One of our loan products is the Home Equity Line of Credit. We received a complaint from a borrower, and we were about to treat it as a QWR.
But our General Counsel got involved and said we do not have to reply to treat their complaint as a QWR because RESPA says home equity loans are excluded.
Somehow, this does not make sense to me. I would like your view.
Are we required to treat complaints as a QWR on a Home Equity Line of Credit?
ANSWER
The response is going to be a bit convoluted. My answer is one that I think you can show your General Counsel. If he wants to talk about it, ask him to contact me
Let’s first outline some basics. The RESPA statute generally provides that its requirements apply to “federally related mortgage loans.” This term includes almost every loan secured by a lien on residential real property in the United States designed principally for one-to-four family occupancy. The term includes loans secured by first or secondary liens.
Like TILA, RESPA specifically exempts certain types of loans, such as business purpose loans, loans secured by 25 acres or more (viz., not including loans subject to the Truth-in-Lending and RESPA integrated disclosures provisions, or TRID Rule), loans secured by vacant land, and a few other limited exemptions.
Regulation X, which implements RESPA, also generally applies to “federally related mortgage loans.” But Regulation X includes exceptions. For instance, Subpart C of Regulation X, which contains most of the regulation’s servicing provisions, generally applies to “mortgage loans” rather than “federally related mortgage loans.” The regulation defines a “mortgage loan” to exclude the home equity line of credit.
Indeed, there has been litigation on just this exclusion.
In Herrmann v. Wells Fargo Bank, a federal district court in Virginia did not appreciate this distinction, so much so that it found the exclusion of home equity lines of credit invalid because the exclusion conflicts with the RESPA statute.[i] The court is not alone; actually, it relied on two earlier court opinions.
Here’s the fact pattern.
· In December 2006, the Herrmanns obtained a home equity line of credit from Wachovia, secured by a deed of trust on the Herrmann’s residence.
· In 2011, Wells Fargo began to service the loan.
· After Wells Fargo took over servicing, the Herrmanns claimed that they “became frustrated with their inability to understand the monthly statements and how their payments were being applied to their account.”
· In December 2017, they requested a payoff amount.
· Wells Fargo demanded $85,159.97.
· The Herrmanns paid that amount, but believed the amount should be less than $84,000.
· In January 2018, the Herrmanns began sending multiple written requests inquiring about the payment. The Herrmanns believe their letters constitute Qualified Written Requests (“QWRs”) under RESPA.
· Wells Fargo sent 13 letters between January 2018 and November 2019 in response to the QWRs, but the Herrmanns found that each letter failed to resolve their dispute.
· The Herrmanns eventually hired an accountant to interpret the conflicting information they had received from Wells Fargo. The accountant determined that the actual payoff amount was far less than what Wells Fargo had demanded.
· On December 10, 2019, the Herrmanns sued, alleging violations of RESPA § 6 for Wells Fargo’s failure to respond to the QWRs properly.
· Wells Fargo filed a motion for judgment on the pleadings, contending that the RESPA claims fail because RESPA does not apply to home equity lines of credit, and Wells Fargo had fully satisfied its RESPA obligations by providing at least 13 detailed responses.
Now, let’s consider the court’s view.
The district court denied the motion as to the RESPA claims. The court began its analysis by noting that RESPA generally applies to “federally related mortgage loans,” a term that includes subordinate loans such as home equity lines of credit.
The court then stated that Regulation X provides that
As I noted, the court turned to two court decisions cited by the Herrmanns.
The first case, Hawkins-El v. First American Funding, LLC,[ii] held that RESPA applied to a plaintiff’s home equity line of credit. In Hawkins, the court reasoned that RESPA’s implementing regulations, which provide that the qualified written request provision does not include subordinate lien loans directly conflicts with the language in RESPA that includes subordinated liens in its borrower inquiry provisions. The court found the regulation and statute incompatible and applied RESPA’s more inclusive language “because an administrative agency’s regulation is ineffective to the extent it conflicts with its parent statute.”
The second case, Cortez v. Keystone Bank, Inc.,[iii] also held that RESPA applies to home equity lines of credit for the same reason as Hawkins-El.
Although the U.S. Court of Appeals for the 4th Circuit had not yet addressed the issue, the Herrmann court found Hawkins-El and Cortez persuasive. Those cases had dealt with an earlier version of Regulation X, but the same issue persisted in the current version. The court concluded that Congress’s definition of a “federally regulated mortgage” loan under RESPA includes home equity loans and provides home equity borrowers access to the QWR provisions under RESPA:
The court then found that the Herrmanns had adequately alleged that Wells Fargo had failed to reasonably investigate their account dispute in response to their QWRs, by (1) stating that Wells Fargo had provided “inconsistent and inaccurate explanations,” (2) Wells Fargo had admitted that some of its earlier QWR responses were inaccurate, and (3) Wells Fargo had “claimed that it was unable to determine if it had provided inconsistent information to the [Herrmanns].” Accordingly, the court denied Wells Fargo’s motion.
Now, let’s put all of these decisions together to discuss complaints and other servicing inquiries involving a Home Equity Line of Credit.
RESPA § 6(e)(1)(A) [12 U.S.C. 2605] states
By applying this requirement to “mortgage loans” rather than “federally related mortgage loans” in Regulation X, did the CFPB act inconsistently with RESPA?
On the face of RESPA § 6, yes.
But let’s look at the CFPB's view:
What "classes of transactions" might be considered?
The court then stated that Regulation X provides that
... a “[m]ortgage loan means any federally related mortgage loan, as that term is defined in § 1024.2 subject to the exemptions in § 1024.5(b), but does not include open-end lines of credit (home equity plans).”
