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On July 1, FHFA released a policy statement on its commitment to “comprehensive” fair lending oversight of Fannie Mae, Freddie Mac, and the Federal Home Loan Banks (collectively, “regulated entities”), in addition to expanding FHFA’s fair lending program. The statement describes FHFA’s position on monitoring and information gathering, supervisory examinations, and administrative enforcement regarding ECOA, the Fair Housing Act, and the Federal Housing Enterprises Financial Safety and Soundness Act. FHFA noted the purpose of the policy statement is “to provide a foundation for possible future interpretations and rulemakings by the agency for its regulated entities.” FHFA also issued an order on fair lending reporting that requires Fannie Mae and Freddie Mac to submit quarterly fair lending reports and data. Comments on the policy statement are due 60 days after publication in the Federal Register.
On June 29, FHFA announced that Fannie Mae and Freddie Mac (GSEs) will not be permitted to make a first notice or filing for foreclosure that would be prohibited by the CFPB’s “Protections for Borrowers Affected by the COVID-19 Emergency Under the Real Estate Settlement Procedures Act (RESPA), Regulation X” final rule prior to the rule’s effective date. As previously covered by a Buckley Special Alert, the Bureau’s final rule, which takes effect August 31, obligates a servicer to continue specifying, with substantial detail, any loss mitigation options that may help borrowers resolve their delinquencies. GSEs are required to follow the CFPB’s new protections a month before the CFPB rule takes effect, which will protect borrowers from foreclosure and provide certainty for servicers regarding GSE expectations. According to FHFA, “[s]ervicers will still be able to make a notice or filing for foreclosure on abandoned properties and those that had a foreclosure referral prior to March 2020, along with certain other exceptions.” FHFA’s action eliminates the gap between the expiration of its current moratoriums for single family foreclosures and real estate owned (REO) evictions that will expire on July 31 (covered by InfoBytes here) and the effective date of the CFPB’s rule, which is a month later.
On June 23, the U.S. Supreme Court issued a split opinion in Collins v. Yellen (previously Collins v. Mnuchin), holding that FHFA’s leadership structure, which only allows the president to fire the FHFA director for cause, is unconstitutional. The Court’s determination follows its decision in Seila Law LLC v. CFPB (covered by a Buckley Special Alert), in which the Court held that a similar clause in the Dodd-Frank Act that requires cause to remove the director of the CFPB violates the constitutional separation of powers. In Collins, the Court stated, “[a] straightforward application of our reasoning in Seila Law dictates the result here. The FHFA (like the CFPB) is an agency led by a single Director, and the [Housing and Economic Recovery Act of 2008 (Recovery Act)] (like the Dodd-Frank Act) restricts the President’s removal power.”
Last July, the Court agreed to review the U.S. Court of Appeals for the 5th Circuit’s en banc decision (covered by InfoBytes here) issued in a 2016 lawsuit brought by a group of Fannie Mae and Freddie Mac (GSEs) shareholders against the U.S. Treasury Department and FHFA. The shareholders claimed that the Recovery Act, which created the agency, violated the separation of powers principal because it only allowed the president to fire the FHFA director “for cause,” and that FHFA acted outside its statutory authority when it adopted a third amendment to the Senior Preferred Stock Purchase Agreements, which replaced a fixed-rate dividend formula with a variable one requiring the GSEs to pay quarterly dividends equal to their entire net worth minus a specified capital reserve amount to the Treasury Department (known as the “net worth sweep”). Following the en banc rehearing, the appellate court reaffirmed its earlier decision that FHFA’s structure violates the Constitution’s separation of powers requirements. However, the opinions differed on the appropriate remedy, with nine judges concluding that the remedy should be severance of the for-cause provision, not prospective relief invalidating the net worth sweep, stating that “the Shareholders’ ongoing injury, if indeed there is one, is remedied by a declaration that the “for cause” restriction is declared removed. We go no further.”
