InfoBytes Blog
Filter
Subscribe to our InfoBytes Blog weekly newsletter and other publications for news affecting the financial services industry.
Fannie Mae, Freddie Mac annual stress tests results
On August 10, FHFA published the Dodd-Frank Act Stress Tests Results – Severely Adverse Scenario containing the results of the ninth annual stress tests conducted by Fannie Mae and Freddie Mac (GSEs) as required by the Dodd-Frank Act. Last year, FHFA published orders for the GSEs to conduct a stress test with specific scenarios to determine whether companies have the capital necessary to absorb losses as a result of severely adverse economic conditions (covered by InfoBytes here). According to the report, the total comprehensive income loss is between $8.4 billion and $9.9 billion depending on how deferred tax assets are treated. Notably, compared to last year, the severely adverse scenario includes a larger increase in the unemployment rate due to the lower unemployment rate at the beginning of the planning horizon. FHFA also expanded the scope of entities considered within the primary counterparty default component of the worldwide market shock. This expansion encompasses mortgage insurers, unsecured overnight deposits, providers of multifamily credit enhancements, nonbank servicers, and credit risk transfer reinsurance counterparties.
FFIEC releases 2022 HMDA data
On June 29, the Federal Financial Institutions Examinations Council (FFIEC) released the 2022 HMDA data on mortgage lending transactions at 4,460 covered institutions (an increase from the 4,338 reporting institutions in 2021). Available data products include: (i) the Snapshot National Loan-Level Dataset, which contains national HMDA datasets as of May 1; (ii) the HMDA Dynamic National Loan-Level Dataset, which is updated on a weekly basis to reflect late submissions and resubmissions; (iii) the Aggregate and Disclosure Reports, which provide summaries on individual institutions and geographies; (vi) the HMDA Data Browser where users can customize tables and download datasets for further analysis; and (v) the Loan/Application Register for filers of 2022 HMDA data.
The 2022 data includes information on 14.3 million home loan applications, of which 11.5 million were closed-end and 2.5 million were open-end. The Snapshot revealed that an additional 287,000 records were from financial institutions making use of the Economic Growth, Regulatory Relief, and Consumer Protection Act’s partial exemptions that did not designate closed-end or open-end status. Observations from the data relative to the prior year include: (i) the percentage of mortgages originated by non-depository, independent mortgage companies decreased, accounting for “60.2 percent of first lien, one- to four-family, site-built, owner-occupied home-purchase loans, down from 63.9 percent in 2021”; (ii) the percentage of closed-end home purchase loans for first lien, one- to four-family, site-built, owner-occupied properties made to Black or African American borrowers increased from 7.9 percent in 2021 to 8.1 percent in 2022, while the share of these loans made to Hispanic-White borrowers decreased slightly from 9.2 percent to 9.1 percent and the share made to Asian borrowers increased from 7.1 percent to 7.6 percent; and (iii) “Black or African American and Hispanic-White applicants experienced denial rates for first lien, one- to four-family, site-built, owner-occupied conventional, closed-end home purchase loans of 16.4 percent and 11.1 percent respectively, while the denial rates for Asian and non-Hispanic-White applicants were 9.2 percent and 5.8 percent respectively.”
CFPB proposal would apply ATR requirements to PACE financing
On May 1, the CFPB announced a proposed rule which would prescribe ability-to-repay (ATR) rules to residential Property Assessed Clean Energy (PACE) financing and apply TILA’s civil liability provisions for violations. The proposal, required by Section 307 of the Economic Growth, Regulatory Relief, and Consumer Protection Act, would amend Regulation Z to address how TILA applies to PACE transactions to account for the unique nature of PACE loans. PACE loans are designed to finance clean energy improvements on a borrower’s home and are secured by that residence. The Bureau explained that the loans are repaid through a borrower’s property tax payments, which increase over time and which remain with the property even if the borrower sells the property.
If finalized, the proposed rule would require lenders to assess a borrower’s ability to repay a PACE loan and would (i) clarify an existing exclusion to Regulation Z’s definition of credit relating to tax liens and tax assessments to provide that this specific exclusion “applies only to involuntary tax liens and involuntary tax assessments”; (ii) make several adjustments to PACE financing loan estimate and closing disclosure requirements, including providing new model forms specifically designed for PACE transactions, and exempting PACE transactions from the requirement to establish escrow accounts for certain higher-priced mortgage loans and from the requirement to provide periodic statements; (iii) prescribe ATR requirements for residential PACE financing that account for the unique nature of these transactions; (iv) provide that a PACE transaction is not a qualified mortgage; (v) extend TILA Section 130’s ATR requirements and liability provisions to any “PACE company” with substantial involvement in making credit decisions for a PACE transaction; and (vi) clarify how PACE and non-PACE mortgage creditors should consider pre-existing PACE transactions when originating new mortgage loans.
