InfoBytes Blog
Filter
Subscribe to our InfoBytes Blog weekly newsletter and other publications for news affecting the financial services industry.
Fannie Mae and Freddie Mac Update Servicing Guides
On October 11, Fannie Mae and Freddie Mac announced updates to their respective Servicing Guides.
Fannie Mae. Servicing Guide Announcement SVC-2017-09 highlights recent updates to the Servicing Guide, including topics related to the management of electronic transactions such as: (i) confirmation that sellers and servicers may originate, service, and modify loans using electronic records (electronic promissory notes require special approval); (ii) streamlined language clarifying requirements for the accuracy of information in electronic records; (iii) specification that paper records are not required for recorded mortgages and deeds of trust; (iv) clarification that all electronic signatures must comply with ESIGN, UETA, and other applicable laws; and (v) the removal of requirements for document custodians from the Servicing Guide that were duplicative of requirements set forth in Fannie Mae’s Requirements for Document Custodians. Additional updates address changes made to the reimbursement of foreclosure sale publication costs for costs incurred on or after January 1, 2018, and specific guidance for servicers pertaining to mortgage liens (to be implemented by December 1, 2017).
Freddie Mac. Freddie Mac issued Bulletin 2017-22 announcing servicing updates concerning (i) modifications to imminent default evaluation and process requirements (jointly developed with Fannie Mae) that will take effect July 1, 2018; and (ii) provisions under the Servicemembers Civil Relief Act (SCRA) related to compliance time frames for servicers when responding to, or submitting requests for, interest rate reductions, along with updates that take effect February 1, 2018, concerning Guide Exhibit 71 used by servicers to report eligible SCRA interest rate subsidized loans. The updates also eliminate the manual property condition certificate process and modify time frame requirements for cancelling property insurance policies on real estate owned properties.
CFPB Publishes Updated TRID Small Entity Compliance Guide; ABA Submits Comments on CFPB’s Proposal to Fix TRID’s “Black Hole” Issue
On October 6, the CFPB released an updated version of its TILA-RESPA Integrated Disclosure Rule (Final Rule) small entity compliance guide. The updated guide reflects amendments issued July 7, previously discussed in a Buckley Sandler Special Alert, that the CFPB made to the Final Rule. The guide also provides a version log to outline incorporated changes.
Separately, on October 10, the American Bankers Association (ABA) issued a comment letter regarding the CFPB’s proposal to address an aspect of the Final Rule concerning a “black hole” issue that prevents creditors from resetting tolerances using the Closing Disclosure except in very limited circumstances. (See previous InfoBytes coverage here.) The proposal was issued August 11, the same day the CFPB published the Final Rule. In its letter, the ABA requested additional clarification on certain areas of the proposal, but stated that it supports the removal of the “four-business-day limit for providing Closing Disclosures for purposes of resetting tolerances” because it “is an effective and very efficient approach to addressing the ‘black hole’ problem while preserving adequate consumer protections that will avoid bait-and-switch tactics or unjustified fee increases.” Furthermore, the ABA believes, “the use of [Closing Disclosures], whether initial or corrected, as a vehicle for correcting and ‘re-baselining’ fee disclosures, is a straightforward approach to returning regulatory order and compliance clarity on this provision.”
Fannie Mae Updates Servicing Guidelines for Multifamily Residences
On September 29, Fannie Mae released updates to its servicing guidelines for multifamily residences, effective October 2. Fannie Mae is updating provisions concerning Asset Management and Watchlist Management. Changes include:
- removing color descriptions that previously corresponded to defined Mortgage Loan rating classifications;
- updating the rating classification descriptions and/or characteristics to conform to regulatory definitions for Pass/Watch and Special Mention Assets; and
- requiring Servicers provide an explanation and status of the issues causing an Asset to be reported on the Servicer Watchlist.
AG Coalition Urges Department of Education to Reconsider Termination of MOUs With CFPB
On September 26, Pennsylvania Attorney General Josh Shapiro, along with 18 other state attorneys general (state AGs) and the Executive Director of the Hawaii Office of Consumer Protection, issued a letter to U.S. Department of Education (Department) Secretary Betsy DeVos in reaction to the Department’s August 31 letter to the CFPB, which terminated two Memoranda of Understanding (MOUs) that previously permitted the sharing of information in connection with the oversight of federal student loans. (See previous InfoBytes coverage regarding the MOUs here.) The letter to Secretary DeVos urges the Department to reconsider the termination of the MOUs and offers support for the work the CFPB has done—often in partnership with the Department and state AGs—to protect the millions of students and families that are repaying student loans. The State AGs contend the Department “falsely asserted it has exclusive jurisdiction over companies that service federal student loans when, in fact, student loan servicers are under the jurisdiction of the CFPB, [FTC], [DOJ], [state AGs] and other law enforcement agencies.” The state AGs further claim that the termination of the MOUs removes “critical protections” that were in place to “streamline the supervision of student loan servicers” and assist borrowers trying to resolve complaints related to their student loans. The letter cites several actions initiated by state AGs against the Department for allegedly abandoning its responsibility to protect student loan borrowers over the past seven months, including the Department’s decision to delay the Borrower Defense Rule and roll back the Borrower Defense and Gainful Employment Rules.
