xi

Summary Contents

About the Companion Online Resources ix

Contents xiii

Chapter 1 Background 1

Chapter 2 Analyzing a Mortgage Lending Case 29

Chapter 3 Federal Laws That Apply to Abusive Mortgage Lending 69

Chapter 4 State Law Claims and Defenses to Abusive Mortgage Lending 101

Chapter 5 Preemption of State Laws that Conflict with Federal Banking Laws 143

Chapter 6 Ability to Repay, Steering, Loan Churning, Property Flipping, and Appraisal Fraud 207

Chapter 7 Mortgage Brokers and Other Third Parties: Charges and Abuses 263

Chapter 8 Interest and Other Loan Terms 303

Chapter 9 Reverse Mortgages 341

Chapter 10 Mortgage Litigation 353

Chapter 11 Litigating Claims When a Bank Fails 397

Appendix A State Mortgage Lending Statutes 453

Appendix B State Predatory Lending Statutes 461

Appendix C Real Estate Settlement Procedures Act 471

Appendix D Truth in Lending Act Substantive Mortgage Regulation 519

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Appendix E National Bank Regulation 637

Appendix F Federal Savings Association Regulation 657

Appendix G Federal Credit Union Regulation 669

Appendix H Other Substantive Mortgage Restrictions 677

Appendix I Depository Institutions Deregulation and Monetary Control Act of 1980 (DIDA) 699

Appendix J Alternative Mortgage Transaction Parity Act 707

Appendix K Loans Insured by Federal Agencies 715

Appendix L Reverse Mortgages 723

Appendix M Failed Bank Receivership Statutes 751

Appendix N Websites Relating to Mortgage Lending Issues 757

Appendix O Online Companion Material for This Treatise 759

Index 761

xiii

Contents

About the Companion Online Resources ix

Chapter 1 Background 1 1 About This Treatise 1 1 1 1 Topics Covered and Relationship to Other NCLC Treatises 1 1 1 2 This Treatise Supersedes The Cost of Credit 1 1 1 3 This Treatise’s Appendices 2 1 1 4 Additional Pleadings, Practice Tools, and Primary Source

Materials Found Online 2 1 1 5 Important Distinctions When Using This Treatise 3 1 2 One- Hundred Years of Mortgage Lending in a Nutshell 3 1 2 1 Before the Great Depression 3 1 2 2 The Great Depression and the Federal Response 4 1 2 2 1 The Federal Home Loan Bank System 4 1 2 2 2 The Home Owners’ Loan Act 4 1 2 2 3 The Federal Housing Administration 5 1 2 3 Origins of the Modern Secondary Market 6 1 2 3 1 Rise of the Government Sponsored Entities 6 1 2 3 2 Fall of the Government Sponsored Entities 7 1 2 4 The Rise of Predatory Lending 8 1 2 5 The Recent Foreclosure Crisis 9 1 3 Recent Foreclosure Crisis Proves Need for Mortgage Regulation 11 1 3 1 Foreclosure Crisis Grew Out of Deregulated Market 11 1 3 2 The Structure of Current Mortgage Market Prevents Self- Policing 12 1 3 3 Consumer Decision- Making No Match for Market Forces 13 1 3 3 1 Barriers to Consumer Decision- Making 13 1 3 3 2 Mere Disclosure Cannot Cure the Problem 16 1 3 3 3 Prepayment Penalties Lock Homeowners into Bad Loans 17 1 3 4 High Rate, High Risk: Myth or Fact? 17 1 3 4 1 Introduction 17 1 3 4 2 Many Loans Are Written with No Consideration of Risk 17 1 3 4 3 Do Creditors Know How to Price Risk? 18 1 3 4 4 Pricing Based on Race, Not Risk 18 1 3 4 5 Predatory Loans Create Risk 20 1 4 Knowing the Players in the Mortgage Market 21 1 4 1 Creditors or Lenders 21 1 4 2 Mortgage Brokers, Correspondent Lenders, and Table Funding 21 1 4 3 Loan Officers 22 1 4 4 Mortgage Loan Originators 22 1 4 5 Mortgage Electronic Registration System (MERS) 22 1 4 6 Real Estate Agents 22 1 4 7 Appraisers 23 1 4 8 Closing Agents or Attorneys 23 1 4 9 Escrow Agents 23 1 4 10 Private Mortgage Insurance Companies 23

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1 4 11 Government Mortgage Guarantors 23 1 4 12 The Secondary Market 24 1 5 Securitization 24 1 5 1 Overview 24 1 5 2 How Securitization Works 25 1 5 3 Problems for Borrowers Related to Securitization 26 1 5 4 Securitization Players 26 1 5 5 Documentation 28

Chapter 2 Analyzing a Mortgage Lending Case 2 1 The Client Interview 29 2 2 Gathering the Documents 30 2 2 1 Introduction 30 2 2 2 Document Sources 30 2 2 3 Storing and Organizing the Documents 31 2 2 4 Mortgage Loan Documents 31 2 2 5 Appraisals 32 2 2 6 Documents Created After the Closing 32 2 2 7 Public Records 33 2 2 7 1 Land Records 33 2 2 7 2 Consumer Complaints 34 2 2 7 3 Newspaper Articles/Internet Searches 34 2 2 7 4 Corporate and Business Documents 34 2 2 7 5 Securities and Exchange Commission Documents 35 2 2 7 6 Rating Agencies 35 2 2 7 7 Other Lawsuits 35 2 2 7 8 State Administrative Agencies 35 2 2 8 Information Obtained Through Discovery 35 2 2 8 1 List of Items to Ask for in Discovery 35 2 2 8 2 Confidentiality/Protection Orders 36 2 3 Types of Mortgages 36 2 3 1 Generally 36 2 3 2 Mortgage Math Basics 37 2 3 2 1 Amortizing Conventional Mortgages 37 2 3 2 2 Effect of Extending the Loan Term 39 2 3 2 3 Biweekly Versus Monthly Payments 40 2 3 2 4 Prepayments 40 2 3 3 Complicating Factors in Mortgage Math 41 2 3 3 1 Variable or Adjustable Rate Interest (ARMs) 41 2 3 3 2 Teaser Rates 41 2 3 3 3 Interest- Only Loans 41 2 3 3 4 Negative Amortization 42 2 3 3 5 Balloon Payments 42 2 3 4 Daily Accrual Accounting 42 2 3 4 1 General 42 2 3 4 2 Daily Accrual Accounting Without Compounding 43 2 3 4 3 Daily Accrual with Compounding 45 2 3 4 4 Unconventional Payment Allocations 45 2 3 5 Special Types of Mortgage Loans 46 2 3 5 1 Loans with Precomputed Interest 46 2 3 5 2 Home Equity Lines of Credit (HELOC) 46 2 3 5 3 Land Installment Sales 47

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Contents

2 3 5 4 Home Improvement Loans 48 2 3 5 5 Foreclosure Rescue Scams 49 2 3 5 6 Reverse Mortgages 49 2 4 Understanding the Loan Documents 50 2 4 1 The Application, Good Faith Estimate, and

