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On May 3, Ginnie Mae published a Request for Input (RFI) soliciting feedback on potential changes to the parameters governing loan eligibility for pooling into its mortgage-backed securities (MBS). As previously covered by InfoBytes, in May 2018, Ginnie Mae announced changes to pooling eligibility requirements for Department of Veterans Affairs (VA) loans “to address abnormal prepayment patterns in some mortgages pooled in Ginnie Mae MBS that negatively affect MBS pricing, to the detriment of home mortgage loan affordability.” In the RFI, Ginnie Mae notes its focus on adverse trends in the trading of some Ginnie Mae MBS relative to securities issued by Fannie Mae, and cites published commentary and analysis that its MBS are “believed to be susceptible to refinance activity out of proportion to what should be expected from prevailing economic conditions.” The RFI now seeks feedback on, among other things, the propensity of high-LTV VA cash-out refinances to prepay in comparison with those of other loan type categories, any related impact on MBS pricing, and whether a loan-to-value ceiling of 90 percent for cash-out refinance loans “is an appropriate threshold for identifying the loan type category that would be subject to an alternative securitization path.” Ginnie Mae is considering such an alternative securitization path to provide liquidity for excluded (or restricted) loan type categories, highlighting (i) single-issuer custom securities; (ii) securities that are restricted based on a de minimis standard; and (iii) shorter duration loan types as logical possibilities. Comments on the RFI must be received by May 22.
On March 29, the Department of Veterans Affairs (VA) issued Circular 26-19-10, encouraging relief for VA borrowers impacted by severe storms and flooding in Iowa. Among other things, the Circular encourages loan holders to (i) extend forbearance to borrowers in distress because of the severe storms and flooding; (ii) establish a 90-day moratorium from the disaster date on initiating new foreclosures on affected loans; (iii) waive late charges on affected loans; and (iv) suspend credit reporting. The Circular is effective until April 1, 2020. Mortgage servicers and veteran borrowers are also encouraged to review the VA’s Guidance on Natural Disasters.
Find continuing InfoBytes coverage on disaster relief here.
On March 8, the Department of Veterans Affairs (VA) issued Circular 26-19-07, requesting relief for homeowners impacted by severe weather in Alabama. Among other things, the Circular encourages loan holders to (i) extend forbearance to borrowers in distress because of the wildfires; (ii) establish a 90-day moratorium from the date of the disaster on initiating new foreclosures on affected loans; (iii) waive late charges on affected loans; and (iv) suspend reporting affected loans to credit bureaus. The Circular is effective until April 1, 2020. Mortgage servicers and veteran borrowers are also encouraged to review the VA’s Guidance on Natural Disasters.
Find continuing InfoBytes coverage on disaster relief here.
On March 1, the CFPB released its latest Quarterly Consumer Credit Trends report titled, “Mortgages to First-time Homebuying Servicemembers,” which analyzes mortgages made to first-time homebuying active duty servicemembers and veterans (collectively defined as “servicemembers”). The report, using data from the Bureau’s Consumer Credit Panel (CCP) supplemented with data on military service, offers information on the mortgage choices and mortgage performance outcomes of servicemembers who bought homes between 2006 and 2016. Key findings include:
- The share of first-time homebuying servicemembers using the U.S. Department of Veterans Affairs (VA) guaranteed home loan program significantly increased, from 30 percent before 2007 to 63 percent in 2009. By 2016, 78 percent of servicemembers relied on a VA mortgage for their first home loan.
- Conventional mortgages, which accounted for approximately 60 percent of loans among first-time homebuying servicemembers in 2006 and 2007, declined to 13 percent by 2016. During this period, the use of conventional mortgages among non-servicemembers also decreased, as the use of FHA and U.S. Department of Agriculture (USDA) increased.
- In 2016, the median servicemember first-time homebuyer VA loan amount was $212,000, increasing from $156,000 in 2006.
- Early delinquency rates for nonprime servicemember first-time VA-loan borrowers decreased from an average of 5 percent to 7 percent in 2006 and 2007 to slightly above 3 percent in 2016. Notably, early delinquency rates were lower for active duty VA-loan borrowers than for veteran VA-loan borrowers.
On February 14, the Department of Veterans Affairs (VA) released Circular 26-19-05 (and on February 15, accompanying Change Circular 26-19-05) to clarify the VA’s interim final rule regarding VA-guaranteed cash-out refinancing loans, which was released in December 2018 and became effective on February 15. The interim final rule was previously covered by InfoBytes. Among other things, the Circular provides clarification regarding (i) the Net Tangible Benefit test; (ii) the contents of the loan comparison and home equity disclosures (including sample 3-day and final loan closing disclosures); (iii) the loan seasoning requirements, including a new obligation that, for loans refinanced within 1 year of the original closing date, lenders obtain a payment history/ledger documentating all payments, unless a credit bureau supplement clearly identifies all payments made in that timeframe; and (iv) the manner by which lenders should calculate fee recoupment.
