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On January 21, the OCC assessed a nearly $18 million civil money penalty against a national bank lender for alleged violations of the Flood Disaster Protection Act (FDPA). According to the OCC, the bank allegedly maintained FDPA policies and procedures which allowed the bank’s third-party servicer to extend the 45-day period after notification to the borrower that the flood insurance did not adequately cover the collateral. The OCC alleged that this resulted in the “untimely force placement of flood insurance” on loans secured by buildings or mobile homes located in special flood hazard areas. The bank agreed to pay the penalty without admitting or denying any wrongdoing.
White House releases 2020 budget proposal; key areas include appropriations and efforts to combat terrorist financing
On March 11, the White House released its fiscal 2020 budget request, A Budget for a Better America. The budget was accompanied by texts entitled Major Savings and Reforms (MSR), which “contains detailed information on major savings and reform proposals”; Analytical Perspectives, which “contains analyses that are designed to highlight specified subject areas or provide other significant presentations of budget data that place the budget in perspective”; and an Appendix containing detailed supporting information. Funding through appropriations and efforts to combat terrorist financing remain key highlights carried over from last year. Notable takeaways of the 2020 budget proposal are as follows:
CFPB. In the MSR’s “Restructure the Consumer Financial Protection Bureau” section, the budget revives a call to restructure the Bureau, and proposes legislative action to implement a two-year restructuring period, subject the CFPB to the congressional appropriations process starting in 2021, and “bring accountability” to the Bureau. Among other things, the proposed budget would cap the Federal Reserve’s transfers to the Bureau at $485 million in 2020.
Financial Stability Oversight Council (FSOC). The 2020 budget proposal requests that Congress establish funding levels through annual appropriations bills for FSOC (which is comprised of the heads of the financial regulatory agencies and monitors risk to the U.S. financial system) and its independent research arm, the Office of Financial Research (OFR). Currently FSOC and OFR set their own budgets.
Flood Insurance. The Credit and Insurance chapter of the budget’s Analytical Perspectives section discusses FEMA initiatives such as modifying the National Flood Insurance Program (NFIP) to become a simpler, more customer-focused program, and “doubling the number of properties covered by flood insurance (either the NFIP or private insurance) by 2022.” Separately, the budget proposal emphasizes that the administration believes that “flood insurance rates should reflect the risk homeowners face by living in flood zones.”
Government Sponsored Enterprises. Noted within the MSR, the budget proposes doubling the guarantee fee charged by Fannie Mae and Freddie Mac to loan originators from 0.10 to 0.20 percentage points from 2020 through 2021. The proposal is designed to help “level the playing field for private lenders seeking to compete with the GSEs” and would generate an additional $32 billion over the 10-year budget window.
HUD. The budget proposes to eliminate funding for the Community Development Block Grant program, stating that “[s]tate and local governments are better equipped to address local community and economic development needs.” The proposal would continue to preserve access to homeownership opportunities for creditworthy borrowers through FHA and Ginnie Mae credit guarantees. The budget also requests $20 million above last year’s estimated level to help modernize FHA’s information technology systems and includes legislative proposals to “align FHA authorities with the needs of its lender enforcement program and limit FHA’s exposure to down-payment assistance practices.”
SEC. As stated in both the budget proposal and the MSR, the budget again proposes to eliminate the SEC’s mandatory reserve fund and would require the SEC to request additional funds through the congressional appropriations process starting in 2021. According to the Appendix, the reserve fund is currently funded by collected registration fees and is not subject to appropriation or apportionment. Under the proposed budget, the registration fees would be deposited in the Treasury’s general fund.
SIGTARP. As proposed in the MSR, the budget revives a plan that would reduce funding for the Special Inspector General for the Troubled Asset Relief Program (SIGTARP) “commensurate with the wind-down of TARP programs.” According to the MSR, “Congress aligned the sunset of SIGTARP with the length of time that TARP funds or commitments are outstanding,” which, Treasury estimates, will be through 2023. The reduction reflects, among other things, that less than one percent of TARP investments remain outstanding. This will mark the final time payments are expected to be made under the Home Affordable Modification Program.