The proposed effective date is at least one year after the final rule is published in the Federal Register (“but no earlier than the October 1 which follows by at least six months Federal Register publication”), with the possibility of a further extension to ensure compliance with a TILA timing requirement. Comments on the proposed rule are due July 26 or 30 days after publication in the Federal Register, whichever is later.
To accompany the proposed rule, the Bureau released several fast facts breaking down and clarifying proposed coverage and the suggested changes. The Bureau also released a data point report documenting research findings on PACE financing in California and Florida from July 2014 through June 2020. Among other things, the report found that PACE loans create an increase in negative credit outcomes for borrowers, particularly with respect to mortgage delinquency. Additionally, PACE borrowers were more likely to have higher interest rates and increased credit card balances and were more likely to live in census tracts with higher percentages of Black and Hispanic residents relative to the average for their states. The report noted that “PACE outcomes improved significantly in California after that State began requiring PACE companies to consider ability to pay before making a loan.”
FFIEC releases 2021 HMDA data
On June 16, the Federal Financial Institutions Examinations Council (FFIEC) released the 2021 HMDA data on mortgage lending transactions at 4,338 covered institutions (a decline from the 4,475 reporting institutions in 2020). Available data products include: (i) the Snapshot National Loan-Level Dataset, which contains national HMDA datasets as of May 1, 2022; (ii) the HMDA Dynamic National Loan-Level Dataset, which is updated on a weekly basis to reflect late submissions and resubmissions; (iii) the Aggregate and Disclosure Reports, which provide summaries on individual institutions and geographies; (vi) the HMDA Data Browser where users can customize tables and download datasets for further analysis; and (v) the Modified Loan/Application Register for filers of 2021 HMDA data.
The 2021 data includes information on 23.3 million home loan applications, of which 21.1 million were closed-end and 1.8 million were open-end. The Snapshot revealed that an additional 350,000 records were from financial institutions making use of the Economic Growth, Regulatory Relief, and Consumer Protection Act’s partial exemptions that did not designate whether the records were closed-end or open-end. Observations from the data relative to the prior year include: (i) the percentage of mortgages originated by non-depository, independent mortgage companies increased, accounting for “63.9 percent of first lien, one- to four-family, site-built, owner-occupied home-purchase loans, up from 60.7 percent in 2020”; (ii) the percentage of closed-end home purchase loans for first lien, one- to four-family, site-built, owner-occupied properties made to Black or African American borrowers increased from 7.3 percent in 2020 to 7.9 percent in 2021, while the share of these loans made to Hispanic-White borrowers increased slightly from 9.1 percent to 9.2 percent and the share made to Asian borrowers jumped from 5.5 percent to 7.1 percent; and (iii) “Black or African American and Hispanic-White applicants experienced denial rates for first lien, one- to four-family, site-built, owner-occupied conventional, closed-end home purchase loans of 15.7 percent and 9.8 percent respectively, while the denial rates for Asian and non-Hispanic-White applicants were 7.5 percent and 5.6 percent respectively.”
FHFA orders stress tests for Fannie and Freddie
On March 16, FHFA published orders applicable March 10 for Fannie Mae and Freddie Mac (GSEs) with respect to stress test reporting as of December 31, 2021, under Dodd-Frank as amended by the Economic Growth, Regulatory Relief, and Consumer Protection Act. Under Dodd-Frank, certain federally regulated financial companies with total consolidated assets of more than $250 billion are required to conduct periodic stress tests to determine whether the companies have the capital necessary to absorb losses as a result of severely adverse economic conditions. The orders are accompanied by Summary Instructions and Guidance, which include stress test scenarios and revised templates (baseline, severely adverse, and variables and assumptions) for regulated companies to use when reporting the results of the stress tests (orders and instructions are available here). According to the Summary Instructions and Guidance, the GSEs have until May 20 to submit baseline and severely adverse results to FHFA and the Federal Reserve Board, and must publicly disclose a summary of severely adverse results between August 1 and 15.
