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CFPB posts blog entry analyzing cash-out refinancing
On December 18, the CFPB posted a blog entry regarding cash-out refinance mortgages and their borrowers between 2013 to 2023. According to the entry, which noted reflects the authors’ views, and not those of the CFPB, refinance mortgage originations decreased amid 2022’s rapid interest rate hikes, and notably favored cash-out refinances over non-cash-out options. Cash-out refinances involve borrowing significantly more than the amount owed on an existing mortgage, often used for diverse purposes like debt settlement or home improvements. Despite reduced volumes due to rising rates, the post noted that cash-out refinances are “worth monitoring” since they were considered one of the factors that contributed to the 2008 financial crisis.
Analyzing loans from 2013 to 2023 from data in the National Mortgage Database, the blog entry revealed some insights into delinquencies. Some of the findings include: (i) cash-out refinances held a larger share of all refinances when interest rates rose; (ii) borrowers opting for cash-out refinances typically had lower income and lower credit scores compared to those pursuing different refinancing avenues; (iii) borrowers with stronger credit scores showed minimal serious delinquencies irrespective of the refinancing type; and (iv) borrowers with lower credit scores showed similar two-year delinquency rates for both cash-out and non-cash-out refinancing, except for borrowers in 2017, a year marked by rising interest rates and lower credit scores for cash-out borrowers. Based on this last finding, the blog post noted that there may be increased delinquencies among cash-out refinances originated in 2022, a year with similar interest rate increases and decrease in cash-out borrowers’ credit score.
Fannie Mae announces updates to the servicing guide
On December 20, Fannie Mae issued SVC-2023-06, announcing updates made to its Servicing Guide. The updates include new financial reporting requirements requiring large non-depository sellers/servicers to submit a Mortgage Banker’s Financial Reporting Short Form (Form 1002A) within 30 days of the end of each month, beginning May 31, 2024 for the April 2024 monthly reporting. An additional change to the Servicing Guide involves a revised policy for loans transferred to an LLC, eliminating the specific timing requirement for the title transfer and instead directing sellers to refer to the Selling Guide for guidance on the timing requirement. This policy clarification is effective immediately. The announcement also contains, among other miscellaneous changes, an updated Special Lender Approval Form (Form 1000A) that improves the application process for sellers and servicers applying to sell or acquire a particular renovation mortgage.
FTC temporarily halts business opportunity scheme
On December 19, the FTC announced that the U.S. District Court for the Eastern District of Pennsylvania granted a temporary restraining order against a business opportunity scheme for allegedly engaging in deceptive acts. The court’s order barred the defendants from making misrepresentations about any business or money-making opportunity and froze the defendant’s assets. According to the FTC’s complaint, the business opportunity scheme violated the FTC Act’s prohibition of “unfair or deceptive acts or practices in or affecting commerce” and the Telemarketing Sales Rule by, among other things, (i) making misrepresentations regarding earnings from their products and services; (ii) furnishing “success coaches” with marketing materials to be used for new member recruitment, thus providing the means for the commission of deceptive acts or practices; (iii) making misrepresentations regarding profitability to persuade consumers to pay for membership, digital products, and marketing packages; (iv) making misrepresentations regarding material aspects of an investment opportunity; and (v) facilitating outbound calls that deliver prerecorded messages to encourage consumers to purchase its products, also known as robocalls. Beyond the temporary restraining order and asset freeze, the FTC is seeking a permanent injunction and other equitable relief.
CFPB reports on consumers’ experience with overdraft, NSF fees
On December 19, the CFPB released a report titled Overdraft and Nonsufficient Fund Fees: Insights from the Making Ends Meet Survey and Consumer Credit Panel, a report providing insight into consumers’ experience with overdraft/NSF activity. The CFPB stated that the report is based on data from the 2023 Making Ends Meet survey (covered by InfoBytes here) and the CFPB’s Consumer Credit Panel. Among other findings, the report found that roughly a quarter of consumers reside in households that were charged an overdraft or NSF fee in the past year. The report additionally found that 43 percent of consumers charged an overdraft fee were surprised by their most recent account overdraft, while only 22 percent expected it. The report noted that this trend is more pronounced among those who experience infrequent overdrafts (15 percent) as opposed to those who have been charged multiple overdraft fees (56 percent).
The CFPB additionally highlighted most households incurring overdraft and NSF fees have available credit on a credit card, adding that “among consumers in households charged 0, 1-3, 4-10, and more than 10 overdraft fees in the past year, the shares with no credit available on a credit card are 19 percent, 32 percent, 38 percent, and 49 percent, respectively.”
FDIC issues advisory on managing commercial real estate concentrations
On December 18, the FDIC issued an advisory to institutions with commercial real estate (CRE) concentrations. The advisory, among other things, reminds insured state non-member banks and savings associations (FDIC-supervised institutions) of the importance of “strong capital, appropriate credit loss allowance levels, and robust credit risk-management practices” when managing CRE concentrations. The advisory notes that “[r]ecent weaknesses in the economic environment and fundamentals related to various CRE sectors have increased the FDIC’s overall concern for state nonmember institutions with concentrations of CRE loans.” The FDIC said that “CRE investment property capitalization rates have not kept pace with recent rapid increases in long-term interest rates, which leads to concerns about general over-valuation of underlying collateral.” For institutions with concentrated CRE exposures, the agency “strongly recommended” that “as market conditions warrant, institutions with CRE concentrations (particularly in office lending) increase capital to provide ample protection from unexpected losses if market conditions deteriorate further.” The agency also outlined key risk-management measures for financial institutions with significant concentrations in CRE and real estate construction and development (C&D) to manage through changing market conditions: (i) “maintain strong capital levels;” (ii) “ensure that credit loss allowances are appropriate;” (iii) “manage C&D and CRE loan portfolios closely;” (iv) “maintain updated financial and analytical information;” (v) “bolster the loan workout infrastructure;” and (vi) “maintain adequate liquidity and diverse funding sources.”
