December 15, 2016 Newsline

To: All Members
From: E. Robert Levy, Esq.

E. Robert Levy, Esq.

The transition to a new administration in Washington, DC is expected to offer some profound changes that would benefit our industry, recognizing that the political process will offer some challenges going forward.  In the Senate, the Republicans control 52 seats and 60 votes are still needed to override a filibuster.  This means that 8 Democrats would have to join with the Republicans to overcome a filibuster.  Therefore, even though the House has a large Republican Majority, a bill passed there may not get through the Senate. 

Jeb Henserling, Chairman of the Financial Institutions Committee in the House, has indicated his desire to reform Dodd Frank for some time. GSE reform has also been reported as something he would like to accomplish.  He is said to be ideologically in tune with the President Elect and the Vice President Elect and the Bill he has had ready, while not a full repeal of Dodd Frank, would make sweeping changes to that legislation. The Bill would include a 5 member Consumer Financial Opportunity Commission to replace the CFPB’s single Director.  The Bureau would be subject to appropriations requirements giving Congress more control over its activities. Other bills likely to move would raise the points and fees tolerances for QM loans, and provide for transitional MLO licenses.

A petition for rehearing before the full Court (“En Banc”) in the PHH case has been filed by the CFPB with the DC Circuit Court of Appeals. A three judge panel heard the case and overturned Director Cordray’s decision in a strongly worded opinion that found the CFPB unconstitutional and deleted the “for cause” language to remove the Director to save the Bureau.  The Court also reinstated the HUD letter of 1997 that PHH relied upon in structuring its program with mortgage insurers who received referrals of mortgage loans when purchasing reinsurance from its subsidiary.  Director Cordray opined that HUD was wrong when it found that Section 8 (C) (2) of RESPA was an exception to the anti-kickback provisions of Section 8 (a) but the Court disagreed and upheld HUD’s view of the law.

The Court has required PHH to file a Response to the Petition For Rehearing by the CFPB and invited the Solicitor General to file a brief as well. The Court will then have to vote on whether to grant an En Banc Review and could also call for oral argument, which would mean that  a decision would not likely come until Spring or Summer of 2017. 

Wayne A. Watkinson, Esq.

In a change of policy, HUD in Mortgagee Letter 2016-18 (November 28, 2016) has authorized licensed mortgage lenders to use of Professional Employer Organizations (“PEO’s”) and similar entities.   PEO’s are typically used for human resources-related services, such as payroll processing, payment of employment taxes, and the provision of employee benefits.  Use of such service organizations is popular in other industries, but has been impermissible to FHA lenders due to HUD’s prior view that persons paid through PEO’s are dual employees in violation of HUD’s dual employment prohibition.

The Mortgagee Letter states that the lender may use contract support for administrative, human resources and clerical functions that include (1) clerical assistance; (2) mortgage processing; (3) ministerial tasks in mortgage servicing; (4) legal functions; (5) quality control; and (6) human resources.  However, the lender may not contract out management or underwriting.  Further, the Mortgagee may not contract with any entity or person that is suspended, debarred, under a limited denial of participation or who is otherwise excluded from participation in FHA transactions.

Employees covered by a contract for human resources services must remain under the direct supervision and control of the Mortgagee, who retains full responsibility and liability for actions of the contract employees.  Mortgagees entering into such an arrangement must have a valid contractual agreement in place that specifies the roles and responsibilities of each party.  The change in policy goes into effect immediately.  The Mortgagee Letter is available at

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