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On June 10, Senators Elizabeth Warren (D-Mass.) and Doug Jones (D-Ala.) wrote to the Federal Reserve Board, the OCC, the FDIC, and the CFPB requesting information regarding the role the regulators can play in ensuring that fintech companies serve consumers on a nondiscriminatory basis. The letter asserts that ,while the fintech business model—using algorithms to underwrite loans, typically without face-to-face interaction with consumers—has “the potential to expand access to financial services for underserved populations,” it also has the potential to lead to discriminatory results. Based on recent reports cited in the letter, the Senators ask the regulators to, among other things, (i) identify what their agency is doing to combat lending discrimination by lenders using algorithmic underwriting; (ii) explain how the agencies’ oversight of fair lending laws extend to the fintech industry; and (iii) describe any analyses conducted on the impact of fintech algorithms on minority borrowers. The letter requests the agencies respond to the inquiries by June 24.
On June 6, the CFPB released a final rule to delay the August 19, 2019 compliance date for the mandatory underwriting provisions of the agency’s 2017 final rule covering “Payday, Vehicle Title, and Certain High-Cost Installment Loans” (the Rule). Compliance with these provisions of the Rule is now due by November 19, 2020.
As previously covered by InfoBytes, in February, when the CFPB released two notices of proposed rulemaking (NPRM) related to certain lending requirements under the Rule—one proposing the delay to the compliance date for mandatory underwriting provisions, and the other proposing to rescind the underwriting portion of the Rule that would make it an unfair and abusive practice for a lender to make covered high-interest rate, short-term loans, or covered longer-term balloon payment loans without reasonably determining that the consumer has the ability to repay—the Bureau emphasized that the NPRM extending the compliance date for mandatory underwriting provisions did not extend the effective date for the Rule’s provisions governing payments.
Notably, on May 30, the U.S. District Court for the Western District of Texas entered an order continuing the stay of the original compliance date for both the underwriting provisions and the payment provisions of the Rule in a payday loan trade group’s litigation challenging the Rule. (Previous InfoBytes coverage on the litigation is available here.) The order requires the parties to file a joint status report no later than August 2.
On February 15, HUD released Mortgagee Letter 2019-01, which provides guidance on the use of third-party verification (TPV) services for FHA-insured mortgages. Effective immediately, FHA now allows mortgagees to use TPV services for verification of a borrower’s employment, income, and asset information. The Letter provides specific requirements for each category of information but, in all circumstances, a borrower must authorize the mortgagee’s use of a TPV vendor for the verification (whether direct or electronic).
On February 11, the OCC released a statement from Comptroller of the Currency Joseph Otting supporting the CFPB’s proposed rule rescinding certain requirements relating to underwriting standards for short-term small-dollar loans. (Covered by InfoBytes here.) Calling the proposal “important and courageous,” Otting praised the Bureau, noting that it was “[t]he shrinking supply and steady demand” that “drove up prices and promoted much less favorable terms.” He continued to state that a framework of rules that allows responsible lenders to compete in the market will make the market “work better for everyone.”
As previously covered by InfoBytes, in May 2018, the OCC released a Bulletin encouraging banks to meet the credit needs of consumers by offering short-term, small-dollar installment loans subject to the OCC’s core lending principles.
Fannie Mae announces updates to multifamily small mortgage loan, hybrid ARM loan, and property inspection protocol
On February 1, Fannie Mae issued Lender Memo 19-02 to provide updated guidance for multifamily lenders. The following adjustments have been made to the Multifamily Selling and Servicing Guide and are effective February 4:
- The maximum small mortgage loan amount eligible for underwriting is increased to $6 million and will apply to all markets.
- The maximum Hybrid ARM Loan amount has also been increased to $6 million.
- Property Inspection Protocols and Financial Analysis of Property Operations associated with small mortgage loans have been updated to align asset management requirements with the increases described above. Fannie Mae noted that quarterly financial reporting will not be required—nor will a waiver be needed—for a mortgage loan secured by a cooperative property or a small mortgage loan provided it is not on Fannie Mae’s watchlist or does not have a rating of 4 or 5 on its most recent property inspection.
