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CFPB expected to dismiss PHH case

American Banker has reported that that CFPB is planning to dismiss its lawsuit against PHH.  According to the American Banker report, the CFPB and PHH have issued a joint statement in which the parties confirm that they have conferred and agreed to recommend the dismissal and request that Acting Director Mulvaney proceed to dismiss the CFPB’s administrative proceeding.

On January 31, 2018, the D.C. Circuit issued its en banc PHH decision reinstating the RESPA-related portions of the D.C. Circuit’s October 2016 panel decision.  The panel had held that the plain language of RESPA permits captive mortgage re-insurance arrangements like the one at issue in the PHH case, if the mortgage re-insurers are paid no more than the reasonable value of the services they provide.  However, disagreeing with the panel decision, the en banc court rejected PHH’s challenge to the CFPB’s constitutionality based on its single-director-removable-only-for-cause structure.  Neither PHH Corporation nor the CFPB filed a petition for certiorari asking the U.S. Supreme Court to review the en banc decision.

For the first time in 2015, in prosecuting the case against PHH, the CFPB announced a new interpretation of RESPA under which captive mortgage reinsurance arrangements were prohibited.  The panel rejected this interpretation on the ground that the statute unambiguously allows the kinds of payments that the CFPB’s 2015 interpretation prohibited.  The panel remanded the case to the CFPB to determine whether PHH complied with RESPA under the longstanding interpretation previously articulated by HUD.   The en banc court’s reinstatement of that aspect of the panel decision led it to order that the case be remanded to the CFPB for further proceedings.

Although the D.C. Circuit panel had agreed with PHH that the RESPA three-year statute of limitations applies to administrative proceedings, it left undecided another statute of limitations issue for the CFPB to consider on remand.  The panel stated:  “We do not here decide whether each alleged above-reasonable-market value payment from the mortgage insurer to the reinsurer triggers a new three-year statute of limitations for that payment.  We leave that question for the CFPB on remand and any future court proceedings.”

Since the en banc court reinstated the panel’s decision “insofar as it related to the interpretation of RESPA and its application to PHH,” the issue of when the RESPA three-year statute of limitations is triggered, which is of great significance to the mortgage industry, might have been addressed on remand.  The CFPB’s dismissal of the administrative proceeding means the CFPB will not have an opportunity to rule on that issue in this case.

A determination on remand as to whether PHH complied with RESPA under the longstanding interpretation previously articulated by HUD would have required the CFPB to consider whether the mortgage re-insurers were paid more than reasonable market value for the services they provided.  The dismissal of the administrative proceeding also means the CFPB will not have an opportunity to rule on how reasonable market value is determined in mortgage re-insurance arrangements.

Copyright © by Ballard Spahr LLP

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About this Author

Richard J. Andreano, Jr. , Ballard Spahr Law Frim, Washington DC,  Business and Finance attorney, Mortgage Banking, Consumer Financial Services, Fair Lending

Richard J. Andreano, Jr., is the Practice Leader of Ballard Spahr's Mortgage Banking Group. He has devoted 30 years of practice to financial services, mortgage banking, and consumer finance law.

Mr. Andreano advises banks, lenders, brokers, home builders, title companies, real estate professionals, and other settlement providers on regulatory compliance and transactional matters, Federal Housing Administration (FHA) issues, and administrative examinations, enforcement actions and investigations. He also works with litigation counsel on devising strategies for defense of class action...

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