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Fed issues final rules related to rate decreases
On August 12, the Federal Reserve Board (Fed) published two final rules following its July 31 decision to lower the target range for the federal funds rate to 2 - 2.25 percent. These rules affect the primary and secondary credit available to depository institutions as a short-term backup source of funding, as well as reserve requirements that depository institutions must meet.
A final rule amending Regulation A (Extensions of Credit by Federal Reserve Banks) was issued to reflect the Fed’s approval of a one-quarter percent decrease, from 3 percent to 2.75 percent. Additionally, because the formula for the secondary credit rate incorporates the primary rate, the secondary credit rate also decreased by one-quarter percentage point, from 3.50 percent to 3.25 percent. The amendments are effective August 12, with rate changes for primary and secondary credit applicable on August 1.
A second final rule amending Regulation D (Reserve Requirements of Depository Institutions) was issued to reflect approval of a one quarter percent decrease to the rate of interest paid on balances maintained to satisfy reserve balance requirements (IORR), along with the rate of interest paid on excess balances (IOER) maintained at Federal Reserve Banks by or on behalf of eligible institutions. The final rule specifies that both the IORR and the IOER are 2.10 percent. The amendments are effective August 12, with IORR and IOER rate changes applicable on August 1.
VA consolidates and clarifies IRRRL guidance
On August 8, the Department of Veterans Affairs (VA) issued Circular 26-19-22, which consolidates and clarifies guidance related to Section 309 of the Economic Growth, Regulatory Relief, and Consumer Protection Act, Public Law No. 115-174, and updates guidance regarding loan seasoning requirements based on the “Protecting Affordable Mortgages for Veterans Act of 2019,” Public Law No. 116-33. (Covered by InfoBytes here and here.) The Circular states that a lender (broker or agent included), a servicer, or issuer of an Interest Rate Reduction Refinance Loan (IRRRL) must, among other things:
- Recoup Fees. Certify that certain fees and costs of the loan will be recouped on or before 36 months after the loan note date;
- Net Tangible Benefit. Establish that when the previous loan had a fixed interest rate (i) the new fixed interest rate is at least 0.5 percent lower, or (ii) if the new loan has an adjustable rate, that the rate is at least 2 percent lower than the previous loan. In each instance, the lower rate cannot be produced solely from discount points except in certain circumstances;
- Loan Seasoning. Follow a seasoning requirement for all VA-guaranteed loans. A loan cannot be refinanced until (i) the date on which the borrower has made at least six consecutive monthly payments on the loan being refinanced, and (ii) the date that is 210 days after the first payment due date of the loan being refinanced; and
- Disclosure. Present a comparison of the refinance loan to the original loan within two business days from the initial loan application and again at closing that includes information about the overall cost of refinance. The Circular offers a sample comparison statement in Exhibit C.
CFPB extends debt collection comment period
On August 2, the CFPB announced that it is extending the comment period on its Notice of Proposed Rulemaking implementing the FDCPA to “facilitate the ability of commenters to consider the issues raised in the NPRM, gather data, and prepare their responses.” The comment period now closes on September 18.
Detailed InfoBytes coverage on the CFPB’s debt collection proposal is available here.
CFPB releases TRID FAQs on loan estimates
On July 31, the CFPB released FAQs to assist with TILA-RESPA Integrated Disclosure Rule (TRID Rule) compliance. The five new FAQs relate to providing loan estimates to consumers. Highlights include:
- If a consumer submits the six pieces of information (name, income, social security number, property address, estimate of the value of the property, and loan amount sought) that constitute an application under the TRID Rule, the creditor must ensure that a loan estimate is delivered or placed in the mail within three business days.
- A creditor cannot require the consumer to submit anything other than the six pieces of information that constitute an application under the TRID Rule as a condition to providing a loan estimate.
- A creditor cannot require a consumer to provide verifying documents in order to receive a loan estimate.
- If a consumer submits the six pieces of information that constitute an application, in order to receive a pre-approval or a pre-qualification letter, the creditor must also provide a loan estimate within three business days of receipt.
- A creditor may collection additional information, beyond the six pieces of information that constitute an application, it deems necessary to process a request for a mortgage loan, including a request for a pre-approval or pre-qualification letter.