HUD- 1 Settlement Statement 50 2 4 2 The Mortgage Loan Note and the Mortgage 50 2 4 3 Truth in Lending Act (TILA) Disclosures 51 2 4 4 The Payoff Amount, Payment History, and Pooling and

Servicing Agreements 51 2 5 Basic Math Calculations 52 2 5 1 Introduction 52 2 5 2 Checking the Arithmetic on the TILA Disclosure 52 2 5 3 Checking the Application of Payments 52 2 5 4 Building a Spreadsheet to Amortize a Loan 53 2 6 Math Calculations for Special Types of Mortgages 56 2 6 1 Variable Rate Mortgage Loans 56 2 6 1 1 General 56 2 6 1 2 Amortizing Variable Rate Loans over Fixed Time Periods 57 2 6 1 3 Caps and Floors 57 2 6 1 4 Recapture Clauses 58 2 6 2 Payment- Option ARMs 58 2 6 2 1 Description 58 2 6 2 2 Assumptions Underlying Later Subsections Calculations of

Payment- Option ARM 59 2 6 2 3 Calculating a Payment- Option ARM Looking Forward 60 2 6 2 4 Calculating a Payment- Option ARM Looking Backward 62 2 6 3 Home Equity Lines of Credit (HELOCs) 63 2 6 3 1 Calculation Distinctions Between Open- End

and Closed- End Credit 63 2 6 3 2 Methods of Calculating Interest on Open- End Credit 63 2 6 3 3 Different Ways of Applying Payments in HELOCs 64 2 7 Follow the Money 65 2 7 1 Introduction 65 2 7 2 Portion of the Loan Benefiting the Homeowner 65 2 7 3 Payments to Third Parties 65 2 7 4 Amounts Pocketed by the Lender 66 2 8 Other Abuses to Look For 66

Chapter 3 Federal Laws That Apply to Abusive Mortgage Lending 3 1 Introduction 69 3 2 Real Estate Settlement Procedures Act 69 3 2 1 Introduction 69 3 2 2 Scope 70 3 2 2 1 Generally 70 3 2 2 2 Applicability to Manufactured Homes 71 3 2 2 3 RESPA Preemption 72 3 2 3 Overview of Prohibition Against Kickbacks and Unearned Fees 72 3 2 4 RESPA’s Cost Disclosure Provisions 73 3 2 4 1 General 73 3 2 4 2 Partial Exemption Beginning August 2015 73 3 2 4 3 Good Faith Estimate 74

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3 2 4 4 Settlement Statement 75 3 2 4 4 1 The role of the HUD- 1 or HUD- 1A

settlement statement 75 3 2 4 4 2 Format and contents 76 3 2 4 4 3 Use of average versus actual prices 76 3 2 4 4 4 Rate increase and monthly payment

disclosures 77 3 2 4 4 5 Documentation requirements 77

3 2 4 5 Tolerance for Changes from Good Faith Estimate to Settlement Statement 77

3 2 4 6 Revised Good Faith Estimates and Changed Circumstances 78 3 2 4 7 Potential Claims 78 3 2 5 Transfer of Servicing Notice 79 3 2 6 List of Housing Counselors 80 3 2 7 Remedies for RESPA Violations— Generally 80 3 3 S A F E Act 81 3 3 1 Generally 81 3 3 2 Determining Who Must Be Licensed or Registered 82 3 4 Truth in Lending Act 83 3 4 1 General 83 3 4 2 Truth in Lending Damages Claims 83 3 4 3 Truth in Lending Rescission Rights 83 3 4 4 Assignee Liability 84 3 5 Higher- Priced Mortgage Loans 84 3 6 Home Ownership and Equity Protection Act 85 3 6 1 Overview and Remedies 85 3 6 2 Advance Look Disclosures 85 3 6 3 Substantive Prohibitions 85 3 7 Fair Lending Statutes 86 3 8 Credit Repair Organizations Act 87 3 8 1 Overview 87 3 8 2 Requirements for Credit Repair Organizations 87 3 8 3 Restrictions Applicable to Any Person 87 3 8 4 Remedies 88 3 9 Civil RICO 88 3 10 Servicemembers Civil Relief Act 90 3 11 Federal Banking Laws and Regulations 91 3 11 1 National Banks and Federal Savings Associations 91 3 11 2 Federal Credit Unions 91 3 11 3 State- Chartered Banks, Savings Associations, and Credit Unions 91 3 12 Federal Restrictions As to FHA, VA, RHS, and HECM Loans 92 3 13 FTC Rules Relating to Mortgage Lending 92 3 14 CFPB Rulemaking Authority 92 3 14 1 Introduction 92 3 14 2 Rulemaking Concerning Specific Consumer Credit Statutes 92 3 14 3 UDAAP Rulemaking 93 3 14 4 Disclosure and Right to Information Rules 93 3 14 5 Scope of CFPB Rulemaking 93 3 14 6 Private Enforcement of CFPB Rules 94 3 14 7 Federal and State Enforcement of CFPB Rules 94 3 14 8 CFPB Rules’ Relationship to State Law 95 3 15 Home Mortgage Disclosure Act 95

xvii

Contents

3 16 Electronic Credit Transactions and the Interplay Between State and Federal Law 95

3 16 1 Introduction 95 3 16 2 Overview of E- Sign and UETA 95 3 16 3 What Rules Apply to an Electronic Credit Contract? 97 3 16 4 Consumer Consent Requirements in Electronic Transactions 98 3 16 4 1 E- Sign 98 3 16 4 2 UETA 98 3 16 5 Effect of E- Sign and UETA on Timing and Format Requirements 99 3 16 6 Validity and Enforceability of Electronic Contracts and

Signatures Under E- Sign and UETA 99

Chapter 4 State Law Claims and Defenses to Abusive Mortgage Lending 4 1 Introduction 101 4 2 State UDAP Statutes 101 4 2 1 Overview 101 4 2 2 Scope 101 4 2 3 Mortgage- Related Conduct Giving Rise to UDAP Claims 102 4 2 3 1 Overview 102 4 2 3 2 Actionable Deception in Mortgage Lending 102 4 2 3 3 Framing Other Violations As UDAP Violations 104 4 2 4 UDAP Remedies 105 4 3 State Mortgage Lending Laws 105 4 4 State High- Cost Mortgage Statutes 105 4 4 1 Overview 105 4 4 2 Scope 106 4 4 2 1 Consumer Purpose 106 4 4 2 2 Definition of “Lender” 106 4 4 2 3 Purchase- Money Mortgages 106 4 4 2 4 Loan Amount 106 4 4 2 5 Triggers 107 4 4 2 5 1 Pleading that the loan meets one of the triggers 107 4 4 2 5 2 The APR trigger 107 4 4 2 5 3 The points and fees trigger 107

