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Ginnie Mae VA loan eligibility requirements amended
On July 25, President Trump signed the “Protecting Affordable Mortgages for Veterans Act of 2019,” Public Law No. 116-33, which amends the National Housing Act to revise Ginnie Mae loan seasoning requirements for Department of Veterans Affairs (VA) housing loans. Section 306(g)(1) now requires that, in order to be eligible for Ginnie Mae securities, the date of the VA refinance loan must be 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.” The amendment is effective immediately.
Special Alert: CFPB issues Advance Notice of Proposed Rulemaking to end GSE patch
On July 25, the CFPB issued an Advance Notice of Proposed Rulemaking (ANPR) that is intended as a first step in an orderly expiration of the so-called GSE patch, which confers Qualified Mortgage status for loans purchased or guaranteed by Fannie Mae and Freddie Mac while those entities operate under FHFA conservatorship. The patch expires in January 2021, or when Fannie and Freddie exit their conservatorships, whichever comes first. The ANPR solicits feedback on amending Regulation Z and the Ability to Repay/Qualified Mortgage Rule (ATR/QM Rule) to minimize disruption from the patch’s expiration. Comments are due 45 days after the ANPR’s publication in the Federal Register, which has not occurred as of the publication of this Special Alert.
The Bureau has previously solicited comments on the ATR/QM Rule, including the GSE Patch — first through a request for information relating to its adopted regulations in March 2018, and then in its ATR/QM Rule Assessment Report in January 2019.
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Click here to read the full special alert.
If you have questions about the GSE Patch and potential changes to the Ability to Repay/Qualified Mortgage Rule, please visit our Consumer Financial Protection Bureau practice page or contact a Buckley attorney with whom you have worked in the past.CFPB seeks comments on “QM patch” ahead of expiration
On July 25, the CFPB issued an Advance Notice of Proposed Rulemaking (ANPR) seeking feedback on potential revisions to the Ability to Repay/Qualified Mortgage (ATR/QM) Rule related to the expiration in 2021 of the “GSE patch,” a temporary provision granting Qualified Mortgage status to mortgages that are eligible for purchase or guarantee by Fannie Mae and Freddie Mac, including loans with higher debt-to-income (DTI) ratios than are allowed under the general QM requirements. The GSE patch (also referred to as the “QM patch”) is set to expire no later than January 10, 2021, or when Fannie and Freddie exit their government conservatorship, whichever comes first, with the Bureau stating that it currently plans to allow the GSE patch to expire as scheduled or “after a short extension” to facilitate a smooth transition. As previously covered by InfoBytes, the Bureau issued an assessment report on the ATR/QM Rule, in which it reported, among other things, that the GSEs have persistently maintained a high share of the market.
The ANPR requests comments on several potential amendments, including (i) whether the “qualified mortgage” definition should be revised in light of the upcoming expiration (currently, loans under the GSE patch generally qualify for safe harbor from legal liability under the ATR/QM Rule even if their DTI ratio exceeds 43 percent); (ii) whether the DTI ratio limit should remain at 43 percent or be increased or decreased, along with whether loans above the DTI ratio should be granted QM status if they have “certain compensating factors,” (iii) whether the QM definition should take into account possible alternatives to the DTI ratio for assessing a borrower’s ability-to-repay; and (iv) whether Appendix Q—which sets standards for calculating and verifying debt and income to determine the borrower’s DTI ratio—should be replaced, changed, or supplemented. Comments on the ANPR are due 45 days after publication in the Federal Register.
OCC updates risk governance and audit booklets
On July 25, the OCC announced the issuance of a fully revised “Corporate and Risk Governance” booklet for the Comptroller’s Handbook, as well as limited updates to the “Internal and External Audits” booklet for examiners completing core assessments affected by audit functions. Among other things, the revised “Corporate and Risk Governance” booklet is intended to provide examiners with a summary of corporate and risk governance, related risks, the board’s role and responsibilities in corporate and risk governance, strategic planning, and examination procedures. The revised booklet identifies the following as the primary risk categories associated with corporate and risk governance: (i) strategic; (ii) reputation; (iii) compliance; and (iv) operational. Updates to both booklets incorporate references to relevant OCC issuances and auditing standards published since the booklets were last issued, reflect the integration of federal savings associations into certain regulations, and make clarifying edits regarding supervisory guidance, sound risk management practices, legal language, and the roles of the bank’s board and management.
OCC releases asset dissipation underwriting guidance
On July 23, the OCC issued Bulletin 2019-36 reminding banks to follow safety and soundness standards and guidelines when using asset dissipation underwriting (ADU)—also known as “asset depletion underwriting or asset amortization underwriting”—to originate mortgage loans. Specifically, the OCC states banks should develop and implement policies and processes for ADU in a manner consistent with existing regulatory real estate and mortgage lending standards and guidelines. Banks should also align ADU activities with their overall business plans and strategies, including “working with consumers who have a capacity to repay a mortgage loan even though they do not meet traditional income-based underwriting repayment standards.” The OCC additionally expects bank management to “develop and maintain risk governance processes that are commensurate with the credit risk of ADU, particularly if the offering constitutes a deviation from the bank’s existing mortgage lending business activities.” With regard to Fannie Mae and Freddie Mac loans, the OCC states that lenders may use ADU to underwrite mortgage loans based on certain assets, including employment-related retirement assets, for applicants who are near retirement.