NCUA to reinstate civil money penalties for late call reports
Recently, the National Credit Union Administration (NCUA) announced it will reinstate assessing civil money penalties for credit unions that fail to submit a call report (NCUA Form 5300) in a timely manner. The call report program was suspended after December 2019 during the Covid-19 pandemic. “The December 2023 Call Report will be the first reporting cycle under the reinstated program and will be due by 11:59:59 p.m. Eastern time, January 30, 2024.” The NCUA states it will send a reminder to credit unions with outstanding call reports a week before their deadline. The NCUA will also consider extenuating circumstances, including the size and good faith of the credit union, the gravity of the violation, the history of previous violations, and other matters like natural disasters or incapacitation of key employees.
CFPB report analyzes college banking and credit card agreements
On December 19, the CFPB released a report titled College Banking and Credit Card Agreements: Annual Report to Congress, which found that some college-sponsored financial products marketed towards students have less advantageous terms and conditions, and higher fees compared to typical market products.
According to the report, when colleges decided to subcontract with third-party financial service providers to facilitate the application of federal financial aid, they entered “college banking agreements” offering deposit accounts for students, which can function as debit or prepaid cards. The report distinguished between colleges that pay for certain service providers to facilitate the processing of federal financial aid disbursements (referred to as Tier One college banking arrangements), and colleges that are paid by certain service providers to offer deposit accounts and prepaid cards to the student population (referred to as Tier Two college banking arrangements). Tier Two account issuers paid colleges an aggregated of over $19.6 million in 2022. The CFPB observed that some colleges’ financial product partners charge students overdraft fees, despite the general industry trend to move away from such fees. The CFPB also warned in its report that certain overdraft fees can violate the CFPA.
The report also found that students at HBCUs and Hispanic-servicing institutions on average pay higher fees per account. The CFPB also noted several other additional fees charged to students by financial institutions, including (i) dormant account fees; (ii) deposit and withdrawal fees for student ID cards that also function as prepaid cards; and (iii) “sunset” fees imposed on students to pay after graduation or reaching a certain age.
Regarding partnerships in credit cards, the CFPB noted that although the passage of the CARD Act reduced the profitability of marketing credit cards on college campuses, thousands of new accounts between colleges and credit card issuers are opened every year. The CFPB also noted that college students maintain a high level of reliance on credit cards to cover costs and it indicated that it “will continue to research evolving practices” to understand how credit cards are being marketed to college students.
CFPB reports on consumers’ experience with overdraft, NSF fees
On December 19, the CFPB released a report titled Overdraft and Nonsufficient Fund Fees: Insights from the Making Ends Meet Survey and Consumer Credit Panel, a report providing insight into consumers’ experience with overdraft/NSF activity. The CFPB stated that the report is based on data from the 2023 Making Ends Meet survey (covered by InfoBytes here) and the CFPB’s Consumer Credit Panel. Among other findings, the report found that roughly a quarter of consumers reside in households that were charged an overdraft or NSF fee in the past year. The report additionally found that 43 percent of consumers charged an overdraft fee were surprised by their most recent account overdraft, while only 22 percent expected it. The report noted that this trend is more pronounced among those who experience infrequent overdrafts (15 percent) as opposed to those who have been charged multiple overdraft fees (56 percent).
The CFPB additionally highlighted most households incurring overdraft and NSF fees have available credit on a credit card, adding that “among consumers in households charged 0, 1-3, 4-10, and more than 10 overdraft fees in the past year, the shares with no credit available on a credit card are 19 percent, 32 percent, 38 percent, and 49 percent, respectively.”
President Biden vetoes bill on CFPB small business data rule
On December 19, President Biden vetoed bill S. J. Res. 32 that would have repealed the CFPB’s small business data collection rule known as “Small Business Lending Under the Equal Credit Opportunity Act (Regulation B).” As previously covered by InfoBytes, the small business data collection rule, under Section 1071 of the Dodd-Frank Act, requires small business owners to provide demographic data (i.e., race, gender, ethnicity, etc.), as well as geographic information, lending decisions, and credit pricing to lenders. According to President Biden’s statement accompanying the veto, the CFPB’s final rule brings “transparency to small business lending” and repealing this rule would “hinder” the government’s ability to conduct oversight of predatory lenders. The bill is now to be returned to the Senate to be voted on again and can only become law if two-thirds of members support the bill. Separately, in October, a U.S. District Court in Texas imposed an injunction on the CFPB’s small business data rule (covered by InfoBytes here).
CFPB adjusts asset-size exemption thresholds for Regulations C and Z
On December 18, the CFPB adjusted the asset-size exemption thresholds for Regulation C (as part of the Home Mortgage Disclosure Act) and Regulation Z (as part of TILA), based on a 4.1 percent increase in the average year-over-year CPI-W from November. For Regulation C, the exemption threshold increased from $54 million to $56 million. Accordingly, any financial institution with assets of $56 million or less is exempt from collecting housing-related lending data in 2024.
For Regulation Z, and certain first-lien higher-priced mortgage loans, the exemption threshold increased from $2.537 billion to $2.640 billion. Similarly, but applicable to certain insured depository institutions and insured credit unions, the exemption threshold increased from $11.374 billion to $11.835 billion.