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VA, FHA issue valuation and appraisal guidance
On March 27, the Department of Veterans Affairs (VA) issued guidance on valuation and appraisal practices during the Covid-19 crisis. Effective on March 27 and until modified or rescinded, VA home loan appraisers may utilize exterior-only appraisals and, in certain limited situations, desktop appraisals, for purchase and refinance transactions. When the appraiser does not inspect the interior of the property, additional sources may be used to inform the appraisal, including public records, MLS listing information, and other reliable third-party sources. The VA also issued Exhibit A to the valuation and appraisal practices circular. This document provides a statement of assumptions and limiting conditions and certifications for Desktop-only appraisals, in addition to instructions and a scope of work to be used by the appraiser.
On the same day, the FHA issued similar guidance in Mortgagee Letter 2020-05 regarding appraisals and employment reverifications. Modifications to FHA single-family employment reverifications requirements include allowing verbal employment reverifications. The modifications also remove employment reverification requirements in certain situations, such as when certain criteria are met in forward purchase transactions, including, among other things: (i) where the mortgagee is not aware of loss of employment by the borrower; (ii) the mortgagee has year-to-date paystubs or electronic income verification for the borrower; (iii) the mortgagee has the borrower’s bank statement from immediately prior to the note date showing a direct deposit from an employer; and (iv) the mortgagee has evidence that the borrower has the equivalent of at least two months of the new payment amount, inclusive of principal, interest, taxes, and insurance. Modifications to appraisal protocols allow for exterior or desktop-only appraisals, and appraisers may utilize additional reliable information. Also, the FHA will require appraisals to include a signed certification that no interior appraisal was performed. FHA model certification forms can be found here and here.
CFPB states commitment to protecting consumers through continued examination and supervisory work
On April 1, the CFPB published a statement which assured that the Bureau will continue to perform examinations and other supervisory work during the Covid-19 pandemic, reinforcing the Bureau’s mission to protect consumers. The statement explains that the Bureau is taking advantage of technology to fulfill its examination duties and to stay in communication with supervised entities. Additionally, the statement suggests that the Bureau will consider individual circumstances and good faith efforts to comply when performing examination and supervisory work.
CFPB plans credit reporting supervisory flexibility during Covid-19 pandemic, contingent on accurate reporting
On April 1, the CFPB issued a policy statement directed at consumer reporting agencies (CRAs) and furnishers. Taking into consideration the Covid-19 pandemic, the statement explains that the Bureau will take a “flexible supervisory and enforcement approach during this pandemic regarding compliance with the Fair Credit Reporting Act [(FCRA)] and Regulation V.” The Bureau states that it will be flexible with CRAs and furnishers by refraining from taking enforcement actions and citing during exams in certain situations. Two examples of when the Bureau will be flexible include: (i) furnishers that continue to furnish accurate data to CRAs, including regarding payment relief arrangements (the Bureau notes that the CARES Act obliges furnishers to report consumer accounts as current when furnishers grant payment accommodations requested by consumers impacted by Covid-19); and (ii) CRAs and furnishers that make good faith efforts to investigate consumer disputes but take longer than the FCRA-prescribed 30 days. The statement notes that “the continued operation of the consumer reporting system…will enable consumers, as well as lenders, insurers, employers and other consumer report users, to maintain confidence in the consumer reporting system.”
Financial institution regulators provide Covid-19 mortgage servicer guidance
On April 3, the Federal Reserve (Fed), CSBS, CFPB, FDIC, NCUA, and the OCC (agencies) jointly announced an interagency statement (Joint Statement) to clarify the agencies’ supervisory and enforcement approach “regarding certain consumer communications required by the mortgage servicing rules” under Regulation X during the Covid-19 pandemic. Along with the Joint Statement, the CFPB released FAQs on the mortgage servicing rules during the pandemic. The agencies advised mortgage servicers to consider both the Joint Statement and the FAQs “when developing approaches to work with borrowers.”