Student Loan Reform. As with the 2019 budget proposal, the 2020 proposed budget seeks to establish a single income-driven repayment plan that caps monthly payments at 12.5 percent of discretionary income. Furthermore, balances would be forgiven after a specific number of repayment years—15 for undergraduate debt, 30 for graduate. In doing so, the proposal would eliminate subsidized loans and the Public Service Loan Forgiveness program, auto-enroll “severely delinquent borrowers,” and create a process for borrowers to share income data for multiple years. With certain exceptions, these proposals will only apply to loans originated on or after July 1, 2020.
Treasury Department. The budget states that combating terrorist financing, proliferation financing, and other types of illicit financing are a top priority for the administration, and $167 million has been requested for Treasury’s Office of Terrorism and Financial Intelligence to “continue its work safeguarding the financial system from abuse and combating other national security threats using economic tools.” The proposed budget also requests $125 million for the Financial Crimes Enforcement Network to administer the Bank Secrecy Act and its work to prevent the financing of terrorism, money laundering, and other financial crimes. An additional $18 million was proposed for strengthening and protecting Treasury’s IT systems.
On February 12, the Federal Reserve Board, Farm Credit Administration, FDIC, National Credit Union Administration, and the OCC issued a joint final rule amending regulations governing loans secured by properties in special flood hazard areas to implement the provisions of the Biggert-Waters Flood Insurance Reform Act of 2012 concerning private flood insurance. As previously covered by InfoBytes, the provisions, among other things, require regulated lending institutions to accept policies that meet the statutory definition of “private flood insurance,” and clarify that lending institutions may choose to accept private policies that do not meet the statutory criteria for “private flood insurance,” provided the policies meet certain criteria and the lending institutions document that the policies offer “sufficient protection for a designated loan, consistent with general safety and soundness principles.” The final rule takes effect July 1.
Final rule subject to approval will require federally regulated lending institutions to accept private flood insurance
Recently, the FDIC and OCC approved a joint final rule governing the acceptance of private flood insurance policies. (The final rule must also be approved by—and is still under review with—the other agencies jointly issuing the rule: the Federal Reserve Board, Farm Credit Administration, and National Credit Union Association.) The final rule amends regulations governing loans secured by properties in special flood hazard areas to implement the provisions of the Biggert-Waters Flood Insurance Reform Act of 2012 (Biggert Waters) concerning private flood insurance (see previous InfoBytes coverage of the proposed rule here). The National Flood Insurance Act and the Flood Disaster Protection Act require flood insurance on improved property that secures a loan made, increased, extended, or renewed by a federally regulated lending institution (lending institution) if the property is in a special flood hazard area for which flood insurance is available under the National Flood Insurance Program (NFIP). Biggert Waters required the Agencies to adopt regulations directing lending institutions to accept insurance that meets the definition of “private flood insurance” in lieu of NFIP flood insurance.
The final rule, once approved by all five regulators, will institute the following provisions to take effect July 1:
- Lending institutions must accept private flood insurance policies meeting the definition of “private flood insurance.”
- Lending institutions may rely on a “streamlined compliance aid provision” to determine, without further review, that a policy meet the definition of “private flood insurance” if the policy (or an endorsement to the policy) contains the following language: “This policy meets the definition of private flood insurance contained in 42 U.S.C. 4012a(b)(7) and the corresponding regulation.”
- Lending institutions may choose to accept private policies that do not meet the statutory criteria for “private flood insurance” as long as the policies meet certain criteria and the lending institutions document that the policies offer “sufficient protection for a designated loan, consistent with general safety and soundness principles.”
- Lending institutions may exercise discretion when accepting non-traditional flood coverage issued by “mutual aid societies,” subject to certain conditions including that the lending institutions’ primary federal supervisory agency has determined that the plans qualify as flood insurance. However, the final rule does not require lending institutions to accept coverage issued by mutual aid societies.
On July 31, President Trump signed the “National Flood Insurance Program (NFIP) Extension Act of 2018” into law (see Public Law 115-225/S. 1182). The NFIP was set to expire that day. The short-term extension, which the Senate passed earlier that day, reauthorizes the NFIP through November 30, and provides Congress additional time to establish a long-term financial solution.
Visit here for continuing InfoBytes coverage on the NFIP.
