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North Carolina amends loan origination fees and late payment charges
On April 1, the North Carolina governor signed SB 162, which amends the allowed loan origination fee and late payment charges for certain loans. Under these amendments, the maximum origination fee covered banks are permitted to charge for a loan or credit extension not secured by real property with a principal amount of $100,000 or greater is one quarter of one percent of the principal. For loans with principal amounts of less than $100,000, the maximum origination fee varies between $100 to $250, depending on the loan amount. SB 162 also caps the annual percentage rate at 36 percent for loans or extensions of credit with principal amounts of less than $5,000, where the borrower is a natural person and the debt is primarily incurred for personal, family, or household purposes. Among other provisions, SB 162 also limits allowable late payment charges that vary depending on loan type and loan amount and also states that a late payment charge may not exceed the “amount disclosed with particularity to the borrower pursuant to [TILA],” if applicable. The amendments took effect immediately and apply to contracts entered into, renewed, or modified on or after April 1.
Freddie Mac releases temporary guidance for government shutdown
On January 3, Freddie Mac released guidance relating to loan origination and loan servicing during the government shutdown. According to Bulletin 2019-1, loans made to borrowers directly impacted by the government shutdown are still eligible for sale to Freddie Mac, even if the borrower is not receiving pay when the loan is delivered, so long as (i) all income and employment documentation requirements are met; (ii) the seller has no knowledge that the borrower will not return to work after the shutdown ends; and (iii) all other requirements of the “Seller’s Purchase Documents” are met. Freddie Mac also emphasizes that the IRS Form 4506-T and flood insurance requirements will remain unchanged during the shutdown. Additionally, Freddie Mac notes that loan servicers may offer forbearance to borrowers directly impacted by the shutdown.
CFPB updates HOEPA and Loan Originator Rule small entity compliance guides
On November 16, the CFPB released versions 3.0 of its Home Ownership and Equity Protection Act (HOEPA) Rule small entity compliance guide and Loan Originator Rule small entity compliance guide to reflect the changes made by Section 107 of the Economic Growth, Regulatory Relief, and Consumer Protection Act, which broadened and expanded an exemption for manufactured home retailers. Among other technical and conforming revisions, the Loan Originator Rule guide reflects the new exemptions whereby certain manufactured home retailers are not considered loan originators. The revised HOEPA Rule guide specifies when loan originator compensation paid to a manufactured home retailer must be included in the points and fees calculation.
National bank settles with DOJ for $2.09 billion over RMBS misrepresentations
On August 1, the Department of Justice (DOJ) announced a settlement with a national bank and several of its affiliates (bank) for allegedly misrepresenting the quality of certain loans originated by the bank that were packaged and sold in residential mortgage-backed securities (RMBS). The alleged representations related to debt-to-income ratios for stated income loans sold to investors and in which a significant number of borrowers misstated income information on the applications. The settlement agreement states that the bank “sold at least 73,529 stated income loans in RMBS during [2005-2007], and nearly half of those loans defaulted.” The bank, without admitting liability or wrongdoing, agreed to pay $2.09 billion in a civil money penalty under the Financial Institutions Reform, Recovery, and Enforcement Act, and the DOJ agreed to release the bank from any civil claims arising under several other laws, including: (i) the False Claims Act; (ii) the Program Fraud Civil Remedies Act; (iii) the Racketeer Influenced and Corrupt Organizations Act; and (iv) the Injunctions Against Fraud Act.
OCC requests comments on registration of mortgage loan originators
On February 6, the OCC published a notice and request for comment in the Federal Register concerning its information collection entitled, “Registration of Mortgage Loan Originators.” Under the Secure and Fair Enforcement for Mortgage Licensing Act (SAFE Act), any person employed by a regulated entity, who is engaged in the business of residential mortgage loan origination, must register with the Nationwide Mortgage Licensing System and Registry (NMLS), obtain a unique identifier, and adopt policies and procedures to ensure compliance with the SAFE Act’s requirements. The NMLS is structured to, among other things, (i) improve information sharing between regulators; (ii) increase mortgage loan originator accountability; and (iii) provide consumers easy access to background information on mortgage loan originators, including publicly adjudicated disciplinary and enforcement actions. The OCC retains enforcement authority under the SAFE Act for financial institutions (including federal branches of foreign banks) with total assets of $10 billion or less. Comments on the notice must be received by April 9.
FDIC’s OIG Issues Evaluation of Agency’s Implementation of ATR/QM and Loan Originator Rules
On December 6, the FDIC’s Office of Inspector General (OIG) released an evaluation report to examine how the agency implements certain consumer protection rules concerning consumers’ ability to repay mortgage loans and limits for loan originator compensation. The OIG report, FDIC’s Implementation of Consumer Protection Rules Regarding Ability to Repay Mortgages and Compensation for Loan Originators (EVAL-18-001), focused on the FDIC’s Division of Depositor and Consumer Protection (DCP), which is responsible for implementing the Ability to Repay/Qualified Mortgage (ATR/QM) and Loan Originator rules and tracking violations of the rules. The report found that the DCP “incorporated these rules into its examination program, trained its examiners, and communicated regulatory changes to FDIC-supervised institutions.” However, based on a sample of 12 examinations, the OIG also determined that examination workpapers generally needed improvement, finding (i) inconsistent documentation by examiners on decisions to exclude compliance testing for the ATR/QM and Loan Originator rules, and (ii) in certain circumstances, incomplete, incorrect, or improperly stored examiners’ workpapers, “which would preclude someone independent of the examination team from fully understanding examination findings and conclusions, based on the workpapers alone.”
OIG further noted that, because DCP’s examination practices did not include tracking the number of institutions subject to the rules or recording how frequently examiners tested for compliance, any identified variances among the FDIC’s six regional offices could not be assessed for significance due to lack of context.
As a result of these findings, the OIG made several recommendations for the DCP to strengthen its compliance examination process, including:
- “research potential reasons for the regional variances in the number of rule violations by banks in the FDIC’s six regional offices”;
- “track the aggregate number of FDIC-supervised institutions in each region that are subject to the rules”;
- “track how often examiners test for compliance with the rules”; and
- ‘‘take steps to improve workpaper documentation and retention.”
The DCP agreed to implement these recommendations June 30, 2018.