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Financial Services Law Insights and Observations


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  • FHA removes LIBOR benchmark for adjustable-rate HECMs

    Federal Issues

    On March 11, FHA issued Mortgagee Letter (ML) 2021-08 announcing changes for adjustable interest rate home equity conversion mortgages (HECMs) as the market transitions away from LIBOR. Among other things, ML 2021-08 (i) removes approval for using the LIBOR index for adjustable interest rate HECMs; and (ii) approves the use of the Secured Overnight Financing Rate (SOFR) index, permitting “mortgagees to commingle index types for newly originated annual adjustable interest rate HECMs when establishing the expected average mortgage interest rate using the U.S. Constant Maturity Treasury” and SOFR index. ML 2021-08 also states that LIBOR-based HECMs must close on or before May 3 to be eligible for FHA insurance.

    Find continuing InfoBytes coverage on LIBOR here.

    Federal Issues HUD FHA Mortgages HECM LIBOR SOFR

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  • Fed issues LIBOR transition examination guidance

    Federal Issues

    On March 9, the Federal Reserve Board issued supervisory letter SR 21-7 as a follow-up to a November 2020 interagency statement issued by the Fed, FDIC, and OCC that encouraged supervised institutions to cease entering into new contracts that use LIBOR as a reference rate as soon as practicable, but by December 31, 2021 at the latest. (Covered by InfoBytes here.) However, the Fed’s SR 21-7 letter notes that the “extension of certain LIBOR tenors until June 30, 2023, will allow some existing LIBOR exposures to mature naturally.” SR 21-7 provides supervisory guidance for examiners to consider when assessing an institution’s plan to transition away from LIBOR, including the following six key aspects of a firm’s transition efforts: “(1) transition planning; (2) financial exposure measurement and risk assessment; (3) operational preparedness and controls; (4) legal contract preparedness; (5) communication; and (6) oversight.” SR 21-7 also includes specific guidance for assessing LIBOR transition efforts at institutions with less than $100 billion in total consolidated assets (which the Fed assumes “generally have less material and less complex LIBOR exposures”), as well as institutions with $100 billion or more in total consolidated assets.

    Find continuing InfoBytes coverage on LIBOR here.

    Federal Issues Federal Reserve LIBOR Examination Bank Regulatory FDIC OCC

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  • UK FCA announces LIBOR cessation dates

    Federal Issues

    On March 5, the United Kingdom’s Financial Conduct Authority (FCA) announced the dates that all LIBOR settings will cease to be provided by any administrator and will no longer be representative. All sterling, euro, Swiss franc and Japanese yen settings, and one-week and two-month U.S. dollar settings will cease immediately after December 31, 2021, while all remaining U.S. dollar settings will cease immediately after June 30, 2023. Following these dates, representative LIBOR rates will be unavailable and publication of most LIBOR settings will immediately end. The FCA stated it does not expect that any LIBOR settings will become unrepresentative prior to the aforementioned dates, noting that the announcement is intended to “provide certainty on when the LIBOR panels will end. Publication of most of the LIBOR benchmarks will cease at the same time as the panels end. Market participants must now complete their transition plans.”

    Find continuing InfoBytes coverage on LIBOR here.

    Federal Issues UK Financial Conduct Authority LIBOR Of Interest to Non-US Persons

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  • OCC issues LIBOR self-assessment tool

    Federal Issues

    On February 10, the OCC issued Bulletin 2021-7, which provides a self-assessment tool for banks to evaluate their preparedness for the LIBOR cessation. The Bulletin reminds banks that they should “develop and implement risk management plans to identify and control risks related to expected [LIBOR] cessation,” and that banks are expected to cease entering into new contracts using LIBOR as a reference rate by December 31, 2021. The self-assessment tool may be used by banks to identify and mitigate the bank’s transition risks, and management should use the tool to “consider all applicable risks (e.g., operational, compliance, strategic, and reputation) when scoping and completing [LIBOR] cessation preparedness assessments.” Not all sections of the tool will apply to all banks, based on the size and complexity of the bank’s LIBOR exposure.

    Continuing InfoBytes coverage on the LIBOR transition available here.