On July 25, the House passed a bill by a vote of 366 - 52 to extend the National Flood Insurance Program (NFIP) through November 30. The “National Flood Insurance Program Extension Act of 2018” (S. 1182) is a short-term fix to extend coverage for lenders and borrowers during the upcoming hurricane season. As previously covered in InfoBytes, last November the House passed H.R. 2874, which would amend and reauthorize the NFIP through fiscal year 2022; however, the Senate Banking Committee has yet to act on the measure. The Senate must now pass S. 1182 to ensure the NFIP does not expire at the end of July.
As previously reported in InfoBytes, the House voted 237-189 on November 14 to pass legislation reforming and reauthorizing the National Flood Insurance Program (NFIP) for five years before it expired at the beginning of December. A continuing resolution (H.J. Res. 123), passed by both the Senate and House and signed into law by President Trump on December 8, amended the expiration date of Fiscal Year 2018 appropriations to December 22, and extended the NFIP another two weeks. The Senate Banking Committee is still waiting to act on a flood insurance bill.
On November 14, the House voted 237-189 to pass legislation reforming and reauthorizing the National Flood Insurance Program (NFIP) for five years before it expires next month. As previously covered in InfoBytes, President Trump signed a three-month extension to the NFIP at the beginning of September in order to provide Congress additional time to establish a long-term financial solution for the program. The 21st Century Flood Reform Act (H.R. 2874) is designed to better facilitate compliance and clarify guidance for lenders and borrowers, and will, among other things, (i) change annual limits on premium increases for insurance obtained through the NFIP; (ii) require FEMA to consider the differences in flood risk between coastal and inland flood hazards when establishing premium rates; (iii) require FEMA to clearly communicate to policyholders the full flood risk to, and flood claims history of their property, and the effect of filing any additional claims; (iv) allow private insurers to continue selling policies on behalf of the NFIP, while also being allowed to sell their own private flood coverage; (v) revise federal flood mapping requirements, establish premium rates based on applicable flood insurance rate maps, and revise and clarify aspects of the appeals process; (vi) amend the Biggert-Waters Flood Insurance Reform Act of 2012 to clarify the time periods within which communities may consult with FEMA regarding mapping changes and submit data for consideration by the agency; (vii) revise the Flood Mitigation Assistance program to provide assistance for additional multiple loss properties; and (viii) amend the Flood Disaster Protection Act of 1973 to increase penalties against lenders and GSEs for violations of the mandatory purchase requirement from $2,000 to a maximum of $5,000 per violation.
H.R. 2874 now heads to the Senate.
President Trump Signs Government Funding Package, Temporarily Extends National Flood Insurance Program
On September 8, President Trump signed a government-funding package (H.R. 601) that temporarily extends the National Flood Insurance Program (NFIP), which was set to expire September 30, through December 8. The extension provides Congress additional time to establish a long-term financial solution. (See previous InfoBytes coverage on the NFIP here.) The Continuing Appropriations Act, 2018 and Supplemental Appropriations for Disaster Relief Requirements Act, 2017, also temporarily lifts the nation’s debt ceiling, funding the federal government through December 8, and delivers the first installment of emergency aid for victims of Hurricane Harvey.
On July 28, the FDIC released its list of 23 orders in administrative enforcement actions taken against banks and individuals in June. Civil money penalties were assessed against two banks, including one citing violations of the National Flood Insurance Act for (i) failing to obtain flood insurance before loan origination, and (ii) failing to follow force placed flood insurance procedures.
Also on the list are 13 Section 19 orders allowing applicants to participate in the affairs of an insured depository institution and four orders for removal and prohibition for bank employees breaching fiduciary duties and participating in “unsafe or unsound banking practices” leading to financial losses.
There are no administrative hearings scheduled for August 2017.
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- Michelle L. Rogers to discuss "BigLaw" at the Women in Business Law Leadership Conference
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- Benjamin W. Hutten to discuss "Understanding OFAC sanctions" at a NAFCU webinar
- Brandy A. Hood to discuss "RESPA 8 (TRID applied compliance)" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Michelle L. Rogers to discuss "Major litigation" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- John P. Kromer to discuss "Navigating the multi-state fintech regulatory regime" at the American Conference Institute Legal, Regulatory and Compliance Forum on Fintech & Emerging Payment Systems
- Jonice Gray Tucker to discuss "Leveraging big data responsibly" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
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- Steven R. vonBerg to speak at the "Conference super session" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference