In a pair of rulings, the U.S. Circuit Court of Appeals for the District of Columbia has rejected the National Association of Realtors petition for a rehearing in its case with the Justice Department.
The latest actions follow a 2-1 split decision that allowed the Biden Administration to reopen a case the trade group thought it had settled while Donald Trump was president.
But the Biden Administration never finalized the agreement and looked to reopen the investigation.
“This ruling stands in opposition to years of precedent on the interpretation of government contracts and the bedrock principle that the government must honor its word,” a NAR spokesperson said. “We are evaluating all remaining legal options and are committed to exploring all avenues to ensure the DOJ is held to the terms of our 2020 agreement.”
Some speculated that the April ruling could lead to more involvement by the Justice Department in cases involving real estate broker commissions and multiple listing services activities. Most recently, the Department filed an amicus brief, albeit in support of neither side, calling on Ninth Circuit Court of Appeals to reopen a case filed by Real Estate Exchange, also known as REX, against NAR and Zillow.
NAR has also entered into settlement agreements with some of the various plaintiffs in the buyer’s real estate broker fee commission cases, with a number of observers speculating that it wouldn’t have taken the action without the Justice Department’s blessing. But the DOJ’s actions since then have dispelled that conjecture.
After the April decision came out, NAR filed an appeal asking for both a rehearing among the three judge panel that initially decided the matter, as well as for an en banc hearing, where all members of the court would then rule on the case.
Both motions were rejected in single-page rulings without detailed explanation.
“Upon consideration of appellee’s petition for panel rehearing filed on May 20, 2024, it is ordered that the petition be denied,” wrote the unanimous three-judge panel consisting of Judge Karen Henderson, Judge Justin Walker and Judge Florence Pan.
The entire court, with the exception of Judge Bradley Garcia, participated in the unanimous ruling denying NAR’s request.
“Upon consideration of appellee’s petition for rehearing en banc, the response thereto, and the absence of a request by any member of the court for a vote, it is ordered that the petition be denied,” the unsigned ruling said.
Two days after regulators levied more fines against Citigroup for poor data quality management, the megabank said that it’s not changing its expense guidance for 2024, and it will aim to absorb any additional remediation-related costs into the firm’s existing spending plan.
Citi also said it will adhere to its previously released capital distribution plan, which includes an increase to its common dividend, and it plans to repurchase $1 billion of common stock in the third quarter. In the first quarter of this year, Citi bought back $500 million of common stock.
The updates came during Citi’s second-quarter earnings call, less than 48 hours after the Federal Reserve and the Office of the Comptroller of the Currency assessed a total of $136 million in civil money penalties against the bank for violating a pair of 2020 consent orders related to its risk management and internal controls systems.
Citi, which is engaged in a multiyear risk-management overhaul to correct and enhance those systems, even as CEO Jane Fraser tries to simplify the company and drive higher returns, has 30 days to submit a “resource review plan” to the OCC. The plan is supposed to show that the bank has enough resources allocated to the overhaul to achieve compliance in a timely and sustainable manner.
Citi’s plan, which executives say is already being drafted, will also help determine if additional resources, including more spending, are necessary to finish what the $2.4 trillion-asset company has called a “transformation” of its risk-management programs.
Citi “has been able to find productivity opportunities” this year to keep it within its stated expense guidance, and the bank will stay focused on finding more such cost savings in the event that more compliance spending is needed, Chief Financial Officer Mark Mason told analysts Friday.
Citi has been forecasting total operating expenses of between $53.5 billion and $53.8 billion for the full year. On Friday, Mason said the final tally will likely wind up on the higher end of that range.
“We are actively managing that with an eye towards what’s required” for the risk management overhaul in order “to keep it on track, to accelerate in areas where we’re behind,” Mason said.
Analysts pressed Mason and CEO Jane Fraser about the bank’s lack of sufficient progress, at least in the eyes of its regulators. Mike Mayo of Wells Fargo Securities asked why the 2020 consent orders haven’t been resolved.
“Is it not enough people? Is it not enough money? Do you need to look at it in a different way?” Mayo said.
