Mortgage Banking Update - July 2, 2020
In This Issue:
- CFPB Proposes Temporary Extension of the GSE Patch and Revised Approach to the General Qualified Mortgage
- SCOTUS Rules CFPB’s Leadership Structure is Unconstitutional
- CFPB Issues Mortgage Loan Loss Mitigation Interim Final Rule Based on COVID-19
- FHFA Announces Extension of Fannie Mae and Freddie Mac Foreclosure and Eviction Moratorium Through August 31
- HUD and VA Extend Foreclosure Moratoriums Through August 31
- VA Extends Eviction Moratorium Through August 31
- FHFA Announces Availability of COVID-19 Resources in Other Languages
- CFPB Issues Credit Reporting FAQs for Industry Related to CARES Act Requirements
- FHA Extends Temporary Employment Verification and Appraisal Guidance Due to COVID-19
- States Issue Work-From-Home Guidance for Mortgage Lenders – Updated June 26, 2020
- CFPB Publishes TRID FAQs and a Factsheet on Treatment of Title Insurance Premiums
- This Week’s Podcast: Consumer Protection – What’s Happening at the FTC (Part II), With Special Guests From the FTC
- CFPB Launches Pilot Advisory Opinion Program
- Google Revises Advertising Practices to Address Fair Housing Act Concerns
- CFPB Settles Claims for Alleged UDAAP and FCRA Violations by Companies Issuing Contracts for Deeds
- FFIEC Announces Release of 2019 HMDA Data
- CFPB Publishes Interpretive Rule Changing HMDA Fields Used to Identify “Underserved” Areas
- The OCC’s CRA Final Rule: Changes and Highlights
- Did You Know?
- Looking Ahead
For the latest updates on the Coronavirus pandemic visit the Ballard Spahr Coronavirus Resource Center
The CFPB recently proposed a temporary extension of the qualified mortgage (QM) that is based on a loan being eligible for sale to Fannie Mae or Freddie Mac (often referred to as the “GSE Patch”). The CFPB also proposed to replace the strict 43% debt-to-income (DTI) ratio basis for the general QM with an approach tied to the loan’s annual percentage rate (APR) that would still require the consideration of the DTI ratio or residual income. Comments on the GSE patch temporary extension proposal and on the revised general QM proposal will be due 30 days and 60 days, respectively, after the proposals are published in the Federal Register.
The CFPB proposes to extend the current January 10, 2021, sunset date for the GSE Patch until the date that the final rule to replace the general QM becomes effective. The CFPB notes that it does not expect such final rule to be effective before April 1, 2021. The adoption and implementation of a final rule modifying the general QM by such date would require the CFPB to move at light speed. Currently, the GSE Patch also will sunset if Fannie Mae and Freddie Mac exit conservatorship of the Federal Housing Finance Agency. The CFPB does not propose to modify that aspect of the current rule. Thus, in the unlikely event that Fannie Mae and Freddie Mac exit conservatorship before the final rule becomes effective, there would be a period with no GSE Patch and no revised general QM being available.
With regard to the general QM, the proposal would eliminate the strict 43% DTI ratio cap and also Appendix Q, which is commonly viewed as being too limited for the appropriate consideration of the income and debt included in a DTI ratio analysis. The proposed general QM would require that a creditor consider and verify income or assets, debt obligations, alimony and child support, and consider DTI ratio or residual income. However, the proposal does set forth what DTI ratio or amount of residual income would be deemed acceptable. Additionally, the APR on the loan could not exceed average prime offer rate (APOR) for a comparable transaction by:
- For a first lien transaction with loan amount of $109,898 or more, 2 or more percentage points.
- For a first lien transaction with loan amount of $65,939 or more and less than $109,898, 3.5 or more percentage points.
- For a first lien transaction with loan amount of less than $65,939, 6.5 or more percentage points.
- For a junior lien transaction with a loan amount of $65,939 or more, 3.5 or more percentage points.
- For a junior lien transaction with a loan amount of less than $65,939, 6.5 or more percentage points.
All of the dollar amounts would be indexed for inflation. The dollar amounts are based on the original $100,000 and $60,000 amounts used for the points and fees calculation, and reflect the 2020 values after indexing for inflation.
The CFPB advises that it “is concerned about the potential that the price-based approach may permit some loans to receive QM status, even if creditors may have originated those loans without meaningfully considering the consumer’s financial capacity because they believe their risk of loss may be limited by factors like a rising housing price environment or the consumer’s existing equity in the home.” Based on the concern, the CFPB requests comment on:
- Whether the price-based approach sufficiently address the risk that loans with a DTI ratio that is so high or residual income that is so low that a consumer may lack the ability to repay nonetheless can obtain QM status.
- Whether the ability to repay rule should provide examples in which a creditor has not considered the required factors and, if so, what may be appropriate examples.
- Whether the ability to repay rule should provide that a creditor does not appropriately consider DTI ratio or residual income if a very high DTI ratio or low residual income indicates that the consumer lacks the ability to repay, but the creditor disregards this information and instead relies on the consumer’s expected or present equity in the dwelling, which might be identified through the consumer’s loan-to-value ratio.
- Whether the ability to repay rule should specify which compensating factors creditors may or may not rely on for purposes of determining the consumer’s ability to repay.
- The tradeoffs of addressing these ability to repay concerns with undermining the clarity of a loan’s QM status
- The impact of the COVID-19 pandemic on how creditors consider income or assets, debt obligations, alimony, child support, and monthly DTI ratio or residual income
The proposal would require that the verification of income and assets be performed in accordance with Regulation Z section 1026.43(c)(4), as modified by the proposal. The proposal would add a Commentary provision to address unidentified funds. A creditor would not meet the verification requirements if it observes an inflow of funds into the consumer’s account without confirming that the funds are income. An example of such a situation would be that a creditor would not meet the verification requirements when it observes an unidentified $5,000 deposit in the consumer’s account, but fails to take any measures to confirm or lacks any basis to conclude that the deposit represents the consumer’s personal income and not, for example, proceeds from the disbursement of a loan.