4 4 2 6 Effective Dates 108 4 4 3 Statutory Prohibitions and Limitations 108 4 4 3 1 Introduction 108 4 4 3 2 Prohibited Fees 108 4 4 3 3 Net Benefit Requirements and Loan Churning 109 4 4 3 4 Ability to Repay 109 4 4 3 5 Negative Amortization 110 4 4 3 6 Prepayment Penalties 110 4 4 3 7 Balloon Payments 110 4 4 3 8 Loan Counseling 111 4 4 3 9 Mandatory Arbitration Clauses 111 4 4 3 10 Other Prohibited Terms 111 4 4 4 Remedies 111 4 4 5 Liability of Servicers and Assignees 112 4 4 6 Preemption 113 4 5 Home Improvement Credit 113 4 6 State Mortgage Broker Laws 116 4 7 State Credit Services Laws 116

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Mortgage Lending

4 8 Unconscionability 117 4 8 1 Statutory and Common Law Prohibitions Against

Unconscionability 117 4 8 2 Elements of a Claim of Unconscionability 118 4 8 3 Unconscionability and Preemption 120 4 8 4 Unconscionability As a Restriction on Interest Rates 120 4 8 5 Improvident Lending As Unconscionable 121 4 8 6 Examples of Unconscionability in Lending 122 4 8 7 Remedies for Unconscionability 123 4 9 Fiduciary Duty 124 4 9 1 Existence of a Fiduciary Relationship 124 4 9 1 1 Special Circumstances in Debtor- Creditor

Relationship Can Give Rise to a Fiduciary Duty 124 4 9 1 2 Principal- Agent Relationship 126 4 9 2 Duties of a Fiduciary 127 4 10 Fraud and Misrepresentation 128 4 10 1 Elements of a Fraud Claim 128 4 10 2 Misrepresentation of Loan Terms 128 4 10 3 Loan Churning (Flipping) and Other Equity Stripping

Manipulations 130 4 10 4 Home Improvement Fraud 130 4 10 5 Fraud in Home Sales and Refinancing 131 4 10 6 Falsification and Forgery 133 4 10 7 Negligent Misrepresentation 134 4 11 Duty of Good Faith 135 4 11 1 Nature of the Duty 135 4 11 2 Remedies for Violation of Duty of Good Faith 137 4 12 Other State Law Claims 137 4 12 1 Breach of Duty of Due Care As Negligence 137 4 12 2 Unjust Enrichment 138 4 12 3 Conversion 139 4 12 4 Estoppel 139 4 12 5 Incompetence of Borrower 139 4 12 6 State Fair Lending Laws 139 4 12 7 Financial Abuse of Older Consumers 140 4 12 8 Contract Claims 140 4 12 8 1 Use of Contract Claims in Mortgage Origination

Litigation 140 4 12 8 2 Contract Claims in Option ARM Cases 140 4 12 9 Intentional Interference with Contract 141 4 13 The Role of Industry Standards 142

Chapter 5 Preemption of State Laws that Conflict with Federal Banking Laws 5 1 Introduction 143 5 1 1 Scope of This Chapter 143 5 1 2 Preemption Issues Addressed in Other Chapters and

Other NCLC Books 143 5 2 The Barnett Bank Standard and the Preservation of State Law 144 5 2 1 Why the Barnett Bank Standard Is Important 144 5 2 2 Overview of the Barnett Bank Standard 144 5 2 3 How the Barnett Bank Standard

Has Been Applied by the Supreme Court 145

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Contents

5 2 4 What Are the Powers of National Banks and Thrifts That the Barnett Bank Standard Protects from Significant Interference? 147

5 2 4 1 General Standards 147 5 2 4 2 Incidental Powers 148 5 3 Congress’s 2010 Restoration of the Barnett Bank Standard and Enactment

of Further Limits on Preemption 149 5 3 1 The Enactment of the Dodd- Frank Act 149 5 3 2 Preemption Limited to Three Circumstances 149 5 3 3 Repudiation of Field Preemption 149 5 3 4 Requiring Case- by- Case Preemption Determinations 150 5 3 5 Repudiation of the Banking Agencies’ Existing Preemption Rules 150 5 3 6 Little Preemption of General State Laws 151 5 3 7 Mechanics and Procedures for Adoption of Preemption Rules 151 5 3 8 Judicial Review of Preemption Determinations 152 5 3 9 Judicial Preemption 152 5 3 10 Effective Dates; Use of New Standards As Interpretive Guide;

Grandfather Clause 153 5 3 11 The Impact of the Dodd- Frank Changes on the

Interpretation of Preemption Standards 154 5 4 Is There a Presumption Against Preemption? 155 5 5 No Preemption of State Law Claims That Parallel Federal Requirements 157 5 6 The OCC’s Pre- 2011 Preemption Activity 158 5 6 1 History of the OCC’s Preemption Activity Prior to 2004 158 5 6 1 1 The OCC’s Pre- 2004 Regulations 158 5 6 1 2 The OCC’s Opinion Letters 158 5 6 1 2 1 Upholding state law 158 5 6 1 2 2 Preempting state law 159

5 6 2 The OCC’s Broad 2004 Preemption Regulations 160 5 6 2 1 Description of the 2004 Rule 160 5 6 2 2 Comparing the OCC’s 2004 Rules with the

OTS Rules; Precedential Value 161 5 7 Adoption, Structure, and Validity of the OCC’s 2011

Preemption Regulations 161 5 7 1 Adoption of the OCC’s 2011 Rules; Differences from

Its 2004 Rules 161 5 7 2 Outline of OCC’s 2011 Preemption Rules 162 5 7 3 Do the OCC’s Preemption Regulations Comply with

the Dodd- Frank Act? 163 5 7 3 1 Significant Questions As to Validity of the OCC’s

2011 Preemption Regulations 163 5 7 3 2 Can the OCC’s 2011 Preemption Rules Be Interpreted

to Be Consistent with the Dodd- Frank Act? 165 5 8 Interpreting and Applying the OCC’s 2011 Preemption Rules 166 5 8 1 To What Banking Activities Do the OCC Preemption Rules Apply? 166 5 8 2 The Two Parts of the OCC’s Preemption Regulations Must

Be Read Together 166 5 8 3 Interpretation of Categories of State Laws That Are Preempted

for National Bank Lending 167 5 8 3 1 Introduction 167 5 8 3 2 Licensing 167 5 8 3 3 Right to Require Insurance 168 5 8 3 4 Loan- to- Value Ratios 169

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Mortgage Lending

5 8 3 5 Terms of Credit 169 5 8 3 6 Escrow Requirements 170 5 8 3 7 Security Property 170 5 8 3 8 Use of Credit Reports 170 5 8 3 9 Disclosure and Advertising 170 5 8 3 10 Disbursements and Repayments 171 5 8 3 11 Interest; Non- Interest Fees 171 5 8 3 12 Loan Amount for Real Estate Loans 172 5 8 3 13 Processing, Origination, Servicing, Sale or

Purchase of, Investment in, or Participation in Mortgages 172 5 8 3 14 Due- on- Sale Clauses 173 5 8 3 15 Covenants and Restrictions in Leases 173 5 8 4 Categories of State Laws That Are Not Preempted 173 5 8 4 1 General Interpretation of the Savings Clause 173 5 8 4 2 Contract Claims Not Preempted; Duty of Good Faith 174 5 8 4 3 Tort Claims Not Preempted 175 5 8 4 4 Criminal Laws Not Preempted 176 5 8 4 5 Texas Constitution’s Homestead Protections