Fraser responded that the project “is a massive body of work” with multiple layers, and pointed out that the regulators did acknowledge this week that Citi has made some progress.
Vivek Juneja of JPMorgan Securities wondered how much more time Citi needs to fix everything.
“How much longer for you to sort of get this past you?” Juneja said. “Are you talking a couple of years?”
The bank is trying to “get this done as quickly but as robustly as possible,” Fraser responded.
“We’re doing this by making strategic fixes and investments, rather than what I would call the old Citi way, which is a series of Band-Aids that remediate but don’t actually fix the underlying issue,” she said. “I’m not expecting this to change the time frames.”
Amid Citi’s latest regulatory troubles, the company reported a solid quarter. Total revenues were $20.1 billion, up 4% year over year, in part because each of the bank’s five business lines, including its long-languishing wealth segment, grew profits during the second quarter.
Excluding the impact of divestitures, firmwide revenues rose 3%. As part of Fraser’s plan to turn around Citi, the bank has been selling and winding down certain non-U.S. consumer franchises.
The increase in revenues and a decrease in expenses helped drive up Citi’s net income, which totaled $3.2 billion, a 10% increase from the same quarter last year.
Growth in Citi’s banking segment, which includes both business banking and investment banking, was particularly strong compared with the year-ago period, rising 30%.
Operating expenses declined 2% year over year to $13.4 billion, primarily as a result of an organizational simplification and other cost-reduction measures, Citi said.
The decrease in expenses was partially offset by the regulatory fines and other ongoing investments in the risk management overhaul, according to the bank.
The Appraisal Foundation has settled the “secretary-initiated” complaint with the Department of Housing and Urban Development over fair lending practices, including creating a $1.22 million scholarship fund.
HUD’s press release describes the conciliation agreement as historic, resolving a complaint “alleging discriminatory barriers preventing qualified Black people and other persons of color from entering the appraisal profession on the basis of race in violation of the Fair Housing Act.”
The Appraisal Foundation’s announcement about the settlement emphasized that the investigation process started in December 2021 did not result in any findings.
“We are pleased to have reached this conciliation agreement,” recently appointed Appraisal Foundation President Kelly Davids said in the group’s press release. “We appreciate HUD’s recognition of our proactive efforts to lead the appraisal profession to welcome a new, diverse generation of appraisers and their support of our forthcoming scholarship program to aid new entrants to the field.”
HUD’s comments focused on the lack of diversity in the appraisal profession and the Foundation’s role in that, namely its experience requirement, where a friend or family member who is already a licensed appraiser has to be willing to supervise as the applicant gains on-the-job experience.
“The lack of diversity within the appraiser workforce can contribute to patterns of mis-valuation in communities of color,” HUD press release quotes the Interagency Task Force on Property Appraisal and Valuation Equity as commenting. It cites Bureau of Labor Statistics data that states the industry is 94.7% white.
Yet the agreement declares “Respondent denies that the Appraiser Qualification Criteria has caused or resulted in any violation of the Fair Housing Act, but agrees to enter into this Conciliation Agreement to conclude the Investigation.”
It has a three-year term, set to expire on July 9, 2027.
“To help eliminate racial and ethnic bias from home appraisals, we must ensure that the industry looks like America,” HUD Acting Secretary Adrianne Todman said in the agency’s release.
“Today’s historic agreement will help build a class of appraisers based on what they know instead of who they know. This settlement will help bring us one step closer to rooting out discrimination in housing and opening doors to opportunity for all,” she added.
Under the agreement, the Foundation is creating a $1.22 million scholarship fund, which will cover the cost of aspiring appraisers to attend Practical Applications of Real Estate Appraisal programs, an alternative pathway to fulfill the experience requirement.
Details, including eligibility and how to apply, will be shared when the program is formally announced, the Foundation press release said.
The Appraisal Foundation has been in the crosshairs of the head of another member agency of the Federal Financial Institutions Examination Council, Director Rohit Chopra of the Consumer Financial Protection Bureau.
Chopra penned a letter after the PAVE report came out in March.
