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FHFA reports no internal control weaknesses FY 2023 performance report
On November 15, FHFA released its annual performance report, titled “FHFA FY 2023 Performance and Accountability Report” to detail how it regulated the FHLBank system, as well as Fannie Mae and Freddie Mac, during the past fiscal year. The report refers to its FY 2022-2026 Strategic Plan with the goals of securing the safety of regulated entities, fostering equitable housing finance markets, and stewarding FHFA’s infrastructure. For FY 2023, FHFA identified 35 performance targets to help guide it toward achieving its strategic goals. Of the 35 targets, the FHFA met 31 of them––an 89 percent success rate. Table 2 from page 15 of the report displays the goals and ones that have not been met, including (i) “Improve Time-to-Hire” within 80 days; and (ii) “Develop FHFA Information Technology Strategic Plan” by the time the report had been published.
Looking forward, FHFA wishes to implement an “Enterprise Fair Lending Rating System to annually assess each Enterprise’s compliance with fair lending and fair housing standards.” For fintech initiatives, FHFA will publish a summary on Velocity TechSprint, a problem-solving event with “mortgage industry leaders and fintech entrepreneurs to address mortgage market issues.”
NYDFS introduces guidelines for coin-listing and delisting policies in virtual currency entities
On November 15, NYDFS announced new regulatory guidance which adopts new requirements for coin-listing and delisting policies of DFS-regulated virtual currency entities, updating its 2020 framework for each policy. After considering public comments, the new guidance aims to enhance standards for self-certification of coins and includes requirements for risk assessment, advance notification, and governance. It emphasizes stricter criteria for approving coins and mandates adherence to safety, soundness, and consumer protection principles. Virtual currency entities must comply with these guidelines, requiring DFS approval for coin-listing policies before self-certifying coins, and submitting detailed records for ongoing compliance review. The guidance also outlines procedures for delisting coins and necessitates virtual currency entities to have an approved coin-delisting policy.
As an example under coin listing policy framework, the letter states that a virtual currency entity risk assessment must be tailored to a virtual currency entity's business activity and can include factors such as (i) technical design and technology risk; (ii) market and liquidity risk; (iii) operational risk; (iv) cybersecurity risk; (v) illicit finance risk; (vi) legal risk; (vii) reputational risk; (viii) regulatory risk; (ix) conflicts of interest; and (x) consumer protection. Regarding consumer protection, NYDFS says that virtual currency entities must “ensure that all customers are treated fairly and are afforded the full protection of all applicable laws and regulations, including protection from unfair, deceptive, or abusive practices.”
Similar to the listing policy framework, the letter provides a fulsome delisting policy framework. The letter also stated that all virtual currency entities must meet with the DFS by December 8 to preview their draft coin-delisting policies and that final policies must be submitted to DFS for approval by January 31, 2024.
DOJ and DOE share success after first year of student loan bankruptcy discharge process
On November 16, the DOJ and DOE announced a successful first year of their new student loan bankruptcy discharge process during 2022. The discharge process extinguishes a borrower’s obligation to pay back either some or all of a student loan in bankruptcy based on undue hardship. The DOJ cites two previous standards used by bankruptcy courts to determine if a borrower’s repayment would cause an undue hardship: the Brunner and Totality Tests. The DOJ’s guidance simplified the current standards to enhance “consistency and equity in the handling of these cases” and applies in both Burner and Totality Test jurisdictions. The guide permits a court to grant a discharge if three conditions are satisfied: (i) “the debtor presently lacks an ability to pay the loan”; (ii) “the debtor’s inability to pay the loan is likely to persist in the future”; and (iii) “the debtor has acted in good faith in attempting to repay the loan.”
The DOJ reported the success of their new guidance with several findings: (i) there were 632 cases filed in the first 10 months of the new process, a significant increase from recent years; (ii) this process was used by 97 percent of all borrowers; (iii) 99 percent of borrowers received either full or partial discharges; and (iv) two bankruptcy courts adopted this process. The DOJ is optimistic that some or all these trends will continue.
CFPB’s Language Access Plan breakdown for consumers with limited English proficiency
On November 15, the CFPB issued a report, titled “The CFPB Language Access Plan for consumers with limited English proficiency,” on expanding consumer needs in the financial marketplace for individuals with limited English proficiency. The CFPB released this report consistent with the mandates under E.O. 13166 to “educate and empower all consumers, provide information and assistance to traditionally underserved consumer and communities, enforce fair lending laws, and promote an equitable workforce for all consumers.”
The CFPB cites that 22 percent of the U.S. population over the age of five speak a language other than English at home. The CFPB commits itself to ensuring that tools, programs, and services are available to those who need language assistance by (i) understanding the needs of the population; (ii) conducting outreach and engagement; (iii) providing products and services in eight different languages other than English; and (iv) promoting fair and equitable access to the financial marketplace.
The CFPB’s report also lists several public enforcement actions involving communicating with consumer with limited English proficiency. The report mainly outlines how well the agency does in addressing the diverse language needs of the U.S. population, including translated disclosures, websites, and outreach and engagement sessions.
HUD increases inspection fee limits for single-family homes
On November 15, HUD increased its fee limits for property inspections for single-family homes. HUD requires federal mortgage holders to perform property inspections to determine “occupancy status, ascertain property condition and to maintain property preservation.” For example, according to the Mortgage Letter, the cost for an initial occupancy inspection increased from $20 to $30, with the cost per additional unit increased from $15 to $20, to “align with industry standards,” as found in the FHA Single Family Housing Policy Handbook 4000.1. Deputy Assistant Secretary for Single Family Housing Sarah Edelman called this the “first step in updating our policies governing property and preservation fees,” and will help prevent blight from poorly maintained homes.