Not Preempted 176 5 8 4 6 Debt Collection Laws Not Preempted 176 5 8 4 7 State Taxation Laws Not Preempted 177 5 8 4 8 Laws Regarding Acquisition and Transfer of Real

Property and Zoning Not Preempted 177 5 8 4 9 Treatment of State UDAP Statutes and Other General

Prohibitions Against Deception, Unfairness, and Unconscionability 177

5 8 4 10 State Anti- Discrimination Laws 179 5 9 Visitorial Powers 179 5 9 1 National Banks 179 5 9 2 Visitorial Powers over Operating Subsidiaries of National Banks 180 5 9 3 Primary Jurisdiction Distinguished 181 5 10 Subsidiaries, Affiliates, and Agents 181 5 10 1 The Dodd- Frank Act Eliminates Preemption for Subsidiaries,

Affiliates, and Agents of National Banks 181 5 10 2 Preemption for Operating Subsidiaries Prior to Dodd- Frank 182 5 10 2 1 Rules and Decisions Prior to Dodd- Frank 182 5 10 2 2 Determining Whether an Entity Is a National Bank

Operating Subsidy 182 5 10 3 Preemption for National Bank Agents and Affiliates Prior

to the Dodd- Frank Act 183 5 10 4 Rent- a- Bank Issues 184 5 11 Federal Preemption’s Indirect Application to State- Chartered

Depository Institutions 185 5 11 1 Introduction 185 5 11 2 Federal Choice of State Law Regarding Branches of

Out- of- State, State- Chartered Banks 185 5 11 3 State Parity Statutes 185 5 12 Preemption Rules When the Bank Is an Assignee or Assignor 186 5 12 1 State Restrictions on the Terms of Credit Apply Regardless

of Assignment 186 5 12 2 Preemption of State Law Regarding Assignee’s Independent

Acts Rather Than Contract Terms 186

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Contents

5 13 Effect of Merger of Federal Savings Association with National Bank 187 5 14 The Home Owners’ Loan Act and Federal Savings Associations 188 5 14 1 History and Purpose of the Home Owners’ Loan Act 188 5 14 2 The Dodd- Frank Act’s Changes to Preemption for

Federal Savings Associations 188 5 14 3 HOLA and “Field” Preemption; Presumption Against Preemption 189 5 14 4 The OTS’s Former Preemption Regulation 190 5 14 4 1 Structure of the Former Rule; Comparison to the

OCC’s Preemption Rules 190 5 14 4 2 Relationship Between the List of Preempted Laws

and the Savings Clause 191 5 14 4 3 Interpretation of the Former OTS Rule’s List of

Preempted Laws 192 5 14 4 4 Interpretation of the Former OTS Rule’s List of

Laws That Are Not Preempted 195 5 14 4 5 Treatment of Contract Claims 196 5 14 4 6 Treatment of State UDAP Statutes and Fraud Claims 197 5 14 4 6 1 UDAP and fraud claims generally preserved

unless they impose substantive requirements 197 5 14 4 6 2 Use of UDAP claim to enforce federal law 200

5 14 4 7 Preemption of State Prepayment Penalty Laws 200 5 14 4 8 Preemptive Effect of Other OTS Rules; OTS Letters 200 5 14 4 9 Preemption Rights of Certain Subsidiaries and Agents 201 5 14 4 9 1 Prior to Dodd- Frank Act 201 5 14 4 9 2 Dodd- Frank Act ends preemption for

subsidiaries, agents, and affiliates 202 5 15 Preemption Under the Federal Credit Union Act 202 5 15 1 Overview 202 5 15 2 NCUA’s Preemption Rule 203 5 15 3 NCUA’s Preemption Letters 204 5 15 4 Application of Preemption to Particular Areas and Issues 204 5 15 4 1 State Limits on Interest Rates and Fees 204 5 15 4 2 Credit Originated by Car Dealers 204 5 15 4 3 State Anti- Predatory Lending Laws 205 5 15 4 4 State Laws Regarding Creditor Remedies 206 5 15 5 Subsidiaries: Credit Union Service Organizations 206

Chapter 6 Ability to Repay, Steering, Loan Churning, Property Flipping, and Appraisal Fraud

6 1 Introduction 207 6 2 Extending Credit Without Regard to Ability to Pay 207 6 2 1 Introduction 207 6 2 2 Legal, Regulatory, and Industry Standards 209 6 2 2 1 HOEPA and the Higher- Priced Mortgage Loan Rules 209 6 2 2 1 1 HOEPA 209 6 2 2 1 2 Higher- priced mortgage rules 210 6 2 2 1 3 Ability- to- repay rules for HOEPA and

higher- priced mortgage loans from October 2009 to January 2014 210

6 2 2 1 4 Ability- to- repay rules for open- end HOEPA loans effective January 2014 210

6 2 2 2 State Laws 211

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Mortgage Lending

6 2 2 3 The Dodd- Frank Act 211 6 2 2 3 1 Overview 211 6 2 2 3 2 Minimum ability- to- repay standards 212 6 2 2 3 3 Qualified mortgages 212 6 2 2 3 4 Presumption of compliance for qualified

mortgages 213 6 2 2 3 4 1 Overview 213 6 2 2 3 4 2 Rebutting the presumption of

compliance for qualified mortgages 213 6 2 2 3 4 3 The presumption of compliance for

qualified mortgages and state law claims 213

6 2 2 3 5 Qualified residential mortgages 213 6 2 2 4 Federal Banking Agency Guidance on Ability to Pay 214 6 2 2 5 Other Sources of Industry Standards 215 6 2 3 What Is Affordable? 215 6 2 3 1 Overview 215 6 2 3 2 Measuring Income; Grossing Up 216 6 2 3 3 Debt- to- Income Ratios 216 6 2 3 4 Residual Income Standards 217 6 2 3 5 Compensating Factors: Beyond Debt- to- Income

and Residual Income Standards 218 6 2 4 Duty to Document the Ability to Repay 219 6 2 4 1 Verification of Income and Expenses 219 6 2 4 2 Special Considerations for Stated- Income Loans 219 6 2 4 2 1 Problems with stated- income loans 219 6 2 4 2 2 Post- 2014 regulation of stated- income loans 221

6 2 5 Measuring Affordability for Nontraditional Mortgage Products 222 6 2 5 1 The Nature of the Risks of Nontraditional Mortgage Products 222 6 2 5 1 1 The role of adjustable rates 222 6 2 5 1 2 Teaser rate ARMs: 2- 28s and 3- 27s 223 6 2 5 1 3 Interest- only loans 224 6 2 5 1 4 Payment- option ARMs 224

6 2 5 2 Standards for Affordability of Nontraditional Mortgage Loans 224

6 2 5 2 1 Problems of measuring affordability in non- standard mortgages 224

6 2 5 2 2 Banking agency guidance on standards for affordability of nontraditional mortgages 225