While the split Court agreed with the 5th Circuit that the agency’s structure violates the Constitution’s separation of powers, the justices left intact the net worth sweep. “Although the statute unconstitutionally limited the President’s authority to remove the confirmed Directors, there was no constitutional defect in the statutorily prescribed method of appointment to that office. As a result, there is no reason to regard any of the actions taken by the FHFA in relation to the third amendment as void,” Justice Samuel Alito wrote for the majority. “It is not necessary for us to decide—and we do not decide—whether the FHFA made the best, or even a particularly good, business decision when it adopted the third amendment,” the Court added. “[W]e conclude only that under the terms of the Recovery Act, the FHFA did not exceed its authority as a conservator, and therefore the anti-injunction clause bars the shareholders’ statutory claim.” The Court remanded the case to determine “what remedy, if any, the shareholders are entitled to receive on their constitutional claim.”
Various concurring and dissenting opinions were issued as well. While concurring, Justice Elena Kagan noted that “[s]tare decisis compels the conclusion that the FHFA’s for-cause removal provision violates the Constitution. But the majority’s opinion rests on faulty theoretical premises and goes further than it needs to.” Justice Sonia Sotomayor dissented, writing: “[t]he Court has proved far too eager in recent years to insert itself into questions of agency structure best left to Congress. In striking down the independence of the FHFA Director, the Court reaches further than ever before, refusing tenure protections to an Agency head who neither wields significant executive power nor regulates private individuals.”
Shortly after the ruling, President Biden appointed Sandra L. Thompson as acting FHFA Director, effective immediately. Thompson has served at FHFA since March 2013 as Deputy Director of the Division of Housing Mission and Goals where she oversaw FHFA’s housing and regulatory policy, capital policy, financial analysis, fair lending, as well as all mission activities for the GSEs and the Federal Home Loan Banks. Former Director Mark Calabria issued a statement noting his respect for the Court’s decision and the authority of the president to remove the FHFA director.
On June 24, FHFA announced that Fannie Mae and Freddie Mac (GSEs) will extend their moratorium on single-family foreclosures and real estate owned (REO) evictions until July 31. The current moratoriums were set to expire June 30. The foreclosure moratorium applies only to homeowners with a GSE-backed, single-family mortgage, and the REO eviction moratorium applies only to properties that have been acquired by the GSEs through foreclosure or deed-in-lieu of foreclosure transactions. Additional details on Covid-19 forbearance plan terms and payment deferrals are covered by InfoBytes here and here. The extensions are implemented in Fannie Mae Lender Letter LL-2021-02 and Freddie Mac Guide Bulletin 2021-23. The same day, the CDC also announced an extension of its current moratorium on residential evictions for non-payment of rent through July 31, also stating in the announcement that “this is intended to be the final extension of the moratorium.”
On April 27, the CFPB issued a final rule formally extending the mandatory compliance date of the General Qualified Mortgage (QM) final rule to October 1, 2022. As previously covered by InfoBytes, and following a two-year rulemaking, last December the Bureau issued the General QM Final Rule to amend Regulation Z and revise the definition of a “General QM” by eliminating the General QM loan definition’s 43 percent debt-to-income ratio (DTI) limit and replacing it with bright-line price-based thresholds. The General QM Final Rule also eliminated QM status resulting solely from loans qualifying for sale to Fannie or Freddie Mac (GSEs), known as the “GSE Patch.” The General QM Final Rule took effect March 1, 2021, but compliance with the new rule is not mandatory until July 1, 2021; in the intervening period, the original and revised General QM Rule are concurrently effective.
On March 3, the Bureau proposed delaying the mandatory compliance date to provide “greater creditor flexibility and expanded availability of responsible, affordable credit options for some struggling consumers” by keeping both the old and new rule until October 1, 2022. (Covered by InfoBytes here.) By extending the mandatory compliance date, lenders will now have the option of complying with either the revised General QM definition or the original DTI-based General QM definition on applications received on or after March 1, but prior to October 22, 2022. “As the mortgage market navigates an uncertain and challenging time, extending the date by which lenders must comply with the CFPB’s new General QM definition will help provide options and flexibility for both lenders and borrowers,” acting CFPB Director Dave Uejio stated in announcing the official extension.