Massachusetts AG Takes Action Against Auto Dealer for Deceptive Marketing and Sales Tactics
On September 26, Massachusetts Attorney General Maura Healey announced a lawsuit against a large auto dealership and its in-house lender for allegedly misleading consumers into purchasing unfavorable sale packages. According to the Commonwealth’s complaint, filed in the Suffolk County Superior Court, the auto dealer purportedly (i) sold consumers cars priced at more than double their retail value; (ii) extended loans to consumers with an APR of 20 percent, regardless of credit qualifications; and (iii) combined these sales with an expensive and limited service contract. The complaint further alleges that because of these sales practices and a faulty underwriting process, more than half of the auto dealer’s sales fail or end in repossession. The complaint seeks injunctive relief, restitution, civil penalties, and attorney fees.
FHFA Releases July 2017 Refinance Report
On September 14, the Federal Housing Finance Agency (FHFA) published its Refinance Report for July 2017. As previously reported by the FHFA and other sources, interest rates continued to increase for 30-year fixed-rate mortgages in July (from 3.9 percent in June to 3.97 percent), while overall refinance volume decreased. Specific to the Home Affordable Refinance Program (HARP), the report found, among other things, that borrowers completed 2,305 HARP refinances in July, bringing the total HARP refinances to 3,473,109. Consistent with recent Refinance Reports, the report also notes that borrowers who refinanced through HARP had a lower delinquency rate compared to borrowers eligible for HARP who did not refinance through the program. Last month, the FHFA extended HARP until December 31, 2018.
Agencies Issue Proposed Rulemaking to Amend CRA Regulations to Conform With HMDA Regulation Changes
On September 13, the Federal Reserve Board, the FDIC, and the OCC (Agencies) issued a joint notice of proposed rulemaking to amend Community Reinvestment Act (CRA) regulations to conform to the CFPB’s changes to Regulation C, which implements the Home Mortgage Disclosure Act (HMDA). The proposed amendments revise the definition of “home mortgage loan” and “consumer loan,” update the public file content requirements to comply with recent Regulation C changes, and make various technical corrections. In addition, the proposal will eliminate obsolete references to the Neighborhood Stabilization Program (NSP), an initiative created by HUD to help stabilize communities contending with foreclosures and abandonment. In 2016, under CRA regulations, NSP-eligible activities were no longer considered “community development.” The Agencies anticipate that the proposed rule will become effective on January 1, 2018, when most of the changes to the HMDA rules go into effect.
Home Mortgage Loan. Under the 2015 HMDA Rule changes, “most consumer-purpose transactions, including closed-end mortgage loans, closed-end home equity loans, home-equity lines of credit, and reverse mortgages will be reported under HMDA if they are secured by a dwelling.” To conform to the Regulation C amendments, effective January 1, 2018, for purposes of CRA regulations, a “home mortgage loan” will now mean a “closed-end mortgage loan” or an “open-end line of credit,” both of which will now apply only to loans that are secured by a dwelling. Financial institutions will now have the option to decide whether they want home improvement loans that are not secured by a dwelling, which will no longer be HMDA, considered for CRA purposes, although the Agencies note that they may choose to still evaluate some of these loans in certain circumstances “where the consumer lending is so significant a portion of an institution’s lending by activity and dollar volume of loans that the lending test evaluation would not meaningfully reflect lending performance if consumer loans were excluded.”
Consumer Loan. The proposed rulemaking would no longer include “home equity loans” in the list of “consumer loan” categories for CRA purposes, as it will now be included within the proposed revised definition of a “home mortgage loan.”
Comments on the proposal will be accepted for 30 days after publication in the Federal Register.Department of Education Terminates Student Loan Sharing Agreements with CFPB, Announces Expanded Focus on Enforcement and Consumer Protection
On August 31, the U.S. Department of Education submitted a letter notifying the CFPB that it intends to terminate two Memoranda of Understanding (MOUs) between the agencies regarding the sharing of information in connection with the oversight of federal student loans. The MOUs that will terminate on September 30, 2017, are the “Memorandum of Understanding Between the Bureau of Consumer Financial Protection and the U.S. Department of Education Concerning the Sharing of Information” (Sharing MOU), dated October 19, 2011, and the “Memorandum of Understanding Concerning Supervisory and Oversight Cooperation and Related Information Sharing Between the U.S. Department of Education and the Consumer Financial Protection Bureau,” dated January 9, 2014.
The letter rebukes the CFPB for overreaching and undermining the Education Department’s mission to serve students and borrowers, and states that it “takes exception to the CFPB unilaterally expanding its oversight role to include the Department's contracted federal student loan servicers.” The letter also accuses the CFPB of failing to share all complaints related to Title IV federal student loans within 10 days of receipt as required by the MOUs, and that the Bureau’s intervention in these cases “adds confusion to borrowers and servicers who now hear conflicting guidance related to Title IV student loan services for which the Department is responsible.”
