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  • Financial regulators release final AVM rule for publication

    Agency Rule-Making & Guidance

    On July 17, the CFPB, OCC, Fed, FDIC, NCUA and FHFA adopted a final rule titled “Quality Control Standards for Automated Valuation Models.” As previously covered by InfoBytes, this final rule implemented new provisions governing the use of automated valuation models (AVMs), which were commonly used by mortgage originators and secondary-market issuers to estimate a property’s value for loan underwriting and portfolio monitoring. The Dodd-Frank Act mandated these new rules to give mortgage originators and secondary market issuers a chance to issue quality control standards while using AVMs in determining the collateral worth of a mortgage secured by a consumer’s principal dwelling. The previous version of this final rule can be found here.

    Agency Rule-Making & Guidance Federal Issues Model Valuation CFPB Mortgages

  • CFPB proposes an interpretive rule for earned wage access

    Agency Rule-Making & Guidance

    On July 18, the CFPB proposed an interpretive rule to clarify that many paycheck advance products, or "earned wage" products, were consumer loans and therefore subject to TILA. The CFPB seeks to require lenders to provide workers with clear disclosures about the costs and fees associated with earned wage products, pursuant to TILA’s implementing Regulation Z. The CFPB also published an online report examining these types of products.

    The interpretive rule proposes to replace a 2020 advisory opinion that stated that one particular type of earned wage product does not constitute “credit” because it is not a “debt.” The interpretive rule now cites to many definitions of the term “debt,” including that of the FDCPA, to support a broad reading of “debt” under TILA.

    The proposed interpretive rule also recognizes certain fees as finance charges, such as tips and fees for expedited delivery. The CFPB states that earned wage access providers must reflect the appropriate finance charges on the disclosures that the provider provides to the consumers.

    The report published by the CFPB in conjunction with the interpretive rule examined earned wage loans and revealed that on average, workers take out 27 such loans each year, and these loans often have an APR exceeding 100 percent. The report also highlighted that a significant number of workers pay fees for earned wage access, with the majority of fees being for expedited transfer services.

    Public comments on the proposed interpretive rule must be received by August 30.

    Agency Rule-Making & Guidance Federal Issues Interpretive Rule CFPB Earned Wage Access Consumer Finance Disclosures TILA Regulation Z

  • CPPA releases NPRM for data broker registration

    Agency Rule-Making & Guidance

    On July 5, the California Privacy Protection Agency (CPPA) issued an NPRM for adopting new regulations for data broker registration to implement and enforce SB 362, known as the Delete Act (covered by InfoBytes here).

    The proposed regulations aim to clarify issues that data brokers faced after the CPPA administered the data broker registration process for the first time this past January by (i) specifying the registration fee details, (ii) defining terms in the Delete Act such as “minor” and “direct relationship” to clarify what businesses are data brokers, (iii) detailing the registration requirements for data brokers’ employees or agents, and (iv) clarifying that each data broker business is required to register, regardless of status as a parent company or subsidiary, among other things.

    Public comments on the proposed regulations must be received by August 20. Additionally, a virtual public hearing will be held on the same date.

    Agency Rule-Making & Guidance State Issues Privacy, Cyber Risk & Data Security CPPA California Data Brokers Licensing Registration

  • FTC reminds industries of its enforcement of the Franchisee Rule

    Agency Rule-Making & Guidance

    On July 12, the FTC released a new policy statement, staff guidance, and an issue spotlight about allegedly unfair and deceptive practices by franchisors. The policy statement addressed the FTC’s concerns that franchisees have been reluctant or unwilling to voluntarily discuss or report to the FTC any concerns with the franchisors even where the franchisee believes a legal violation may have occurred. The FTC stated that contract provisions, including non-disparagement clauses, confidentiality or non-disclosure clauses, or goodwill clauses, may not restrict franchisees from speaking out about potential violations of the law.

    The FTC also released a separate staff guidance on franchisors imposing undisclosed fees onto franchisees. The FTC reminded franchisors that the Franchise Rule required franchisors to disclose certain fees in the Franchise Disclosure Document. Failure to disclose those fees in the Franchise Disclosure Document would constitute a violation of the Franchise Rule and Section 5 of the FTC Act. The FTC urged franchisors to review their practices to ensure compliance with the law.

    The FTC released an issue spotlight piece that highlighted the FTC’s Request for Information (RFI) which sought to spotlight six main issues, including with (1) franchise relationship, (2)  provisions of the franchise agreement, (3) franchisor business practices, (4) payments to franchisors from third parties, (5) indirect effects on franchisee labor costs, and (6) language barriers. After receiving over 2,000 publicly posted comments during the closure of the first comment period, the FTC noted the top three franchisee concerns related to unilateral changes to franchise operating models, franchisor misrepresentation and deception, and fees and royalties. In the FTC’s press release, the FTC announced an extension of the public comment period on the RFI where stakeholders can submit comments until October 10.

    Agency Rule-Making & Guidance Franchise Rule Unfair Deceptive FTC FTC Act

  • CFPB proposes rule for mortgage servicing and loss mitigation

    Agency Rule-Making & Guidance

    On July 10, the CFPB proposed a rule to amend RESPA regulations originally issued in 2013 regarding the responsibilities of mortgage servicers.

    The rule removes the definition of “loss mitigation application” and replaces it with “loss mitigation review cycle” and “request for loss mitigation assistance.” The CFPB proposes defining the “loss mitigation review cycle” as the period between a borrower’s loss mitigation assistance request and when the loan is brought current or the procedural safeguards in § 1024.41(f)(2)(i) or (ii) are met, so long as the request is made more than 37 days before a foreclosure sale. A “request for loss mitigation assistance” is defined as any oral or written communication where a borrower asks a servicer for mortgage relief. This can include a request for loss mitigation, an interested response to a servicer’s unsolicited offer of loss mitigation, or if the borrower “indicates” an experienced hardship and asks the servicer for assistance making payments, retaining their home, or avoiding foreclosure. The CFPB is also proposing that loss mitigation determinations be subjected to notice of error procedures, and to require servicers to retain records that document actions regarding a borrower’s mortgage loan account until one year after the date of the mortgage loan is discharged or transferred to another servicer.

    The Bureau further proposes to require servicers to make a “good faith effort[]” to  make live contact with a delinquent borrower to present loss mitigations options, if appropriate. Good faith efforts may include attempting to reach the borrower by phone more than once or sending written communication encouraging the borrower to establish live contact with the servicer. Servicers would be exempt from the live contact requirement if a borrower is in a forbearance but must resume good faith efforts if a forbearance ends. The proposal would also limit the fees a servicer can charge a borrower while the servicer is reviewing possible options to help the borrower. 

    Under the proposed rule, borrowers who received marketing materials in another language may request mortgage assistance communications in that same language, and servicers must provide the notices in English and Spanish to all borrowers, as well as make available oral interpretation services in telephone calls with borrowers.

    The proposed rule includes loss mitigation guidelines and would set forth procedures regarding (i) enforcement; (ii) loss mitigation determination notices; (iii) application denial due to missing documents or information not in the borrower’s control; (iv) unsolicited loss mitigation offers; and (v) appeal processes. “Under the proposal, servicers would have more flexibility to review borrowers for each option individually, potentially enabling quicker assistance,” the CFPB said in its press release. Finally, the proposed rule would set forth certain circumstances under which a servicer cannot make the first notice or filing required by law for any foreclosure process. Servicers would generally only be allowed to pursue foreclosure after all possibilities for assistance are exhausted or the borrower has stopped communicating with the servicer.

    The proposed rule would not apply to small servicers.

    Comments must be received by September 9, 2024

    Agency Rule-Making & Guidance Federal Issues CFPB Consumer Finance Mortgage Servicing Loss Mitigation RESPA Regulation X

  • HUD updates consultant fees for its mortgage insurance program

    Agency Rule-Making & Guidance

    On July 9, HUD released Mortgagee Letter 2024-13 which revised Section 203(k) of the Rehabilitation Mortgage Insurance Program and specifically updated the 203(k) Consultant Requirements and Fees among other changes. The FHA 203(k) Rehabilitation Mortgage Insurance Program provided mortgage insurance to purchase a home or refinance an existing home mortgage. These updates will be on minor remodeling and nonstructural repairs, and the rehabilitation costs for the rehabilitation mortgage must not exceed $75,000. The Mortgagee Letter also specified that a 203(k) Consultant will be required to obtain a standard 203(k) Rehabilitation Mortgage and provided a schedule of updated 203(k) Consultant fees:

    • Paid up to $1,000 for repairs less than $50,000.
    • Paid up to $1,200 for repairs between $50,001 and $85,000.
    • Paid up to $1,400 for repairs between $85,001 and $140,000.
    • Up to 1 percent of the repair costs or $2,000, whichever would be lower, for repairs over $140,000.

    Section 203(k) Consultants may also charge a maximum of $375 in draw inspection fees, $120 in change order fees, $225 in reinspection fees, and mileage fees subject to IRS limitations. This Mortgagee Letter will go into effect for FHA case numbers assigned on or after November 4.

    Agency Rule-Making & Guidance HUD FHA Mortgages

  • HUD proposes rule to govern the sale of FHA mortgage notes

    Agency Rule-Making & Guidance

    On July 17, HUD announced a rule to regulate the sale of seriously delinquent mortgage loans insured by FHA. According to HUD, the proposed rule would increase the availability of affordable homes and enhance the stability of communities.

    HUD proposed the merger of two existing demonstration programs, the Single Family Loan Sale Program (SFLS) and the HUD-held Vacant Loan Sales Program for Home Equity Conversion Mortgages (HLVS), into a single permanent program called the Single Family Sale Program. The new program will continue to sell forward and reverse mortgage loans separately, but it will be designed to provide FHA with the flexibility to maximize returns to the Mutual Mortgage Insurance Fund and manage defaulted loans more efficiently, including the sale of such loans.

