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The CFPB recently issued its final rule amending the timing requirements for transitioning between unmodified periodic statements and modified statements for consumers in bankruptcy.  Initially proposed on October 4, 2017, the CFPB finalized the amendments without further revision.  These changes will go into effect on April 19, 2018, along with the other servicing rule amendments adopted in 2016 that require sending periodic statements to consumers in bankruptcy.  (Part of the 2016 amendments were implemented in October 2017, and the remaining amendments will be implemented April 19, 2018.)

Under the amended rule, the single billing cycle exemption is replaced with a more uniform single statement exemption, when a mortgage servicer transitions between an unmodified and a modified bankruptcy periodic statement.  Accordingly, after a triggering event (e.g., the borrower enters bankruptcy, personal liability is discharged, or the borrower exits bankruptcy), the servicer is exempt from providing the next periodic statement or coupon book that would otherwise be required, regardless of when in the billing cycle the triggering event occurs.  As previously drafted, the exemption applied for the next periodic statement or coupon book only if the payment due date for that ensuing billing cycle was 14 days or less after the triggering event.

The amendments provide welcome help to mortgage servicers by eliminating an aspect of the new bankruptcy requirements that was unnecessarily complex and difficult to operationalize.

 

 

 

Last week, members of the Senate Banking Committee announced that they had reached bipartisan agreement on “legislative proposals to improve our nation’s financial regulatory framework and promote economic growth.”  Following the announcement, Committee members released a draft of a bill (S. 2155), the “Economic Growth, Regulatory Relief, and Consumer Protection Act.”  A markup of the bill is scheduled for December 5, 2017.  Many observers believe that due to its bipartisan support, there is a strong likelihood that the bill will be enacted as part of a regulatory relief package.

Provisions of the bill relevant to providers of consumer financial services include the following:

Small Depository Qualified Mortgage (Section 101). For an insured depository institution or insured credit union, the bill would create a qualified mortgage loan entitled to the safe harbor under the ability to repay rule.  In general, the depository institution or credit union would need to hold the loan in portfolio, and the loan could not have an interest-only or negative amortization feature and would need to comply with limits on prepayment penalties.  While the creditor would need to consider and document the debt, income and financial resources of the consumer, it would not have to follow Appendix Q to the ability to repay rule.

Appraisal Exemption for Rural Areas (Section 103). The bill would provide an exemption from any appraisal requirement for a federally related transaction involving real property if (1) the property is located in a rural area, (2) the loan is less than $400,000, (3) the originator is subject to oversight by a federal financial institution regulator, and (4) no later than three days after the Closing Disclosure under the TRID rule is given to the consumer, the originator has contacted at least three state certified or licensed appraisers, as applicable, and has documented that no state certified or licensed appraiser, as applicable, is available within a reasonable period of time.  The applicable federal financial institution regulator would determine what constitutes a reasonable period of time.  The exemption would not apply to high-cost loans under the Truth in Lending Act (TILA), or when the applicable federal financial institution regulator requires the financial institution to obtain an appraisal to address safety and soundness concerns.

Home Mortgage Disclosure Act Triggers (Section 104). The bill would increase the loan volume trigger to be a reporting company under the revised Home Mortgage Disclosure Act (HMDA) rule from 25 closed-end mortgage loan originations in each of the preceding two calendar years to 500 such loans in each of the two preceding calendar years.  The 25 closed-end loan trigger went into effect in 2017 for depository institutions, and goes into effect on January 1, 2018 for non-depository institutions.

The bill also would make permanent under the revised HMDA rule a trigger of 500 open-end mortgage loan originations in each of the preceding two calendar years.  As reported previously, the revised HMDA rule provided for a trigger effective January 1, 2018 of 100 open-end mortgage loan originators in each of the preceding two calendar years, and in August 2017 the CFPB temporarily raised the trigger for 2018 and 2019 to 500 open-end mortgage loans in each of the preceding two calendar years.  The bill includes a requirement for the Comptroller General of the United States to conduct a study after two years to evaluate the impact of the amendments on the amount of data available under HMDA, and submit a report to Congress within three years.