“These issues are deeply troubling as the Appraisal Foundation is one of the most — if not the most — powerful players in America when it comes to appraisals and plays a controlling role in key issues contributing to appraisal bias,” Chopra wrote. “As long as the Appraisal Foundation remains an insular body controlled by a small circle, operating behind closed doors, those issues will continue to go unaddressed.”
A federal judge delayed the effective date of the Federal Trade Commission’s near-total ban on noncompete agreements, the first salvo in the high-stakes legal fight over how much freedom workers should have to switch jobs within an industry.
U.S. District Judge Ada Brown in Dallas sided with the U.S. Chamber of Commerce and a Texas-based tax firm that claimed in a lawsuit the agency lacks authority to devise rules defining unfair methods of competition. The groups warned the unprecedented rule would invalidate 30 million employment contracts in a move that “amounts to a vast overhaul of the national economy.”
The ban was set to take effect nationally Sept. 4. It will now be on hold until August for the groups that seek to permanently strike the rule from the books, while the judge considers the merits of their suit.
Brown said in her ruling Wednesday that the challenge to the measure is “likely to succeed on the merits,” and that the public interest weighed in favor of temporarily blocking the rule.
The FTC approved the new rule in April, arguing that noncompete agreements unfairly block workers from switching jobs and undermine labor competition. The ban is backed by labor organizations AFL-CIO and the Service Employees International Union, Democratic senators and attorneys general from California, Illinois and 17 other states.
“The FTC stands by our clear authority, supported by statute and precedent, to issue this rule,” Douglas Farrar, a spokesperson for the agency, said in a statement. “We will keep fighting to free hardworking Americans from unlawful noncompetes, which reduce innovation, inhibit economic growth, trap workers, and undermine Americans’ economic liberty.”
READ MORE: Rule for a day: FTC noncompete ban hit with immediate lawsuitWill New York’s potential non-compete ban push advisory firms out of the state?The deets on noncompetes: Advisors clash with firm owners and trade groups on contract clausesCan advisors expect much from ban on non-competes? Probably notWells Fargo hit with nonsolicit lawsuit over $5M in client accounts
The rule would ban most noncompete agreements, including those of senior executives. Existing agreements for executives who earn more than $151,164 a year in a “policy making position” would remain in place under the FTC’s ban, while those binding lower-level workers would become unenforceable.
Business groups argue the FTC’s rule is overly broad and limits the ability of companies to protect confidential information. The ban would impact businesses and people across the workforce — everyone from doctors to tax professionals to hair stylists — and shift the balance of power between bosses and staff.
“This ruling is a big win in the Chamber’s fight against government micromanagement of business decisions,” the Chamber of Commerce’s chief counsel Daryl Joseffer said in a statement. “The FTC’s blanket ban on noncompetes is an unlawful power grab that defies the agency’s constitutional and statutory authority and sets a dangerous precedent where the government knows better than the markets.”
About one in five Americans is bound by a noncompete agreement, a March 2022 Treasury Department report found. In some industries, including technology and health care, it’s even higher. Studies found as many as 45% of primary care physicians and 35% to 45% of tech workers are bound by noncompete clauses.
As noncompete agreements have fallen out of favor in a number of states, many companies hit by rivals with talent raids have fought back with lawsuits, alleging that former employees took proprietary information when they defected.
President Joe Biden supports the FTC ban and his administration has made competition issues a key part of his economic policy.
Brown’s decision could be appealed to the conservative 5th Circuit Court of Appeals in New Orleans. The appeals court has become a favorite for conservative opponents of Biden’s policies related to federal regulatory power, guns, abortion and social media regulation.
The U.S. Supreme Court placed new restrictions Thursday on the use of in-house judges in regulatory enforcement cases — a watershed decision that’s expected to benefit both banks and individual bankers in situations where their regulators have accused them of wrongdoing.
Following the 6-3 decision, many enforcement cases that federal agencies would otherwise bring in administrative law courts — where, defendants frequently argue, the regulators have a homefield advantage — will likely have to be filed in federal court. The Seventh Amendment of the U.S. Constitution enshrines the right to a jury trial in certain situations.
The ruling by the high court’s conservative majority grew out of a fraud case that the Securities and Exchange Commission filed against the founder of a hedge fund. But it has large implications for a wide range of federal agencies.
