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On January 31, the CFPB published a new reference chart titled “Reportable HMDA Data: A Regulatory and Reporting Overview Reference Chart for Data Collected in 2019.” The chart is designed to be used as a reference tool for required data points to be collected, recorded, and reported under Regulation C, as amended by HMDA rules issued October 15, 2015, and August 24, 2017, as well as section 104(a) of the Economic Growth, Regulatory Relief, and Consumer Protection Act (implemented and clarified by the 2018 HMDA Rule, which was previously covered by InfoBytes here.) The Bureau noted that this chart does not provide HMDA loan/application register data fields or enumerations, and further emphasized that the chart “does not itself establish any binding obligations” and is not intended to be viewed as a “substitute for the regulation or its official commentary.”
On January 29, the Chairman of the Senate Banking, Housing, and Urban Affairs Committee, Mike Crapo (R-ID), outlined his upcoming committee agenda, which prioritized housing finance. Specifically, Crapo stated “housing finance reform is the last piece of unaddressed business from the financial crisis,” emphasizing that the continued conservatorship of Fannie Mae and Freddie Mac should be addressed with bipartisan legislation to establish better taxpayer protection and increase competition among mortgage guarantors. Crapo also highlighted, among other things, potential legislative needs for (i) capital markets, specifically legislation that would encourage capital formation and reduce burdens for smaller businesses; (ii) data breaches and solutions to provide consumers greater control over their financial data; (iii) credit bureau reform to make it easier for consumers to interface with credit bureaus generally and dispute inaccuracies; and (iv) improvements in the regulatory landscape covering fintech innovation. Crapo also acknowledged the upcoming expiration of the National Flood Insurance Program in May, noting that the program was extended ten times last Congress, and any significant reforms need to balance taxpayer interest with the assistance of consumers.
The Committee will continue to provide ongoing oversight over the federal financial regulatory agencies, including whether the regulations, guidance and supervisory expectations are consistent with the intent of the sponsors of the Economic Growth, Regulatory Relief, and Consumer Protection Act. Additionally, the Committee will (i) continue its review of the “benefits of agencies that have a bipartisan commission, rather than a single director; a Congressional funding mechanism; and a safety and soundness focus,” and (ii) conduct oversight into financial companies’ actions with regard to access to credit, including whether companies withhold access to customers and industries they disfavor.
On January 17, the OCC announced, together with the Federal Reserve Board and the FDIC, the final rule amending regulations governing eligibility for the 18-month on-site examination cycle, pursuant to the Economic Growth, Regulatory Relief, and Consumer Protection Act. The final rule was published without change from the interim rule issued in August 2018 (covered by InfoBytes here). The final rule allows for qualifying insured depository institutions with less than $3 billion in total assets (which is an increase from the previous threshold of $1 billion) to be eligible for an 18-month on-site examination cycle. The agencies reserve the right to adopt a more frequent schedule than 18 months for qualifying institutions if deemed “necessary or appropriate.” The final rule is effective January 28.
On January 8, the Federal Reserve Board (Board) issued a notice of proposed rulemaking (NPR) that would revise company-run stress test and supervisory stress test requirements to conform with Section 401 of the Economic Growth, Regulatory Relief, and Consumer Protection Act (the Act). Similar to the previously issued NPRs by the FDIC and the OCC (covered by InfoBytes here), the proposed rule will, among other things, change the minimum threshold for applicability from $10 billion to $250 billion in consolidated assets and revise the frequency of required company-run stress tests for most state member banks from annual to biannual. However, the proposed rule notes that certain state member banks will still be required to conduct annual stress tests, such as (i) those that are subsidiaries of global systemically important bank holding companies; (ii) bank holding companies that have $700 billion or more in total assets; or (iii) cross-jurisdictional activity of $75 billion or more. Furthermore, the proposed rule will remove the “adverse” stress testing scenario—which the Board states has provided “limited incremental information”—and require stress tests to be conducted under the “baseline” and “severely adverse” stress testing scenarios. Comments on the NPR must be received by February 19.
On December 19, the FDIC announced an advance notice of proposed rulemaking (ANPR) requesting comments on the agency's brokered deposit and interest rate cap regulations. (See also FDIC FIL-87-2018.) These regulations were originally implemented in the late 1980s and early 1990s, and apply to less than well-capitalized insured depository institutions. According to the FDIC, there have been “significant changes in technology, business models, the economic environment, and products since the regulations were adopted.” Currently, Section 29 of the Federal Deposit Insurance Act restricts less than well-capitalized insured depository institutions from accepting brokered deposits, and places restrictions on interest rates that these insured depository institutions can offer. The ANPR includes a series of questions seeking feedback on a number of issues, including (i) ways in which the FDIC can improve the implementation of Section 29 “while continuing to protect the safety and soundness of the banking system;” (ii) whether the definition of a brokered deposit is too narrow or too broad; (iii) whether there have been specific changes within the financial services industry since the regulations were adopted that should be considered; (iv) whether there should be changes to the agency’s national rate calculation; and (v) how rates offered by internet or electronic-based financial institutions should be calculated.