    Federal Issues OCC LIBOR Bank Regulatory

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  • CFPB releases fall 2020 rulemaking agenda

    Agency Rule-Making & Guidance

    On December 11, the CFPB released its fall 2020 rulemaking agenda. According to a Bureau announcement, the information details the regulatory matters that the Bureau “expect[s] to focus on” between November 2020 and November 2021. The announcement notes that the Bureau will also continue to monitor the need for further actions related to the ongoing Covid-19 emergency. In addition to the rulemaking activities already completed by the Bureau this fall, the agenda highlights other regulatory activities planned, including:

    • Debt Collection. The Bureau notes that it expects to issue a final rule in December 2020 addressing, among other things, disclosures related to validation notices and time-barred debt (proposal covered by a Buckley Special Alert here).
    • LIBOR Transition. The Bureau notes that it anticipates publishing the final rulemaking (proposal covered by InfoBytes here) on the LIBOR transition later than the original January 2021 target identified in the Unified Agenda, due to the November 30 announcement by UK regulatory authorities that they are considering extending the availability of US$ LIBOR for legacy loan contracts until June 2023, instead of the end of 2021.
    • FIRREA. The Bureau notes that, together with the Federal Reserve Board, OCC, FDIC, NCUA, and FHFA, it will continue to develop a proposed rule to implement the automated valuation model (AVM) amendments made by the Dodd-Frank Act to the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA) concerning appraisals.
    • Mortgage Servicing. The Bureau notes that it intends to issue an NPRM in spring 2021 to consider amendments to the Bureau’s mortgage servicing rules to address actions required of servicers working with borrowers affected by natural disasters or other emergencies. The Bureau notes that comments to the interim final rule issued in June 2020, amending aspects of the mortgage servicing rules to address the exigencies of Covid-19 (covered by InfoBytes here), suggest that the rules may need additional updates to address natural disasters or other emergencies.
    • HMDA. The Bureau states that two rulemakings are planned, including (i) a proposed rule that follows up on a May 2019 advanced notice of proposed rulemaking, which sought information on the costs and benefits of reporting certain data points under HMDA and coverage of certain business or commercial purpose loans (covered by InfoBytes here); and (ii) a proposed rule addressing the public disclosure of HMDA data.

    Agency Rule-Making & Guidance CFPB Debt Collection FDCPA LIBOR HMDA RESPA FIRREA Covid-19

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  • FSOC annual report highlights Covid-19 impact on financial stability

    Federal Issues

    On December 3, the Financial Stability Oversight Council (FSOC) released its 2020 annual report. The report reviews financial market developments, identifies emerging risks, and offers recommendations to enhance financial stability. The report also highlights the impact of Covid-19 on the economy and the financial system. The report notes that although “policy actions to minimize the effects of the pandemic have been effective at improving market conditions, risks to U.S. financial stability remain elevated compared to last year” and that “the global outlook for economic recovery is uncertain, depending on the severity and the duration of the ongoing pandemic.” Highlights include:

    • Nonbank mortgage origination and servicing. FSOC notes that disruptions in mortgage payments due to the pandemic have focused attention on the nonbank sector. In particular, FSOC states that due to a surge in refinancing due to low rates, nonbank servicers have an additional source of liquidity to help sustain operations. However, FSOC cautions that “an increase in forbearance and default rates . . . has the potential to impose significant strains on nonbank servicers.” FSOC recommends federal and state regulators coordinate and share data and information, identify and address potential risks, and strengthen oversight of nonbank companies originating and servicing residential mortgages.
    • Alternative Reference Rates. FSOC recommends that the Alternative Reference Rates Committee continue to work to facilitate an orderly transition to alternative reference rates following the anticipated cessation of LIBOR at the end of 2021, and encourages federal and state regulators to “determine whether further guidance or regulatory relief is required to encourage market participants to address legacy LIBOR portfolios.”
    • Cybersecurity. FSOC “recommends that federal and state agencies continue to monitor cybersecurity risks and conduct cybersecurity examinations of financial institutions and financial infrastructures to ensure, among other things, robust and comprehensive cybersecurity monitoring, especially in light of new risks posed by the pandemic.” FSOC also supports “efforts to increase the efficiency and effectiveness of cybersecurity examinations across the regulatory authorities.”
    • Large bank holding companies. FSOC recommends that financial regulators “continue to monitor and assess the impact of rules on financial institutions and financial markets—including, for example, on market liquidity and capital—and ensure that [bank holding companies] are appropriately monitored based on their size, risk, concentration of activities, and offerings of new products and services.”

    Additional topics also addressed include short-term wholesale funding markets, nonfinancial business borrowing, and commercial real estate asset valuations.

