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The CFPB issued HMDA Loan Scenarios on July 19, 2017 to provide additional guidance to the industry on reporting transactions under the revised HMDA rule, which has a January 1, 2018 effective date for most provisions.

The guidance includes loan scenarios for a single-family mortgage loan, multifamily mortgage loan, and home equity line of credit.  For each scenario, the guidance reflects how the information about the transaction would be mapped to the required data fields, and then how the transaction would appear on the Loan Application Register in the pipe delimited format.

 

As we have previously reported, in October 2015 the CFPB adopted significant revisions to the Home Mortgage Disclosure Act (HMDA) rule, most of which become effective January 1, 2018.  Among the revisions, the reporting of home equity lines of credit under HMDA, which currently is voluntary, will become mandatory for both depository institutions and non-depository institutions that originated at least 100 home equity lines of credit in each of the two preceding calendar years.

The CFPB is now proposing to temporarily increase the threshold to the origination of 500 home equity lines of credit in each of the two preceding calendar years.  The temporary increase would apply for data collection years 2018 and 2019.  The CFPB notes that through outreach it “has heard increasing concerns from community banks and credit unions that the challenges and costs of reporting open-end lending may be greater than the Bureau had estimated when adopting the 100-loan threshold.  Additionally, the Bureau’s analysis of more recent data suggests changes in open-end origination trends that may result in more institutions reporting open-end lines of credit than was initially estimated.”  The temporary increase will allow the CFPB to assess the appropriate threshold for smaller-volume lenders.

Comments on the proposal are due by July 31, 2017.  The CFPB notes that at a later date it will issue a separate proposal with a longer notice and comment process to consider adjustments to the permanent threshold.

The Federal Housing Finance Agency has announced that it has extended until July 31, 2017 the comment period on its Request for Input on improving language access in mortgage lending and servicing.

Issued this past May, the RFI asked for input to be provided by no later than July 10, 2017.  The extension is shorter than the extension of at least 45 days that a group of eight trade associations had requested in a letter sent to the FHFA.

The FHFA has stated that it intends to use the information it receives in response to the RFI to inform “additional steps that could potentially be taken to further support [Limited English Proficiency] borrowers and the mortgage industry’s ability to serve them throughout the mortgage life cycle.”

 

 

The CFPB has updated the Home Mortgage Disclosure Act guidance that is available on its resource webpage for HMDA filers.  Updates were made to the Technology Preview, the Filing Instruction Guides for both data collected in 2017 and data collected in 2018 and subsequent years, and the Frequently Asked Questions.

In the FAQs, the CFPB notes that the new internet-based HMDA Platform for the submission of HMDA data is expected to be available in the third quarter, and that once the Platform is available companies will be able to register for login credentials and establish an account.

The CFPB recently issued two updates for its Mortgage Servicing Rule amendments to Regulations X and Z.  Issued on August 4, 2016, the Mortgage Servicing Final Rule amended various aspects of the existing Mortgage Servicing Rules.  These changes will become effective either on October 19, 2017 or April 19, 2018.

First, the CFPB issued non-substantive, technical corrections to the Mortgage Servicing Final Rule issued in 2016.  The corrections include several typographical errors, revisions to show the correct effective date for certain provisions, and a citation correction.

The CFPB also issued non-binding policy guidance for a three-day period of early compliance with the amended Mortgage Servicing Rules.  According to the Bureau, the policy guidance was issued in response to industry concerns over operational challenges presented by the mid-week effective date.  Industry participants sought the ability to implement and test these changes over the weekend prior to the effective date.

Accordingly, the non-binding policy guidance states that the CFPB does not intend to take supervisory or enforcement action for violations of existing Regulation X or Regulation Z provisions, resulting from a servicer’s compliance with the new requirements, up to three days before the applicable effective dates.  Therefore, for amendments that become effective on October 19, 2017, the three-day period will cover Monday, October 16 through Wednesday, October 18.  For amendments that will take effect on April 19, 2018, the three-day period will cover Monday, April 16 through Wednesday, April 18.