The CFPB proposes a safe harbor for the requirement that a creditor (1) verify current or reasonably expected income or assets using third-party records that provide the creditor with reasonably reliable evidence of the consumer’s income or assets and (2) verify current debt obligations, alimony and child support using third-party records that provide the creditor with reasonably reliable evidence of the consumer’s debt obligations, alimony and child support obligations. The safe harbor would be based on the creditor meeting standards in specified documents. Although the proposed rule does not identify specific documents, the CFPB notes in the preamble that such documents could potentially include relevant provisions from Fannie Mae’s Single Family Selling Guide, Freddie Mac’s Single-Family Seller/Servicer Guide, FHA’s Single Family Housing Policy Handbook, the Department of Veterans Affairs (VA) Lenders Handbook, and the Field Office Handbook for the Direct Single Family Housing Program and Handbook for the Single Family Guaranteed Loan Program of the U.S. Department of Agriculture (USDA).
The CFPB advises that it is “open to including stakeholder-developed verification standards among this list of” specified documents. The safe harbor would not be lost if a specified document is revised, provided that the revised document is substantially similar to the prior document. Additionally, a creditor could follow standards in more than one specified document, and mix and match standards from various specified documents. While the CFPB proposes the removal of Appendix Q as the basis for a creditor’s consideration of a consumer’s income and debts, it requests comment on whether it should retain and modify Appendix Q.
The CFPB requests comment on alternative approaches to replace the general QM—one that is based on DTI ratio and two hybrid approaches based on pricing and DTI ratio:
- The CFPB requests comment on an approach that increases the DTI limit to a specific threshold within a range of 45 to 48 percent and includes more flexible definitions of debt and income.
- The CFPB requests comment on a hybrid approach that imposes a DTI limit only for loans above a certain pricing threshold, to reduce the likelihood that the presumption of compliance with the ability to repay requirement would be provided to loans for which the consumer lacks ability to repay, while avoiding the potential burden and complexity of a DTI limit for many lower-priced loans. The CFPB provides the following example:
- For loans with rate spreads under 1 percentage point over APOR, the loan is a safe harbor QM regardless of the consumer’s DTI ratio;
- For loans with rate spreads at or above 1 but less than 1.5 percentage points over APOR, a loan is a safe harbor QM if the consumer’s DTI ratio does not exceed 50% and a rebuttable presumption QM if the consumer’s DTI is above 50%;
- For loans with rate spreads at or above 1.5 but less than 2 percentage points over APOR, a loan is a rebuttable presumption QM if the consumer’s DTI ratio does not exceed 50% and a non-QM if the DTI ratio is above 50%.
- The CFPB requests comment on a hybrid approach that imposes a DTI limit on all general QM loans, but would allow higher DTI ratios for loans below a set pricing threshold, and provides the following example: The rule could generally impose a DTI ratio limit of 47% but could permit a loan with a DTI ratio up to 50% to be eligible for QM status under the general QM loan definition if the APR is less than 2 percentage points over APOR.
Additionally, the CFPB advises that it is considering adding a seasoning approach to the ability to repay rule that would create an alternative pathway to QM safe harbor status for certain mortgages if the consumer has consistently made timely payments for a specified period of time. The CFPB “in the near future will issue a separate proposal that addresses adding such an approach . . .”
The proposal would not alter APR thresholds that determine a safe harbor versus a rebuttable presumption QM, although it would create a special rule for certain loans. The special rule would apply to loans for which the interest rate may or will change during the first five years following the date on which the initial periodic payment is due. For such loans, the maximum interest rate that could apply during that five-year period must be used to calculate the APR for purposes of determining if the loan is safe harbor or rebuttable presumption QM.
The proposal would not change the points and fees limits, or the items that are included in points and fee. The proposal also would not alter the existing separate QMs for loans that are defined as a QM by FHA, VA or USDA.
By a five to four vote, the U.S. Supreme Court ruled in Seila Law that the CFPB’s single-director-removable-for-cause leadership structure violates the separation of powers in the U.S. Constitution. Seven of the justices agreed that the provision in Title X of the Dodd-Frank Act that gives the Director for-cause removal protection can be severed, thereby leaving the remainder of Title X in place.
The ruling consists of multiple opinions, running 105 pages in total. In addition to the majority opinion authored by Chief Justice Roberts, there is a dissent written by Justice Kagan and two other separate opinions.
We are currently reading and analyzing the various opinions and will be blogging again soon to share our reactions and thoughts.
On June 23, 2020, the Consumer Financial Protection Bureau (CFPB) posted on its website an interim final rule that creates a temporary exception to certain loss mitigation obligations of mortgage loan servicers under Regulation X when offering specific loss mitigation options to consumers facing a financial hardship based on COVID-19. The interim final rule is effective July 1, 2020, and the CFPB will accept comments on the rule no later than 45 days after publication in the Federal Register.
Regulation X sets forth requirements for a mortgage loan servicer to exercise reasonable efforts to obtain all documents and information to complete a loss mitigation application from a borrower, and assess the borrower for all loss mitigation options available to the borrower based on the complete application. Subject to two exceptions, Regulation X also provides that a servicer may not evade the requirement to evaluate a complete loss mitigation application for all loss mitigation options available to the borrower by offering a loss mitigation option based on an evaluation of any information provided by a borrower in connection with an incomplete loss mitigation application. The two exceptions are (1) when a servicer has exercised reasonable diligence in obtaining the documents and information to complete a loss mitigation application, but a loss mitigation application remains incomplete for a significant period of time under the circumstances without further progress by a borrower to make the loss mitigation application complete, and (2) when a servicer offers a short-term payment forbearance program or a short-term repayment plan to a borrower based upon an evaluation of an incomplete loss mitigation application. Servicers have relied on the second exception when offering COVID-19 forbearances to consumers, but that exception does not apply to the offering of the loss mitigation option to address the missed payments.
The interim final rule adds a third temporary exception that is designed allow servicers to offer a payment deferral option offered by Fannie Mae and Freddie Mac, at the direction of the Federal Housing Finance Agency (FHFA), and a loss mitigation option for FHA insured loans. The CFPB explains that the criteria in the temporary exception “are intended to align with the criteria outlined in FHFA’s COVID-19 payment deferral and other comparable programs, such as FHA’s COVID-19 partial claim.” As previously reported, on May 13, 2020, Fannie Mae and Freddie Mac announced the COVID-19 payment deferral Servicers may begin to evaluate borrowers for a COVID-19 payment deferral starting July 1, 2020. And as previously reported, in April 2020 the U.S. Department of Housing and Urban Development announced a COVID-19 National Emergency Standalone Partial Claim for FHA insured loans.