In the banking sphere, the Federal Deposit Insurance Corp, the Federal Reserve, the Office of the Comptroller of the Currency and the Consumer Financial Protection Bureau all use administrative law judges.
Some of the clearest consequences of the ruling in the banking realm, experts said, will involve cases where regulators are seeking civil monetary penalties from either banks or individuals. Those cases will now have to be brought in federal court.
David Zaring, a professor of legal studies and business ethics at the University of Pennsylvania’s Wharton School, noted that many enforcement cases are settled rather than go to trial. He said that the prospect of a costly fight in federal court could give additional leverage to defendants who are engaged in settlement talks with regulators.
“Federal court litigation is expensive, and that could weigh into the leverage defendants have when thinking about whether to settle cases involving civil monetary penalties,” Zaring said.
He cited three examples of the kinds of cases where the defendants likely would have had a stronger hand to play in settlement talks if the Supreme Court’s ruling Thursday had already been in effect.
Under that scenario, securities fraud cases that were brought against big banks after the 2008 financial crisis, anti-money-laundering cases that resulted in large banks paying penalties and cases involving bank employees’ use of unauthorized messaging apps, might have been resolved on more favorable terms for the banks, Zaring said.
The penalties in those settlements have often stretched into the hundreds of millions of dollars, if not more than $1 billion.
The implications of Thursday’s ruling are less clear for enforcement cases that do not involve civil money penalties, according to experts.
Banking agencies may bring cases, for example, seeking restitution or the disgorgement of ill-gotten gains. They may try to bar individuals from working in the banking industry. They may also seek an order that a specific bank needs to cease and desist from certain conduct.
An enforcement case involving disgorgement could still go before an administrative law judge, Zaring said Thursday, based on his reading of the Supreme Court’s decision.
David P. Weber, a former enforcement official at the OCC, the FDIC and the SEC, agreed with that interpretation of the court’s decision. But he added that provisions of the Federal Deposit Insurance Act giving bank regulators the ability to bring cases not involving civil money penalties before an administrative law judge will also likely be challenged in court.
“I’m sure that intrepid litigants are now going to challenge all of the provisions,” said Weber, who is now a professor at Salisbury University’s Perdue School of Business.
Weber also pointed to another difficulty the ruling causes for bank regulators. He said that existing federal laws do not enable the banking agencies to bring certain types of enforcement cases — for example, those alleging that a bank engaged in unsafe and unsound practices — in federal court.
If the courts now take the position that such cases have to be brought in federal court, rather than before an administrative law judge, Weber said: “Until Congress provides a fix, it may be very difficult for federal banking agencies to bring enforcement actions.”
Weber was critical of the Supreme Court’s decision, arguing that administrative law judges have expertise about banking that federal judges lack.
Defense lawyers are typically far more critical of administrative law judges and the rules of the administrative law system, which lack certain procedural protections that federal courts provide to defendants.
“From my perspective as a defense lawyer, I generally prefer to be before a federal jury than an administrative law judge,” said Brad Bondi, a trial attorney at Paul Hastings.
Bondi said that the Supreme Court’s decision Thursday restored a pillar of American justice, which is that defendants who face an SEC penalty are entitled to a jury trial.
“This is a landmark decision that has broad ramifications across other government agencies that use administrative proceedings,” he said.
The court’s opinion was written by Chief Justice John Roberts and joined by Justices Clarence Thomas, Samuel Alito, Neil Gorsuch, Brett Kavanaugh and Amy Coney Barrett.
“A defendant facing a fraud suit has the right to be tried by a jury of his peers before a neutral adjudicator,” Roberts wrote.
In a concurring opinion, Gorsuch, who was joined by Thomas, wrote that the close relationship between administrative law judges and the agencies that bring enforcement cases makes it difficult, if not impossible, to convey the image of impartiality.
“Yes, ALJs enjoy some measure of independence as a matter of regulation and statute from the lawyers who pursue charges on behalf of the agency. But they remain servants of the same master — the very agency tasked with prosecuting individuals …” Gorsuch wrote.