6 2 5 2 3 HOEPA and higher- priced mortgage standards for affordability of nontraditional mortgages 225

6 2 5 2 4 Dodd- Frank standards for affordability of nontraditional mortgages 225

6 2 6 Claims Arising from the Making of Unaffordable Loans 226 6 2 6 1 Overview 226 6 2 6 2 Unfair and Deceptive Acts and Practices (UDAP) 228 6 2 6 2 1 Specific UDAP prohibitions against

improvident lending 228 6 2 6 2 2 Improvident lending as a violation of

general UDAP principles 228 6 2 6 2 3 Illusory promises of refinancing as a UDAP

violation 230

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Contents

6 2 6 3 Risk- Layering; Commonwealth v. Fremont Investment and Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 230

6 2 6 4 Other State Statutes 232 6 2 6 5 State Common Law Claims 232 6 3 Steering and Discriminatory Pricing 233 6 3 1 Introduction 233 6 3 2 Racial Differences in Pricing 236 6 3 3 Racial Differences in Denial Rates 239 6 3 4 Market Segmentation and Targeting Neighborhoods 240 6 3 5 Investigating Credit Scores 242 6 3 6 Survey of Legal Claims for Steering and Targeting 242 6 3 6 1 Overview 242 6 3 6 2 Discrimination Claims 243 6 3 6 3 Truth in Lending Act 244 6 4 Loan Churning 244 6 4 1 Introduction 244 6 4 2 Examples of Loan Churning 245 6 4 3 Claims Arising from Loan Churning 246 6 5 Property Flipping 246 6 5 1 Overview 246 6 5 2 Role of FHA Insurance in Property Flipping 247 6 5 3 Potentially Liable Parties 248 6 5 3 1 Overview 248 6 5 3 2 Lenders 248 6 5 3 3 Appraisers 249 6 5 3 4 Title Companies and Closing Agents 249 6 5 4 Possible Claims in Property Flipping Cases 250 6 5 5 Damages in Property Flipping Cases 251 6 5 6 FHA Anti- Flipping Regulation 252 6 6 Appraisal Fraud 253 6 6 1 Introduction 253 6 6 2 Appraisal Standards 255 6 6 2 1 In General 255 6 6 2 2 Appraisal Standards for Higher- Priced Mortgage Loans 255 6 6 3 Appraisal Review and Supervision 256 6 6 4 Appraiser Independence 257 6 6 4 1 Overview 257 6 6 4 2 Dodd- Frank Act Appraisal Regulation 257 6 6 5 Investigating an Appraisal Fraud Case 257 6 6 5 1 What to Look For 257 6 6 5 2 Getting the Original Appraisal 258 6 6 5 3 Retrospective and Review Appraisals 258 6 6 6 Claims 258 6 6 6 1 Overview 258 6 6 6 2 Fact Versus Opinion 260 6 6 6 3 Reliance 261

Chapter 7 Mortgage Brokers and Other Third Parties: Charges and Abuses 7 1 Introduction 263 7 2 Mortgage Brokers 263 7 2 1 Generally 263 7 2 2 What Do Mortgage Brokers Do 264

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Mortgage Lending

7 2 3 Regulation of Mortgage Brokers 265 7 2 4 Mortgage Brokers As Agents 266 7 2 4 1 Overview 266 7 2 4 2 When the Broker Is the Lender’s Agent 267 7 2 4 3 When the Broker Is the Borrower’s Agent 268 7 2 4 4 State Statutes Regarding the Broker’s Relationship

with Borrowers 268 7 2 5 Survey of Potential Claims Arising from Broker Misconduct 270 7 3 Mortgage Broker Compensation 273 7 3 1 Introduction 273 7 3 2 How Brokers Are Compensated: Then, Now, and HELOCs 273 7 3 3 Problems with Broker Compensation 274 7 3 4 Regulating Broker Compensation 274 7 3 4 1 General 274 7 3 4 2 Broker Compensation in Closed- End Loans Starting

April 2011 275 7 3 4 2 1 Definition of loan originator 275 7 3 4 2 2 Regulation Z’s rules on mortgage originator

compensation 275 7 3 4 3 Issues of Loan Officer Compensation 276 7 3 4 4 Yield Spread Premiums: Closed- End Loans

Pre- April 2010, HELOCs, and Timeshares 277 7 3 4 5 Yield Spread Premiums: Practice Issues 278 7 4 RESPA’s Prohibition Against Kickbacks, Referral Fees, and

Splitting Charges 280 7 4 1 General 280 7 4 2 Exceptions to Ban on Referral Fees and Kickbacks 282 7 4 3 Affiliated Business Arrangements 282 7 4 3 1 Generally 282 7 4 3 2 HUD’s Policy Statement on Affiliated Business

Arrangements 283 7 4 4 Home Warranties 284 7 4 5 Standing 285 7 4 6 Splitting Charges 285 7 4 7 Alternatives to RESPA for Challenging Unearned and Illegal Fees 286 7 5 Private Mortgage Insurance 287 7 5 1 Generally 287 7 5 2 Regulation of PMI 288 7 5 3 PMI Abuses 289 7 6 Title Insurance 291 7 6 1 Description 291 7 6 2 Disclosure, Cost, and Abuses 291 7 6 3 Charging the Wrong Rate 294 7 6 4 Title Insurance Steering and Remedies 294 7 7 Flood Insurance 295 7 8 Credit Insurance and Debt Cancellation Products 297 7 9 Attorney Fees As a Closing Cost 297 7 10 Liability of Other Third Parties 298 7 11 TILA and RESPA Remedies 299 7 11 1 Remedies for Violations of RESPA Sections 2607 and 2608 299 7 11 2 TILA Remedies 300 7 12 The Lender’s Obligation to Monitor Third Parties 300

xxv

Contents

Chapter 8 Interest and Other Loan Terms 8 1 Overview 303 8 2 State Law’s Relation to FHA, VA and RHS Insured Loans 304 8 2 1 FHA and VA Insured Loans 304 8 2 2 State Opt- Out of FHA and VA Loan Preemption 304 8 2 3 Relationship of FHA and VA Preemption to DIDA

Preemption of Manufactured- Home Loans 305 8 2 4 RHS Direct and Guaranteed Loans 305 8 3 DIDA First Mortgage Preemption 306 8 3 1 Overview 306 8 3 2 DIDA Preemption Limited to Interest Rates 306 8 3 3 DIDA Applies Only to First Mortgages 307 8 3 3 1 DIDA Applies Even to Non- Purchase- Money First Liens 307 8 3 3 2 The Texas Exception 307 8 3 4 Qualifying Lenders 308 8 3 5 Limits As to DIDA Preemption for Manufactured- Home Credit 309 8 3 6 State Opt Out from DIDA First Mortgage Preemption 309 8 4 Rate Exportation and the “Most Favored Lender” 310 8 4 1 Practical Implications 310 8 4 2 How Rate Exportation Works 311 8 4 3 The “Most Favored Lender” 311 8 5 AMTPA Preemption of State Restrictions on Mortgage Loan Structure . . . . . . 312 8 5 1 Introduction 312 8 5 2 AMTPA Preemption of State Restrictions on Mortgage Loan Structure 313 8 5 3 Exceptions for Maine, Massachusetts, New York, South Carolina,