Pursuant to the temporary exception, a servicer may offer a borrower a loss mitigation option based upon the evaluation of an incomplete loss mitigation application if all of the following criteria are met:
1. The loss mitigation option permits the borrower to delay paying covered amounts until the mortgage loan is refinanced, the mortgaged property is sold, the term of the mortgage loan ends, or for a FHA insured mortgage loan, the mortgage insurance terminates. For purposes of the temporary exception the “covered amounts”:
- Include, without limitation, all principal and interest payments forborne under a payment forbearance program made available to borrowers experiencing a financial hardship due, directly or indirectly, to the COVID-19 emergency, including a payment forbearance program made pursuant to the CARES Act; and
- Include, without limitation, all other principal and interest payments that are due and unpaid by a borrower experiencing financial hardship due, directly or indirectly, to the COVID-19 emergency.
For purposes of the temporary exception, “the term of the mortgage loan” means the term of the mortgage loan according to the obligation between the parties in effect when the borrower is offered the loss mitigation option.
2. Any amounts that the borrower may delay paying as described in paragraph 1 do not accrue interest, the servicer does not charge any fee in connection with the loss mitigation option, and the servicer waives all existing late charges, penalties, stop payment fees, or similar charges promptly upon the borrower’s acceptance of the loss mitigation option.
3. The borrower’s acceptance of the loss mitigation offer ends any preexisting delinquency on the mortgage loan.
Pursuant to the temporary exception, once the borrower accepts the loss mitigation offer, the servicer is not required to comply with the Regulation X section 1024.41(b)(1) or (2) requirements regarding the completion of a loss mitigation application, and review of a loss mitigation application for completeness, in connection with any loss mitigation application the borrower submitted prior to the servicer’s offer of the loss mitigation option. However, in the event that a borrower who accepts a loss mitigation option offered pursuant to the temporary exception later submits a new loss mitigation application, the servicer must comply with the Regulation X section 1024.41(b)(1) and (2) requirements.
The CFPB notes that while under paragraph 1 the repayment of the deferred amounts is delayed until the specified events, the temporary exception “does not specify how a servicer must structure repayment of the deferred amounts, [and] that repayment either in a lump sum or over a specified period at the end of the loan term through additional periodic payments, among other possible approaches, would satisfy the [exception].” The CFPB also notes that the temporary exception is available for eligible loss mitigation options that would technically extend the term of the loan in accommodating repayment of forborne or delinquent amounts.
The CFPB explains the condition that the borrower’s acceptance of the offer end any preexisting delinquency ensures that borrowers who accept a loss mitigation option under the temporary exception do not face a risk of imminent foreclosure. Under Regulation X, servicers are generally prohibited from making the first notice or filing required under applicable law to initiate the foreclosure process until a mortgage loan obligation is more than 120 days delinquent.
While the CFPB designed the temporary exception to work with the Fannie Mae and Freddie Mac COVID-19 payment deferral and the FHA COVID-19 National Emergency Standalone Partial Claim, the exception is not limited to these programs.
The CFPB seeks comment on three specific issues with regard to the temporary exception:
- Whether the temporary exception appropriately balances providing flexibility to servicers to offer relief quickly during the COVID-19 emergency with providing important protections for borrowers engaged in the loss mitigation application process, such as protections from foreclosure.
- Whether the CFPB should require written disclosures for the temporary exception, or any similar exceptions that the CFPB may authorize in the future.
- Whether the CFPB should extend the temporary exception to other post-forbearance loss mitigation options made available to borrowers affected by other types of disasters and emergencies.
As noted above, comments on the interim final rule will be due no later than 45 days after publication in the Federal Register.
On June 17, 2020, the Federal Housing Finance Agency (FHFA) announced the extension of the Fannie Mae and Freddie Mac moratorium on foreclosures and evictions from June 30, 2020, to August 31, 2020. FHFA Director Mark Calabria stated that “[t]o protect borrowers and renters during the pandemic we are extending the Enterprises’ foreclosure and eviction moratorium. During this national health emergency no one should worry about losing their home.” FHFA notes that it will continue to monitor the coronavirus situation and update policies as needed.
On June 17, 2020, the U.S. Department of Housing and Urban Development (HUD) in Mortgagee Letter 2020-19 extended the foreclosure and eviction moratorium for FHA insured single-family loans from June 30, 2020 to August 31, 2020. Also on June 17, 2020, the U.S. Department of Veterans Affairs (VA) in Circular 26-20-22 extended the foreclosure moratorium for VA guaranteed loans from June 30, 2020 to August 31, 2020.
The FHA moratorium applies to all FHA Title II single-family forward and Home Equity Conversion (reverse) mortgage loans, except for FHA loans secured by vacant or abandoned properties. Deadlines for the first legal action and reasonable diligence timelines are extended by 90 days from the date of expiration of the moratorium.
As previously reported, recently the Federal Housing Finance Agency announced the extension of the Fannie Mae and Freddie Mac moratorium on foreclosures and evictions from June 30, 2020 to August 31, 2020.
On June 18, 2020, the U.S. Department of Veterans Affairs (VA) in Circular 26-20-23 (dated June 17, 2020) extended the eviction moratorium for properties secured by VA guaranteed loans from June 30, 2020 to August 31. 2020. As previously reported, on June 17, 2020, the VA extended the foreclosure moratorium for VA guaranteed loans from June 30, 2020 to August 31, 2020.
On June 16, 2020, the Federal Housing Finance Agency (FHFA) announced the availability of COVID-19 resources for mortgage loan borrowers. Specifically, the Mortgage Translations section of the FHFA website now includes both the forbearance scripts used by Fannie Mae and Freddie Mac servicers and the Mortgage Assistance Application in the following languages: English, Spanish, Chinese (Mandarin), Vietnamese, Korean, and Tagalog. FHFA Director Mark Calabria stated that “[p]ublishing the scripts servicers use when discussing forbearance in six languages will allow borrowers with limited English proficiency to better understand the mortgage relief options available to them during the pandemic.”
The CFPB issued 10 FAQs for industry that address the CARES Act’s credit reporting requirements and other COVID-19-related credit reporting issues.