In a fiery dissent, Justice Sonia Sotomayor accused the court’s conservative majority of engaging in a “power grab” by “arrogating Congress’s policymaking role to itself.” She wrote that the constitutionality of hundreds of federal laws may now be in jeopardy, and that dozens of agencies could be stripped of their power to enforce laws that Congress has passed.
“The majority pulls a rug out from under Congress,” Sotomayor wrote in an opinion joined by Justices Elena Kagan and Ketanji Brown Jackson, “without even acknowledging that its decision upends over two centuries of settled government practice.”
The Supreme Court on Friday overturned a major legal precedent requiring judges to defer to federal regulatory agencies’ interpretation of ambiguous statutes. The 6-3 ruling reduces the power of a wide range of executive branch agencies, including bank regulators, to interpret laws.
The 40-year-old legal doctrine — known as Chevron deference, named for the 1984 Supreme Court decision in Natural Resources Defense Council v. Chevron establishing the precedent — had long frustrated companies in regulated industries because it limited their ability to sue agencies over their interpretations of broad or vague legal authorities.
The doctrine often meant that regulators could write broader, more costly rules than regulated companies believed were warranted. Its demise is expected to open the floodgates to a wave of litigation challenging such rules.
But the end of Chevron deference could be a double-edged sword for banks, according to industry lawyers, because the Supreme Court’s decision will also make it easier for advocacy groups and state attorneys general to challenge rules they oppose, which would introduce more uncertainty for banks.
The ruling by the high court’s conservative majority, written by Chief Justice John Roberts, held that the Administrative Procedure Act requires courts to exercise their independent judgment in deciding whether an agency has acted within its statutory authority. Courts have the option to defer to an agency’s interpretation of an ambiguous law, but the court said the firm requirement that it must is incorrect.
“The deference that Chevron requires of courts reviewing agency action cannot be squared with the APA,” Roberts wrote. “Perhaps most fundamentally, Chevron’s presumption is misguided because agencies have no special competence in resolving statutory ambiguities. Courts do.
“Chevron has proved to be fundamentally misguided,” he continued in an opinion joined by Justices Clarence Thomas, Samuel Alito, Neil Gorsuch, Brett Kavanaugh and Amy Coney Barrett. “And its flaws were apparent from the start, prompting the Court to revise its foundations and continually limit its application. Experience has also shown that Chevron is unworkable.”
The court’s decision encompassed two cases: Loper Bright Enterprises v. Raimondo and Relentless v. Department of Commerce. The cases involved fishermen in New Jersey and Rhode Island who claimed the National Marine Fisheries Service could not impose a fee requiring federal observers on herring boats, based on the applicable law.
In a dissenting opinion, Justice Elena Kagan wrote that for 40 years, Chevron deference has served “as a cornerstone of administrative law, allocating responsibility for statutory construction between courts and agencies.”
“This Court has long understood Chevron deference to reflect what Congress would want, and so to be rooted in a presumption of legislative intent,” wrote Kagan, who was joined by Justice Sonia Sotomayor. “Congress knows that it does not — in fact cannot — write perfectly complete regulatory statutes.”
Justice Ketanji Brown Jackson joined the dissent in one of the two cases but was recused from the other because she took part in it as a federal appeals court judge.
Banking trade groups reacted favorably to the court’s ruling.
“This is an important win for accountability and predictability at a time when agencies are unleashing a tsunami of regulation — in many cases clearly exceeding their statutory authority while making it harder for banks to serve their customers. We will continue to fight to ensure that bank regulators follow the law every time they exercise their powers,” the American Bankers Association said in a written statement.
Going forward, lawyers said, federal agencies will be under greater scrutiny, giving industry actors more opportunities to challenge agency rules and interpretations of the law.
“The decision could be viewed as putting regulated communities on a more equal footing with the agencies,” said Varu Chilakamarri, a partner at the law firm K&L Gates.
Eugene Scalia, a former Trump administration Labor secretary and prominent corporate litigator, said that the Supreme Court’s decision on Friday is part of a broader trend in which courts are applying more scrutiny to agencies’ exercise of their legal authority.
Scalia has been hired by the Bank Policy Institute, which represents the nation’s largest banks, to advise on potential legal challenges to a Federal Reserve proposal for higher capital standards that has drawn fierce pushback from the industry.