Loan Originator Transition Authority (Section 106). Subject to various conditions, the bill would establish temporary transition authority for an individual loan originator to conduct origination activity for up to 120 days from when the individual submits an application to be licensed in a state in cases in which the individual is (1) registered and then becomes employed by a state-licensed mortgage company or (2) licensed in a state and then seeks to conduct loan origination activity in another state.

TRID Rule Provisions (Section 110). The bill includes a provision that apparently is intended to eliminate the need for a second three business day waiting period under the TILA/Real Estate Settlement Procedures Act Integrated Disclosure (TRID) rule in cases in which the annual percentage rate decreases and becomes inaccurate after the initial Closing Disclosure is provided, thus triggering the need for a revised Closing Disclosure.  Currently, the TRID rule requires both a revised Closing Disclosure and a new three business day waiting period before consummation may occur.  As drafted, however, the bill would amend the TILA timing requirements for high-cost mortgages under the Home Ownership and Equity Protection Act.  The TRID rule timing requirements are set forth in Regulation Z and not TILA.  Thus, revisions to the bill are necessary to achieve the intended goal.

The bill also includes a sense of Congress provision with regard to the TRID rule, which provides that the CFPB should endeavor to provide clearer, authoritative guidance on (1) the applicability of the rule to mortgage assumptions, (2) the applicability of the rule to construction-to-permanent home loans, and the conditions under which such loans can be properly originated, and (3) the extent to which lenders can, without liability, rely on the model disclosures published by the CFPB under the rule if recent changes to the rule are not reflected in sample TRID rule forms published by the CFPB.

Credit Report Alerts (Section 301). The bill would amend the Fair Credit Reporting Act (FCRA) to require consumer reporting agencies to keep a fraud alert requested by a consumer in the consumer’s file for at least one year and allow a consumer to have one free freeze alert placed on his or her file every year and remove that alert free of charge.  Consumer reporting agencies would also have to provide free freeze alerts requested on behalf of a minor and remove such alerts free of charge.

Credit Reports of Military Veterans (Section 302). The bill would amend the FCRA to require consumer reporting agencies to exclude from credit reports certain information relating to medical debts of veterans and would establish a dispute process for veterans seeking to dispute medical debt information with a consumer reporting agency.

Protection of Seniors (Section 303). The bill would, subject to certain conditions, provide immunity from civil or administrative liability to individuals and financial institutions for disclosing the suspected exploitation of a senior citizen to various government agencies, including state or federal financial regulators, the SEC, or a law enforcement agency.

Cyber Threats (Section 501). The bill would require the Secretary of the Treasury to submit a report to Congress on the risks of cyber threats to financial institutions and U.S. capital markets that includes an analysis of how the appropriate federal banking agencies and the SEC are addressing such risks.  The report must also include Treasury’s recommendation on whether any federal banking agency or the SEC “needs additional legal authorities or resources to adequately assess and address material risks of cyber threats.”  (We note that for several years, the FTC has been calling for such additional authority, specifically in the form of rulemaking authority.  Due to the limitations of the Banking Committee’s jurisdiction, the bill’s provision focuses exclusively on the federal banking agencies, and gives no recognition to the important role of the FTC—which is under the Senate Commerce Committee’s jurisdiction–in addressing cyber threats.

We will be publishing another blog post in the near future about other provisions of the bill that may be of interest to our blog readers.

A bill to provide a “Madden fix” and three other bills relevant to mortgage lenders were included among the more than 20 bills approved by the House Financial Services Committee on November 15, 2017.   With the exception of H.R. 3221, “Securing Access to Affordable Mortgages Act,” the bills received strong bipartisan support.