Several of the FAQs discuss the Bureau’s Policy Statement issued in April 2020 concerning COVID-19 considerations relevant to how the Bureau will exercise its supervisory and enforcement authority regarding FCRA and Regulation V compliance, especially in light of the CARES Act. The first FAQ restates the Policy Statement and two FAQs highlight the Bureau’s enforcement approach, with FAQ 2 confirming that the Bureau is enforcing the CARES Act’s requirements for furnishers and FAQ 3 elaborating on the Bureau’s flexible supervisory and enforcement approach during the COVID-19 pandemic that was set forth in the Policy Statement. The Bureau states that while it indicated it would provide some flexibility to help furnishers and consumer reporting agencies, it did not say in the Statement that it “would give furnishers or consumer reporting agencies an unlimited time beyond the statutory deadlines to investigate disputes before the Bureau would take supervisory or enforcement action.” The Bureau further states that it expects furnishers and consumer reporting agencies to make good faith efforts to investigate disputes as quickly as possible and will “evaluate individually the efforts and circumstances of each furnisher and consumer reporting agency in determining if it made good faith efforts to investigate disputes as quickly as possible.” The Bureau’s discussion suggests that such circumstances will include a furnisher’s or CRA’s size and sophistication.
Other highlights of the FAQs include:
- FAQ 6 states that if an account was current before an accommodation, the furnisher, during the accommodation, must continue to report the account as current. If an account was delinquent before an accommodation, the furnisher, during the accommodation, cannot advance the delinquent status. The FAQ gives an example in which a furnisher was reporting a consumer as 30 days past due at the time of the accommodation and states that the furnisher may not report the account as 60 days past due during the accommodation. If the consumer brings the account current during the accommodation, the furnisher must report the account as current. Situations when this could occur include where the accommodation itself brings the account current (such as a modification that resolves amounts past due so that the borrower is no longer considered delinquent) or where the consumer makes past due payments that bring the account current. The FAQ states that CARES Act credit reporting requirements for accommodations do not apply to charged off accounts.
- FAQ 7 states that if a furnisher is reporting information to CRAs about an account that is current, it should consider all of the trade line information it furnishes that reflects a consumer’s status as current or delinquent. As an example, information a furnisher provides about an account’s payment status, scheduled monthly payment, and amount past due may all need to be updated to accurately reflect that the account is current consistent with the CARES Act.
- FAQ 8 states that furnishing a special comment code indicating that the consumer is impacted by a disaster or the account is in forbearance does not satisfy the CARES Act requirement for a furnisher to report an account as current if it was current before an accommodation or not to advance the level of a pre-accommodation delinquency. As worded, the FAQ could be read to say that a furnisher may not use disaster/forbearance coding for an account subject to an accommodation that it must report as current or as to which it cannot advance the level of delinquency. Nevertheless, it seems more likely that the Bureau’s position is that while such coding can be used, a furnisher must also report the delinquency status field to comply with the CARES Act.
- FAQ 10 states that the CARES Act’s credit reporting protections continue to apply to the time period covered by an accommodation after the accommodation ends. If payments were not required or the consumer met the accommodation’s payment requirements, a furnisher cannot report a consumer who was reported as current pursuant to the CARES Act as delinquent based on the time period covered by the accommodation after the accommodation ends. Also, a furnisher cannot advance a consumer’s delinquency that was maintained pursuant to the CARES Act based on the time period covered by the accommodation after the accommodation ends.
In Mortgagee Letter 2020-20 dated June 29, 2020, the U.S. Department of Housing and Urban Development announced the extension of FHA temporary guidance regarding employment verification and appraisals due to COVID-19. The temporary guidance originally was announced in Mortgage Letter 2020-05 that was issued in March 2020.
Previously, the temporary guidance was extended from May 17, 2020 to June 30, 2020. Based on the latest extension, the temporary appraisal guidance is effective immediately for appraisal inspections completed on or before August 31, 2020, and the temporary verification of employment guidance is effective immediately for cases closed on or before August 31, 2020.
In response to the COVID-19 pandemic, state mortgage regulators are daily issuing guidance (1) about whether work from home arrangements are permissible under their existing licensing requirements and/or (2) are granting temporary permission for licenseable activity to occur from unlicensed locations (including employee homes) under specified conditions. Below we identify the states that have issued guidance specifically on this topic. Please note that the scope, duration, conditions and requirements set by the states differ – some even require approval – so please carefully review the state’s guidance set forth at the hyperlink. This is a rapidly changing area so check back regularly for updates and changes.
On June 9, 2020, the CFPB published four new TRID FAQs and a TRID Factsheet (“Factsheet”). While the Factsheet is focused solely on the handling of title insurance disclosures under the rule, the FAQs cover various topics, including the separation of data when using separate Closing Disclosures for the consumer and the seller, the Total of Payments calculation, and the optional signature lines on the Loan Estimate and Closing Disclosure.
With one exception, the four new FAQs published did not change or expand on existing language of the rule and its commentary. Specifically, one new FAQ confirms that the seller-paid Loan Costs and Other Costs must be shown on the consumer’s Closing Disclosure. The two FAQs on the topic of the Total of Payments calculation walk through the fees included in the calculation, reiterate that only amounts borrower-paid on the Closing Disclosure are included, and that negative pre-paid interest is accounted for and treated as a negative number in that calculation.
The last FAQ added, regarding the optional signature line on the Loan Estimate and Closing Disclosure, potentially requires changes in creditor procedures. The FAQ states that a creditor may, at its option, require a signature by a consumer on the Loan Estimate or Closing Disclosure, but only if the consumer receives the disclosure in a form that they may keep. That means, if a paper Loan Estimate or Closing Disclosure is provided to a consumer and required to be signed and returned, a duplicate must be provided for the consumer to keep. In the case of electronic disclosures, a consumer would have the electronic file with the Loan Estimate or Closing Disclosure that was signed.
The Factsheet begins with detailed instructions on which section of the Loan Estimate and Closing Disclosure the Lender’s and Owner’s title insurance premiums are disclosed, as well as how they are labeled. The section and label may vary depending on whether a consumer is allowed to shop for title insurance and whether the policy is required by the creditor.
