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OCC Policy Outlines CRA Evaluation Process and Impact of Discriminatory Practices
On October 12, the OCC issued OCC Bulletin 2017-40 announcing the release of its Policies and Procedures Manual 5000-43 (PPM 5000-43), which outlines the OCC’s policy and framework for how the agency determines Community Reinvestment Act (CRA) ratings when there’s evidence of discriminatory or other illegal credit practices directly related to a supervised financial institution’s CRA lending activities. First, PPM 5000-43 requires a “logical nexus” between the assigned ratings and the evidence of discriminatory or other illegal practices to ensure that the CRA evaluation “does not penalize a bank for compliance deficiencies or illegal credit practices unrelated to its CRA lending activities.” Second, the OCC examiners will give “full consideration” to any remedial actions the institution has already taken to address such discriminatory or other illegal credit practices to ensure that the CRA rating “does not penalize a bank for compliance deficiencies or illegal credit practices that have been, or are substantially being, addressed by the bank.”
Federal Agencies Offer Regulatory Relief for Hurricane Victims
Federal agencies continue to announce regulatory relief for financial institutions aiding consumers affected by recent hurricane disasters. InfoBytes coverage on previous disaster relief measures can be accessed here, here, and here.
Freddie Mac. On September 25, Freddie Mac issued Bulletin 2017-21 (Bulletin) to extend certain temporary selling and servicing requirements meant to provide flexibility and relief for mortgages and borrowers in areas impacted by all hurricanes occurring on or after August 25 through the 2017 hurricane season. In particular, Freddie Mac will reimburse sellers for property inspections completed prior to the sale or securitization of mortgages secured by properties in disaster areas caused by a 2017 hurricane. Freddie Mac is also requiring servicers to suspend foreclosure sales and eviction activities on property located in eligible disaster areas affected by Hurricane Maria. However, the Bulletin provides that a servicer can proceed with a foreclosure sale if it can confirm that (i) inspection was completed on a mortgaged property “identified as vacant or abandoned prior to Hurricane Maria,” and (ii) the property sustained no “insurable damage.” The Bulletin also reminds servicers to report all mortgages affected by an eligible disaster that are 31 or more days delinquent to Freddie Mac.
Veterans Affairs (VA). On September 27, the VA issued Circular 26-17-28 to outline measures that it encourages mortgagees to utilize to provide relief to veterans affected by Hurricane Maria. Specific recommendations include: (i) extending forbearance to distressed borrowers; (ii) establishing a 90-day moratorium on initiating foreclosures on affected loans; (iii) waiving late charges; (iv) suspending credit bureau reporting with the understanding that servicers will not be penalized by the VA; and (v) extending “special forbearance” to National Guard members who report for active duty to assist recovery efforts.
FDIC. On September 27, the FDIC released a financial institution letter to provide additional guidance for depository institutions assisting affected consumers. As previously covered in Infobytes, the FDIC released guidance for Hurricane Harvey disaster relief, and issued a joint press release in conjunction with the Federal Reserve Board, Conference of State Bank Supervisors, and the OCC as a response to those affected by Hurricane Irma. The newest release, FIL-46-2017, announced regulatory relief for financial institutions affected by Hurricane Maria, and steps to facilitate recovery in affected areas, which include: (i) “extending repayment terms, restructuring existing loans, or easing terms for new loans,” and (i) “encourage[ing] depository institutions to use non-documentary verification methods permitted by the Customer Identification Program requirement of the Bank Secrecy Act for affected customers who cannot provide standard identification documents.” Further, banks that support disaster recovery efforts, the FDIC noted, may receive favorable Community Reinvestment Act consideration.
SEC. On September 28, the SEC issued an order providing regulatory relief to companies and individuals with federal securities law obligations who have been affected by recent natural disasters. The order provides conditional exemptions to certain securities laws requirements for specified periods of time. The Commission additionally adopted “interim final temporary rules” applicable to Regulation Crowdfunding and Regulation A filing deadline extensions.
Financial Crimes Enforcement Network (FinCEN). On October 3, FinCEN issued a notice to financial institutions that file Bank Secrecy Act reports to encourage communication with FinCEN and their functional regulator regarding any expected filing delays caused by recent hurricanes.
