Compliance Center: Supreme Court to Hear Mortgage Rescission Case This Week

This week, the U.S. Supreme Court is set to hear arguments about how and when borrowers can request to rescind their mortgages.

Jesinoski v. Countrywide addresses how consumers can request a rescission–whether a borrower can simply send a notice or if they have to file a lawsuit, according to an Oct. 30 report in American Banker.

The Truth in Lending Act allows consumers to rescind the transaction three business days after the closing of a refinancing or home equity line of credit. The right of rescission is extended for up to three years if the mortgage disclosures are found to be inaccurate, the finance charge was understated or the lender failed to provide the borrower with the proper disclosures.

“Most lenders only have at the top of their minds the three-business-day timeline from when the initial disclosures are provided to the borrower when it comes to rescission,” said Jared Ihrig, associate general counsel for the Credit Union National Association. “But in instances where there are inaccurate disclosures, opening the rescission period to a period of three years can take lenders by surprise and be costly, if exercised by a borrower or their counsel relating to a foreclosure.”

Several U.S. appeals courts have ruled the borrower must file a lawsuit to exercise the extended right of rescission, American Banker noted, but other circuit courts have stuck to the literal language of only needing to file a written notice with the lender, resulting in a split among the courts.

“This is a very important case,” Robert Lotstein, managing attorney, LotsteinLegal, told American Banker. “The plaintiffs’ bar uses the right of rescission as a weapon to slow down or stop foreclosures. It can be an incredibly lengthy process. People have been able to stay in their homes for long periods of time while not paying their mortgage.”

Compliance Question of the Week

If initial disclosures are silent on skip payments, does the credit union have to provide a disclosure for skip payments on closed-end loans if a fee is charged?

No, Regulation Z does not require subsequent disclosures for skip payments on closed-end loans. Generally, the only time new Truth in Lending (TIL) disclosures are required for closed-end loans is if refinancing occurs. This is because the existing obligation is replaced by a new obligation for the same consumer. If the existing agreement is only being modified, no new disclosure is required.

Related Links:

12 CFR 1026.20

Legal Briefs

National Credit Union Administration (NCUA)

The NCUA released its Board Meeting schedule for 2015.

Consumer Financial Protection Bureau (CFPB)

The CFPB published its finalized Privacy Policy rule in the Federal Register — making the rule effective immediately.

The CFPB posted the list of rural and underserved counties for 2015.

The CFPB released its newest Supervisory Report on risky student loan and mortgage servicing.

Financial Crimes Enforcement Network (FinCEN)

FinCEN issued two virtual current rulings: Virtual Currency Payment Systems and Virtual Currency Trading and Booking Platform.

Federal Reserve Board (FRB)

The FRB released the minutes for the most recent Federal Open Market Committee Meeting.

Federal Deposit Insurance Corporation (FDIC)

The FDIC released its 2013 National Survey of Unbanked and Underbanked Households.

Financial Action Task Force (FATF)

FATF issued guidance for a risk-based approach in the financial sector.

FATF also issued guidance on transparency and beneficial ownership of accounts.

Office of Foreign Assets Control (OFAC)

OFAC has updated the SDN list as of October 31, 2014. The last update prior to this was October 21, 2014.

Questions? Contact the Compliance Hotline: 1.800.546.4465, compliance@nwcua.org.

Posted in Compliance, Federal, NCUA.