Next, several pages are spent illustrating a complexity of the TRID rule that has been wrestled with since its publication – that is, how to calculate and disclose lender’s and owner’s title insurance premiums for disclosure on the Loan Estimate and Closing Disclosure in accordance with the rule. The rule requires that, when a simultaneous lender’s policy is issued, that the discounted lender’s premium not be disclosed. Instead, the full lender’s premium must be disclosed, and a discounted owner’s premium calculated. The calculation used to arrive at the required disclosure for the owner’s title insurance premium is:
Full Owner’s Premium + Simultaneous Lender’s Premium – Full Lender’s Premium
The Factsheet, next, addresses a scenario where the seller has agreed to pay the full owner’s premium for the consumer, but applying that credit to the discounted owner’s premium, where a simultaneous policy is issued, results in an excess seller credit that the Factsheet provides may be disclosed in three different ways.
- Shown as a credit towards the amount of the lender’s premium or any other title insurance costs for premiums or endorsements in the Loan Costs Table or Other Costs Table (12 CFR §§ 1026.38(f) and (g)); or
- Added to and shown in aggregate with other seller credits in the Summaries of Transactions tables as a general Seller Credit (12 CFR § 1026.38(k)(2)(vii)); or
- Disclosed as a stand-alone seller credit on another blank line in the Summaries of Transactions tables (12 CFR § 1026.38(k)(2)(viii)).
Last, the Factsheet illustrates a situation where the calculation required by the rule for disclosure results in a negative owner’s title insurance premium. This would occur if the full, undiscounted lender’s title insurance premium is greater than the cost of both full owner’s and discounted simultaneous lender’s title insurance premiums combined. The example included in the Factsheet assumes $3,175 for the full lender’s premium, $2,568 for the full owner’s premium, and $200 as the simultaneous issue rate for the lender’s premium. Using these amounts in the calculation required to disclose under TRID, $2,568 + $200 – $3,175, results in an owner’s title policy disclosure of negative $407.
A cardinal principle of the Truth in Lending Act and Regulation Z is that the disclosures reflect the legal obligation of the parties. Yet without any compelling reason, the CFPB deviated from that principle when developing the method to disclose title insurance premiums under the TRID rule. The last two examples in the Factsheet help to demonstrate the why the CFPB needs to reverse course and simply provide for the disclosure of the actual costs. Lenders and title companies should not have to explain to consumers why costs on the Loan Estimate and Closing Disclosure differ from the actual costs quoted to the consumer by the title company, disclosed on the title company settlement statement, and disbursed at closing.
In Part II of our two-part podcast, we discuss the following topics with Andrew Smith, Director of the FTC’s Bureau of Consumer Protection, and Malini Mithal, Associate Director of the FTC’s Division of Financial Practices: recent FTC enforcement and regulatory activity in the areas of data security, privacy, lead generation, and payments; highlights of the FTC’s workshop on credit reporting accuracy; status of litigation challenging the FTC’s restitution authority; and coordination with CFPB and state attorneys general.
Having announced earlier this year that it was implementing an advisory opinion (AO) program, the CFPB published a procedural rule in today’s Federal Register establishing a pilot AO program. It also published a proposed procedural rule in today’s Federal Register that would establish an AO program to replace the pilot program.
Pilot AO Program. The pilot program, which went into effect today with the publication of the Bureau’s procedural rule in the Federal Register, allows stakeholders to request interpretive guidance “to resolve regulatory uncertainty,” which encompasses “uncertainty with respect to regulatory or, where applicable, statutory provisions.” The program has the following key features:
- Requests for AOs can only be made by covered persons or service providers subject to the Bureau’s supervisory or enforcement authority and the requestor must be identified in the request. Requests will not be accepted from third parties, such as trade associations or law firms, on behalf of unnamed entities. Requests can be submitted to the Bureau via email or through other means it designates.
- AOs will be interpretive rules under the Administrative Procedure Act.
- The Bureau will use the following factors in deciding whether to address an issue through an AO:
- The issue has been noted in Bureau exams as one that might benefit from additional regulatory clarity
- The issue is one of substantive importance or impact or one whose clarification would provide significant benefit
- The issue concerns an ambiguity that the Bureau has not previously addressed through an interpretive rule or other authoritative source
- The following factors will weigh strongly for a presumption that an AO is not appropriate:
- The issue is the subject of an ongoing Bureau investigation or enforcement action or the subject of an ongoing or planned rulemaking
- The issue is better suited for the notice-and-comment process (such as where an AO would change a regulation)
- The issue could be addressed effectively through a Compliance Aid
- Clear Bureau or court precedent on the issue is already publicly available
- Where a statute or regulation establishes a general standard “that can only be applied through highly fact-intensive analysis,” the Bureau does not intend to replace it “with a bright-line standard that eliminates all of the required analysis.” The Bureau indicates that such general standards, with the Dodd-Frank UDAAP prohibition as an example, “pose particular challenges for issuing advisory opinions, although there may be times when the Bureau is able to offer advisory opinions that provide additional clarity on the meaning of such standards.”
Proposed AO Program. The proposed AO program’s key features generally track those of the pilot program. However, unlike the pilot program, requestors of AOs would not be limited to covered persons or service providers subject to the Bureau’s supervisory or enforcement authority and outside counsel or a trade association could submit a request for an AO on behalf of one or more clients or members without identifying them. The issues on which the Bureau seeks comment include how the Bureau should prioritize requests for AOs. Comments must be filed by August 21, 2020.
Since the Dodd-Frank Act transferred rulemaking authority for various federal consumer financial protection laws such as TILA and ECOA from the Federal Reserve to the CFPB, the CFPB has not followed the Fed’s practice of regularly updating the Official Staff Commentaries to the implementing regulations. Because the AOs are to be treated as interpretive rules, it appears that compliance with AOs should provide the same level of protection as compliance with the Official Staff Commentaries.
The U.S. Department of Housing and Urban Development recently issued a statement announcing that it “has worked with Google to improve Google’s online advertising policies to better align them with requirements of the Fair Housing Act, where applicable.”
Last year, HUD issued a “Charge of Discrimination” against Facebook that charged the company “with engaging in discriminatory housing practices in violation of the [provisions of the Fair Housing Act that prohibit discrimination based on race, color, religion, sex, familial status, national origin or disability.]” HUD’s Charge (which initiates an administrative enforcement proceeding) alleged that Facebook designed its advertising platform in a way that shows advertisements for housing and housing-related services “to large audiences that are severely biased based on characteristics protected by the [FHA].”