Agencies Issue Proposed Rulemaking to Amend CRA Regulations to Conform With HMDA Regulation Changes
On September 13, the Federal Reserve Board, the FDIC, and the OCC (Agencies) issued a joint notice of proposed rulemaking to amend Community Reinvestment Act (CRA) regulations to conform to the CFPB’s changes to Regulation C, which implements the Home Mortgage Disclosure Act (HMDA). The proposed amendments revise the definition of “home mortgage loan” and “consumer loan,” update the public file content requirements to comply with recent Regulation C changes, and make various technical corrections. In addition, the proposal will eliminate obsolete references to the Neighborhood Stabilization Program (NSP), an initiative created by HUD to help stabilize communities contending with foreclosures and abandonment. In 2016, under CRA regulations, NSP-eligible activities were no longer considered “community development.” The Agencies anticipate that the proposed rule will become effective on January 1, 2018, when most of the changes to the HMDA rules go into effect.
Home Mortgage Loan. Under the 2015 HMDA Rule changes, “most consumer-purpose transactions, including closed-end mortgage loans, closed-end home equity loans, home-equity lines of credit, and reverse mortgages will be reported under HMDA if they are secured by a dwelling.” To conform to the Regulation C amendments, effective January 1, 2018, for purposes of CRA regulations, a “home mortgage loan” will now mean a “closed-end mortgage loan” or an “open-end line of credit,” both of which will now apply only to loans that are secured by a dwelling. Financial institutions will now have the option to decide whether they want home improvement loans that are not secured by a dwelling, which will no longer be HMDA, considered for CRA purposes, although the Agencies note that they may choose to still evaluate some of these loans in certain circumstances “where the consumer lending is so significant a portion of an institution’s lending by activity and dollar volume of loans that the lending test evaluation would not meaningfully reflect lending performance if consumer loans were excluded.”
Consumer Loan. The proposed rulemaking would no longer include “home equity loans” in the list of “consumer loan” categories for CRA purposes, as it will now be included within the proposed revised definition of a “home mortgage loan.”
Comments on the proposal will be accepted for 30 days after publication in the Federal Register.CFPB, Federal and State Banking Agencies Issue Guidance for Financial Institutions on Providing Disaster Relief to Consumers
As previously reported in InfoBytes, several federal banking agencies have already issued guidance and resources for national banks and federal savings associations aiding consumers affected by recent disasters. On September 1, the CFPB issued a statement for CFPB-supervised entities on ways to provide assistance to consumers who may be at financial risk. The list includes:
- offering penalty-free forbearance or repayment periods with disclosed terms;
- limiting or waiving fees and charges, including overdraft fees, ATM fees, or late fees;
- restructuring or refinancing existing debt, including extending repayment terms;
- easing documentation or credit-extension requirements;
- increasing capacity for customer service hotlines, particularly those that serve consumers in languages other than English; and
- increasing ATM daily cash withdrawal limits.
The statement further suggests that supervised entities should utilize existing regulatory flexibility if doing so would benefit affected consumers. Included are examples from Regulations B, X, and Z. Additionally, the Bureau stated it will “consider the circumstances that supervised entities may face following a major disaster and will be sensitive to good faith efforts to assist consumers.”
The CFPB separately published a blog post for consumers containing a financial toolkit that includes links to disaster relief organizations, ways to secure financial needs, and information on forbearance options, insurance settlements, and contractor evaluations. The CFPB also issued a warning to consumers of the increased risk of scams and fraud.
In related news, on September 6, the Federal Reserve Board, Conference of State Bank Supervisors, FDIC, and OCC issued a joint press release for financial institutions that may be impacted by Hurricane Irma. The agencies encouraged constructive cooperation with borrowers, noting that “prudent efforts to adjust or alter terms on existing loans in affected areas should not be subject to examiner criticism.” Guidance was also issued on matters concerning Community Reinvestment Act considerations, investments, regulatory reporting requirements, publishing requirements, and temporary banking facilities.
FFIEC Releases Guidelines on HMDA Data Testing and Resubmission Standards
Earlier this week the Federal Financial Institutions Examination Council (FFIEC) issued new FFIEC Home Mortgage Disclosure Act Examiner Transaction Testing Guidelines (guidelines). Examiners will use the new guidelines to assess the accuracy of the HMDA data recorded and reported by financial institutions and determine when an institution must correct and resubmit its HMDA Loan Application Register. The guidelines will apply to data collected beginning January 1, 2018. As further explained in a CFPB blog post issued the same day, this will be the first time all federal HMDA supervisory agencies—including the CFPB, FDIC, Federal Reserve, NCUA, and the OCC—will adopt uniform guidelines, which are designed to ensure HMDA data integrity (HMDA data includes certain information financial institutions are required to collect, record, and report about their home mortgage lending activity). The purpose for collecting the HMDA data is to evaluate housing trends and issues to monitor lending patterns, assist agencies with fair lending and Community Reinvestment Act examinations, and help identify discriminatory lending practices. According to a FDIC financial institution letter (FIL-36-2017) released on August 23, the highlights of the guidelines include, among other things, a data sampling process, error threshold levels, tolerance levels for minor errors, and the ability of examiners to direct a financial institution to make appropriate change to its compliance management system to prevent recurring HMDA data errors.