The CFPB recently issued final amendments to the TILA/RESPA Integrated Disclosure (TRID) rule and a proposal to further amend the TRID rule.  The CFPB has also issued an Executive Summary of the amendments.

Although the amendments will become effective 60 days after publication in the Federal Register, mandatory compliance with the amendments will be required for applications received on or after October 1, 2018.  The CFPB advises that during the optional compliance period between the effective date and October 1, 2018, a party may comply with the amendments “all at one time or phase in the changes over time (even within the course of a transaction).”

The CFPB also addresses uncertainty regarding what loans are subject to the existing partial payment disclosure requirement for mortgage transfer notices and the existing escrow closing notice requirement.  The requirements were included in the same final rule that contains the original TRID rule provisions, even though they are not integrated disclosure requirements.  This led to uncertainty as to whether the requirements apply to all transactions within the scope of the requirements, or only those transactions for which the application was received on or after October 3, 2015, which is the effective date of the original TRID rule.   The CFPB clarifies that compliance with the requirements becomes mandatory on October 1, 2018, regardless of when the application was received.

 

 

The CFPB finalized the long-awaited initial round of amendments to the TILA/RESPA Integrated Disclosure (TRID) rule, also known as the Know Before Your Owe rule.  However, instead of addressing the so-called “black hole” issue, which refers to situations in which a lender may not be able to use a Closing Disclosure to reset fee tolerances, the CFPB punted by releasing a proposed rule on the issue.

The proposed amendments were posted on the CFPB’s website at the end of July 2016.  Although the CFPB planned to finalize amendments in March, the final amendments, along with the related proposal, were not issued until the beginning of July.  While the amendments will become effective 60 days after publication in the Federal Register, mandatory compliance with the amendments will not be required until October 1, 2018.  The CFPB has been urged to take this approach to implementing regulations by industry members, as it allows for the testing of changes on a pilot basis before going live across a company’s entire platform.

In its press release announcing the amendments, the CFPB notes that it adopted (1) tolerances for the Total of Payments disclosure that are based on the existing finance charge tolerances, (2) a change to the partial exemption for certain down-payment and related assistance loans by excluding recording fees and transfer taxes from the fee limitation that applies to the exemption, (3) a change in the scope of the rule to cover loans on cooperative units, whether or not the cooperative is considered real property under applicable state law, and (4) clarifications on how to provide separate Closing Disclosures to the consumer and the seller.

The final rule is 560 pages in length and the proposal is 41 pages in length.  We will be analyzing the final rule and proposal and will provide a more detailed analysis in a future edition of our Mortgage Banking Update.  (To subscribe to the Mortgage Banking Update, please click here.)

A group of eight trade associations has sent a letter to the Federal Housing Finance Agency (FHFA) asking the FHFA to extend by at least 45 days the comment period on the FHFA’s Request for Input (RFI) on improving language access in mortgage lending and servicing.  Issued this past May, the RFI asks for input to be provided by no later than July 10, 2017.

In 2016, the FHFA had considered including a question about borrower language preference in the Uniform Residential Loan Application.  The same eight trade associations that are now seeking an extension of the RFI comment period sent a letter to the FHFA in June 2016 setting forth various compliance and legal concerns raised by the addition of the language preference question.  In the RFI, the FHFA noted that such concerns were raised by the mortgage industry and stated that it “decided not to include the question at that time and, instead, decided to examine [the issue of how to better serve Limited English Proficiency (LEP) borrowers] more broadly.”