Ginnie Mae announces new VA refinance loan eligibility requirements
On August 1, Ginnie Mae issued All Participants Memorandum APM 19-05 announcing changes to the mortgage-backed securities (MBS) pooling eligibility requirements for Department of Veterans Affairs (VA) refinance loans. In order to establish requirements that positively impact the performance of Ginnie Mae securities and implement the “Protecting Affordable Mortgages for Veterans Act of 2019,” (covered by InfoBytes here) APM 19-05 announces changes applicable to all VA-guaranteed refinance loans and establishes new criteria for VA cash-out refinance loans with loan-to-value (LTV) ratios above 90 percent.
Effective with MBS guaranteed on or after August 1, a refinance loan is only eligible for Ginnie Mae securities if the date on the refinance loan is on, or after, the later of (i) “the date on which the borrower has made at least six consecutive monthly payments on the loan being refinanced”; and (ii) “the date that is 210 days after the first payment due date of the loan being refinanced.” Additionally, effective with MBS guaranteed on or after November 1, “High LTV VA Cash-Out Refinance Loans”—defined as a VA refinance loan with a LTV ratio that exceeds 90 percent at the time of origination and where the borrower converts any amount of home equity into cash—are, with certain exceptions, ineligible for Ginnie Mae I Single Issuer Pools and Ginnie Mae II Multiple Issuer Pools.
OCC issues guidance on CRA designations
On July 31, the OCC issued Bulletin 2019-40, which provides guidelines for requesting designation as a wholesale or limited purposes bank for Community Reinvestment Act (CRA) purposes, or requesting confirmation of exemption as a special purposes bank under the CRA. The guidelines summarize the process for requesting or confirming designation, including (i) information that a bank should provide to substantiate its request; (ii) instructions on how to submit requests; and (iii) the review and approval process. Among other things, the OCC encourages banks seeking confirmation or designation to request an informal consultation with the bank’s supervisory office. As for such a request, the OCC notes that it is customary to include a description on how the bank satisfies the definition for a wholesale bank, limited purposes bank, or special purposes bank, including facts and data sufficient to describe the nature of the bank's current and prospective business, the credit products offered, and the market area served. Within 60 days of receiving a complete designation or confirmation request, the OCC will notify the bank of its decision to approve or deny the request. For designations as wholesale or limited purpose, the designation will remain in effect until the bank requests revocation or one year after the OCC notifies the bank it has revoked the designation. For special purpose confirmations, the exemption remains in effect until the OCC is informed the exemption no longer applies. Designation and confirmation requests may be made available to the public under the Freedom of Information Act (FOIA), but a bank may request confidential treatment for information that would normally be exempt from FOIA disclosure requirements.
OCC consolidates supervision support
On July 31, the OCC announced two new units, which consolidates bank supervision support, risk analysis, and oversight of national trust banks and significant service providers. One hundred and fifty staff members were realigned to create the news units, the OCC reported, with the intention of eliminating redundancies and “presenting a single voice to supervised institutions.” The OCC additionally noted that the agency’s Committee on Bank Supervision “will provide strategic direction and oversight to both units, and will review and approve strategic plans and initiatives, annual business plans or operating plans, and major projects and initiatives.”
The first unit, Supervision System and Analytical Support, consists of OCC supervisory and policy unit teams that oversee supervisory information systems, data management, business intelligence, risk analysis, and supervision risk management. The second unit, Systemic Risk Identification Support and Specialty Supervision, includes lead experts from Large Bank Supervision and Midsize Bank Supervision, in addition to teams responsible for supervising trust companies from the Northeastern District National Trust Banks team and significant service providers from Bank Supervision Policy.
The OCC further noted that Midsize and Community Bank Supervision and Large Bank Supervision will retain primary responsibility for overseeing the banks, savings associations, and federal branches and agencies of foreign banks that compose the federal banking system.
HUD proposes burden-shifting framework for Disparate Impact Regulation
On August 16, HUD announced a proposed rule amending the agency’s interpretation of the Fair Housing Act’s disparate impact standard (also known as the “2013 Disparate Impact Regulation”) to bring the rule “into closer alignment with the analysis and guidance” provided in the 2015 Supreme Court ruling in Texas Department of Housing and Community Affairs v. Inclusive Communities Project, Inc. (covered by a Buckley Special Alert) and to codify HUD’s position that its rule is not intended to infringe on the states’ regulation of insurance.
