InfoBytes Blog
Filter
Subscribe to our InfoBytes Blog weekly newsletter and other publications for news affecting the financial services industry.
Federal Reserve Releases Survey on Bank Lending Practices
On November 6, the Federal Reserve Board (Fed) released its October 2017 Senior Loan Officer Opinion Survey on Bank Lending Practices. Responses came from both domestic banks and U.S. branches and agencies of foreign banks, and focused on bank loans made to businesses and households over the past three months. The October survey results indicated that over the third quarter of 2017, on balance, lenders eased their standards on commercial and industrial loans with demand for such loans decreasing. However, lenders left their standards on commercial real estate (CRE) loans unchanged and reported that demand for CRE loans weakened. As to loans to households, banks reported that standards for all categories of residential real estate (RRE) lending “either eased or remained basically unchanged,” and that the demand for RRE loans also weakened.
The survey also included two sets of special questions addressing changes in household lending conditions.
The first set of these special questions asked banks to specify the reasons for changing this year their credit policies on credit card and auto loans to prime and subprime borrowers. Respondents’ most reported reasons for tightening standards or terms on these types of loans were (i) “a less favorable or more uncertain economic outlook”; (ii) “a deterioration or expected deterioration in the quality of their existing loan portfolio”; and (iii) “a reduced tolerance for risk.” Auto loan reasons also focused on “less favorable or more uncertain expectations regarding collateral values.”
The second set of these special questions asked banks for their views as to why they have experienced stronger or weaker demand for credit card and auto loans over this year. Respondents’ reported that a strengthening of demand for credit card and auto loans from prime borrowers could be attributed to customers’ confidence as well as their improved ability to manage debt service burdens. The most reported reasons for weakened demand for credit card and auto loans from prime borrowers were an increase in interest rates and a shift in customers’ borrowing “from their bank to other bank or nonbank sources.”
For additional details see:
FTC Fines California Auto Dealer for Violating Order About Disclosures
On November 6, the FTC announced a settlement of $1.4 million with a Southern California auto dealership for violating a 2014 administrative order (Order). The Order prohibited the dealership from misrepresenting the cost to finance or lease a vehicle. In issuing the Order, the FTC alleged that the dealership had violated the FTC Act by using advertisements that deceptively stated a $0 up-front lease option while excluding other fees and costs, and also that the dealership’s advertisements violated disclosure requirements of the Consumer Leasing Act (CLA) and TILA.
The new settlement resolves a complaint in which the FTC alleged the auto dealership “routinely violated” the Order requiring the dealership to, among other things, (i) accurately represent costs and terms of financing or leasing vehicles; (ii) conform its advertisements to the requirements of the CLA and TILA; and (iv) maintain necessary records and make those records available to the agency. In addition to the monetary penalty and the prohibition of similar practices, the settlement also subjects the dealership to strong compliance and reporting requirements.
Acting Comptroller Discusses Efforts to Promote Lending and Investment in Distressed Communities
On November 2, Acting Comptroller of the Currency Keith A. Noreika addressed the National Association of Affordable Home Lenders to emphasize the OCC’s efforts to support depository institution lending and investment in distressed communities. In his speech, Noreika discussed the guidance issued by the OCC in August (previously covered by InfoBytes), which covers owner-occupied residential mortgage originations with loan-to-value (LTV) ratios greater than 100 percent. The guidance is intended to aid in the revitalization of certain areas around the country and provide a framework for the OCC’s monitoring of these programs for safe and sound lending practices. Noreika concluded that since August “the guidance and the programs being established…are beginning to make differences in the communities that need reinvestment the most” and encouraged their continued use by reminding the conference that these programs can also provide banks credit under the Community Reinvestment Act (CRA).
Fannie Mae Updates Selling Guide
On October 31, Fannie Mae issued Announcement SEL-2017-09, highlighting recent updates to its Selling Guide, that generally affirm the ability to conduct activity using electronic records. Among other things, the update (i) confirms that sellers and servicers are authorized to originate, service, and modify loans using electronic records; (ii) requires that validation and security measures be put in place for systems generating electronic records; (iii) specifies that recorded mortgages and deeds of trust are not required to be maintained in paper form; and (iv) clarifies that all electronic signatures must comply with ESIGN, the Uniform Electronic Transactions Act (UETA), and other applicable laws. The updates are effective immediately.