He said Friday that “all regulators are wise to be more careful than they’ve been” in recent years “to make sure they’re acting within the authority Congress gave them, and they’re giving thoughtful consideration when the public tells them what its concerns are.”
The stakes appear to be particularly high for the Consumer Financial Protection Bureau. The CFPB has a reputation as being more aggressive than some other federal agencies, and during the Biden administration, the bureau has found its rules routinely challenged in court.
The CFPB said Friday that it is reviewing the ruling and declined to comment.
The CFPB’s interpretations of laws will now be subject to “heightened attack,” said Joe Lynyak, a partner at Dorsey & Whitney.
“Courts around the country may be inundated with private parties who may now litigate and relitigate an agency interpretation, including creating conflicting decisions by lower courts,” Lynyak said.
Eamonn Moran, senior counsel at Norton Rose Fulbright, said the rollback of Chevron deference may result in the overturning of regulations such as the CFPB’s $8 credit card late fee rule. But he also cautioned about potential downsides for banks.
“While there may be now more opportunity for the plaintiff’s lawyers to try to undo regulations through court challenges, industry may now be faced with lack of predictability and compliance challenges,” Moran said.
Leah Dempsey, co-chair of the financial services practice at the law firm Brownstein Hyatt Farber Schreck, pointed to what she described as challenges for regulated companies stemming from the court’s decision, in addition to the opportunities.
In an interview before the decision was released, Dempsey said that companies are always looking for clarity on how to operate, and argued that the demise of Chevron could limit the ability of agencies to provide such clarity.
Kate Judge, a professor at Columbia Law School, wrote in a social media post that banks, like many businesses, “may see Chevron’s fall as a win, but the Chevron doctrine was central in facilitating deregulation.”
“The result today does not mean less regulation; it just ensures more uncertainty about the obligations the law imposes on regulated entities,” Judge wrote on X, formerly known as Twitter.
The National Community Reinvestment Coalition is one of the progressive groups that may become more aggressive in suing over regulations it dislikes. The group’s chief policy counsel, Eden Forsythe, predicted that in the wake of Friday’s decision, “cynical corporate lobbyists” will try to undermine important regulatory safeguards.
“We can’t let that become a one-sided fight. If the courts are declaring open season on regulatory decision-making, then we have to make sure corporate America aren’t the only ones fighting,” Forsythe said. “Where regulatory outcomes have not been good enough to protect our communities, economic and environmental justice organizations should be aggressive in pursuing positive change.”
Joann Needleman, an attorney at the law firm Clark Hill, noted that many laws that affect the financial services sector are decades old, so they don’t provide clear guidance about how companies may use newer technology. It has long been up to regulators to fill in those gaps.
Needleman said that following the demise of Chevron deference, she can foresee litigation by consumer advocates challenging regulations that CFPB established regarding the use of modern communications technologies by debt collectors. The CFPB’s 2020 rule implementing the Fair Debt Collection Practices Act addresses the use of email and text messages by debt collectors. Advocates have opposed parts of the regulation.
Needleman, who is a former president of the board of directors of the National Creditors Bar Association, said in an interview before the court’s decision was released that the CFPB’s rule provides a modern interpretation of a decades-old law.
“A lot of what the CFPB did around that regulation was really helpful,” she said.
Federal regulators announced the approval of rules intended to provide quality control and eliminate potential discriminatory practices in the use of automated valuation models in appraisals.
The rules were originally proposed a year ago by a group of federal agencies involved in their design, including the Office of the Comptroller of the Currency, Federal Housing Finance Agency, Federal Reserve, Federal Deposit Insurance Corp., Consumer Financial Protection Bureau and the National Credit Union Administration.
The regulations will require mortgage originators and secondary market issuers to have procedures in place to ensure confidence in AVM estimates, protect against data manipulation and provide a backstop against conflicts of interest. They also mandate ongoing random sample testing and compliance with nondiscrimination laws.
The final rule does not spell out specific requirements for how institutions are to structure their practices but allows each to determine their own procedures based on their size and risk profile.