The court added,
“Thus, Regulation X appears to narrow the definition of a mortgage loan under RESPA to exclude home equity loans.”
As I noted, the court turned to two court decisions cited by the Herrmanns.
The first case, Hawkins-El v. First American Funding, LLC,[ii] held that RESPA applied to a plaintiff’s home equity line of credit. In Hawkins, the court reasoned that RESPA’s implementing regulations, which provide that the qualified written request provision does not include subordinate lien loans directly conflicts with the language in RESPA that includes subordinated liens in its borrower inquiry provisions. The court found the regulation and statute incompatible and applied RESPA’s more inclusive language “because an administrative agency’s regulation is ineffective to the extent it conflicts with its parent statute.”
The second case, Cortez v. Keystone Bank, Inc.,[iii] also held that RESPA applies to home equity lines of credit for the same reason as Hawkins-El.
Although the U.S. Court of Appeals for the 4th Circuit had not yet addressed the issue, the Herrmann court found Hawkins-El and Cortez persuasive. Those cases had dealt with an earlier version of Regulation X, but the same issue persisted in the current version. The court concluded that Congress’s definition of a “federally regulated mortgage” loan under RESPA includes home equity loans and provides home equity borrowers access to the QWR provisions under RESPA:
“Regulation X conflicts with this definition by excluding home equity loan borrowers from the protections of the RESPA. Therefore, the court will rely on the language of the statute and find that the Herrmanns [sic] claim regarding their home equity is proper under RESPA.”
The court then found that the Herrmanns had adequately alleged that Wells Fargo had failed to reasonably investigate their account dispute in response to their QWRs, by (1) stating that Wells Fargo had provided “inconsistent and inaccurate explanations,” (2) Wells Fargo had admitted that some of its earlier QWR responses were inaccurate, and (3) Wells Fargo had “claimed that it was unable to determine if it had provided inconsistent information to the [Herrmanns].” Accordingly, the court denied Wells Fargo’s motion.
Now, let’s put all of these decisions together to discuss complaints and other servicing inquiries involving a Home Equity Line of Credit.
RESPA § 6(e)(1)(A) [12 U.S.C. 2605] states
“If any servicer of a federally related mortgage loan receives a qualified written request from the borrower (or an agent of the borrower) for information relating to the servicing of such loan, the servicer shall provide a written response acknowledging receipt of the correspondence within 5 days.”
By applying this requirement to “mortgage loans” rather than “federally related mortgage loans” in Regulation X, did the CFPB act inconsistently with RESPA?
On the face of RESPA § 6, yes.
But let’s look at the CFPB's view:
“Section 19(a) of RESPA authorizes the Bureau (and formerly directed the Department of Housing and Urban Development (HUD)) to prescribe such rules and regulations, to make such interpretations, and to grant such reasonable exemptions for classes of transactions, as may be necessary to achieve the purposes of RESPA.”[iv] [My emphasis.]
What "classes of transactions" might be considered?
When the CFPB amended Regulation X in 2013, it explained why it was excluding home equity lines of credit from coverage by Subpart C and pivoted on RESPA § 19(a) in doing so. The CFPB also said it was concerned that certain provisions of Regulation Z (Truth-in-Lending) would substantially overlap with the servicer obligations that would be set forth in Subpart C, including, for example, billing error resolution procedures.[v]
For this and other reasons, the CFPB concluded:
For this and other reasons, the CFPB concluded:
“[T]he Bureau believes it is necessary and appropriate to achieve the purposes of RESPA to maintain the current exemption, which HUD originally adopted as 24 CFR 3500.21 nearly 20 years ago. Accordingly, this exemption is authorized under section 19(a) of RESPA.”[vi] [My emphasis.]
The Herrmann, Hawkins-El, and Cortez courts apparently overlooked this history. Perhaps, they might have reached the same conclusion if they had considered the historical record.
Jonathan Foxx, Ph.D., MBA
Chairman & Managing Director
Lenders Compliance Group
_____________________________________________
[i] Herrmann v. Wells Fargo Bank, 2021 U.S. Dist. (W.D. Va. Mar. 29, 2021)
[ii] Hawkins-El v. First American Funding, LLC, 891 F. Supp. 2d 402 (E.D.N.Y. 2012)
[iii] Cortez v. Keystone Bank, Inc., 2000 U.S. Dist. (E.D. Pa. May 2, 2000)
[iv] RESPA and Regulation X, Mortgage Servicing Rules Under the Real Estate Settlement Procedures Act (Regulation X), Bureau of Consumer Financial Regulation, Final Rule, Official Interpretations, 2/14/13, 78 FR 10695, II. C. See also 12 U.S.C. 2617(a).
[i] Herrmann v. Wells Fargo Bank, 2021 U.S. Dist. (W.D. Va. Mar. 29, 2021)
[ii] Hawkins-El v. First American Funding, LLC, 891 F. Supp. 2d 402 (E.D.N.Y. 2012)
[iii] Cortez v. Keystone Bank, Inc., 2000 U.S. Dist. (E.D. Pa. May 2, 2000)
[iv] RESPA and Regulation X, Mortgage Servicing Rules Under the Real Estate Settlement Procedures Act (Regulation X), Bureau of Consumer Financial Regulation, Final Rule, Official Interpretations, 2/14/13, 78 FR 10695, II. C. See also 12 U.S.C. 2617(a).
[v] See 12 CFR 1026.13, Billing Error Resolution
[vi] Op. cit. iv, Other Exemptions, Section 1024.30, Scope. See also 12 CFR 1024.