The Joint Statement, among other things, gives mortgage servicers greater flexibility to provide CARES Act forbearance of up to 180 days and other short-term options upon the request of borrowers with federally backed mortgages without having to adhere to otherwise applicable compliance rules. In addition, the Joint Statement provides that no supervisory or enforcement action will be taken for delays in: (i) “sending the written early intervention notice to delinquent borrowers”; (ii) “establishing or making good faith efforts to establish live contact with delinquent borrowers”; or (iii) “sending the loss mitigation-related notices.”
Special Alert: Fannie Mae and Freddie Mac ease RON requirements
On March 31, Fannie Mae and Freddie Mac issued bulletins updating and clarifying their respective requirements for remote online notarizations as they seek to reduce in-person notarizations during the Covid-19 pandemic. Remote online notarization allows a notary to use electronic tools — typically video conferencing — to notarize documents while the signatory is physically located somewhere else. About half the states authorize the use of remote online notarizations, while several additional states have taken emergency actions to allow them in response to the pandemic.
Fannie and Freddie previously had electronic notarization guidance in their Selling Guide and Seller/Servicer Guide, respectively, that limited the use of RONs, as they are called.[1] The March 31 updates ease those requirements and clarify the conditions under which Fannie and Freddie will accept RONs of loans sold to them. Among other things, the bulletins establish:
- Minimum requirements for authentication of signatories
- Security and document integrity requirements
- Restrictions on the physical location of the notary performing the notarial act
- Requirements to comply with certain aspects of the Electronic Signatures in Global and National Commerce Act (ESIGN) and the Uniform Electronic Transactions Act (UETA)
- Specific representations and warranties of the lender
- A list of states (below) in which lenders may sell loans to the GSEs with remote online notarization
- Clarification that they will accept remotely notarized documents meeting the new requirements in any state that, subsequent to the publication of the bulletins, adopts a law that permits the use of RONs or accepts out-of-state RONs.
OCC, FDIC outline SBA relief programs pursuant to the CARES Act
On April 2, the OCC issued Bulletin 2020-31 and the FDIC issued Financial Institution Letter (FIL) 33-2020 to highlight for banks the SBA-relief programs available pursuant to the CARES Act. The bulletin urges banks to utilize the programs to help small businesses that have been financially impacted by Covid-19, adding that the SBA “is streamlining its eligibility criteria and processes to enable more financial institutions to use these programs for eligible small business borrowers.” The guidance highlights three relief programs, including (i) the Paycheck Protection Program (PPP), which is “an expansion of the SBA’s 7(a) loan program” and provides SBA-guaranteed loans to eligible borrowers; (ii) the Economic Injury Disaster Loan and Loan Advance Program, which is also an expansion of a current SBA program—the disaster assistance loan program—where borrowers may receive a loan of up to $2 million for working capital, and up to $10,000 as an advance that the borrower is not required to repay; and (iii) the Debt Relief Program, which provides 6 months of principal, interest and fees on 7(a) loans already in existence or originated prior to September 27.
Additional information on PPP loans can be found on the SBA website here and on the Treasury Department website here. Information about other SBA resources can be found here, and on the FDIC’s Coronavirus Information page here.
CFPB issues 2019 Consumer Response Annual Report
On March 31, the CFPB published its Consumer Response Annual Report, providing a review of the Bureau’s complaint process and a description of complaints received from consumers in all 50 states and the District of Columbia between January 1 and December 31, 2019.
According to the report, the Bureau handled approximately 352,400 consumer complaints. Of these complaints, roughly 81 percent were submitted to companies for review and response, 14 percent were referred to other regulatory agencies, and five percent were determined to be incomplete. Report data showed that more than 3,200 companies responded to complaints received by the Bureau, with roughly 7,800 complaints receiving administrative responses. In addition, at the end of 2019, approximately 15,700 complaints were still being reviewed by companies, the report stated. The top products and services—representing approximately 89 percent of all complaints—were credit or consumer reporting, debt collection, credit cards, mortgages, and checking or savings accounts. The Bureau also received complaints related to: (i) student, personal, and payday loans; (ii) money transfers and virtual currency; (iii) vehicle finance; (iv) prepaid cards; (v) credit repair; and (vi) title loans. As reported by the CFPB, the majority of consumers who submitted complaints indicated that they first tried to resolve their issues with the companies.