“The flexible approach to implementing the quality-control standards provided by the final rule will allow the implementation of the standards to evolve along with changes in AVM technology and minimize compliance costs,” the announcement said.
Finalization of the proposed regulations comes after a comment period, with the agencies receiving approximately 50 responses from stakeholders.
The addition of nondiscriminatory policy surrounding AVM use — what the regulators referred to as the rule’s “fifth factor ” — received support from many commenters but also detractors.
“While existing nondiscrimination law applies to an institution’s use of AVMs, the agencies proposed to include a fifth quality control factor relating to nondiscrimination to heighten awareness among lenders of the applicability of nondiscrimination laws to AVMs,” the federal announcement said.
Supporters said nondiscrimination could be seen “as a dimension of model performance and a required aspect of quality control,” adding that failing to address bias might result in ” safety and soundness risk.”
But public remarks also pointed to pushback involving such a mandate, with some comments suggesting documented instances of AVM bias were not prevalent. Others mentioned the fifth factor duplicated existing laws and other policies, while at the same time, provided no clear performance metric for users to determine if bias existed within data.
Some opposed pointed to the cost of compliance and limited resources at their institutions.
“They argued that small entities do not have access to an AVM’s data or methodology, are unable to validate the algorithms that AVM providers use, and lack the staff to assess the AVM models results,” according to the announcement.
Commenters also said the burden of nondiscrimination compliance should fall on the AVM providers, who often hold proprietary models. The regulators noted a number of individuals calling for the creation of a separate independent third-party nonprofit to test AVM systems to ensure compliance. Such an entity would both save lenders time and improve data quality, they said.
In addition to mortgage originations, the policy applies to AVM use in the determination of values for loan modification requests and applications for home equity lines of credit. But the regulation exempts licensed appraisers utilizing AVMs in the process of their work.
Use of automated models gained momentum as the government-sponsored enterprises began seeking alternative appraisal methods to address speed and costs. But their adoption previously drew criticism from the likes of CFPB, who raised concerns about potential algorithmic biases involved with any tools influencing credit decision making.
Looming changes to real estate commissions are already causing ripple effects in mortgage lending.
The National Association of Realtors will implement new rules this summer, following a $418 million settlement to end lawsuits challenging broker commissions. Four major real estate players also agreed to massive settlements in the past year, paving the way for a new landscape for homebuyers, home sellers and their representatives.
Housing finance stakeholders, who held their breath through the legal proceedings, are beginning to respond to the changes affecting borrowers. While the government has already amended one rule to protect certain consumers, other concerns regarding affordability and blurred lines between Realtors and loan officers remain.
Here’s the latest on what you need to know about real estate agent commissions.
WASHINGTON — The Senate Banking Committee will consider the nomination of Christy Goldsmith Romero to chair the Federal Deposit Insurance Corp. on July 11, the panel announced.
Goldsmith Romero, who currently sits on the board of the Commodity Futures Trading Commission, was just recently announced as the Biden administration’s pick to lead the FDIC in the wake of a workplace misbehavior scandal at the agency.
The committee, in the same hearing, will also consider the nominations of Caroline Crenshaw to be a member of the Securities and Exchange Commission, Kristin Johnson to be assistant secretary of financial institutions at the Treasury Department and Gordon Ito to be a member of the Financial Stability Oversight Council with expertise in insurance.
The Senate Banking Committee hearing marks the first official step in the process to confirming Goldsmith Romero’s nomination — a race against the clock at this point with a limited number of legislative days left in Congress. Goldsmith Romero would replace current FDIC Chairman Martin Gruenberg, who announced he would resign upon the confirmation of a successor.
Should the nominations pass the Senate Banking Committee, they will go to the full Senate.
While Goldsmith Romero hasn’t triggered any pushback so far from Republicans, the confirmation of her nomination is still far from guaranteed.
Democrats have enough votes to usher her and the other nominations through the Senate, but only if they remain united in their support — including among those seeking reelection in vulnerable seats in the 2024 elections. Republicans have been unusually successful in sinking the nominations of the Biden administration’s financial regulatory nominees in the past, pulling Democratic support, for example, from picks like Sarah Bloom Raskin and Saule Omarova.