As previously discussed in InfoBytes, in 2016 the CFPB issued a request for public feedback on the resubmission of mortgage lending data reported under HMDA.
OCC Issues Guidance for Banks Originating Mortgages with LTV Ratios Greater than 100 Percent as Part of Community Revitalization Efforts
On August 21, in an effort to assist in revitalizing distressed communities, the OCC released guidance for national banks and federal savings associations considering owner-occupied residential mortgage originations with loan-to-value (LTV) ratios greater than 100 percent. Bulletin 2017-28 includes, among other thing, the program criteria, which includes (i) permanent first-lien mortgages with LTV ratios exceeding 100 percent at time of origination, without mortgage insurance or other acceptable collateral, and with an original loan balance of $200,000 or less, (ii) communities that are “officially targeted for revitalization by a federal, state, or municipal government entity or agency,” (iii) a set of program policies and procedures, and (iv) providing notice to the OCC thirty days prior to starting or modifying a program.
Established programs will be actively monitored and evaluated to examine the performance of the LTV loans, and the programs as a whole will be evaluated at least annually to determine the extent to which they are aiding in revitalization efforts. Depending on its findings, the OCC reserves the right to amend or rescind Bulletin 2017-28, but maintains that any loans originated in agreement with the required provisions will not be affected “solely because of any measurable amendment or rescission of this [B]ulletin.”“Bank lending under such a program may serve the credit needs of individual borrowers and the community, and the bank may receive Community Reinvestment Act consideration depending on the specifics of the program,” the OCC noted.
OCC Issues Q1 2017 CRA Evaluation Schedule
On December 2, the OCC posted its schedule of Community Reinvestment Act (CRA) evaluations to be conducted in the first quarter of 2017. In a press release accompanying the 2017 schedule, the OCC encouraged public comment on the national banks and federal savings associations scheduled to be evaluated, and suggested that “comments be submitted to the institutions themselves at the mailing addresses listed on the schedule, or to the appropriate OCC supervisory office prior to—or as early as possible during—the month in which the evaluation is scheduled.” The OCC will consider all public comments received prior to the close of the CRA evaluation.
Community Groups Submit Letter to OCC on Potential FinTech Charter
On October 25, the National Community Reinvestment Coalition and community groups across the country sent a letter to the OCC explaining that they strongly oppose the consideration of a limited-purpose fintech charter by the bank regulator. The groups explained that they would consider supporting the limited-purpose chartering of a fintech firm "only if the OCC does not preempt strong state law and establishes vigorous supervision and regulation for the newly chartered institutions." Additionally, the groups want chartered fintech firms to be subject to "rigorous Community Reinvestment Act (CRA)-like obligations" and "stringent" safety and soundness reviews. The letter argues that “new charter and receivership authority for uninsured institutions, primarily financial technology companies (fintechs), has the potential to benefit consumers and communities,” but only if accompanied by CRA-like obligations, and supervision and examination to ensure compliance with both fair lending and consumer protection laws.
Federal Banking Agencies Disclose Reported 2015 CRA Lending Data
On August 18, the OCC, the FDIC, and the Federal Reserve announced the availability of a 2015 data fact sheet on small business, small farm, and community development lending as reported by certain commercial banks and savings associations pursuant to the Community Reinvestment Act (CRA). Less comprehensive than the data reported pursuant to the Home Mortgage Disclosure Act, the CRA data includes the number and dollar amount of community development loans and small business and small farm loans originated or purchased. It also indicates whether a small business or farm loan is extended to a borrower with yearly revenues of $1 million or less and combines those loans into three categories based on size, which are reported at a census tract level. CRA data does not cover loan applications that were denied or applicant demographic information, and it is not completed on a loan-by-loan basis. According to the data fact sheet, “caution should be used in drawing conclusions from analyses using only CRA data, as differences in loan volume across areas may reflect differences in local demand for credit.”
Agencies Release CRA Asset-Size Threshold Adjustments
On December 22, the Federal Reserve, the OCC, and the FDIC jointly announced the adjusted thresholds for asset-size used to define small and intermediate small banks and savings associations under the Community Reinvestment Act. Effective January 1, 2016, a small bank or savings association will be defined as an institution that, as of December 31 of either of the past two calendar years, had assets of less than $1.216 billion. An intermediate small bank or intermediate small savings association will be defined as an institution with at least $304 million and less than $1.216 billion in assets as of December 31 of either of the past two calendar years. The agencies published the annual adjustments in the Federal Register on December 29, 2015.