Delaying the General QM Final Rule’s mandatory compliance date will also provide lenders additional time to use the GSE Patch, the Bureau noted. However, as previously covered by InfoBytes, on April 8 the GSEs announced that—due to preferred stock purchase agreements (PSPA) with the U.S. Department of Treasury, which require that acquired loans meet the General QM Rule’s loan definition that became effective March 1—the GSEs will no longer, in accordance with the dates below, acquire GSE Patch loans that fail to meet the requirements of the revised General QM Rule, which functionally eliminates the utility of the GSE Patch. Specifically, to be eligible for purchase, Fannie Mae (see Lender Letter LL-2021-09) requires these loans to have application dates on or before June 30, 2021, and be purchased as whole loans on or before August 31, 2021, or be in MBS pools with an issue date on or before August 1, 2021. Freddie Mac issued similar requirements (see Bulletin 2021-13) for loans with application received dates on or after July 1, 2021, and all mortgages with settlement dates after August 31, 2021. As a result, unless the GSEs negotiate an additional amendment to their respective PSPA, this extension will have limited utility to the market.
On April 21, the FHFA announced a final extension of certain loan origination guidelines put in place to assist borrowers during the Covid-19 pandemic. Specifically, the FHFA extended until May 31 existing guidelines related to: (i) alternative appraisal requirements on purchase and rate term refinance loans; (ii) completion report flexibilities; and (iii) Freddie Mac’s CHOICERenovation Mortgage flexibilities. The extensions are implemented in updates to Fannie Mae Lender Letter LL-2021-04 and Freddie Mac Guide Bulletin 2021-15. FHFA stated, however, that other temporary flexibilities will expire as scheduled on April 30, including alternative methods for employment verification, condominium project reviews, and expanded power of attorney.
On April 6, the CFPB announced a consent order against a California-based debt collector and its former owner for allegedly harassing consumers and threatening to take legal action if they did not pay their debts. According to the CFPB, the respondents violated the FDCPA and the CFPA’s prohibition against deceptive acts or practices by mailing letters to consumers printed with “Litigation Notice” that threatened recipients with legal action if they did not repay their debts. However, the Bureau stated that the respondents did not file lawsuits against the consumers, nor did they hire law firms or lawyers to obtain any judgments or collect on any such judgments. Under the terms of the consent order, the respondents are permanently banned from the debt collection industry and are ordered to pay $860,000 in redress to its victims, which has been suspended due to an inability to pay, as well as a $2,200 civil money penalty. This is the CFPB’s latest action taken against debt collectors that have used false threats to collect debts. As previously covered in InfoBytes, in 2019 the CFPB and New York attorney general announced proposed settlements with a network of New York-based debt collectors to resolve allegations that the defendants engaged in improper debt collection tactics in violation of the CFPA, the FDCPA, and various New York laws. Also, in 2018, the CFPB announced a settlement with a Kansas-based company and its former CEO and part-owner that allegedly engaged in improper debt collection tactics in violation of the CFPB’s prohibitions on engaging in unfair, deceptive, or abusive acts or practices (covered by InfoBytes here).
On March 11, the FHFA announced the extension of several loan origination guidelines put in place to assist borrowers during the Covid-19 pandemic. Specifically, FHFA extended until April 30 existing guidelines related to: (i) alternative appraisal requirements on purchase and rate term refinance loans; (ii) alternative methods for documenting income and verifying employment before loan closing; and (iii) the expanded use of power of attorney to assist with loan closings. The extensions are implemented in updates to Fannie Mae Lender Letters LL-2021-03 and LL-2021-04, and Freddie Mac Guide Bulletin 2021-10 and Selling FAQs.
