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Financial Services Law Insights and Observations


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  • FHA releases individual condo rule

    Agency Rule-Making & Guidance

    On August 14, the FHA issued a new condominium approval regulation, along with policy implementation guidance, which allows for certain individual condominium units to be eligible for FHA mortgage insurance even if the condominium project is not FHA approved. Among other things, the rule also: (i) extends the recertification requirement for approved condominium projects from two to three years; and (ii) allows more mixed-use projects to be eligible for FHA insurance. Under the new policy guidance in the FHA’s Single Family Handbook, an individual unit may be eligible for single-unit approval if the individual condominium unit is located in a completed project that is not approved and: (i) for projects with 10 or more units, no more than 10 percent of individual units can be FHA-insured; and (ii) for projects with less than 10 units, no more than two individual units can be FHA-insured. The new policy is effective October 15.

    Agency Rule-Making & Guidance FHA Mortgages

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  • FHFA issues final rule on new credit score models

    Agency Rule-Making & Guidance

    On August 13, the FHFA announced its final rule on the validation and approval of third-party credit score model(s) that can be used by Fannie Mae and Freddie Mac (the GSEs), implementing Section 310 of the Economic Growth, Regulatory Relief, and Consumer Protection Act. The final rule defines a four-phase process for a GSE to validate and approve credit score models: (i) solicitation of applications from credit score model developers; (ii) submission and review of applications; (iii) credit score assessment; and (iv) business assessment, which, among other things, evaluates the impact of using the credit score model on industry operations and mortgage market liquidity. Additionally, the final rule lays out timing and notices for GSE decisions under the process. After a GSE approves or disapproves of an application, within 45 days the FHFA must approve or disapprove of the GSE’s proposed determination. If any applications are approved, the credit score solicitation will be made publicly available. The rule will take effect 60 days after it is published in the Federal Register.

    Agency Rule-Making & Guidance FHFA Credit Scores Fannie Mae Freddie Mac EGRRCPA

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  • Federal agencies update host state loan-to-deposit ratios

    Agency Rule-Making & Guidance

    On August 9, the Federal Reserve Board, the FDIC, and the OCC released the current host state loan-to-deposit ratios for each state or U.S. territory, which the agencies use to determine compliance with Section 109 of the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994. Under the Act, banks are prohibited from establishing or acquiring branches outside of their home state for the primary purpose of deposit production. Branches of banks controlled by out-of-state bank holding companies are also subject to the same restriction. Determining compliance with Section 109 requires a comparison of a bank’s estimated statewide loan-to-deposit ratio to the yearly host state loan-to-deposit ratios. If a bank’s statewide ratio is less than one-half of the yearly published host state ratio, an additional review is required by the appropriate agency, which involves a determination of whether a bank is reasonably helping to meet the credit needs of the communities served by the bank’s interstate branches. Banks that do not meet the compliance requirements are subject to sanctions by the OCC. Notably, Section 109 is not applicable to federal savings associations or community banks with covered interstate branches.

    Agency Rule-Making & Guidance OCC Federal Reserve FDIC Bank Compliance

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  • Fed issues final rules related to rate decreases

    Agency Rule-Making & Guidance

    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.

    Agency Rule-Making & Guidance Federal Reserve Regulation A Regulation D Bank Compliance

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  • VA consolidates and clarifies IRRRL guidance

    Agency Rule-Making & 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.

    Agency Rule-Making & Guidance Federal Issues Ginnie Mae Refinance IRRRL EGRRCPA

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  • CFPB extends debt collection comment period

    Agency Rule-Making & Guidance

    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.

    Agency Rule-Making & Guidance CFPB Debt Collection Federal Register

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  • CFPB releases TRID FAQs on loan estimates

    Agency Rule-Making & Guidance

    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.

    Agency Rule-Making & Guidance CFPB TRID Regulation Z Disclosures

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  • Ginnie Mae announces new VA refinance loan eligibility requirements

    Agency Rule-Making & Guidance

    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.

    Agency Rule-Making & Guidance Ginnie Mae MBS Department of Veterans Affairs Securities Refinance Mortgages

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  • OCC issues guidance on CRA designations

    Agency Rule-Making & Guidance

    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.

    Agency Rule-Making & Guidance OCC CRA

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  • OCC consolidates supervision support

    Agency Rule-Making & Guidance

    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.

    Agency Rule-Making & Guidance OCC Bank Supervision

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