The “Madden fix” bill is H.R. 3299, “Protecting Consumers’ Access to Credit Act of 2017.”  In Madden, the Second Circuit ruled that a nonbank that purchases loans from a national bank could not charge the same rate of interest on the loan that Section 85 of the National Bank Act allows the national bank to charge.  The bill would add the following language to Section 85 of the National Bank Act: “A loan that is valid when made as to its maximum rate of interest in accordance with this section shall remain valid with respect to such rate regardless of whether the loan is subsequently sold, assigned, or otherwise transferred to a third party, and may be enforced by such third party notwithstanding any State law to the contrary.”

The bill would add the same language (with the word “section” changed to “subsection” when appropriate) to the provisions in the Home Owners’ Loan Act, the Federal Credit Union Act, and the Federal Deposit Insurance Act that provide rate exportation authority to, respectively, federal and state savings associations, federal credit unions, and state-chartered banks.  The bill was approved by a vote of 42-17.  (A bill with identical language was introduced in July 2017 by Democratic Senator Mark Warner.)

Adoption of a “Madden fix” would eliminate the uncertainties created by the Second Circuit’s Madden decision.  However, it would not address a second source of uncertainty for banks that lend with assistance from third parties—the argument that the bank is not the “true lender” and accordingly cannot exercise the usury authority provided to banks by federal law.  As we have previously urged, the OCC and its sister agencies should adopt rules providing that loans funded by their supervised financial institutions in their own names as creditor are fully subject to federal banking laws (and not state usury laws).  The OCC and FDIC have previously emphasized that their supervised entities must manage and supervise the lending process in accordance with regulatory guidance and will be subject to regulatory consequences if and to the extent that loan programs are unsafe or unsound or fail to comply with applicable law.

The other approved bills relevant to mortgage lenders are:

  • H.R. 3221, “Securing Access to Affordable Mortgages Act.” The bill would amend the Truth in Lending Act (TILA) and the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 to exempt a mortgage loan of $250,000 or less from the higher-priced mortgage loan and general property appraisal requirements if the loan appears on the creditor’s balance sheet for at least three years.  The bill would also exempt mortgage lenders and others involved in real estate transactions from incurring penalties for failing to report appraiser misconduct.  The bill was approved by a vote of 32-26.
  • H.R. 1153, “Mortgage Choice Act of 2017.” The bill would amend TILA by revising the definition of “points and fees” to exclude escrowed insurance and fees or premiums for title examination, title insurance, or similar purposes, whether or not the title-related charges are paid to an affiliate of the creditor.  The bill would direct the CFPB to issue implementing regulations within 90 days of the bill’s enactment. The bill was approved by a vote of 46-13.
  • H.R. 3978, “TRID Improvement Act of 2017.”  The bill would amend RESPA to require that the amount of title insurance premiums reflect discounts required by state law or title company rate filings. The amendment would override the TRID rule approach to the disclosure of the lender’s and the owner’s title insurance premiums if there is a discount offered on the lender’s policy when issued simultaneously with an owner’s policy.  In such cases, instead of requiring the disclosure of the actual owner’s policy premium and the actual discounted lender’s policy premium, the TRID rule currently requires the disclosure of the full, non-discounted amount of the premium for the lender’s policy, and an amount for the owner’s policy equal to the full amount of the owner’s policy premium, plus the amount for the discounted lender’s policy premium, less the full amount of the lender’s policy premium.  The bill was approved by a vote of 53-5.

On Friday November 3, 2017 the Consumer Financial Protection Bureau (CFPB) announced the launch of the Internet-based platform that financial institutions will use to submit data under the Home Mortgage Disclosure Act (HMDA).

Each user will need to register online for login credentials and establish an account in order to access the platform. Financial institutions can use the beta period to test login credentials, upload sample HMDA files, perform validation on their HMDA data, receive edit reports, confirm their test data submission, and conclude the test HMDA filing process.  There is no limit on the extent to which a financial institution may use the platform for testing purposes during the beta period.