In its statement, HUD referenced its Fair Housing charge against Facebook and indicated that it “has also been engaged with other platforms to improve their policies and practices for housing-related advertisements.” It stated that Google has “enhanced its anti-discrimination policies by adopting a specific policy prohibiting advertisers from engaging in certain discriminatory practices when placing housing-related ads using Google’s advertising services.”
Google also issued a statement in which it indicated that “to further improve access to housing, employment, and credit opportunities, we are introducing a new personalized advertising policy for certain types of ads. This policy will prohibit impacted employment, housing, and credit advertisers from targeting or excluding ads based on gender, age, parental status, marital status, or ZIP Code.” According to Google’s statement, this action expands its existing policy not to allow advertisers to target ads “based on categories such as race, religion, ethnicity, or sexual orientation, to name a few.” Google plans to put this new policy into effect in the U.S. and Canada no later than by year-end.
The statements issued by HUD and Google demonstrate that regulatory concern continues about the targeting of digital advertising based on protected characteristics under anti-discrimination laws. Financial services companies need to be aware of the characteristics that they are using to target advertisements, and should proceed cautiously in light of the risks in using targeted digital advertising.
The CFPB has entered into a consent order with three companies to settle the Bureau’s claims that the companies violated the Dodd-Frank UDAAP prohibition and the FCRA in connection with contracts for deeds that they issued and serviced. The settlement requires one of the companies to pay a $25,000 civil money penalty and the two other companies to jointly pay a $10,000 civil money penalty.
The consent order includes the following findings and conclusions of law:
- Because the contracts for deeds required consumers to repay a fixed principal amount over a term of years with interest, they constituted “credit” and the company that issued the contracts (Harbour Portfolio Advisors) was a “covered person” subject to the Bureau’s jurisdiction.
- The other two companies (National Asset Advisors and National Asset Mortgage (NAM)) were “covered persons” subject to the Bureau’s jurisdiction because they serviced the contracts by collecting payments, handled consumer disputes, and spoke with consumers about the contracts’ terms.
- In carrying out its business to acquire foreclosed properties in bulk, at auction, from entities such as Fannie Mae and Freddie Mac, and resell them to individual consumers, Harbour typically targeted potential buyers who were unable to obtain conventional financing.
- NAM furnished information about consumers’ payment histories to consumer reporting agencies.
- The companies engaged in deceptive acts and practices by telling consumers complaining about credit report information that they could only initiate a credit dispute by filing a dispute with a consumer reporting agency.
- NAM violated the FCRA and Regulation V by failing to establish and implement adequate policies and procedures regarding the accuracy and integrity of information furnished to consumer reporting agencies.
In addition to imposing civil money penalties, the consent order prohibits the companies from misrepresenting or assisting others in misrepresenting, expressly or impliedly, how consumers can initiate consumer report disputes or any other material fact concerning their consumer reports, requires NAM to establish and implement reasonable written policies and procedures as required by the FCRA and Regulation V regarding the accuracy and integrity of information furnished to consumer reporting agencies and to implement a compliance plan, and requires Harbour to register for the Bureau’s consumer complaint portal.
On June 24, 2020, the Federal Financial Institutions Examination Council (FFIEC) announced the release of the 2019 Home Mortgage Disclosure Act (HMDA) data. This is early. In recent years the data were released in August or September, although the 2017 data were released in May. 2019 is the second year for which institutions were required to collect and report data under the expanded information requirements adopted by the CFPB in the October 2015 HMDA rule amendments.
The CFPB also issued its third annual data point report. The report addresses mortgage market activity and trends based on the 2019 HMDA data.
A total of 5,508 reporting institutions (a decline of about 3% from 2018) reported information on 15.1 million home loan applications. As previously reported, the Economic Recovery, Regulatory Relief, and Consumer Protection Act (Growth Act) created a partial exemption from HMDA reporting for smaller volume bank and credit union lenders. Basically pursuant to the exemption, a qualifying lender may elect to report only the HMDA data fields that existed before the October 2015 HMDA rule amendments. The FFIEC reports that 2,494 reporting institutions relied on the partial exemption for at least one of the 26 data points that need not be reported under the exemption.
The CFPB is expected to release a proposal this summer to amend the HMDA data that institutions must collect and report.
On June 23, 2020, the CFPB published a new interpretive rule (the “Interpretive Rule”) to update the Home Mortgage Disclosure Act (HMDA) data fields that are used to identify “underserved” areas. Certain provisions of Regulation Z, that apply to creditors doing business in “rural or underserved” areas, look to the HMDA-based identification of “underserved” areas for their applicability, such as the exemption for such creditors from the requirement to establish an escrow account on a Higher Priced Mortgage Loan and the ability of such creditors to originate Qualified Mortgages with a balloon-payment feature.
Currently, an area is considered “underserved” if, “according to the [HMDA] data for the preceding calendar year, it is a county in which no more than two creditors extended covered transactions [under the ability to repay rule] secured by first liens on properties in the county five or more times.” The existing Regulation Z Commentary addresses the transactions that are counted for purposes of determining an “underserved” area and, based on the HMDA data codes that existed before the CFPB’s October 2015 amendments to the HMDA rules, provides that transactions identified with the following codes are not counted:
- Owner-occupancy status is reported as “Not owner-occupied” (HMDA code 2)
- Property type is reported as “Multifamily” (HMDA code 3)
- The applicant’s or co-applicant’s race is reported as “Not applicable” (HMDA code 7), or
- The applicant’s or co-applicant’s sex is reported as “Not applicable” (HMDA code 4).
These HMDA data points are outdated based on the October 2015 amendments.