The proposal codifies the burden shifting framework outlined in Inclusive Communities, adding five elements that a plaintiff must plead to support allegations that a specific, identifiable, policy or practice has a discriminatory effect. The five elements would require a plaintiff to adequately allege (i) the challenged policy or practice is “arbitrary, artificial, and unnecessary” to achieve a valid interest or legitimate objective; (ii) a “robust causal link” between the challenged policy or practice and a disparate impact on members of a protected class; (iii) the challenged policy or practice has an adverse effect on members of a protected class; (iv) the disparity caused by the policy or practice is significant (the disparity must be material); and (v) the complaining party’s alleged injury is directly caused by the challenged policy or practice. HUD emphasizes that plaintiffs alleging a single event, “will likely not meet the standard” of the proposal unless “the plaintiff can establish that the one-time decision is in fact a policy or practice.”
The proposed rule also provides methods for defendants to rebut a disparate impact claim, including (i) showing its discretion is materially limited by a third party, such as through a controlling law or binding court order; and (ii) showing the algorithmic model relied on does not use inputs that are substitutes for protected characteristics and is predictive of risk or other valid objective, was created or maintained by a recognized third party, or that a neutral third party has analyzed the model and determined it is a demonstrably and statistically sound algorithm.
The proposal, which has yet to be released by HUD, is reportedly under review by Congress and is set to be published in the Federal Register afterward. Comments will be due 60 days after publication.
CFPB reopens comment period for certain aspects of HMDA rulemaking
On July 31, the CFPB announced that it is reopening the comment period for certain aspects of its May Notice of Proposed Rulemaking (covered by InfoBytes here), which would permanently raise coverage thresholds for collecting and reporting data about closed-end mortgage loans and open-end lines of credit under the HMDA rules. The comment period originally closed on June 12, but to allow for the submission of comments that reflect the national loan level dataset for 2018 (which will be released “later this summer”), the Bureau is reopening the comment period for certain aspects of the May proposal. Specifically, the Bureau is reopening comments on (i) the proposed changes to the permanent coverage threshold for closed-end mortgage loans, which would permanently raise the reporting threshold from 25 loans in each of the two preceding calendar years to either 50 or 100 closed-end loans in each of the preceding two calendar years; (ii) the proposed changes to the permanent coverage threshold for open-end lines of credit, which would extend the temporary threshold of 500 loans for calendar years 2018 and 2019 to January 1, 2022, and then permanently lower the threshold to 200 open-end lines of credit after that date; and (iii) the appropriate effective date for any change to the closed-end coverage threshold. Comments are due by October 15.
CFPB adjusts annual dollar amount thresholds under TILA regulations
On August 1, the CFPB published in the Federal Register the final rule amending Regulation Z, which implements the Truth in Lending Act (TILA), including as amended by 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 Wall Street Reform and Consumer Protection Act’s ability-to-repay and qualified mortgage (ATR/QM) provisions. The CFPB is required to make annual adjustments to dollar amounts in certain provisions in Regulation Z, and has based the adjustments on the annual percentage change reflected in the Consumer Price Index in effect on June 1, 2019. The following thresholds will be effective on January 1, 2020:
- For open-end consumer credit plans under TILA, the threshold for disclosing an interest charge will remain unchanged at $1.00;
- 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 increase from $28 to $29, and the adjusted dollar amount for the safe harbor for a subsequent violation penalty fee will increase from $39 to $40;
- For HOEPA loans, the adjusted total loan amount threshold for high-cost mortgages will be $21,980, and the adjusted points and fees dollar trigger for high-cost mortgages will be $1,099; and
- The maximum thresholds for total points and fees for qualified mortgages under the ATR/QM rule will be: (i) 3 percent of the total loan amount for loans greater than or equal to $109,898; (ii) $3,297 for loan amounts greater than or equal to $65,939 but less than $109,898; (iii) 5 percent of the total loan amount for loans greater than or equal to $21,980 but less than $65,939; (iv) $1,099 for loan amounts greater than or equal to $13,737 but less than $21,980; and (v) 8 percent of the total loan amount for loan amounts less than $13,737.