DOJ reaches $2.47 million settlement to resolve alleged lending violations regarding FHA-insured reverse mortgages
On March 31, the DOJ announced a $2.47 million settlement with an Oklahoma-based mortgage lender in connection with alleged violations of the False Claims Act (FCA) related to an acquired predecessor entity’s origination and underwriting of home equity conversion mortgages (HECM). According to the DOJ, these HECM loans were insured by the Federal Housing Administration (FHA) but failed to meet HUD requirements. The DOJ alleged that, prior to May 2, 2010, the predecessor entity ordered appraisals for HECM loans on forms that provided loan amounts and “otherwise improperly communicated certain information to [appraisers] in an attempt to influence the appraised value, in violation of FHA requirements.” The mortgage lender agreed to pay the DOJ $1.97 million to resolve the FCA claims, as well as $500,000 to HUD to resolve administrative liability allegations. The DOJ’s press release noted that the claims “are allegations only, and [that] there has been no determination of liability.”
SEC chair discusses resources allocations, oversight, and rulemaking
On April 2, SEC Chairman Jay Clayton issued a statement outlining the SEC’s approach to its allocation of resources, oversight, and rulemaking agenda. As previously covered by InfoBytes, the SEC issued guidance last month providing temporary relief and assistance to market participants impacted by the Covid-19 pandemic, including relief from certain notarization requirements and filing deadline extensions. Clayton noted, however, that despite these challenges, the SEC recognized that it is imperative that issuers keep investors equipped with material information, and accordingly has urged public companies to “continue to evaluate their obligations to make materially accurate and complete disclosures in accordance with the federal securities laws.” Among other things, Clayton also reiterated that, while public comments closed recently on several proposed rulemaking actions, the SEC will “not take final action on these items in the coming weeks to allow potential commenters more time to submit comments for consideration if needed.” The SEC does not expect to move forward on any of these proposed actions prior to May 1.
Relatedly, Clayton discussed Regulation Best Interest (Reg BI) and Form CRS, which establish new standards of conduct for broker-dealers and related persons when recommending securities transactions or investment strategies to retail customers. Clayton highlighted the extensive engagement efforts related to the implementation of Reg BI and Form CRS, and encouraged continued engagement with investors and other market participants on these regulatory enhancements. Clayton noted that, in light of these engagement efforts, the June 30 compliance date remains appropriate, and provided a number of resources to assist firms in understanding the new requirements and implementation process.
SEC issues temporary guidance on signature and notary requirements
On April 2, the SEC’s Division of Trading and Markets (Division) issued a statement regarding temporary requirements—as a result of Covid-19—for certain documents ordinarily submitted to the Division in paper form, including documents that require signatures or notarization. The Division states that it will not recommend enforcement actions for noncompliance with paper document and manual signature submission requirements against persons experiencing Covid-19-related logistical compliance difficulties, provided that certain conditions are met, including: (i) paper submission alternatives are coordinated with Division staff; (ii) electronic signatures are used in place of manual signatures; (iii) manually signed signature pages for all electronically signed submissions are retained and presented to the Division upon request; (iv) an indication of the date and time a signature page was signed is furnished; and (v) “policies and procedures governing this process” are created and implemented.
The Division states that it will not recommend an enforcement action for failure to obtain notarization services, including those required for electronically filed broker-dealer annual reports due prior to June 30, if the filer: (i) provides a note on the document to indicate that it was not notarized “based upon relief from Commission staff and difficulties arising from COVID-19”; and (ii) provides written notification that the document was not notarized due to Covid-19 related issues to the Division at tradingandmarkets@sec.gov, or, in the case of a broker-dealer annual report, to “designated examining authority.”
The statement’s guidance is effective for papers submitted from March 16 through June 30.