Federal banking agencies and FinCEN issue statement on risk-focused BSA/AML examinations
On July 22, the Federal Reserve Board, FDIC, NCUA, and the OCC along with the Financial Crimes Enforcement Network (FinCEN), released a joint statement to improve transparency of their risk-focused approach to Bank Secrecy Act/anti-money laundering (BSA/AML) supervision. The statement outlines common practices for assessing a bank’s risk profile, including (i) leveraging available information, including internal BSA/AML risk assessments, independent audits, and results from previous examinations; (ii) contacting banks between examinations or before finalizing the scope of an examination; and (iii) considering the bank’s ability to identify, measure, monitor, and control risks. Examiners will use the information from the risk assessments to scope and plan the examination, as well as to evaluate the adequacy of the bank’s BSA/AML compliance program. The statement notes that the extent of examination activities needed to evaluate a bank’s BSA/AML compliance program, “generally depends on a bank’s risk profile and the quality of its risk management processes.”
FTC seeks comment on COPPA Rule
On July 17, the FTC released a notice seeking comment on a wide range of issues related to the Children’s Online Privacy Protection Rule (COPPA Rule). The FTC last amended COPPA in 2013, and while the FTC usually reviews its rules every 10 years, the FTC notes that “[r]apid changes in technology, including the expanded use of education technology, reinforce the need to re-examine the COPPA Rule at this time.” The notice seeks comment on all major provisions of the COPPA Rule, including definitions, notice and parental consent requirements, exceptions to verifiable parental consent, and the safe harbor provision. Additionally, the notice seeks responses to specific questions, including (i) has the Rule affected the availability of websites or online services directed to children?; (ii) does the Rule correctly articulate the factors to consider in determining whether a website or online service is directed to children, or should additional factors be considered?; and (iii) what are the implications for COPPA enforcement raised by technologies such as interactive television, interactive gaming, or other similar interactive media? Comments must be received within 90 days after publication in the Federal Register.
Agencies again defer action against foreign funds under Volcker Rule
On July 17, the FDIC, the Federal Reserve Board, and the OCC (collectively, the “agencies”) announced that they will not take action against foreign banks for qualifying foreign excluded funds, subject to certain conditions, under the Volcker Rule for an additional two years. The announcement notes that the agencies consulted with the SEC and the CFTC on the decision. Since 2017, the agencies have deferred action on qualifying foreign funds that might be covered under the Volcker Rule (covered by InfoBytes here and here). In a joint statement, the agencies note that they have not finalized revisions to regulations implementing Section 13 of the Bank Holding Company Act, and in order to “provide interested parties greater certainty about the treatment of qualifying foreign excluded funds in the near term,” the agencies are proposing not to take action through July 21, 2021.
FDIC proposes to relax disclosure requirements under Securitization Safe Harbor Rule
On July 16, the FDIC approved a proposal revising certain provisions of the Securitization Safe Harbor Rule (rule). The current rule mandates that documents governing a securitization must disclose information regarding the securitized financial assets on a financial asset or pool level and on a security level that, at minimum, complies with Regulation AB, whether or not the transaction is an issuance covered by the regulation. The proposal would eliminate the requirement that securitization documents comply with Regulation AB, where Regulation AB by its terms would not apply to the issuing transaction. According to a statement by Chairwoman, Jelena McWilliams, the proposal “would remove one potential obstacle that [insured depository institutions] face in providing mortgage credit to homeowners.” FDIC Director Gruenberg dissented from the approval of the proposal.
Comments on the proposal will be due within 60 days after publication of the proposal in the Federal Register.
FDIC approves amendments to deposit insurance recordkeeping, joint account determinations
On July 16, the FDIC approved amendments to two final rules designed to resolve issues related to deposit insurance regulations. As previously covered by InfoBytes, the first of the final rules amends Part 370 of the FDIC’s Rules and Regulations for “Recordkeeping for Timely Deposit Insurance Determination,” to address issues raised during implementation of the final rule adopted in November 2016 (covered by InfoBytes here). Among other things, the amendments to Part 370 require banks with at least two million deposit accounts to upgrade deposit recordkeeping to allow the FDIC to determine the necessary deposit insurance coverage. The rule also allows for an optional one-year extension of the rule’s compliance date of April 1, 2020, provided prior notice is given to the FDIC. The final rule is effective October 1. FDIC Director Gruenberg dissented from the final rule’s approval.
The second final rule amends Part 330—applicable to banks of all sizes—to update the requirements for verifying participants in joint deposit accounts. Part 330 provides alternatives to the traditional signature card, and will allow satisfaction of proof of joint-ownership to be established by other information contained in a bank’s deposit account records and not solely by signed signature cards of each co-owner. The final rule takes effect 30 days after publication in the Federal Register.