All test accounts that are created during the beta period, and test data that is uploaded during the period, will be removed from the platform when the filing period for 2017 HMDA data opens in January 2018.

The CFPB encourages institutions to provide feedback on their experiences using the platform by sending comments to HMDAfeedback@cfpb.gov.

The Consumer Financial Protection Bureau has issued a second version of the Home Mortgage Disclosure Act (Regulation C) Small Entity Compliance Guide.  The updated version incorporates various changes to the HMDA rule that were issued in August 2017 and published in the September 13, 2017 Federal Register, which we reported on previously.  One of the main changes incorporated in the revised Guide is the temporary increase in the threshold to report home equity lines of credit (HELOCs) from 100 to 500 transactions in each of the two proceeding calendar years.  Based on the temporary increase, financial institutions originating 100 or more HELOCs but fewer than 500 in 2018 or 2019 would not be required to begin collecting and reporting HELOC data until January 1, 2020.  However, the CFPB may take further action to amend the threshold.

In October 2015, the CFPB adopted significant changes to the rules under the Home Mortgage Disclosure Act (HMDA).  Among the changes, the items of information to be collected and reported under HMDA are greatly expanded, with some items being specified by Congress in the Dodd-Frank Act and others being added by the CFPB.  The CFPB is now proposing policy guidance regarding what items of application-level information will be disclosed to the public.  The comment deadline is November 24, 2017.

Currently, institutions that report HMDA data must publicly disclose their HMDA data on an application-level basis. HMDA requires the modification of data released to the public “for the purpose of protecting the privacy interests of mortgage applicants.”  Currently, before disclosing application-level data, institutions remove the application or loan number, the date the application was received, and the date the institution took final action on the application.  However, there are concerns that by combining the current publicly available HMDA data with other data sources, the identity of each applicant can be determined.  As the applicant’s income is one data item that is publicly disclosed, there is a concern that the income of individual applicants can be determined.

Going forward, institutions will report HMDA data to the CFPB, and the CFPB will disclose HMDA data publicly, including application-level data for each institution.  The significant expansion of HMDA data information made by the October 2015 revisions raised consumer privacy and related concerns associated with the public disclosure of the information.  New data items include, among other items, the applicant’s age, income (which is currently reported), credit score, and debt-to-income ratio; the automated underwriting results; the property address; loan cost information; and, for denied applications, the principal denial reasons.

When the CFPB adopted the October 2015 revisions, it deferred making a decision on which elements of the expanded HMDA data would be reported on an application-level basis.  However, the CFPB indicated that it would use a balancing test to decide what information to disclose publicly, and would allow public input on the information that it proposed to disclose.  The CFPB advised that “[c]onsidering the public disclosure of HMDA data as a whole, applicant and borrower privacy interests arise under the balancing test only where the disclosure of HMDA data may both substantially facilitate the identification of an applicant or borrower in the data and disclose information about the applicant or borrower that is not otherwise public and may be harmful or sensitive.”

The CFPB proposes to make all of the HMDA data available to the public on an application-level basis, except as follows:

  • The following information would not be disclosed to the public (the non-disclosure of the first three items is consistent with current disclosure practices):
    • The universal loan identifier.
    • The date the application was received or the date shown on the application form (whichever was reported).
    • The date of the action taken on the application.
    • The property address.
    • The credit score(s).
    • The NMLS identifier for the mortgage loan originator.
    • The automated underwriting system result.
  • The free form text fields for the following (the standard fields reported would be disclosed):
    • The applicant’s race and ethnicity.
    • The name and version of the credit scoring model.
    • The principal reason(s) for denial.
    • The automated underwriting system name.
  • The CFPB proposes to disclose in a modified format the loan amount, age of the applicant, the applicant’s debt-to-income ratio, and the property value.
    • For the loan amount, the CFPB proposes to disclose:
      • The midpoint for the $10,000 interval into which the reported value falls, such as $115,000 for amounts of $110,000 to less than $120,000. (Currently, the loan amount is reported to the nearest $1,000.)
      • Whether the reported loan amount exceeds the Fannie Mae and Freddie Mac conforming loan limit.
    • For the age of the applicant, the CFPB proposes to disclose:
      • Ages of applicants in the following ranges: Under 25, 25 to 34, 35 to 44, 45 to 54, 55 to 64, 65 to 74, and over 74.
      • Whether the reported age is 62 or over. For purposes of the Equal Credit Opportunity Act, a person is considered elderly if they are age 62 or over.
    • For the debt-to-income ratio, the CFPB proposes to disclose:
      • The reported debt-to-income ratio for reported values of 40% to less than 50%, and other debt-to-income ratios in the following ranges: under 20%, 20% to less than 30%, 30% to less than 40%, 50% to less than 60% and 60% or higher.
    • For the property value, the CFPB proposes to disclose the midpoint for the $10,000 interval into which the reported value falls, such as $115,000 for amounts of $110,000 to less than $120,000.

Although the loan amount will now be reported in the applicable $10,000 interval and not to the nearest $1,000, the concern is that the totality of the information that is publicly available will make it easier than it is today to determine the identity of the applicant.  Thus, as proposed by the CFPB, there is a risk that a significant amount of information that consumers view as confidential will become publicly available.  As a result, the CFPB will likely face intense criticism of its balancing of the privacy needs of consumers with the disclosure of HMDA data.

Additionally, because the increase in the amount of HMDA data elements means that the CFPB will now store very confidential consumer information in its records, data security concerns must be considered.  The CFPB rebuffed data security concerns raised by parties commenting on the proposed HMDA data expansion, stating that it “has analyzed these industry comments carefully and has determined that any risks to applicant and borrower privacy created by the compilation and reporting of the data required under the final rule are justified by the benefits of the data in light of HMDA’s purposes even though its data security has been cited as being deficient.”  While the CFPB was referring to a Government Accountability Office report finding issues with CFPB data security, as we have reported previously on several occasions the CFPB’s own Office of Inspector General has found deficiencies in CFPB data security. (See here, here and here.)

One must wonder why the CFPB views the collection and disclosure of expansive HMDA information as being more important than addressing privacy and data security risks to consumers.

The Federal Housing Finance Agency has announced that it has reopened and extended until September 1, 2017 the comment period on its Request for Input on improving language access in mortgage lending and servicing.  The FHFA previously extended the comment period until July 31, 2017.

According to the FHFA, it took this action “to allow interested parties more time to consider additional information on issues facing qualified mortgage borrowers with Limited English Proficiency (LEP) throughout the mortgage life cycle process, including mortgage lending and servicing.”

Issued this past May, 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 [LEP] borrowers and the mortgage industry’s ability to serve them throughout the mortgage life cycle.”

The CFPB’s Spring 2017 rulemaking agenda has been published as part of the Spring 2017 Unified Agenda of Federal Regulatory and Deregulatory Actions.  The preamble indicates that the information in the agenda is current as of April 1, 2017.  Accordingly, the agenda does not reflect the issuance of the CFPB’s final arbitration rule on July 10 or other rulemaking actions taken since April 1 such as the proposed changes to the CFPB’s prepaid account rule and various recent mortgage-related developments.  In addition, the agenda and timetables are likely to be significantly impacted should Director Cordray leave the CFPB this fall to run for Ohio governor as has been widely speculated.

The agenda sets the following timetables for key rulemaking initiatives:

Payday, title, and deposit advance loans.  The CFPB released its proposed rule on payday, title, and high-cost installment loans in June 2016 and the comment period ended on October 22, 2016.  The Spring 2017 agenda gives a June 2017 date for completing the initial review of comments (which the CFPB states in the preamble numbered more than one million) but does not give an estimated date for a final rule.  There has been considerable speculation that a final rule will be issued by the end of next month.