Texas, and Wisconsin 314 8 5 4 AMTPA Preemption for Mortgage Loans Extended After

July 21, 2011 315 8 5 5 AMTPA Preemption Prior to July 22, 2011 316 8 6 Restrictions on Mortgage Loan Interest Rates 316 8 6 1 Generally 316 8 6 2 Federal Credit Unions 317 8 6 3 Effect of HOEPA and State Predatory Lending Laws 317 8 6 4 Servicemembers Civil Relief Act 317 8 6 5 State Law Limits and Federal Preemption 317 8 6 5 1 State Law 317 8 6 5 2 Federal Preemption 318 8 7 Restrictions on Points and Other Origination Charges 318 8 7 1 Description of Points 318 8 7 2 FHA and VA loans 320 8 7 3 HOEPA Loans 320 8 7 4 State Restrictions and Federal Preemption 321 8 7 4 1 State Law 321 8 7 4 2 Federal Preemption 322 8 8 Restrictions on Adjustable Rates 323 8 8 1 Introduction 323 8 8 2 All ARMs Must Include a Cap 323 8 8 3 Home Equity Lines of Credit (HELOCs) 323 8 8 4 National Banks 323 8 8 5 Federal Savings Associations 324 8 8 6 New Dodd- Frank Limits on ARMs 324 8 8 7 FHA Loans and RHS Guaranteed Loans 324

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Mortgage Lending

8 8 8 VA Loans 324 8 8 9 State Restrictions and Federal Preemption 324 8 8 9 1 State Law 324 8 8 9 2 Federal Regulatory Agency Preemption 325 8 8 9 3 AMTPA Preemption 325 8 8 10 Legal Issues in Adjustable Rate Credit 326 8 9 Negative Amortization 327 8 9 1 Introduction 327 8 9 2 VA Loans 327 8 9 3 FHA and RHS Loans 327 8 9 4 HOEPA 327 8 9 5 Dodd- Frank Act Requirements 327 8 9 6 State Laws and Federal Preemption 327 8 9 6 1 State Law 327 8 9 6 2 Federal Banking Agency Preemption 328 8 9 6 3 AMTPA Preemption 328 8 10 Prepayment Penalties 328 8 10 1 Background 328 8 10 2 Rebates of Unearned Interest for Pre- Computed Mortgages 329 8 10 3 Federal Credit Unions 329 8 10 4 FHA and VA Loans 330 8 10 5 HOEPA Loans 330 8 10 6 “Higher- Priced” Mortgage Loans 331 8 10 7 ARMs, Certain Non- Prime Loans, and Loans

That Are Not “Qualified Mortgages” 331 8 10 8 Manufactured Home Financing 331 8 10 9 State Restrictions on Prepayment Penalties and Federal Preemption 331 8 10 9 1 State Statutory Restrictions 331 8 10 9 2 Contract, Fraud, and UDAP Challenges 333 8 10 9 3 HOEPA and “Higher- Priced” Mortgage Loan

Regulation Explicitly Preserve State Law 333 8 10 9 4 Depository Institution Exportation of Its Home State Law 334 8 10 9 5 OTS Preemption As to Federal Savings Associations 334 8 10 9 6 OCC Preemption Regarding ARMs 334 8 10 9 7 AMTPA Preemption Regarding ARMs 335

8 10 10 Prepayment Penalties and Due- on- Sale Clauses 335 8 11 Balloon Payments 336 8 11 1 Introduction 336 8 11 2 FHA Loans 336 8 11 3 HOEPA 336 8 11 4 Dodd- Frank Act Definition of “Qualified” Mortgage 337 8 11 5 Manufactured- Home First Lien Loans 337 8 11 6 State Restrictions and Federal Preemption 337 8 11 6 1 State Law 337 8 11 6 2 Federal Banking Agency Preemption 337 8 11 6 3 AMTPA Preemption 338 8 12 Loan Maturity 338 8 13 Late Charges and Penalty Interest Rates 338 8 13 1 FHA, VA, and RHS Loans 338 8 13 2 High- Rate Mortgage Loans 339 8 13 3 Manufactured- Home Loans 339 8 13 4 State Law and Federal Preemption 339

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Chapter 9 Reverse Mortgages 9 1 Introduction 341 9 2 The Reverse Mortgage Industry and Securitization 341 9 3 Home Equity Conversion Mortgages (HECMs) 342 9 3 1 Overview 342 9 3 2 Eligibility 343 9 3 3 Loan Terms 343 9 3 4 Fees 345 9 3 5 Payment Obligations 345 9 3 6 Property Charge Payments 345 9 3 7 HECM for Purchase 346 9 4 Counseling 346 9 4 1 General 346 9 4 2 The HECM Counseling Requirement 346 9 5 Truth in Lending Act Applied to Reverse Mortgages 347 9 6 Other Applicable Federal Laws 348 9 7 Abuses in Reverse Mortgage Lending 348 9 7 1 In General 348 9 7 2 Fraud, Misrepresentation, and Unfair Practices 348 9 7 3 Yield Spread Premiums and Steering 349 9 7 4 Cross- Selling Annuities and Other Investment Products 350 9 7 5 Theft of Proceeds 351 9 8 State Regulation of Reverse Mortgages 351 9 9 Reverse Mortgages In Practice 352

Chapter 10 Mortgage Litigation 10 1 Choice of Federal or State Court 353 10 2 Federal Question Jurisdiction 354

10 2 1 General 354 10 2 2 Supplemental Jurisdiction 354 10 2 3 Complete Preemption and Beneficial Bank . . . . . . . . . . . . . . . . . . . . . . 355 10 2 4 Federal Jurisdiction Based on Fannie Mae Charter 357

10 3 Diversity Jurisdiction 357 10 3 1 Diversity Jurisdiction in Individual Cases 357 10 3 2 Diversity Jurisdiction Under the Class Action Fairness Act 358

10 4 Removal and Remand 358 10 5 Personal Jurisdiction over Out- of- State Defendants 358

10 5 1 Overview of General Jurisdiction and Specific Jurisdiction 358 10 5 2 Personal Jurisdiction over Securitization Trusts 360

10 5 2 1 Overview 360 10 5 2 2 General Jurisdiction over Securitization Trusts 360 10 5 2 3 Specific Jurisdiction When Claim Relates to Property

in Forum State 361 10 5 2 4 Jurisdiction in Bankruptcy Court and over Counterclaims 363

10 5 3 Jurisdiction over Parent Companies and Holding Companies 364 10 6 Third- Party Liability 364

10 6 1 General 364 10 6 2 Liability for Employees and Agents 367 10 6 3 Aiding and Abetting, Civil Conspiracy 368 10 6 4 Joint Venture 369 10 6 5 Accepting Fruits of a Fraud 371 10 6 6 Closing Protection Letters 371