    The proposed rule would codify the demonstration structure and process under SFLS and HVLS. Additionally, the proposal will include guidelines for servicers on borrower notifications regarding loan sales and establishes post-sale requirements, such as a “first-look” provision for certain entities when properties become owned after foreclosure.

    The proposed rule further set forth (i) HUD’s ability to reduce or reject claims that were filed late or remain in suspended status, (ii) mortgagees’ requirements to certify certain mortgages, (iii) what constitutes qualified participants in the Single Family Sale; (iv) requirements of Purchasers; (v) settlement procedures for a Single Family Sale; (vi) purchasing servicing requirements; (vii) disqualifications; and (viii) relevant definitions, among other things.

    HUD is seeking public comment on the proposed rule and comments must be received by September 16. 

    Agency Rule-Making & Guidance Federal Issues FHA HUD Mortgages

  • FHFA requests information on its FHLBank Affordable Housing Program

    Agency Rule-Making & Guidance

    On June 20, FHFA released its request for input (RFI) on the application process for the Federal Home Loan Banks’ (FHLBanks) Affordable Housing Program (AHP). FHFA invited input on all aspects of the AHP application process, with a deadline for submissions no later than August 19. The AHP housing program was designed to provide funding to purchase, construct, and rehabilitate housing for very low-, low-, and moderate-income households. Each FHLBank provides funding through either a competitive application program that funds both rental and homeownership projects or a homeownership set-aside program that supports owner-occupied housing for income-eligible households. The RFI focused on the competitive application programs and posed eight questions related to the AHP application process, including the use of consultants to apply for AHP funds, and opportunities for improvements to the application process.

     

    Agency Rule-Making & Guidance FHFA RFI FHLB Affordable Housing

  • Agencies finalize new standards for AVMs

    Agency Rule-Making & Guidance

    On June 20, the CFPB, OCC, Fed, FDIC, NCUA and FHFA (the financial services regulators) issued a final rule implementing new provisions governing the use of automated valuation models (AVMs), which are commonly used by mortgage originators and secondary-market issuers to estimate a property’s value for loan underwriting and portfolio monitoring. The rule, which was proposed in June 2023 (covered by InfoBytes here), had mortgage servicers adopt policies and procedures ensuring that AVMs operate with certain quality control standards, designed to operate with a high level of confidence. These estimates should be produced to protect against data manipulation and avoid conflicts of interest. The rule included requirements to conduct random sampling testing and reviews, and to comply with nondiscrimination laws. The financial services regulators noted that despite comments that lending institutions have little control over how AVMs were created, the rule “will allow the implementation of the standards to evolve along with changes in AVM technology and minimize compliance costs.” 

    In announcing the final rule, FDIC Chairman Martin Gruenberg emphasized that the rule created an independent requirement “to ensure that AVMs used in connection with making credit decisions or covered securitization determinations adhere to quality control standards designed to comply with applicable nondiscrimination laws,” and that the “new requirement would further mitigate potential discrimination risk in lenders’ use of AVMs.” In its announcement, the OCC stated that the rule “supports Acting Comptroller of the Currency Michael J. Hsu’s priority to reduce inequality and elevate fairness in banking.”

    The final rule will go into effect the first day of the calendar quarter 12 months after its publication in the Federal Register.

    Agency Rule-Making & Guidance CFPB OCC Model Valuation Mortgages

  • CFPB extends its small business lending rule and opens comment period

    Agency Rule-Making & Guidance

    On June 25, the CFPB released its formal action to extend the compliance dates for its small business lending rule, section 1071 (covered by InfoBytes here). The extension of 290 days represented the time elapsed between the Texas court’s first issuance of a stay last year and the Supreme Court’s decision in CFPB v. CFSA last month. As previously covered by InfoBytes, the CFPB notified the public of these changes in May but has now issued its interim final rule with a request for public comment. The new rule will implement section 1071 by adding subpart B to Regulation B of the rule, and the CFPB estimated this rule will affect at most 1,900 banks, savings associations and credit unions with $10 billion or less in total assets.

    Under the new rule, the following dates will go into effect:

    • Tier 1 institutions (highest volume lenders): The new compliance date will be July 18, 2025, and the first filing deadline will be June 1, 2026.
    • Tier 2 institutions (moderate volume lenders): The new compliance date will be January 16, 2026, and the first filing deadline will be June 1, 2027.
    • Tier 3 institutions (lowest volume lenders): The new compliance date will be October 18, 2026, and the first filing deadline will be June 1, 2027.

    The CFPB also included the previous rule’s 12-month grace period wherein the Bureau would not assess penalties for errors made in good faith in data reporting. To add clarity to these changes, the Bureau issued an unofficial redline of its final changes. The new rule will go into effect 30 days following its publication in the Federal Register.

     

    Agency Rule-Making & Guidance Federal Issues Regulation B CFPB Small Business Lending Bank Compliance

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