CFPB publishes fall 2021 rulemaking agenda
On December 13, the Office of Information And Regulatory Affairs released the CFPB’s fall 2021 rulemaking agenda. According to a Bureau announcement, the information released represents regulatory matters the Bureau plans to pursue during the period from November 2, 2021 to October 31, 2022. Additionally, the Bureau stated that the latest agenda reflects continued rulemakings intended to further its consumer financial protection mission and help advance the country’s economic recovery from the Covid-19 pandemic. Promoting racial and economic equity and supporting underserved and marginalized communities’ access to fair and affordable credit continue to be Bureau priorities.
Key rulemaking initiatives include:
- Small Business Rulemaking. This fall, the Bureau issued its long-awaited proposed rule (NPRM) for Section 1071 regulations, which would require a broad swath of lenders to collect data on loans they make to small businesses, including information about the loans themselves, the characteristics of the borrower, and demographic information regarding the borrower’s principal owners. (Covered by a Buckley Special Alert.) The NPRM comment period goes through January 6, 2022, after which point the Bureau will review comments as it moves to develop a final rule. Find continuing Section 1071 coverage here.
- Consumer Access to Financial Records. The Bureau noted that it is working on rulemaking to implement Section 1033 of Dodd-Frank in order to address the availability of electronic consumer financial account data. The Bureau is currently reviewing comments received in response to an Advance Notice of Proposed Rulemaking (ANPR) issued fall 2020 regarding consumer data access (covered by InfoBytes here). Additionally, the Bureau stated it is monitoring the market to consider potential next steps, “including whether a Small Business Review Panel is required pursuant to the Regulatory Flexibility Act.”
- Property Assessed Clean Energy (PACE) Financing. As previously covered by InfoBytes, the Bureau published an ANPR in March 2019 seeking feedback on the unique features of PACE financing and the general implications of regulating PACE financing under TILA (as required by Section 307 of the Economic Growth, Regulatory Relief, and Consumer Protection Act, which amended TILA to mandate that the Bureau issue certain regulations relating to PACE financing). The Bureau noted that it continues “to engage with stakeholders and collect information for the rulemaking, including by pursuing quantitative data on the effect of PACE on consumers’ financial outcomes.”
- Automated Valuation Models (AVM). Interagency rulemaking is currently being pursued by the Bureau, Federal Reserve Board, OCC, FDIC, NCUA, and FHFA to develop regulations for AVM quality control standards as required by Dodd-Frank amendments to FIRREA. The standards are designed to, among other things, “ensure a high level of confidence in the estimates produced by the valuation models, protect against the manipulation of data, seek to avoid conflicts of interest, require random sample testing and reviews,” and account for any other appropriate factors. An NPRM is anticipated for June 2022.
- Amendments to Regulation Z to Facilitate LIBOR Transition. As previously covered by InfoBytes, the Bureau issued a final rule on December 7 to facilitate the transition from LIBOR for consumer financial products, including “adjustable-rate mortgages, credit cards, student loans, reverse mortgages, [and] home equity lines of credit,” among others. The final rule amended Regulation Z, which implements TILA, to generally address LIBOR’s eventual cessation for most U.S. dollar settings in June 2023, and establish requirements for how creditors must select replacement indices for existing LIBOR-linked consumer loans. The final rule generally takes effect April 1, 2022.
- Reviewing Existing Regulations. The Bureau noted in its announcement that it decided to conduct an assessment of a rule implementing HMDA (most of which took effect January 2018), and referred to a notice and request for comments issued last month (covered by InfoBytes here), which solicited public comments on its plans to assess the effectiveness of the HMDA Rule. Additionally, the Bureau stated that it finished a review of Regulation Z rules implementing the Credit Card Accountability Responsibility and Disclosure Act of 2009, and that “[a]fter considering the statutory review factors and public comments,” it “determined that the CARD Act rules should continue without change.”
Notably, there are 14 rulemaking activities that are listed as inactive on the fall 2021 agenda, including rulemakings on overdraft services, consumer reporting, student loan servicing, Regulation E modernization, abusive acts and practices, loan originator compensation, and TILA/RESPA mortgage disclosure integration.