On January 11, Freddie Mac and Fannie Mae issued guidance regarding credit reporting during the government shutdown (see Bulletin 2019-2 and Lender Letter 2019-01). The guidance clarifies that servicers have flexibility when reporting the status of a mortgage loan to credit reporting agencies for a borrower affected by the shutdown, and are permitting, but not requiring, servicers to suppress credit reporting in these instances entirely.
On January 8, the Department of Veterans Affairs (VA) issued Circular 26-19-1, which encourages holders of VA-guaranteed loans to extend forbearance to borrowers in distress as a result of the government shut down. It also encourages servicers to waive late charges on loans where borrowers suffered income loss due the shutdown or who may have been affected due to the ripple effect of the shutdown and suspend credit reporting on the affected accounts. The VA also issued Circular 26-19-2, which clarifies that loans for borrowers directly impacted by the government shutdown are still eligible for guarantee by the VA, so long as the lender has obtained all the required documentation and the loan is current. The VA emphasizes that the furlough period should not be considered a break in employment for underwriting purposes provided the borrower returned to work in the same status and provides their furlough letter. Additionally, the VA reminds originators that, even though the IRS Form 4506-T is mentioned in the VA Lender’s Handbook as a condition of the Automated Underwriting Cases feedback certificate, that condition is an investor or lender overlay and the form is not actually required by VA guidelines. Lastly, if the Federal Emergency Management Administration (FEMA) is unavailable for routine certifications or correspondence regarding flood insurance, the VA reminds lenders that non-federal flood insurance policies are acceptable.
District Court orders mortgage company to pay $260,000 in civil money penalties for deceiving veterans about refinance benefits
On December 21, the U.S. District Court for the District of Nevada ordered a non-bank mortgage company to pay $268,869 in redress to consumers and a civil penalty of $260,000 in an action brought by the CFPB for engaging in allegedly deceptive lending practices to veterans about the benefits of refinancing their mortgages. As previously covered by InfoBytes, the CFPB had alleged that, during in-home presentations, the company used flawed “apples to apples” comparisons between the consumers’ mortgages and a Department of Veterans Affairs’ Interest Rate Reduction Refinancing Loan. According to the Bureau, the presentations misrepresented the cost savings of the refinance by (i) inflating the future amount of principal owed under the existing mortgage; (ii) overestimating the future loan’s term, which underestimated the future monthly payments; and (iii) overestimating the total monthly benefit of the loan after the first month. In addition to the monetary penalties, the order prohibits the company from misrepresenting the terms or benefits of mortgage refinancing and requires the company to submit a compliance plan to the Bureau.
On December 13, the Department of Veterans Affairs (VA) released Circular 26-18-28, which outlines the VA’s Loan Guaranty Service Red Flag Rules Policy to aid in the detection, prevention, and mitigation of identity theft for certain loans financed by the VA (known as, “Vendee loans”), Native American Direct Loans, and refunded loans held by the VA. The policy lists categories and warning signs monitored by the VA, such as (i) credit reporting agencies alerts; (ii) suspicious documents that look altered or forged; (iii) suspicious or fictitious personal identifying information; and (iv) account activity inconsistent with established patterns. The policy notes that the VA Office of Inspector General will investigate accounts flagged for possible identity theft. Holds will be placed on the suspicious accounts or transactions as necessary.
The VA is required by the FTC’s Red Flags Rule to develop and implement a written identity theft prevention program. Notably, as previously covered by InfoBytes, the FTC is seeking comments on whether the agency should make changes to the Rule. Comments are due by February 11, 2019.
On December 17, the Department of Veterans Affairs (VA) published an interim final rule in the Federal Register to amend its rules on VA-guaranteed or insured cash-out refinance loans as required by Section 309 of the Economic Growth, Regulatory Relief, and Consumer Protection Act (codified as 38 U.S.C. § 3709). (See also, VA Circular 26-18-30 and accompanying revision for a summary of the rule.) The interim final rule, which revises the current regulation, 38 CFR 36.4306, bifurcates cash-out refinance loans into two types, (i) Type I, the loan being refinanced is already guaranteed or insured by VA and the new loan amount is equal to or less than the payoff amount of the loan being refinanced; and (ii) Type II, cash-outs in which the amount of the principal for the new loan is larger than the payoff amount of the refinanced loan. Under the interim rule, for both Type I and Type II, the VA will permit a cash-out refinance provided:
- Reasonable Value. The new loan may not exceed an amount equal to 100 percent of the reasonable value of the dwelling or farm residence that secures the loan.