The Interpretive Rule supersedes the applicable Commentary provision and establishes an updated HMDA data methodology that the CFPB will use to identify “underserved” areas. Going forward, “underserved” areas will be identified by counting first-lien originations from HMDA data for the preceding calendar year, except for those loans with any of the below HMDA data values from the 2015 HMDA rule:
- Construction method status reported as “Site-built” (HMDA Code 1) and the number of units is greater than 4;
- Open-end line of credit status reported as “Open-end line of credit” (HMDA Code 1);
- Reverse mortgage status reported as “Reverse Mortgage” (HMDA Code 1);
- Business or commercial purpose status reported as “Primarily for a business or commercial purpose” (HMDA Code 1); or
- Both the applicant and the co-applicant’s ethnicity, race, sex and age all are reported as follows:
- Applicant Ethnicity reported as “Not applicable” (HMDA Code 4);
- Applicant’s Race reported as “Not applicable” (HMDA Code 7)
- Applicant’s Sex reported as “Not applicable” (HMDA Code 4);
- Applicant’s Age reported as “Not applicable” (HMDA Code 8888);
- Co-applicant’s Ethnicity reported as “Not applicable” (HMDA Code 4) or “No co-applicant” (HMDA Code 5);
- Co-applicant’s Race reported as “Not applicable” (HMDA Code 7) or “No co-applicant” (HMDA Code 8);
- Co-applicant’s Sex reported as “Not applicable” (HMDA Code 4) or “No co-applicant” (HMDA Code 5); AND
- Co-applicant’s Age reported as “Not applicable” (HMDA Code 8888) or “No co-applicant” (HMDA Code 9999)
The Interpretive Rule will be effective upon publication in the Federal Register. A new rural or underserved counties list, utilizing the data points in the Interpretive Rule, has been published on the CFPB’s Mortgage Resources website.
On May 20, 2020, the OCC issued a final rule to “strengthen and modernize” its existing Community Reinvestment Act (“CRA”) regulations. This is the second in a series of five blog posts about the final rule.
The final CRA rule is an effort by the OCC to provide objective measures to evaluate the CRA performance of national banks and savings associations supervised by the OCC (including federal and state-chartered savings associations and uninsured federal branches of foreign banks). These banks conduct a majority of all CRA activity in the United States.
The final rule is effective October 1, 2020 but sets mandatory compliance dates based on the applicable performance standards. Banks subject to the general performance standards and banks subject to the wholesale and limited purpose bank performance standards must comply with the new CRA framework by January 1, 2023. Small and intermediate banks must comply with the rule by January 1, 2024. Until compliance with the final rule, national banks and federal savings banks must comply with the OCC’s current rule. Until the FDIC and Board of Governors of the Federal Reserve System take action, state nonmember banks and state member banks will continue to comply with the current rule, as codified in 12 CFR Part 228 and Part 345.
The final rule establishes a series of metrics for evaluating CRA performance and utilizes call report data to determine the amount of qualifying activities (including mortgage, consumer, small business and small farm loans, community development lending and community development investments). The OCC’s final rule diverges from the current rule in (a) its enumeration of qualifying activities; (b) how banks will delineate assessment areas; (c) the establishment of performance standards; and (d) data collection and data retention requirements.
The current rule applies: (a) a lending test to evaluate a bank’s record of helping to meet the credit needs of its assessment areas through its lending activities by considering a bank’s home mortgage, small business, small farm, and community development lending; (b) an investment test to assess a bank’s record of helping to meet the credit needs of its assessment areas through qualified investments that benefit its assessment areas or a broader statewide or regional area that includes the bank’s assessment areas; and (c) a service test that examines a bank’s record of helping to meet the credit needs of its assessment area by analyzing both the availability and effectiveness of a bank’s systems for delivering retail banking services and the extent and innovativeness of its community development services.
Although the current rule contains definitions of “community development” “community development loans” and “community development services” it lacks comprehensive criteria for what qualifies for CRA consideration or guidance as to activities that have previously received CRA credit.
The final rule defines a “qualifying activity” as an activity that helps meet the credit needs of a bank’s entire community, including low- and moderate income individuals (LMI) and communities. Qualifying activities include retail loans, community development loans, community development investments or community development services.
Qualifying retail loans include home mortgage loans, small loans to a business, small loans to a farm and consumer loans if the loans are: (1) provided to an LMI individual or family, a CRA-eligible business or a CRA-eligible farm; (2) located in Indian country or other tribal and native lands; (3) a small loan to a business located in an LMI census tract; or (4) a small loan to a farm located in an LMI census tract.
A community development loan, community development investment, or community development service is a “qualifying activity” if it provides financing for or supports:
- affordable housing;
- another bank’s community development loan, community development investment, or community development service;
- community support services such as child care, education, workforce development, job training, health services or housing services that partially or primarily serves LMI individuals or families;
- economic development activities that provide financing or support for businesses or farms;
- essential community facilities that partially or primarily serve LMI individuals or families or “Qualifying Areas,” which include LMI census tracts, distressed areas, underserved areas, disaster areas or Indian country;
- essential infrastructure that partially or primarily serves LMI individuals or families or Qualifying Areas;
- a family’s farm;
- federal, state, local, or tribal government programs, projects, or initiatives that: partially or primarily serve LMI individuals or families or qualifying areas;
- financial literacy;
- owner-occupied and rental housing development, construction, rehabilitation, improvement, or maintenance in Indian country or other tribal and native lands; qualified opportunity funds that benefit LMI qualified opportunity zones; or
- other activities and ventures undertaken, including capital investments and loan participations, by a bank in cooperation with a minority depository institution, women’s depository institution, Community Development Financial Institution, or low-income credit union, if the activity helps to meet the credit needs of local communities in which these institutions are chartered.
To promote clarity, the final rule provides for the publication of a qualifying activities list that contains non-exhaustive examples of qualifying activities. To promote innovation, any interested party (including a bank or community group) may request confirmation that an activity is a qualifying activity. The final rule provides that the OCC will respond directly to requests for confirmation and post those responses to its website, which banks may use as interpretive guidance to determine whether particular activities meet the qualifying activities criteria. The preamble notes that the OCC plans to publish the list of qualifying activities on its website in a searchable format and update it annually.
Under the final rule, a bank evaluated under the general performance standards will calculate a qualified activities value (“QAV”) annually. The QAV is the sum of: (1) the quantified dollar value of qualifying loans and community development investments; and (2) the aggregate quantified dollar value of community development services, the quantified dollar value of in-kind donations made during the year and the quantified dollar value of monetary donations made during the year. Multipliers are applied in calculating the QAV (provided the quantified dollar value of a bank’s current evaluation period community development loans, community development investments, and community development services is approximately equal to the quantified dollar value of these activities considered in the bank’s prior evaluation period) for (a) activities that support minority depository institutions, women’s depository institutions, CDFI’s and low income credit unions, community development investments, community development services, affordable housing and retail lending by branches located in LMI census tracts; and (b) activities in “CRA deserts.” The OCC maintains a list of CRA deserts and banks may request confirmation of new CRA deserts.