The FHFA intends to use the information it receives in response to the RFI to inform “additional steps that could potentially be taken to further support LEP borrowers and the mortgage industry’s ability to serve them throughout the mortgage life cycle.”  The RFI, which focuses on single-family mortgages, contains a series of questions dealing with the following issues:

  • Existing processes and tools to assist potential and qualified LEP borrowers
  • Current barriers that exist for LEP individuals in the mortgage life cycle
  • Potential actions to improve language access in the short term (i.e. actions with an implementation cycle of less than 18 months)  (The FHFA asks for input on eight specific potential measures as well as suggestions for other short-term actions.)
  • Potential actions to improve language access in the long term (i.e. actions with an implementation cycle of more than 18 months), including tracking and collection of data on language preference
  • Legal and regulatory risks of process improvements for LEP borrowers

Serving LEP consumers is one of the most challenging issues facing financial institutions today.  The logistical challenges of ensuring accurate translations, dealing with dialects, and having non-English compliance and monitoring resources have been coupled with a great deal of uncertainty about regulatory risks from serving LEP consumers.  While LEP guidance issued by the CFPB last November was a step in the right direction, further and more specific compliance guidance is needed.

As the trade associations observed in their letter seeking an extension of the RFI comment period, “the importance of [the issue of how to address the challenges of LEP borrowers] is expected to grow over time, as LEP borrowers continue to increase as a share of the overall population of borrowers in the years ahead.”  Given these expected demographic changes and the absence of clear guidance from regulators, financial institutions should review their plans for serving LEP customers with counsel to reduce potential supervisory and enforcement risk.

 

The U.S. Treasury Department recently issued a report titled “A Financial System That Creates Economic Opportunities-Banks and Credit Unions.”  In addition to recommended changes for the CFPB, the report devotes substantial attention to the residential mortgage industry.

The report cites the size of the housing market, contributing approximately 18% to U.S. GDP, and constituting a debt market second in size only to the U.S. Treasury market.  Accordingly, the report states that tight mortgage lending conditions in the private sector warrant careful review of regulations which may be holding back access to credit.

The Treasury’s review produced the following findings, which are copied verbatim below:

  • “The revised regulatory regime disproportionately discourages private capital from taking mortgage credit risk, instead encouraging lenders to channel loans through federal insurance or guarantee programs, or Fannie Mae or Freddie Mac;
  • Regulatory requirements have significantly and unnecessarily tightened the credit box for new mortgage originations, denying many qualified Americans access to mortgages;
  • Increased regulatory requirements have significantly increased the cost of origination and servicing activities, which, when passed on to borrowers in the form of higher mortgage rates, have decreased the number of Americans that can qualify for mortgages;
  • Some regulatory regimes or approaches are viewed by industry participants as having inadequate transparency and mutual accountability, thus creating uncertainty and risk aversion among lenders in serving certain market and client segments; and
  • Capital, liquidity, and other prudential standards, in combination with a wide range of capital market regulations, have inhibited both private originate-to-hold lenders as well as lenders focused on origination and secondary sale in the private-label securitization market.”

According to the report, the aim of Treasury’s recommendations is to properly calibrate the regulation of mortgage lending to be more efficient, effective and appropriately tailored.  Treasury further states that its recommendations also serve the goal of avoiding the recurrence of flawed practices in the U.S. residential mortgage market that contributed to the financial crisis.  The recommendations for the residential mortgage market include the following:

  • Mortgage Loan Origination
    • Adjust and clarify the ATR/QM rule and eliminate the “QM Patch” for GSE-eligible loans (the temporary exemption for loans eligible for purchase by the GSEs).  The goal of this recommendation would be to subject all market participants to the same set of requirements, and provide greater flexibility to the QM parameters.
    • Modify Appendix Q of the ATR/QM rules to simplify the standards and release clear, binding guidance for its use and application.
    • Revise the points and fees cap for QM loans, by increasing the dollar loan amount threshold for application of the 3% cap.
    • Increase the maximum asset threshold for making small creditor QM loans.
    • Clarify the TRID rule through notice and comment rulemaking and/or through the publication of more robust and detailed FAQs in the Federal Register.
    • Modify the TRID rule to allow for a more streamlined waiver for the mandatory waiting periods, and to permit lenders to cure errors in a loan file within a reasonable period after closing.
    • Improve flexibility and accountability for the Loan Originator Compensation rule, in particular to allow for post-closing corrections of non-material errors.
    • Delay implementation of the new HMDA reporting requirements until borrower privacy is adequately addressed and the industry is in a better position to implement the requirements.
  • Mortgage Loan Servicing
    • Place a moratorium on additional Mortgage Servicing Rules, while the industry updates its operations to comply with existing regulations and transitions from the HAMP program to alternative loss mitigation options.
    • Improve alignment and consistency among the CFPB, prudential regulators, and state regulators, in both regulation and examinations, to help decrease the cost of servicing.
  • Private Sector Secondary Market Activities
    • Repeal or revise the residential mortgage risk retention requirement.  If the requirement is revised rather than repealed, designate one agency from among the six rule-writing agencies to be responsible for interpreting the rule.
    • Enhance investor protections for private label mortgage-backed securities.
    • Clarify limited assignee liability for secondary market investors, in connection with origination errors that are not apparent on the face of the disclosure statement and not asserted as a defense to foreclosure.
    • Evaluate the impact that the Basel III capital and liquidity rules would have on the secondary market, and adjust them to reduce complexity and avoid punitive capital requirements.

 

The federal banking agencies together with the National Credit Union Administration (the “Agencies”) issued an Interagency Advisory on the Availability of Appraisers that is intended to help address the real estate appraiser shortages being experienced by lending institutions.

Pursuant to the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA), the Agencies require the institutions they regulate to obtain a real estate appraisal from a state licensed or certified appraiser in any federally related transaction, unless an exemption applies.  For most loans on single family homes, a licensed appraiser may perform the appraisal, with a certified appraiser being needed for more complex or expensive single-family transactions, and for multi-family and commercial transactions.

In connection with the banking agencies’ review of regulations under the Economic Growth and Regulatory Paperwork Reduction Act, industry members raised concerns about the timeliness of obtaining appraisals, and attributed the delays mainly to a shortage of state licensed or certified appraisers, particularly in rural areas.  Concerns over obtaining appraisals on a timely basis have been raised by the mortgage industry in general.  To address the timeliness issue, the Agencies discuss two options in the Advisory—temporary practice permits and temporary waivers.

The Agencies note that FIRREA provides that a state agency responsible for licensing or certifying appraisers must recognize the license or certification of an appraiser from another state on a temporary basis for federally related transactions.  Thus, subject to any applicable state law limitations, licensed or certified appraisers could apply for a temporary practice permit in a state in which they are not currently licensed or certified to help alleviate a shortage of licensed or certified appraisers in the other state.  Institutions that sell mortgage loans should check with investors and other interested parties regarding their policies for using an appraiser operating under a temporary practice permit.

The Agencies also note that FIRREA authorizes the Appraisal Subcommittee of the FFIEC, with FFIEC approval, to temporarily waive requirements in a specific geographic area to obtain an appraisal from a licensed or certified appraiser in connection with federally related transactions.  Requests for such a waiver may be submitted to the Appraisal Subcommittee by a state appraiser licensing or certifying agency, a federal bank regulatory agency, a regulated financial institution or credit union, or other persons or institutions with a demonstrable interest in appraiser regulation.  Regardless of who submits a request for a temporary waiver, if the waiver is granted it will apply to all regulated institutions with regard to federally related transactions in the specific geographic area.  The Appraisal Subcommittee could terminate a temporary waiver before the scheduled expiration date should it determine that the appraiser shortage had abated.

A temporary waiver would apply only to the requirement that an appraisal be performed by a state licensed or certified appraiser.  All other requirements under FIRREA would still apply, such as the need for the appraisal to conform with general accepted appraisal standards as evidenced by the Uniform Standards for Professional Appraisal Practice (unless principles of safe and sound banking require compliance with stricter standards), and that the appraisal be written and contain sufficient information and analysis to support the institution’s decision to engage in the transaction.

Even if a temporary waiver for a given geographic area is granted, institutions that intend to make loans in the area and sell the loans should check with investors and other interested parties regarding the ability to rely on the waiver.