- Funding Fee. The funding fee may be financed in the new loan amount; however, any portion of the funding fee that would cause the new loan amount to exceed 100 percent of the reasonable value of the property must be paid in cash at the loan closing.
- Net Tangible Benefit. The loan must provide a net tangible benefit to the borrower, which can be satisfied in one of eight ways (i) the new loan eliminates monthly mortgage insurance, whether public or private, or monthly guaranty insurance; (ii) the term of the new loan is shorter; (iii) the interest rate on the new loan is lower; (iv) the payment on the new loan is lower; (v) the new loan results in an increase in the borrower’s residual monthly income; (vi) the new loan refinances an interim loan to construct, alter, or repair the home; (vii) the new loan amount is equal to or less than 90 percent of the reasonable value of the home; or (viii) the new loan refinances an adjustable rate loan to a fixed rate loan.
- Disclosure. The lender must provide the borrower, and the borrower must certify, net tangible benefit information, a loan comparison disclosure, and an estimate of the amount of home equity removed from the refinance, in a standardized format, on two separate occasions (not later than 3 business days from the date of application and again at closing).
- Other. As required by the current regulation, any borrower paid discount must be considered reasonable in accordance with § 36.4313(d)(7)(i) and the loan must also otherwise be eligible for the VA guarantee.
For Type I cash-out refinances, the VA also requires (i) all the fees and incurred costs to be scheduled to be recouped within 36 months after the date of loan issuance; (ii) a loan seasoning period of the later date of 210 days after the date of the first payment made and the date the sixth monthly payment is made on the loan; and (iii) under the net tangible benefit requirement, for a fixed interest rate to a fixed interest rate, the rate must be reduced by 50 basis points and for a fixed to adjustable interest rate, the rate must be reduced by 200 basis points.
For Type II cash-out refinances, if the loan being refinanced is a VA loan, the same loan seasoning requirement applies (the later date of 210 days after the date of the first payment made and the date the sixth monthly payment is made on the loan). There are no additional restrictions on fee recoupment or rate reductions.
The interim final rule takes effect February 15, 2019, with comments due on or before the effective date.
On December 14, the FTC announced an updated Memorandum of Agreement with the Department of Veterans Affairs (VA) to continue efforts to stop fraudulent and deceptive practices which target servicemembers, veterans, and their dependents who use military education benefits. The agreement is required by 38 U.S.C. § 3696(c) and enables the FTC to utilize, at its discretion, the resources available to investigate deceptive or unfair advertising, sales, or enrollment practices in violation of Section 5 of the FTC Act. The agreement outlines the process for the VA to refer matters to the FTC for investigation and notes that the content of the information in the referral shall remain confidential. Additionally, the agreement requires the FTC, upon request, to provide the VA with a summary of the preliminary findings at the conclusion of the investigation. The VA or the FTC may respond to the preliminary findings by taking appropriate actions, including announcing the findings publicly.
- Buckley Webcast: The next consumer litigation frontier? Assessing the consumer privacy litigation and enforcement landscape in 2019 and beyond
- Buckley Webcast: The CFPB’s proposed debt collection rule
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- Daniel P. Stipano to discuss "Mitigating the risks of banking high risk customers" at the American Bankers Association Regulatory Compliance Conference
- Daniel P. Stipano, Kari K. Hall, Brandy A. Hood, and H Joshua Kotin to discuss "Regulations that matter in a deregulatory environment" at the American Bankers Association Regulatory Compliance Conference Power Hour
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- Hank Asbill to discuss "Pay no attention to the man behind the curtain: Addressing prosecutions driven by hidden actors" at the National Association of Criminal Defense Lawyers West Coast White Collar Conference
- Daniel P. Stipano to discuss "Keep off the grass: Mitigating the risks of banking marijuana-related businesses" at the ACAMS AML Risk Management Conference
- Daniel P. Stipano to discuss "Mid-year policy update" at the ACAMS AML Risk Management Conference
- Amanda R. Lawrence to discuss "Navigating the challenges of the latest data protection regulations and proven protocols for breach prevention and response" at the ACI National Forum on Consumer Finance Class Actions and Government Enforcement
- Benjamin W. Hutten to discuss "Requirements for banking inherently high-risk relationships" at the Georgia Bankers Association BSA Experience Program
- Daniel P. Stipano to discuss "Lessons learned from recent enforcement actions and CMPs" at the ACAMS AML & Financial Crime Conference
- Daniel P. Stipano to discuss "Assessing the CDD final rule: A year of transitions" at the ACAMS AML & Financial Crime Conference
- Douglas F. Gansler to discuss "Role of state AGs in consumer protection" at a George Mason University Law & Economics Center symposium