On February 6, the CFPB released two notices of proposed rulemaking (NPRM) related to certain payday lending requirements under the agency’s 2017 final rule covering “Payday, Vehicle Title, and Certain High-Cost Installment Loans” (the Rule). As previously covered by InfoBytes, last October the Bureau announced plans to reconsider the Rule’s mandatory underwriting requirements and address the Rule’s compliance date.
The first NPRM proposed will rescind certain provisions of the Rule related to underwriting standards for payday loans and related products scheduled to take effect later this year. Specifically, the CFPB proposes to rescind the portion of the Rule that would make it an unfair and abusive practice for a lender to make covered high-interest rate, short-term loans or covered longer-term balloon payment loans without reasonably determining that the consumer has the ability to repay. The proposed changes would also rescind prescribed mandatory underwriting requirements for making the ability-to-repay determination, provisions exempting certain loans from the mandatory underwriting requirements, as well as related definitions, reporting, and recordkeeping requirements. The CFPB explains that it now initially determines that the evidence underlying the identification of the unfair and abusive practice in the Rule “is not sufficiently robust and reliable to support that determination, in light of the impact those provisions will have on the market for covered short-term and longer-term balloon-payment loans, and the ability of consumers to obtain such loans, among other things.” If finalized, the proposals represent a significant change to the Rule as finalized during the tenure of former Bureau Director Richard Cordray in October 2017. (See Buckley Special Alert for more detailed coverage on the Rule.) Comments will be accepted for 90 days following publication in the Federal Register.
The second NPRM seeks to delay the Rule’s compliance date for mandatory underwriting provisions from August 19, 2019 to November 19, 2020. Notably, the Bureau states in a press release announcing the NPRMs that the proposal to delay the effective date does not extend to the Rule’s provisions governing payments, which “prohibit payday and certain other lenders from making a new attempt to withdraw funds from an account where two consecutive attempts have failed unless consumers consent to further withdrawals.” Lenders also will still be required to provide written notice to consumers both before the first attempt to withdraw payment from their accounts, as well as prior to subsequent attempts involving different dates, amounts, or payment channels. These provisions are not under reconsideration and will take effect August 19, 2019. Comments will be accepted for 30 days following publication in the Federal Register.
On December 4, Fannie Mae issued SEL-2018-09, which announces updates to the Selling Guide, including a new self-employment income calculation tool and an updated policy for appraisal waivers for disasters. Specifically, the guide now addresses the use of an approved vendor tool to assist lenders in calculating self-employment income: Fannie Mae “will provide representation and warranty enforcement relief on the accuracy of the calculation of the amount of self-employment income” to lenders that use this tool and enter the income calculated into Fannie Mae’s Desktop Underwriter. Additionally, the guide now allows lenders to exercise appraisal waiver offers on loans in process at the time of a disaster. If a property was damaged during a disaster, but the damage does not affect the safety, soundness, or structural integrity of the property and the repair items are covered by insurance, the lender may still deliver the loan to Fannie Mae; however, the lender must obtain a cost estimate for the repair and ensure that funds are available to the borrower to guarantee the completion of the repairs. The appraisal waiver change is available starting on or after the weekend of December 8. Among other things, the updates also include changes to (i) commission income and unreimbursed business expenses; (ii) Desktop Underwriter Version 10.3; (iii) small business administration loans; and (iv) duplicative provisions regarding flood insurance coverage.
On December 3, the OCC released its Semiannual Risk Perspective for Fall 2018, identifying and reiterating key risk areas that pose a threat to the safety and soundness of national banks and federal savings associations. The report focuses on risks to the federal banking system based on five areas: the operating environment, bank performance, special topics in emerging risk, trends in key risks, and supervisory actions. Overall, loans and bank profitability grew in 2018 as the U.S. economy continued to grow. Moreover, recent examination findings indicate incremental improvements in banks’ general risk management practices. Specific risk areas of concern noted by the OCC include: (i) the origination quality of new loans and potential embedded risks from previously successive years of relaxed underwriting standards; (ii) an increasingly complex operating environment, including the continually evolving threat to cybersecurity; (iii) elevated money-laundering risks; and (iv) rising market interest rates, including certain risks associated with heightened competition for deposits.