HUD seeks comments on update to HECM policy
On November 9, FHA posted a proposed update to its Home Equity Conversion Mortgage (HECM) policy. According to FHA, the proposal “enables certain categories of… HECMs that were previously ineligible for assignment to be assigned to HUD… This change will support servicer liquidity and strengthen the HECM market for senior homeowners.” Under current HECM policy, mortgage servicers can assign a HECM to HUD “when the mortgage reaches 98 percent of the Maximum Claim Amount and… an eligible borrower or non-borrowing spouse is residing in the property.”
The draft mortgage letter “proposes to expand the assignment eligibility criteria to include HECMs that are due and payable resulting from the death of all borrowers and non-borrowing spouses.” A redline of the proposed language of the updated HECM Assignment Eligibility can be found here. FHA seeks comments on its proposal through December 11, 2023, using the Feedback Response Worksheet download here, and can be sent to sffeedback@hud.gov.
FHFA releases advisory bulletin for pilot and voluntary programs
On November 13, FHFA released an advisory bulletin on the FHLBank Framework for Pilot and Voluntary Programs. The desire for FHFA to develop innovative pilot programs is to support “affordable housing, equity advancement, and community development for underserved and financially vulnerable populations.” The pilot programs would be implemented and then analyzed to determine if they should continue, be expanded, or stop altogether. Some pilot programs may be to “test and learn” while some end because they do not meet FHLBank objectives. What the FHFA disallows from its pilot programs are “[p]roducts, programs, and services implemented under established FHFA statutory and regulatory authorities.” However, voluntary programs have included “grants, down payment assistance programs, and special purpose credit programs.”
The FHFA guidance recommends that FHLBank’s board of directors establish specific parameters for pilot and voluntary programs by March 29, 2024. This bulletin was a result of public input phases of the “FHLBank System at 100: Focusing on the Future” initiative, as previously covered by InfoBytes here. Stakeholder feedback claimed that “FHLBanks should do more to support the affordable housing and community development components of their mission, especially in addressing the needs of underserved or financially vulnerable populations.”
CFPB and Fed release updated thresholds for Regulations Z and M
On November 13, the CFPB and the Fed released updated dollar thresholds for whether certain credit and lease transactions are subject to Regulation Z (Truth in Lending) and Regulation M (Consumer Leasing) requirements for 2024. The thresholds for both regulations were increased from $66,400 to $69,500, an increase of 4.6 percent. Transactions at or below the 2024 threshold of $69,500 will be “subject to the protections of the regulations.” The CFPB derives its thresholds from the June 1, 2023, report on the Consumer Price Index for Urban Wage Earnings and Clerical Workers (CPI-W). The thresholds for 2023 were previously increased at a rate of 8.8 percent, a larger increase given the rate of inflation during the previous year.
Fed releases third quarter SLOOS survey on bank lending practices
On November 6, the Fed released its quarterly survey of Senior Loan Officer Opinion Survey (SLOOS) on bank lending practices. The report is administered to mostly domestic banks but includes some international banks.
The findings are summarized based on each type of loan: commercial, real estate, and consumer. Regarding business loans, the Fed finds banks reported “tighter standards and weaker demand for commercial and industrial loans.” For commercial real estate loans, banks reported “tighter standards and weaker demand” as well. For household loans, banks reported that “lending standards tightened across all categories of residential real estate loans (other than government residential mortgages),” but demand weakened for all residential real estate loans. Similarly, but for HELOCs, banks reported “tighter standards and weaker demand.” For consumer loans, such as credit cards, and auto loans, among others, “standards reportedly tightened, and demand weakened on balance.”
The Fed also asked questions related to banks’ comfort level in approving applications based on FICO scores; the Fed found that banks were “less likely to approve such loans for borrowers with FICO scores of 620 and 680 in comparison with the beginning of the year, while they were… about as likely to approve auto loan applications for borrowers with FICO scores of 720 over this same period.” Finally, the Fed inquired about reasons why banks tightened their lending standards in the third quarter. Banks explained that economic conditions created a “reduced tolerance for risk; deterioration in the credit quality of loans and collateral values; and concerns about funding costs.”
CFPB proposes a rule to regulate fintech firms like banks
On November 7, the CFPB proposed a rule to supervise large non-bank fintech firms that offer services like digital wallets and payment apps, applicable to larger firms handling greater than 5 million transactions per year, in the same way many large banks and credit unions are supervised. While fintech agencies offer consumer banking services, they are not regulated as stringently as banks are.
The CFPB found that many consumers from middle- and lower-income backgrounds now prefer using digital consumer payment applications over cash. This shift from traditional banking puts consumers at risk since fintech applications are not subject to “traditional banking safeguards… like deposit insurance.” The CFPB’s proposed rule ensures these non-bank companies:
- Adhere to federal consumer financial protection laws that encompass protections against unfair, deceptive, and abusive practices, consumers’ rights when transferring money, and privacy rights. The CFPB would supervise larger participants to ensure compliance.
- Follow the same rules as banks and credit unions, fostering fair competition and consistent enforcement of federal consumer financial protection laws.
The Consumer Financial Protection Act (CFPA) provides the CFPB with the authority to conduct supervisory examinations over all non-bank companies in the mortgage, payday loan, and private student loan industries, as well as those who serve as service providers to banks and credit unions. In addition, the CFPB can supervise individual entities that pose a risk to consumers, as well as larger participants in other markets. This proposed rule would give the CFPB greater regulatory authority and oversight over large technology firms in consumer financial markets.