Debt collection.  In November 2013, the CFPB issued an Advance Notice of Proposed Rulemaking concerning debt collection.  In July 2016, it issued an outline of the proposals it is considering in anticipation of convening a SBREFA panel.  The coverage of the CFPB’s SBREFA proposals was limited to “debt collectors” that are subject to the FDCPA.  When it issued the proposals, the CFPB indicated that it expected to convene a second SBREFA panel in the “next several months” to address a separate rulemaking for creditors and others engaged in debt collection not covered by the proposals.  However, Director Cordray announced last month that the CFPB has decided to proceed first with a proposed rule on disclosures and treatment of consumers by debt collectors and thereafter write a market-wide rule in which it will consolidate  the issues of “right consumer, right amount” into a separate rule that will cover first- and third-party collections.

In the Spring 2017 agenda, the CFPB gives a September 2017 date for a proposed rule.  Presumably, that date is for a proposal that will deal with disclosures and treatment of consumers by debt collectors.  The new agenda gives no estimated dates for the convening of a second SBREFA panel or a proposed second rule.  In the preamble to the new agenda, the CFPB states only that it “has now decided to issue a proposed rule later in 2017 concerning FDCPA collectors’ communications practices and consumer disclosures.  The Bureau intends to follow up separately at a later time about concerns regarding information flows between creditors and FDCPA collectors and about potential rules to govern creditors that collect their own debts.”

Larger participants.  The CFPB states in the Spring 2017 agenda that it “expects to conduct a rulemaking to define larger participants in the markets for consumer installment loans and vehicle title loans for purposes of supervision.”  It also repeats the statement made in previous agendas that the CFPB is “also considering whether rules to require registration of these or other non-depository lenders would facilitate supervision, as has been suggested to the Bureau by both consumer advocates and industry groups.”  (Pursuant to Dodd-Frank Section 1022, the CFPB is authorized to “prescribe rules regarding registration requirements applicable to a covered person, other than an insured depository institution, insured credit union, or related person.”)  The new agenda estimates a June 2017 date for prerule activities and a September 2017 date for a proposed rule.

Overdrafts.  The CFPB issued a June 2013 white paper and a July 2014 report on checking account overdraft services.  In the Spring 2017 agenda, as it did in its Fall 2015 agenda and Fall and Spring 2016 agendas, the CFPB states that it “is continuing to engage in additional research and has begun consumer testing initiatives related to the opt-in process.”  Although the Fall 2016 agenda estimated a January 2017 date for further prerule activities, the new agenda moves that date to June 2017.  As we have previously noted, the extended timeline may reflect that the CFPB feels less urgency to promulgate a rule prohibiting the use of a high-to-low dollar amount order to process electronic debits because most of the banks subject to its supervisory jurisdiction have already changed their processing order.

Small business lending data.  Dodd-Frank Section 1071 amended the ECOA to require financial institutions to collect and maintain certain data in connection with credit applications made by women- or minority-owned businesses and small businesses.  Such data includes the race, sex, and ethnicity of the principal owners of the business.  The new agenda estimates a June 2017 date for prerule activities.  The CFPB repeats the statement made in the Fall 2016 agenda that it “is focusing on outreach and research to develop its understanding of the players, products, and practices in business lending markets and of the potential ways to implement section 1071.  The CFPB then expects to begin developing proposed regulations concerning the data to be collected and determining the appropriate procedures and privacy protections needed for information-gathering and public disclosure under this section.”

Mortgage rules.  Earlier this month, the CFPB issued a proposed rule dealing with a lender’s use of a Closing Disclosure to determine if an estimated charge was disclosed in good faith.  The Spring 2017 agenda gives a March 2018 estimated date for issuance of a final rule.  This past March, the CFPB issued a proposal to amend Regulation B requirements relating to the collection of consumer ethnicity and race information to resolve the differences between Regulation B and revised Regulation C.  The Spring 2017 agenda gives an October 2017 estimated date for a final rule.

 

 

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.

 

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.