The report also notes that outstanding enforcement actions continue to decline since peaking in 2010, which, according to the OCC, reflects an overall improvement in, among other things, banks’ risk management practices. The leading cause of current enforcement actions continues to be compliance or operational failures.
On December 29, the Department of Veterans Affairs (VA) issued Circular 26-17-43 to clarify its policy that lenders may use third-party vendors to verify borrower income, employment, and asset information subject to the following caveats: (i) lenders must retain full responsibility for verifying the accuracy of information provided in the borrower’s loan application; (ii) lenders must initiate and receive all verifications related to employment and deposits, credit report requests, and credit information; (iii) lenders must assume responsibility for the quality and accuracy of information provided to the VA collected from third-parties; (iv) lenders must disclose the third party vendor relationships on VA form 26-1820, Report and Certification of Loan Disbursement, and (v) lenders must not charge veterans for the cost of obtaining third-party verification of borrower income, employment, or asset information. Where a real estate broker/agent or any other party requests borrower income, employment, or asset information, lenders must (i) identify the parties as their agents, (ii) ensure that report(s) are returned directly to them, and (iii) ensure completion of the required certification on the loan application.
On December 19, Fannie Mae announced updates to its Selling Guide, including guidance related to underwriting a loan for borrowers who have frozen their credit files at one or more of the three national credit repositories. The Selling Guide now states that a credit report is acceptable for manual underwriting or “Desktop Underwriter” when a borrower’s credit information is frozen at only one of the credit repositories as long as credit data is available from two repositories, a credit score is obtained from at least one of those two repositories, and the lender requested a three in-file merged report. If the borrower’s credit file is frozen at two or more of the credit repositories, the loan will not be eligible for either form of underwriting. Other notable updates to the Selling Guide include, (i) adding requirements on premium pricing to the mortgage eligibility policy; (ii) relief from the enforcement of selling representations and warranties for mortgages that are subject to a disaster-related forbearance plan, where the disaster impacting the loan occurred on or after August 25, 2017 and other requirements are met; (iii) additional details about minimum requirements for internal audit and management controls for all seller/servicers; and (iv) consolidation in the Selling Guide of individual mortgage loan file records retention provisions from the Servicing Guide (as previously covered by InfoBytes here).
- APPROVED Webcast: Introducing Mogy — APPROVED’s licensing technology solution
- Hank Asbill to discuss "Pay no attention to the man behind the curtain: Addressing prosecutions driven by hidden actors" at the National Association of Criminal Defense Lawyers West Coast White Collar Conference
- Daniel P. Stipano to discuss "Mid-year policy update" at the ACAMS AML Risk Management Conference
- Daniel P. Stipano to discuss "Keep off the grass: Mitigating the risks of banking marijuana-related businesses" at the ACAMS AML Risk Management Conference
- Christopher M. Witeck and Moorari K. Shah to discuss "The latest in vendor management regulations" at a Mortgage Bankers Association webinar
- Buckley Webcast: Hot topics in debt collection — An analysis of recent federal FDCPA litigation
- Jonice Gray Tucker to discuss "How to succeed in law school" at the SEO Law DC Panel Discussions
- Amanda R. Lawrence to discuss "Navigating the challenges of the latest data protection regulations and proven protocols for breach prevention and response" at the ACI National Forum on Consumer Finance Class Actions and Government Enforcement
- Benjamin W. Hutten to discuss "Requirements for banking inherently high-risk relationships" at the Georgia Bankers Association BSA Experience Program
- Brandy A. Hood to discuss "RESPA Section 8/referrals: How do you stay compliant?" at the New England Mortgage Bankers Conference
- Daniel P. Stipano to discuss "Lessons learned from recent enforcement actions and CMPs" at the ACAMS AML & Financial Crime Conference
- Daniel P. Stipano to discuss "Assessing the CDD final rule: A year of transitions" at the ACAMS AML & Financial Crime Conference