffs contended that the defendants wrongfully
accessed credit information, arguing that mailers they received did not constitute a “firm offer of credit” under the FCRA.
In HSBC, the lender prevailed after establishing that the auto loan mailer was a firm offer. In IndyMac, however, the mortgage loan mailer from IndyMac was not, and the court granted summary judgment for the plaintiff.
The courts also differed on their interpretation of whether the alleged FCRA violations were “willful.” The HSBC court rejected plaintiff’s claim that mere awareness by in-house counsel and compliance officers of the applicable standards
could demonstrate willfulness. Although the IndyMac court observed that “mere notice of the existence of the FCRA and its disclosure obligations would not necessarily prove”
knowledge of the alleged FCRA violations, it ruled that the issue of whether IndyMac’s compliance procedures were so deficient
as to impute willfulness was a question of fact for the jury to decide.
For more information, contact Michael Agoglia at magoglia@mofo.com.
Common Sense and TILA—Oxymoronic?
TILA disclosures are not an area where courts give lenders the benefit of doubt; rather, it is an arena in which minor, technical
errors reign triumphant. That makes the First Circuit’s decision in Palmer v. Champion Mortgage, 465 F.3d 24 (1st Cir. 2006) notable. In that case, a borrower claimed that her confusion over the incorrect transaction
date printed on a “notice of right to cancel” form should allow her a delayed right of rescission of her mortgage loan. The
First Circuit said no, given the alternative language on the notice providing for rescission for up to three business days
after actual receipt of the notice.
In contrast, on the same day Palmer was decided, the Seventh Circuit held in Handy v. Anchor Mortgage Corp., 464 F.3d 760 (7th Cir. 2006), that the district court erred in its “common-sense observation” that plaintiff’s rescission
right was fully disclosed in the loan documents. The Court concluded that the inclusion of an extraneous rescission form used
for another type of loan in addition to the correct form created sufficient borrower confusion to establish a violation of
TILA’s requirement that the right to cancel be clearly and conspicuously disclosed.
For more information, contact Eric Olson at eolson@mofo.com.
Another Nail In King's Coffin?
In Handy, the Seventh Circuit also joined with the Sixth Circuit’s holding in Barrett v. JP Morgan Chase Bank, N.A., 445 F.3d 874 (6th Cir. 2006), in holding that a paid-off loan can be rescinded, notwithstanding the Ninth Circuit’s twenty
year-old ruling to the contrary in King v. California, 784 F.2d 910 (9th Cir. 1986). Handy adopted the reasoning of Barrett in holding that “the remedies associated with rescission remain available even after the subject loan has been paid off.”
For more information, please contact Eric Olson at eolson@mofo.com.
2005 HMDA Data Is Available
The 2005 HMDA data was released by the FFIEC in September. For the second year, the data reflect additional loan pricing information,
including whether a loan is subject to HOEPA and whether a loan is secured by a first or subordinate lien, or is unsecured.
The FFIEC reports that the 2005 data show a “significantly higher” incidence of higher-priced lending activity over 2004,
and that “differences in the incidence of higher-priced lending between racial and ethnic groups, which were shown in the
2004 data, increased from 2004 to 2005.”
For more information, contact Joe Gabai at jgabai@mofo.com.
Guidance On Non-Trad Mortgages
The end of September brought autumn leaves, the Mark Foley scandal, and the publication by an alphabet soup of federal agencies
of the final “Interagency Guidance on Nontraditional Mortgage Product Risks.” As we reported in our Summer issue, two of the
lending industry’s primary objections raised during the comment period were the proposed guidance’s failure to adequately define a “nontraditional mortgage product” and
the potential lack of uniformity in application of the proposed guidance, which applies only to federally-supervised lenders.
Regulators responded. They clarified that the Interagency Guidance generally applies “to all residential mortgage loan products
that allow borrowers to defer repayment of principal or interest,” excluding reverse mortgages and home equity lines of credit.
Acknowledging that the Interagency Guidance may create an uneven playing field for federally and state-regulated financial
institutions, the Regulators note that the Conference of State Bank Supervisors (CSBS) and the State Financial Regulators
Roundtable (SFRR) both committed to working with state regulatory agencies to distribute guidance that is similar in nature
and scope to the financial service providers under their jurisdictions. As we have previously cautioned, all lenders should
take a careful look at the new Interagency Guidance and evaluate their own products, procedures, and risk portfolios accordingly,
because this new Interagency Guidance will likely become the benchmark against which these lending practices are measured.
For more information, contact Joe Gabai at jgabai@mofo.com.
HUD No Fan of Captive Title Reinsurance
On October 12, HUD announced three more RESPA settlements with homebuilders engaging in business practices involving captive
title reinsurance. The $1.95 million in total settlements with Shea Homes Inc., William Lyon Homes, and Fulton Homes, and
their respective captive title reinsurance companies, brings the total amount of negotiated settlements with builders and
lenders involved in captive title reinsurance to $3.55 million. In HUD’s view, captive title reinsurance arrangements often
“are designed to generate referral fees when there is a history of few or no claims paid by the reinsurance company.” The
settlements were reached without any findings or admission of liability, although the settling parties agreed not to enter
into any new captive title arrangements and to cease writing new captive title reinsurance business.
For more information, contact Steve Kaufman at skaufman@mofo.com.
Title Insurance Hearing
In November, New York’s Department of Insurance held a public hearing on the state’s title insurance industry practices. The
hearing was a follow-up to a regulatory investigation from the New York Attorney General’s office, and included testimony
from an assistant New York attorney general who claimed the high insurance rates and premium margins amounted to illegal kickbacks
to insurance agents. The Insurance Department previously approved 15 percent title insurance rates in June, and commissioners
declined to change title insurance rates in light of the testimony offered at the November hearing.
"Son of YSP" Class Action Certified
Just when you thought you had seen the last “yield spread premium” class action, along comes a sequel. On Halloween eve, a
district court in Washington certified a class of 1,000 Washington homeowners who were allegedly charged higher interest rates
because of a “kickback scheme” involving the lender and the mortgage broker. (Cameron Pierce, et al. v. NovaStar Mortgage Inc., 2006 U.S. Dist. LEXIS 82956 (W.D. Wash. Nov. 14, 2006).
For more information, contact Michael Agoglia at magoglia@mofo.com.