CFPB finalizes Regulation Z HPML escrow exemptions
On January 19, the CFPB issued a final rule amending Regulation Z, as required by the Economic Growth, Regulatory Relief, and Consumer Protection Act, to exempt certain insured depository institutions and credit unions from the requirement to establish escrow accounts for certain higher-priced mortgage loans (HPMLs). Under the final rule, any loan made by an insured depository institution or credit union that is secured by a first lien on the principal dwelling of a consumer would be exempt from Regulation Z’s HPML escrow requirement if (i) the institution has assets of no more than $10 billion; (ii) “the institution and its affiliates originated 1,000 or fewer loans secured by a first lien on a principal dwelling during the preceding calendar year”; and (iii) the institution meets certain existing HPML escrow exemption criteria. The final rule essentially adopts the proposed rule (covered by InfoBytes here) without change, except the end date for the exception to the prerequisite against maintaining escrows is finalized as 120 days after the date of publication in the Federal Register, instead of the 90 days as proposed.
Fed’s final rule modifies assessment fees for large financial companies
On November 19, the Federal Reserve Board issued a final rule modifying the annual assessment fees for its supervision and regulation of large financial companies. The final rule is nearly identical to the proposal issued in November 2019, covered by InfoBytes here. The final rule raises the minimum threshold from $50 billion to $100 billion in total consolidated assets to be considered an assessed company and adjusts the amount charged to assessed companies, as required by the Economic Growth, Regulatory Relief, and Consumer Protection Act. The final rule will be effective 30 days after publication in the Federal Register.
CFPB issues proposed rule on Regulation Z HPML escrow exemptions
On July 2, the CFPB issued a notice of proposed rulemaking (NPRM) to amend Regulation Z, as required by the Economic Growth, Regulatory Relief, and Consumer Protection Act, and exempt certain insured depository institutions and credit unions from the requirement to establish escrow accounts for certain higher-priced mortgage loans (HPMLs). Under the proposed amendment, any loan made by an insured depository institution or credit union that is secured by a first lien on the principal dwelling of a consumer would be exempt from Regulation Z’s HPML escrow requirement if (i) the institution has assets of no more than $10 billion; (ii) “the institution and its affiliates originated 1,000 or fewer loans secured by a first lien on a principal dwelling during the preceding calendar year”; and (iii) the institution meets certain existing HPML escrow exemption criteria. Comments on the NPRM will be accepted for 60 days following publication in the Federal Register.
CFPB releases spring 2020 rulemaking agenda
On June 30, the CFPB released its spring 2020 rulemaking agenda. According to a Bureau announcement, the information details the regulatory matters that the Bureau “expect[s] to focus on” between May 1, 2020 and April 30, 2021. The announcement notes that the agenda was set before the Covid-19 pandemic struck and while the Bureau “continues to move forward with other regulatory work,” it will prioritize work related to supporting consumers and the financial sector during and after the Covid-19 pandemic.
In addition to the rulemaking activities already completed by the Bureau in May and June of this year, the agenda highlights other regulatory activities planned, including:
- Escrow Rulemaking. The Bureau intends to issue a proposed rule to implement Section 108 of the Economic Growth, Regulatory Relief, and Consumer Protection Act of 2018, which directs the Bureau to exempt certain loans made by creditors with assets of $10 billion or less (and that meet other criteria) from the escrow requirements applicable to higher-priced mortgage loans.
- Small Business Rulemaking. The Bureau states that in September 2020, it will publicly release materials for an October panel (convening under the Small Business Regulatory Enforcement Fairness Act) with small entities likely to be directly affected by the Bureau’s rule to implement Section 1071 of Dodd-Frank.
- 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.
- Debt Collection. The Bureau intends to release the final rule amending Regulation F to implement the Fair Debt Collection Practices Act in October 2020 (InfoBytes coverage of the May 2019 proposed rule here). Additionally, “at a later date” the Bureau intends to finalize the February supplemental proposal, which covers time-barred debt disclosures (covered by a Buckley Special Alert here).
- Qualified Mortgages (QM). The Bureau states it is considering issuing a proposed rule “later this year” that would create a new “seasoning” definition of a QM under Regulation Z, allowing for QM status after the borrower has made consistent timely payments for a defined period.
Additionally, in its announcement, the Bureau notes that it is (i) participating in an interagency rulemaking process on quality control standards for automated valuation models (AVMs) with regard to appraisals; and (ii) continuing to review and conduct the five-year lookback assessments under Section 1022(d) of Dodd-Frank.