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10 7 Limits to the Holder- in- Due- Course Defense 371 10 7 1 The Basics 371

10 7 1 1 Eleven Limits to the Holder- in- Due- Course Defense 371 10 7 1 2 The Elements of Holder in Due Course 372 10 7 1 3 The Shelter Rule: Acquiring the Rights of a Holder

in Due Course Without Being a Holder in Due Course 373 10 7 2 The Holder in Due Course and Home Improvement Contracts 374

10 7 2 1 Introduction 374 10 7 2 2 When the Contractor Originates the Credit 374

10 7 2 2 1 Generally 374 10 7 2 2 2 Holder’s maximum liability under the FTC

Holder Rule 374 10 7 2 3 When the Contractor Refers the Consumer to a Lender 375 10 7 2 4 When the Home Improvement Lender Is Unrelated

to the Contractor 375 10 7 3 No Holder in Due Course in Land Installment Sales 375 10 7 4 No Holder in Due Course in Home Equity Lines of Credit 376 10 7 5 No Holder in Due Course in Reverse Mortgages 376 10 7 6 No Holder in Due Course in HOEPA Loans 376

10 7 6 1 General 376 10 7 6 2 State Law May Extend Scope of HOEPA Elimination

of Holder in Due Course 377 10 7 7 Option- ARMs and Other Variable Rate Notes 377 10 7 8 No Holder in Due Course When Homeowner Delinquent

Prior to First Transfer of Instrument 378 10 7 9 No Holder in Due Course When Assignee Takes in Bad Faith

or Is on Notice of Consumer Defenses 379 10 7 9 1 Notice of Defenses 379 10 7 9 2 Bad Faith 380 10 7 9 3 Exception When Transferor Is Holder in Due Course 380

10 7 10 No Holder in Due Course When Paperwork Is Sloppy 380 10 7 10 1 General 380 10 7 10 2 Electronic Negotiable Instruments 382

10 7 11 No Holder in Due Course When Note Comes with “Luggage” or Incorporates Mortgage Provisions 382

10 7 12 Defenses That Can Be Raised Against a Holder in Due Course 383 10 8 Mandatory Arbitration Clauses 384

10 8 1 Introduction 384 10 8 2 Federal Law Now Prohibits Mandatory Arbitration in Mortgage Loans 384

10 8 2 1 In General 384 10 8 2 2 Retroactive Application 384

10 8 3 Challenging Arbitration Requirements That Apply Despite the Federal Ban 385

10 8 3 1 Introduction 385 10 8 3 2 Does the Court or Arbitrator Decide Whether a Clause

Is Enforceable? 386 10 8 3 3 Proof of an Applicable Arbitration Agreement and

Party’s Standing to Enforce That Agreement 386 10 8 3 4 Enforceability of Arbitration Agreement Specifying

the NAF As the Sole Arbitration Forum 387 10 8 3 5 Unconscionability As Grounds to Challenge an

Arbitration Requirement 387

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10 8 3 6 Limits on Arbitration in Judicial Foreclosures and Bankruptcy Court Litigation 387

10 8 3 7 Litigation Concerning Insurance 387 10 8 3 8 Arbitration Requirements Related to TILA Rescission,

CROA, and Usury Claims 388 10 8 3 9 When Arbitration May Be a Desirable Forum:

Class Arbitration and Punitive Damages 388 10 9 Uniform Covenant Giving Parties Notice and Opportunity to Cure 389

10 9 1 The Covenant 389 10 9 2 Provision Restricted to Breach of Contract Claims 389 10 9 3 Not Applicable to Consumer Protection Claims 390 10 9 4 Not Applicable to Loan Servicers 391 10 9 5 Pleading and Procedure 391 10 9 6 Not Applicable If Providing Notice and an Opportunity

to Cure Would Have Been Futile 391 10 9 7 Timing Issues 391

10 10 Settlement Issues 391 10 10 1 Introduction 391 10 10 2 Make Sure the Agreement Is Enforceable 391 10 10 3 Issues Impacting the Dollar Value of the Settlement 392 10 10 4 Non- Monetary Elements of Settlement Agreements 393 10 10 5 Confidentiality Agreements 394

10 10 5 1 The Costs of Confidentiality 394 10 10 5 2 When to Agree to Confidentiality and How to

Limit the Harms 394 10 10 5 3 Ethical Obligations of Counsel 395

Chapter 11 Litigating Claims When a Bank Fails 11 1 Introduction 397 11 2 The FDIC’s Role When a Bank Fails 397 11 3 The Administrative Claims Process and Its Implications 398

11 3 1 Introduction 398 11 3 2 Overview of Claims Process 399

11 3 2 1 Introduction 399 11 3 2 2 The FDIC Must Publish and Mail Notice to the

Failed Bank’s Creditors 399 11 3 2 3 Deadline for Filing a Claim 399 11 3 2 4 The FDIC’s Resolution of the Claim and the

Claimant’s Right to Seek Review or File Suit 400 11 3 2 5 Termination of the Receivership 401

11 3 3 Consequences of Failure to Submit a Claim 402 11 3 3 1 Jurisdictional Bar Over Unexhausted Claims 402 11 3 3 2 What Types of Claims Are Subject to the Jurisdictional Bar 403

11 3 4 Potential Mismatch Between the Jurisdictional Bar and the Claims That Are Eligible for Relief 404

11 3 5 Affirmative Defenses 405 11 3 5 1 Exhaustion Requirement Inapplicable to Affirmative Defenses 405 11 3 5 2 What Is an Affirmative Defense? 405 11 3 5 3 Affirmative Defenses That Could Also Have Been

Asserted As Independent Claims 406 11 3 5 4 FDIC’s Purported Sale of Obligations Without Defenses 407 11 3 5 5 Practical Considerations 408

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11 3 6 Lawsuits Filed Before the Bank’s Failure 409 11 3 6 1 Courts Retain Jurisdiction Over Pre- Receivership Suits 409 11 3 6 2 Must Plaintiff in Pre- Receivership Suit Exhaust

Administrative Claims Process? 409 11 3 6 3 What Is a Pre- Receivership Suit? 411 11 3 6 4 How to “Continue” a Case 411

11 3 7 Claims Against the FDIC for Actions It Took As Receiver and Other Claims That Accrue After the Claims Bar Date 412

11 3 8 Claims Regarding Loans That the Bank Sold Before It Failed 413 11 3 9 Claims Against the FDIC’s Assignees Regarding Assets the

Failed Bank Owned at Time of Failure 414 11 3 9 1 Claims That Arise After the FDIC Transfers an Obligation 414 11 3 9 2 Claims Asserted Against the FDIC’s Assignee That

Arise from the Failed Bank’s Actions 415 11 3 9 3 Asserting TILA Claims Against Assignees 417 11 3 9 4 Claims Against Bridge Banks 418 11 3 9 5 Claims Regarding Whether Purchase and Assumption