Additional changes address the (i) introduction of Fannie Mae’s Servicing Execution Tool and Servicing Marketplace, which are designed to improve transfers of servicing; (ii) clarification that property owned by inter vivos revocable trusts qualify as eligible collateral; and (iii) updates to policies related to mortgage debts paid by parties other than the borrower.
District of Columbia Adopts Student Loan Borrower Bill of Rights
On October 11, the District of Columbia (DC) released a student loan borrower bill of rights (Bill) pursuant to the Student Loan Ombudsman Establishment and Servicing Regulation Amendment Act of 2016. The Bill sets out basic principles and protections for student loan borrowers, covering:
- Pricing and Terms. Lenders to comply with TILA; specifically, to focus on clear and plain-English disclosures of the APR and other key pricing terms.
- Loan Products. Lenders should avoid extending abusive loan products to borrowers; including, not extending new credit to borrowers who are unable to repay existing loans.
- Underwriting. Lenders should exercise fair and responsible underwriting; including offering loans that are affordable and meet the borrower’s needs. It also encourages lenders to engage in responsible credit reporting.
- Collection Activities. Lenders and servicers to abide by the spirit of the Fair Debt Collection Practices Act, as well as, maintain accurate and complete information about borrowers’ loans.
- Customer Service. Servicers should have responsible complaint management, be easily accessible, and avoid discrimination of any protected borrower classification.
The Bill became effective on September 8.
Freddie Mac Announces Guide Bulletin 2017-23 Concerning Debt Payment-to-Income Calculations and Appraisals
On October 18, Freddie Mac announced the issuance of Guide Bulletin 2017-23 (Bulletin), which changes selling requirements related to, among other things, student loan monthly debt payment-to-income (DTI) ratio calculations and appraisals. Specifically, for student loans in repayment, sellers must use the greater of the following in calculating DTI ratios, as listed on a borrower’s credit report: (i) the monthly payment amount, or (ii) 0.5 percent of the original loan balance or outstanding balance (one percent for loans in deferment or forbearance). The revisions also remove the requirement that a seller must “obtain documentation if a monthly payment amount is not reported on the credit report.” Further, the Bulletin stipulates certain DTI ratio exclusions, which include specific contingent liabilities.
Revisions to appraisal requirements include: (i) no longer requiring a “new appraisal when the settlement date is more than 120 days after the note date,” and (ii) accepting appraisal updates “performed by an unlicensed or trainee (or similar classification) appraiser if a supervisory appraiser signs the appraisal update.” While the revisions are applicable for mortgages with settlement dates on or after January 18, 2018, Freddie Mac also permits immediate implementation.FHFA Includes a Language Preference Question in the Universal Residential Loan Application
On October 20, the Federal Housing Finance Agency (FHFA) announced that it would include a language preference question on its updated Universal Residential Loan Application (URLA). The question will allow borrowers to indicate if they prefer to communicate in a language other than English and to identify that language. In response to industry concerns, in the preferred language question text, FHFA includes disclosure language that informs borrowers their response will not negatively affect their application, indicates a preferred language does not mean the lender agrees to communicate in that language, and provides language assistance resources.
FHFA plans to issue the new URLA form later this year, which will go into effect beginning in July 2019. The form will be mandatory for loans made by Fannie Mae and Freddie Mac beginning in February 2020.
CFPB Issues Report: Student Loan Complaints Initiated Actions Bringing Relief to Borrowers
On October 16, the CFPB published its annual report analyzing consumer complaints submitted between September 1, 2016 and August 31, 2017. The report, titled “Annual Report of the CFPB Student Loan Ombudsman,” is based on more than 22,000 complaints, which related to federal student loan servicing, debt collection, private student loans servicing, and debt relief services. The press release announcing the report noted that this represented a 120 percent increase in student loan complaints compared to last year, but also that this can partly be attributed to the fact that the Bureau updated its student loan complaint form in late February 2016 to accept complaints about federal student loan servicing issues. The report also noted that student loan complaints from July 2011 through August 2017 have led to actions resulting in more than $750 million in relief to student loan borrowers and improved the loan repayment process for millions of additional borrowers.