    Federal Issues FSOC Covid-19 Nonbank Privacy/Cyber Risk & Data Security LIBOR Bank Holding Companies Mortgage Origination

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  • Agencies: Cease LIBOR-based contracts as soon as practicable

    Federal Issues

    On November 30, the Federal Reserve Board, FDIC, and OCC issued a joint statement encouraging banks to cease entering into new contracts that use LIBOR as a reference rate as soon as practicable, but by December 31, 2021 at the latest. The statement notes that entering into new contracts that use LIBOR as a reference rate after December 31, 2021, would create safety and soundness risks given the range of consumer protection, litigation, and reputation risks at stake. As previously covered by InfoBytes, the agencies announced that they do not intend to recommend a specific credit-sensitive rate for use in place of LIBOR. Instead, the agencies encourage banks to “either utilize a reference rate other than LIBOR or have robust fallback language that includes a clearly defined alternative reference rate after LIBOR’s discontinuation” for all new contracts prior to December 31, 2021, in order to “facilitate an orderly—and safe and sound—LIBOR transition.” Additionally, the statement recognizes certain instances in which it would be appropriate for banks for enter into LIBOR contracts after December 31, 2021, including novations of LIBOR transactions executed before January 1, 2022.

    Federal Issues LIBOR Federal Reserve OCC FDIC

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  • Agencies issue joint statement on LIBOR transition

    Federal Issues

    On November 6, the OCC, the Federal Reserve Board, and the FDIC issued a statement reiterating that the agencies do not intend to recommend a specific credit-sensitive rate for use in place of LIBOR. The agencies recommend that financial institutions “use any reference rate for its loans that the bank determines to be appropriate for its funding model and customer needs” and emphasize the need for fallback language in lending contracts that provide for the “use of a robust fallback rate if the initial reference rate is discontinued.” The agencies note that examiners will not criticize banks solely regarding their choice of reference rate, including a credit-sensitive rate other than Secured Overnight Financing Rate (SOFR) (the rate recommended by the Alternative Reference Rates Committee). Additionally, the agencies encourage financial institutions to reach out to lending customers to ensure they are prepared for the transition and to consider any technical changes to internal systems that might be needed to accommodate a new reference rate.

    As previously covered by InfoBytes, in July, the member agencies of the Federal Financial Institutions Examinations Council (FFIEC) issued a joint statement highlighting several risks that will result from the anticipated cessation of LIBOR at the end of 2021 and discussing the supervisory impacts of the LIBOR transition.

    Federal Issues OCC Federal Reserve FDIC LIBOR SOFR ARRC

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  • Federal agencies will not recommend specific LIBOR replacement rate

    Federal Issues

    On October 21, a group of U.S. financial agencies wrote to the executives of financial institutions that participated in the Credit Sensitivity Group workshops, stating that the agencies do not intend to recommend a specific credit-sensitive rate for use in commercial lending products in place of LIBOR. The letter states that “[t]he transition away from LIBOR is a significant and complex undertaking,” and there are multiple suitable alternative reference rates to replace LIBOR. The letter acknowledges that the use of the Secured Overnight Financial Rate (SOFR), which is recommended by the Alternative Reference Rates Committee is “voluntary.” After participating in the workshops, the agencies concluded that they are “not well positioned to adjudicate the selection of a reference rate between banks and their commercial customers” due to various business needs and terms of commercial loans that are based on the negotiation of banks and borrowing parties. Thus, the letter states, the agencies will continue to convene additional working sessions to highlight innovation in the credit-sensitive rates and explore implementing solutions for commercial loans transitioning away from LIBOR.

    For continuing InfoBytes covering on the LIBOR transition see here.

    Federal Issues LIBOR SOFR ARRC Federal Reserve CFTC OCC FDIC

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  • FSB releases LIBOR transition roadmap

    Federal Issues

    On October 16, the Financial Stability Board released a “Global Transition Roadmap for LIBOR,” which details the steps financial firms and their clients should take “in order to ensure a smooth LIBOR transition” from now through 2021. In addition to identifying actions that should already be complete, the roadmap details the following steps:

    • ISDA Fallbacks Protocol Effective Date. Firms should adhere to the International Swaps and Derivatives Association’s (ISDA) IBOR Fallback Protocol and IBOR Fallback Supplement, which will be launched on October 23 and take effect on January 25, 2021 (covered by InfoBytes here).
    • By the end of 2020. Lenders should be able to offer non-LIBOR products to customers.
    • By mid-2021. Firms should have identified which contracts can be amended and make contact with other parties to prepare for the use of alternative rates. Firms should execute formalized plans to covert legacy LIBOR contracts to alternative rates. 
    • By the end of 2021. All new business should be conducted in, or capable of switching immediately to, alternative rates.

    For continuing InfoBytes coverage on the LIBOR transition see here.

    Federal Issues LIBOR Financial Stability Board

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