Should she make it through the confirmation process, Goldsmith Romero would inherit an FDIC that not only is still reeling from the public revelation about the agency’s culture, but that has a busy regulatory schedule.
On Thursday — in what could very well be Gruenberg’s final board meeting as chairman — the agency finalized a rule bolstering resolution plans for large regional banks. Other key rulemakings, like the Basel III endgame proposal, are still pending.
Goldsmith Romero potentially would have only a limited number of months with a Democratic board. Should Donald Trump win the presidential election, Goldsmith Romero would not necessarily have to step down as chairman, but would be up against a 3-2 partisan split that would make governing the agency difficult.
The Consumer Financial Protection Bureau issued consent orders against a pair of companies Tuesday, citing what it called harmful delays in their work servicing loans older adults use to withdraw equity from their homes.
The order seeks to permanently bar two Sutherland Global subsidies and Novad Management Consulting from reverse mortgage services and called upon them to pay millions of dollars in redress and a civil monetary penalty.
Sutherland was a subcontractor for Novad, and the two were responsible for servicing Home Equity Conversion Mortgages between 2014 and 2022. HECMs are Federal Housing Administration-insured products available to borrowers 62 and older.
“Sutherland and Novad were unprepared to support the hundreds of thousands of older homeowners whose reverse mortgages the defendants were responsible for,” CFPB Director Rohit Chopra alleged in a press release.
“The defendants ignored complaints and calls for help, and they let problems snowball into disasters,” he added. CFPB alleged around 150,000 distressed mortgage borrowers per year experienced financial harm as a result.
The companies “systematically failed to respond to thousands of homeowner requests for loan payoff statements, short sales, deeds-in-lieu of foreclosures, lien releases and requests for general information,” the bureau further alleged.
“The companies allowed problems to fester to critical points, which resulted in borrowers losing out on home sales, paying unnecessary costs, and fearing foreclosure,” the CFPB stated.
In doing this, the companies allegedly violated the Real Estate Settlement Procedures Act and also engaged in unfair, deceptive or abusive acts and practices, such as falsely telling borrowers they were in default or not offering options, according to the CPPB.
The bureau specifically named two units of Sutherland respectively handling government solutions and mortgage services in its complaint. They have been ordered to pay $11.5 million in redress to customers for their actions.
The CFPB also is ordering both those entities and Novad to collectively pay a roughly $5 million civil money penalty that will go into a relief fund for affected borrowers.
The bureau is asking for $1 million from Novad due to its declaration of an inability to pay.
At one point Novad was the official Department of Housing and Urban Development subservicer, but in 2022, Celink took over that role. Novad lodged a protest against the change at the time, but the Government Accountability Office dismissed it.
Sutherland said in a press release Tuesday that it had “reached a voluntary agreement” with the bureau regarding work as a subcontractor for Novad in its HUD work, performing “specified limited support services” for reverse and other mortgages.
The company said it “was not directly responsible for the reverse mortgage servicing conduct that is the subject of the CFPB agreement. HUD controlled all aspects of the reverse mortgage servicing and communicated only with Novad.”
“Sutherland had no direct access to HUD guidelines, the HUD servicing system, borrower communications, or the borrower files,” it added. “Sutherland therefore disagrees with the CFPB findings and denies the CFPB’s allegations.”
The company said it agreed to the order and to absorb the bulk of payments because it wanted to focus on current customers, not a past issue. Both a review of Novad financials and a key executive’s tax statement showed an inability to pay, it added.
Novad had not responded to inquiries from this publication at the time of this writing.
The CPFB has warned servicers that it won’t tolerate what it has called excessive or “junk” fees in many areas, including loss mitigation, stressing that customers have little choice in the matter of who tends to their mortgage after origination.
“Older homeowners did not choose Sutherland and Novad as their reverse mortgage servicer, and the CFPB is holding these defendants accountable for their unlawful neglect,” Chopra said.
Reverse mortgage servicing is a specialized process, and a relatively limited number of companies are active in the space.
Novad is a Landover, Maryland-based nonbank company and Sutherland Global is a digital services provider with headquarters in Pittsford, New York.