In a press release issued by the House Committee on Education and the Workforce on September 1, Representative Virginia Foxx (R-N.C.) praised the Department’s decision stating, “[t]he Department of Education has made it clear that its partnership with the CFPB is doing more harm than good when it comes to how it can best serve students and borrowers.” However, advocacy groups such as Americans for Financial Reform and the National Consumer Law Center (NCLC) criticized the Department’s decision, with the NCLC calling it “outrageous and deeply troubling” and refuting the Department’s claims that the CFPB “’unilaterally’ expanded its oversight role over servicers and collectors of federal student loans.” Instead it argued that the Department’s “failures are what led Congress to give the CFPB authority to help students.”
On the same day, the Education Department issued a press release announcing “a stronger approach to how Federal Student Aid (FSA) enforces compliance by institutions participating in the Federal student aid programs by creating stronger consumer protections for students, parents and borrowers against ‘bad actors.’” The strategy will focus on illegitimate debt relief organizations and schools that defraud students, and FSA will engage in “comprehensive communications and executive outreach to ensure parties and their leadership understand their responsibilities, the consequences of non-compliance and appropriate remedies.” The CFPB was notably absent, however, from the release’s reference to FSA’s continued stakeholder coordination, which listed the FTC and the DOJ.
On September 7, the CFPB responded to the CFPB’s letter to request time to “engage in a constructive conversation” with the Department to determine a path for continued collaboration to best serve the needs of student loan borrowers. Director Richard Cordray noted that because the Department has access to the CFPB’s Government Portal as part of the agencies’ arrangement, the Department is able to view borrower complaints in “near real-time.” According to Director Cordray, the Department has accessed the portal 80 times over the past three months. Several examples of the Bureau’s supervisory examinations are also provided to highlight the CFPB’s position that its actions have not been “inconsistent with the Department’s directives or [in conflict with the] shared goal of protecting student loan borrowers.”
CFPB Publishes Final Rule Amending Annual Dollar Threshold in TILA Regulations
On August 30, the CFPB issued a final rule amending Regulation Z, which implements the Truth in Lending Act (TILA), under the Credit Card Accountability Responsibility and Disclosure Act of 2009 (CARD Act), the Home Ownership and Equity Protection Act of 1994 (HOEPA), and the Dodd-Frank ability-to-repay and qualified mortgage provisions (ATR/QM). The CFPB is required to make adjustments to dollar amounts in the Regulation Z provisions implementing these laws based on the annual percentage change reflected in the Consumer Price Index effective June 1, 2017. For open-end consumer credit plans under TILA, the minimum interest charge disclosure threshold will remain unchanged at $1.00 in 2018. For open-end consumer credit plans under the CARD Act amendments, the adjusted dollar amount for the safe harbor for a first violation penalty fee will remain unchanged at $27 in 2018, and the adjusted dollar amount for the safe harbor for a subsequent violation penalty fee will remain unchanged at $38 in 2018. For HOEPA loans, the adjusted total loan amount threshold for high-cost mortgages in 2018 will increase to $21,032, and the adjusted points and fees dollar trigger for high-cost mortgages in 2018 will be $1,052. To satisfy the underwriting requirements under the ATR/QM rule, the maximum thresholds for total points and fees for qualified mortgages in 2018 will be: (i) 3 percent of the total loan amount for loans greater than or equal to $105,158; (ii) $3,155 for loan amounts greater than or equal to $63,095 but less than $105,158; (iii) 5 percent of the total loan amount for loans greater than or equal to $21,032 but less than $63,095; (iv) $1,052 for loan amounts greater than or equal to $13,145 but less than $21,032; and (v) 8 percent of the total loan amount for loan amounts less than $13,145. The final rule is effective January 1, 2018.
OCC Issues Guidance for Banks Originating Mortgages with LTV Ratios Greater than 100 Percent as Part of Community Revitalization Efforts
On August 21, in an effort to assist in revitalizing distressed communities, the OCC released guidance for national banks and federal savings associations considering owner-occupied residential mortgage originations with loan-to-value (LTV) ratios greater than 100 percent. Bulletin 2017-28 includes, among other thing, the program criteria, which includes (i) permanent first-lien mortgages with LTV ratios exceeding 100 percent at time of origination, without mortgage insurance or other acceptable collateral, and with an original loan balance of $200,000 or less, (ii) communities that are “officially targeted for revitalization by a federal, state, or municipal government entity or agency,” (iii) a set of program policies and procedures, and (iv) providing notice to the OCC thirty days prior to starting or modifying a program.
Established programs will be actively monitored and evaluated to examine the performance of the LTV loans, and the programs as a whole will be evaluated at least annually to determine the extent to which they are aiding in revitalization efforts. Depending on its findings, the OCC reserves the right to amend or rescind Bulletin 2017-28, but maintains that any loans originated in agreement with the required provisions will not be affected “solely because of any measurable amendment or rescission of this [B]ulletin.”“Bank lending under such a program may serve the credit needs of individual borrowers and the community, and the bank may receive Community Reinvestment Act consideration depending on the specifics of the program,” the OCC noted.