Under the current rule, a bank other than a wholesale or limited purpose bank must delineate an assessment area that includes the geographies in which the bank has its main office, its branches, and its deposit-taking ATMs, as well as the surrounding geographies in which the bank has originated or purchased a substantial portion of its loans.
With one exception, the final rule maintains a facilities-based approach to the delineation of CRA assessment areas. Under the final rule, a bank’s assessment areas include each location where the bank maintains a main office, a branch, or a non-branch deposit-taking facility that is not an ATM and the surrounding locations in which the bank has originated or purchased a substantial portion of its qualifying retail loans. Although the final rule does not require a bank to delineate an assessment area where it maintains only a deposit-taking ATM, the final rule permits a bank to do so. The facility-based assessment area must include a whole MSA; the whole non-metropolitan area of the state; one or more whole, contiguous metropolitan divisions in a single metropolitan statistical area; or one or more whole, contiguous counties or county equivalents in a single metropolitan statistical area or nonmetropolitan area.
Although the final rule generally employs a facilities-based approach to the delineation of CRA assessment areas, the final rule does provide that a bank that receives 50 percent or more of its retail domestic deposits from geographic areas outside of its facility-based assessment areas must delineate separate, non-overlapping assessment areas where it receives 5 percent or more of its retail domestic deposits. Practically, this will require all institutions to geocode deposits and this will significantly impact branchless banks which will have to delineate as CRA assessment areas geographies that they have previously ignored.
The current rule does not contain objective performance standards to evaluate CRA performance.
The final rule maintains small bank and intermediate bank performance standards, which was a major victory for the banking industry. It also retains wholesale and limited purpose bank performance standards and retains the option for banks to submit and be evaluated under a strategic plan, which are also beneficial for the industry.
For banks evaluated under the general performance standards pursuant to the final rule, the OCC will assess, in applying the final rule, the CRA performance based upon an application of the general performance standards and determination of its presumptive ratings.
A bank evaluated under the general performance standards will determine its bank CRA evaluation measure and its assessment area CRA evaluation measures annually. A bank’s CRA evaluation measure is the sum of: (1) the bank’s annual QAV divided by the average quarterly value of the bank’s retail domestic deposits as of the close of business on the last day of each quarter for the same period used to calculate the annual QAV; and (2) the number of the bank’s branches located in or that serve Qualifying Areas multiplied by .02. A bank’s assessment area CRA evaluation measure is determined in each assessment area and is the sum of: (1) the bank’s annual assessment area QAV divided by the average quarterly value of the bank’s assessment area retail domestic deposits as of the close of business on the last day of each quarter for the same period used to calculate the annual assessment area QAV; and (2) the number of the bank’s branches located in or that serve Qualifying Areas multiplied by .02.
In each assessment area, the OCC will apply a geographic distribution test and borrower distribution test on the CRA loans and evaluate whether the bank passes the test by looking at the demographics of the area or activities of peer banks. By way of example, the OCC will compare a bank’s whole mortgage loans originated in LMI tracts to either (a) the percentage of owner-occupied housing units in the area; or (b) peer home mortgage loans originated in the area. This activity will be repeated for other product lines.
The OCC will adjust performance standards periodically, considering factors such as the level of qualifying activities conducted by all banks, market conditions, and unmet needs and opportunities.
A bank’s assigned CRA rating will be determined based on the bank’s presumptive rating adjusted for performance context. Performance context is also considered under the current rule and the factors are similar, including: (1) how the Bank’s capacity to meet the performance standards was effected by its product offerings and business strategy, unique constraints (including financial condition), innovativeness and the bank’s business infrastructure and staffing; (2) how the bank’s opportunity to engage in qualifying activities was affected by demand and demographic factors; (3) competitive environment (including peer performance); (4) comments submitted regarding needs and opportunities; and (5) other relevant information.
Data Collection and Retention
Although the current rule requires a bank to collect, maintain and report certain loan information, consumer loan data was optional, deposit data is not reported and, in general, the data collection and reporting requirements are less burdensome than under the final rule.
The final rule requires all OCC-regulated banks to collect and maintain data and supporting information throughout the assessment period. Banks evaluated under the general performance standards or a strategic plan must collect and maintain (along with supporting information) retail lending test distribution ratios, CRA evaluation measures and assessment area CRA evaluation measures, community development minimums and assessment area level community development minimums, qualifying loan data, data on non-qualifying loans, community development investment data and community development services data, retail domestic deposit data and assessment area information.
Importantly, the OCC deferred setting benchmarks in the final rule, indicating an intention to gather more data to calibrate benchmarks, thresholds and minimums in a future Notice of Proposed Rulemaking. Those benchmarks, in addition to changes made regarding qualifying activities, delineation of assessment areas, the performance standards and data collection and data retention, will significantly impact banks subject to the final rule.
To read our first blog post in which we discussed key differences between the OCC’s proposed rule and its final rule, click here.
NMLS Now Accepting Idaho Mortgage Broker/Lender License Applications From Mortgage Servicers
As previously reported in an earlier update, the Idaho Residential Mortgage Practices Act was amended to require mortgage servicers to be licensed as a Mortgage Lender, effective July 1, 2020. Due to this amendment, NMLS is now receiving new application filings for companies that service residential mortgage loans and do not currently have an approved Mortgage Broker/Lender License.
Request for Agenda Items: NMLS Ombudsman Meeting at Upcoming Virtual AARMR Conference
NMLS is requesting individuals to submit agenda items for discussion at the NMLS Ombudsman Meeting, which will be held on August 4, 2020 at the 31st American Association of Residential Mortgage Regulators (AARMR) Annual Regulatory Conference & Training, a virtual event occurring from August 4-6, 2020. The meeting is an opportunity to raise issues for discussion with state regulators concerning NMLS, state licensing, and federal registration.
Individuals are asked to submit agenda items that describe the issue and any relevant information on their company’s letterhead. Note that individuals must attend the virtual meeting to present their issues. Note also that there will not be a live, open forum discussion due to the nature of the virtual meeting.
Agenda items may be submitted by emailing email@example.com by COB Friday, July 17.
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