The CFPB estimates that federal and private student loan debt combined has reached $1.4 trillion, mostly from federal loans, with more than 8 million student loan borrowers in default due to not making a required monthly payment for at least nine months. The report makes additional observations, including the following:
- Military student loan borrowers continue to complain about difficulties in accessing protections guaranteed under federal law, such as interest rate caps under the Servicemembers Civil Relief Act, automatic recertification of income-driven repayment (IDR) plans, zero percent interest rate reductions while serving in areas of hostility, and discharging loans for veterans due to Total and Permanently Disability (TPD).
- Consumers continue to report challenges concerning repayment roadblocks, such as difficulty in applying for or recertifying IDR plans, obtaining TPD discharge, and accessing advertised loan benefits for private loans.
- Harassing and aggressive debt collection tactics, including the possibility for suspension or revocation of professional licenses in some states following a default, reportedly are creating additional challenges for consumers.
Federal Agencies Offer Consumer Relief Measures Following Recent Natural Disasters
On October 13, the Department of Veterans Affairs (VA) released two circulars (here and here) describing measures mortgagees may employ to provide relief to VA home loan borrowers affected by recent California wildfires and Hurricane Nate. Referencing the VA’s guidance on natural disasters, the VA’s recommendations include: (i) extending forbearance to distressed borrowers; (ii) establishing a 90-day moratorium on initiating foreclosures on affected loans; (iii) waiving late charges; (iv) suspending credit bureau reporting with the understanding that servicers will not be penalized by the VA; and (v) extending “special forbearance” to National Guard members who report for active duty to assist recovery efforts.
Separately, on October 17, the Federal Reserve Board, FDIC, National Credit Union Administration, and OCC released a joint notice under the Financial Institutions Reform, Recovery, and Enforcement Act that temporarily eases appraisal requirements for real estate-related financial transactions in areas impacted by recent hurricane disasters. The four agencies will allow appraisal exceptions, provided that financial institutions determine, and obtain documentation related to, the following: (i) the property involved is located in a major disaster area; (ii) there exists a binding commitment to fund the transaction within 36 months of the date the area was declared a major disaster; and (iii) “the value of the real property supports the institution’s decision to enter into the transaction.” The expiration date for exceptions in each area covered by the notice is three years after the date the President declared the area to be a major disaster area.
As previously discussed in InfoBytes, several federal agencies have announced regulatory relief for victims of recent natural disasters.
FTC, State AGs Announce Nationwide Crackdown Against Student Loan Debt Relief Scams
On October 13, in partnership with 11 states and the District of Columbia, the FTC announced a federal-state law enforcement initiative to combat deceptive student loan debt relief scams. According to the FTC, “Operation Game of Loans” targets companies that engage in practices that harm student loan borrowers, such as allegedly (i) charging illegal upfront fees; (ii) making false or misleading statements promising, among other things, debt relief, loan forgiveness, reduced interest rates, and credit repair services; (iii) pretending to be affiliated with the government or loan servicers; (iv) engaging in deceptive marketing practices; (v) pocketing consumer fees rather than applying the money towards student loan balances; and (vi) charging consumers for document preparation services that are readily available to consumers for free. According to a press release issued by the FTC, the initiative “encompasses 36 actions by the FTC and state attorneys general against scammers alleged to have used deception and false promises of relief to take more than $95 million in illegal upfront fees from American consumers over a number of years.”
That same day, as part of “Operation Game of Loans,” Attorney General Lisa Madigan announced a lawsuit against a pair of entities (defendants) accused of allegedly violating Illinois law by charging upfront fees for services guaranteed to “lower monthly student loan payments, improve credit scores, get students out of default, and negotiate tax and student loan debt adjustments.” The complaint further alleges that not only do the defendants lack the ability to provide the advertised services, they also allegedly impersonate students to gain access to students’ Federal Student Aid IDs (the federal government prohibits entities from accessing federal student aid websites even if authorized by the borrower), and fail to refund consumers—as promised—if they fail to provide debt relief. The complaint seeks injunctive relief, restitution, and civil penalties.