On February 25, the FHFA announced that Fannie Mae and Freddie Mac (GSEs) will extend their moratorium on single-family foreclosures and real estate owned (REO) evictions until June 30. The foreclosure moratorium applies only to homeowners with a GSE-backed, single-family mortgage, and the REO eviction moratorium applies only to properties that were acquired by the GSEs through foreclosure or deed-in-lieu of foreclosure transactions. Additionally, FHFA announced that borrowers may be eligible for up to a three-month forbearance extension so long as they are on a Covid-19 forbearance plan as of February 28 (details on the Covid-19 forbearance covered by InfoBytes here), and that the Covid-19 payment deferral may now cover up to 18 months of missed payments (previously covering up to 15 months of missed payments, additional details covered by InfoBytes here). The extensions are implemented in Fannie Mae Lender Letter LL-2021-07 and Freddie Mac Guide Bulletin 2021-8.
On February 23, the CFPB issued a statement noting it is considering whether to revisit final rules issued last year regarding the definition of a Qualified Mortgage and the establishment of a “Seasoned QM” category of loans. As previously covered by InfoBytes, last December the Bureau issued the General QM Final Rule to amend Regulation Z and revise the definition of a “General QM” by eliminating the General QM loan definition’s 43 percent debt-to-income ratio (DTI) limit and replacing it with bright-line price-based thresholds. The General QM Final Rule also eliminates QM status resulting solely from loans meeting qualifications for sale to Fannie or Freddie Mac (GSEs), known as the “GSE Patch.” The Bureau issued a second final rule, the Seasoned QM Final Rule, to create a new category of safe-harbor QMs applicable to first-lien, fixed-rate mortgages that are held in portfolio by the originating creditor or first purchaser for a 36-month period while meeting certain performance requirements, and comply with general QM restrictions on product features and points and fees. The effective date for both final rules is March 1. The General QM Final Rule also has a mandatory compliance date of July 1.
In the statement, the Bureau noted that it is “considering whether to initiate a rulemaking to revisit the Seasoned QM Final Rule,” including whether to revoke or amend the Seasoned QM Final Rule and how that would affect covered transactions for which applications were received after the March 1 effective date. In addition, the Bureau stated that it expects to issue a rule to delay the July 1, 2021 mandatory compliance date of the General QM final rule. Should a proposed rule be finalized, creditors would then “be able to use either the current General QM loan definition or the revised General QM loan definition for applications received during the period from March 1, 2021, until the delayed mandatory compliance date,” the Bureau said. Additionally, the GSE patch would also remain in effect until the new mandatory compliance date, or until the GSEs cease to operate under conservatorship prior to that date.
The same day, the Bureau updated its small entity compliance guide and other compliance aids for the Ability-to-Repay and Qualified Mortgage Rule. The updates reflect amendments set forth in the GSE Patch Extension Final Rule, the General QM Final Rule, and the Seasoned QM Final Rule.
- Jeffrey P. Naimon to provide “Fair lending update” at the Colorado Mortgage Lenders Association Operational and Compliance Forum
- Jonice Gray Tucker to discuss “Justice for all: Achieving racial equity through fair lending” at CBA Live
- Warren W. Traiger to discuss “On the horizon for CRA modernization” at CBA Live
- APPROVED Webcast: Strategy & Technology: A dynamic duo for successful regulatory exams
- Daniel R. Alonso to discuss “Primer on cross-border prosecutions in Argentina, Brazil, Colombia, and Mexico for U.S. criminal lawyers” at a New York City Bar Association webinar
- Jonice Gray Tucker to discuss "Fair lending" at the Mortgage Bankers Association Regulatory Compliance Conference
- Michelle L. Rogers to discuss “State law regulatory and enforcement trends” at the Mortgage Bankers Association Regulatory Compliance Conference
- Jonice Gray Tucker to discuss “Government investigations, and compliance 2021 trends” at the Corporate Counsel Women of Color Career Strategies Conference
- Max Bonici to discuss “BSA/AML trends: What to expect with the implementation of the AML Act of 2020” at the American Bar Association Banking Law Fall Meeting
- H Joshua Kotin to discuss “Modifications and exiting forbearance” at the National Association of Federal Credit Unions Regulatory Compliance Seminar
- Jonice Gray Tucker to discuss “Fintech trends” at the BIHC Network Elevating Black Excellence Regional Summit
- Jonice Gray Tucker to discuss "Consumer financial services" at the Practising Law Institute Banking Law Institute