Agreement Required Assignee Bank to Assume an Obligation 418 11 3 10 Other Exceptions to Exhaustion Requirement 419 11 3 11 Due Process Issues 419 11 3 12 Other Constitutional Issues 421 11 3 13 How to File a Claim 421 11 3 14 Mechanics of Suing on the Claim 422 11 3 15 The FDIC’s Right to Remove a Case to Federal Court 423 11 3 16 The FDIC’s Right to Obtain a Stay 424 11 3 17 Class Claims 425 11 3 18 Prohibition of Injunctive Relief 425 11 3 19 Prohibition of Relief in Nature of a Penalty 427 11 3 20 Navigating the Claims Process Minefield 427 11 3 21 Practical Concern: Likelihood of Recovery from Failed

Bank Assets 429 11 4 Overview of the Three Related Special Substantive Defenses Available

to the FDIC 430 11 5 Does Section 1823(e) Displace D’Oench and the Federal

Holder- in- Due- Course Doctrine? 430 11 6 D’Oench . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 431

11 6 1 Overview of the Doctrine 431 11 6 2 Exceptions to D’Oench . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 432 11 6 3 Treatment of Innocent Borrowers 433

11 7 12 U S C § 1823(e) 434 11 7 1 Outline of Section 1823(e) 434 11 7 2 Requirements for Enforceability of Agreements 435 11 7 3 What Is an “Agreement” Under Section 1823(e)? 437 11 7 4 Requirement That the Agreement Tend to Diminish or

Defeat FDIC’s Interest in an Asset 438 11 7 5 Fraud in the Factum 440 11 7 6 Equitable Considerations 440 11 7 7 Comparison of Section 1823(e) and D’Oench . . . . . . . . . . . . . . . . . . . . 441

11 8 Federal Holder- in- Due- Course Doctrine 441 11 9 Who Can Claim Protection Under D’Oench and Section 1823(e) 444

11 9 1 Did the Bank Actually Fail? 444 11 9 2 Subsidiaries, Institutions That Are Not Federally Insured 444

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11 9 3 Assignees 444 11 9 4 Whether Assignees Benefit from FIRREA’s Limitations Period 445

11 10 Effect of the FTC Holder Rule and the Assignee Liability Provisions of HOEPA 446 11 11 A Sampling of Claims and Defenses That May Avoid D’Oench

and Related Doctrines 446 11 12 Application of D’Oench and Related Doctrines to Common Consumer Claims 449

11 12 1 Introduction 449 11 12 2 Loan Servicing Abuses 449 11 12 3 Loan Origination Abuses 450

11 12 3 1 Fraud and UDAP Claims 450 11 12 3 2 Truth in Lending Act Claims 450 11 12 3 3 Breach of Contract 451

11 12 4 Other Statutory Claims 451 11 13 FDIC and RTC Liability for Their Own Conduct 451

Appendix A State Mortgage Lending Statutes 453

Appendix B State Predatory Lending Statutes 461

Appendix C Real Estate Settlement Procedures Act C 1 Selected Statutory Provisions 471 C 2 Selected Regulation X Provisions 477 C 3 Supplement I to Part 1024— Official Bureau Interpretations 515

Appendix D Truth in Lending Act Substantive Mortgage Regulation D 1 The Truth in Lending Act 519 D 2 Regulation Z, 12 C F R Part 1026 532 D 3 Supplement I to Part 1026— Official Interpretations of Regulation Z 563

Appendix E National Bank Regulation E 1 Rate Exportation Statutory Provisions 637 E 2 Dodd- Frank Standards for Preemption Determination 637 E 3 OCC Regulations 639 E 4 OCC Interpretive and Advisory Letters 651 E 5 OCC Preemption Determinations 655

Appendix F Federal Savings Association Regulation F 1 Statutory Provision on Rate Exportation 657 F 2 Dodd- Frank Act Provision on Preemption and Regulation 657 F 3 Current Regulations 657 F 4 Pre- Dodd- Frank Act OTS Regulations 662 F 5 Pre- Dodd- Frank Act OTS Interpretive Letters 665

Appendix G Federal Credit Union Regulation G 1 National Credit Union Administration Regulations 669 G 2 NCUA Interpretive Letters 673 G 3 NCUA Formal Statements of Interpretation and Policy 675

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Appendix H Other Substantive Mortgage Restrictions H 1 Adjustable Rate Mortgage Caps 677 H 2 Federal Rebate Statute 677 H 3 Servicemembers Civil Relief Act 678 H 4 Secure and Fair Enforcement (S A F E ) for Mortgage Licensing Act 679 H 4 1 S A F E Act, 12 U S C §§ 5101– 5116 679 H 4 2 S A F E Act, Regulation G 686 H 4 3 S A F E Act, Regulation H 691

Appendix I Depository Institutions Deregulation and Monetary Control Act of 1980 (DIDA)

I 1 Statutory Provisions 699 I 1 1 Definition of Federally Related Mortgage Loan 699 I 1 2 DIDA Statutory Provisions 699 I 2 DIDA Regulations 702 I 3 Interpretations Concerning State Depository Rate Exportation 705

Appendix J Alternative Mortgage Transaction Parity Act J 1 Statutory Provisions 707 J 2 Regulatory Provisions 708 J 2 1 Introduction 708 J 2 2 Regulation D 709 J 2 3 Official Commentary to Regulation D 710 J 3 Old OTS Regulations for State Housing Creditors 712 J 4 OTS AMTPA Interpretive Letters 712

Appendix K Loans Insured by Federal Agencies K 1 Federal Housing Administration Insured Loans 715 K 1 1 Statutory Provision Preempting State Law 715 K 1 2 Selected Federal Housing Administration Regulations 715 K 1 2 1 Single Family Home Loans 715 K 1 2 2 Home Improvement and Manufactured Home Loans 717 K 2 Department of Veterans Affairs (VA) Loans 717 K 2 1 Statutory Provision Preempting State Law 717 K 2 2 Selected VA Regulations 718 K 3 Rural Housing Service (RHS) Insured Loans 722

Appendix L Reverse Mortgages L 1 Statutory Provisions 723 L 1 1 National Housing Act Provisions 723 L 1 2 Truth in Lending Act Provisions 726 L 2 Selected Regulations 727 L 2 1 HUD Home Equity Conversion Mortgage Insurance Provisions 727 L 2 2 HUD Housing Counseling Program Provisions 743 L 2 3 Truth in Lending Regulation Z Provisions 743 L 2 3 1 Selected Regulation Provisions 743 L 2 3 2 Selected Commentary Provisions 744 L 3 HUD Mortgagee Letters 745

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Appendix M Failed Bank Receivership Statutes M 1 The Administrative Claims Process 751 M 2 Requirements for Enforceability of Agreements Against Failed Banks 755

Appendix N Websites Relating to Mortgage Lending Issues 757

Appendix O Online Companion Material for This Treatise O 1 Introduction 759 O 2 About the Online Companion Material 759 O 3 Locating Documents 759 O 4 Downloading and Using Documents 759 O 5 Finding Additional Pleadings 759

Index 761