The ANPR further notes that the Economic Growth, Regulatory Relief, and Consumer Protection Act created an exception from brokered deposit consideration for some reciprocal deposits. (See previous InfoBytes coverage here.)
FDIC, OCC issue notices of proposed rulemaking to raise asset threshold and reduce scope of stress testing requirements
On December 18, the FDIC issued a notice of proposed rulemaking (NPR) that would revise stress testing requirements for FDIC-supervised institutions, consistent with changes made by Section 401 of the Economic Growth, Regulatory Relief, and Consumer Protection Act (the Act). In particular, the proposed rule will (i) change the minimum threshold for applicability from $10 billion to $250 billion; (ii) revise the frequency of required stress tests for most FDIC-supervised institutions from annual to biannual; and (iii) reduce the number of required stress testing scenarios from three to two. Among other things, the FDIC proposes that, in general, FDIC-supervised institutions that are covered banks as of December 31, 2019, will “be required to conduct, report, and publish a stress test once every two years, beginning on January 1, 2020, and continuing every even-numbered year thereafter.” The proposed rule will also add a new defined term, “reporting year,” which will be the year in which a covered bank must conduct, report, and publish its stress test. However, the proposed rule notes that certain covered banks will still be required to conduct annual stress tests, such as covered banks that are subsidiaries of global systemically important bank holding companies or bank holding companies that have $700 billion or more in total assets or cross-jurisdictional activity of $75 billion or more, under rules proposed by the Federal Reserve Board. Furthermore, the proposed rule will remove the “adverse” scenario—which the FDIC states has provided “limited incremental information”—and require stress tests to be conducted under the “baseline” and “severely adverse” stress testing scenarios.
Separately the same day, the OCC also issued a NPR to amend the agency’s stress testing rule for covered financial institutions to be consistent with Section 401, which incorporates the revisions described in the FDIC’s NPR.
Comments on both NPRs are due by February 19, 2019.
On December 18, the FDIC, the Federal Reserve Board, the OCC, the SEC, and the CFTC (collectively, the Agencies) issued a notice of proposed rulemaking to amend regulations implementing Section 13 of the Bank Holding Company Act (known as, the “Volcker Rule”) to be consistent with Sections 203 and 204 of the Economic Growth, Regulatory Relief, and Consumer Protection Act (the Act). (Previously covered by InfoBytes here.) Consistent with Section 203 of the Act, the proposal would exempt community banks from the restrictions of the Volcker Rule if they, and every entity that controls them, have (i) total consolidated assets equal to or less than $10 billion; and (ii) total trading assets and liabilities that are equal to or less than five percent of their total consolidated assets.
The proposal also, consistent with Section 204 of the Act, would permit a hedge fund or private equity fund organized and offered by a banking entity to share a name with a banking entity that is its investment advisor, if (i) the advisor is not an insured depository institution, does not control a depository institution, and is not treated as a bank holding company under the International Banking Act; (ii) the advisor does not share a name with any such entities; and (iii) the shared name does not include "bank."
Comments will be due 60 days after publication in the Federal Register.
On December 13, the Federal Housing Finance Agency (FHFA) issued a proposed rule to establish new requirements for the verification of credit score models used by Fannie Mae and Freddie Mac (the Enterprises), as mandated by Section 310 of the Economic Growth, Regulatory Relief, and Consumer Protection Act (the Act). Under the proposed rule, the Enterprises will use a four-phase process to validate and approve credit score models including: (i) soliciting applications from credit score model developers; (ii) reviewing submitted applications for completeness, which includes the receipt of all required fees; (iii) conducting a credit score assessment, which would require the Enterprises to evaluate each credit score model for “accuracy, reliability and integrity, independent of the use of the credit score in the Enterprise’s systems, as well as any other requirements established by the Enterprise”; and (iv) assessing the model in conjunction with the Enterprises’ business systems. Additionally, the FHFA stated it will not require either of the Enterprises to use a third-party credit score model; however, any credit score used by the Enterprises as a condition to purchase of a loan “must be produced by a model that has been validated and approved by the Enterprise based on the standards and criteria in the [EGRRCPA] and FHFA regulations.” Comments will be due 90 days after publication in the Federal Register.
As previously covered by InfoBytes, the FHFA stated in July that it would set aside an ongoing initiative to evaluate the potential impact of a new credit score model on “access to credit, safety and soundness, operations in the mortgage finance industry, and competition in the credit score market,” in order to focus on implementing Section 310.
On December 17, the Department of Veterans Affairs (VA) published an interim final rule in the Federal Register to amend its rules on VA-guaranteed or insured cash-out refinance loans as required by Section 309 of the Economic Growth, Regulatory Relief, and Consumer Protection Act (codified as 38 U.S.C. § 3709). (See also, VA Circular 26-18-30 and accompanying revision for a summary of the rule.) The interim final rule, which revises the current regulation, 38 CFR 36.4306, bifurcates cash-out refinance loans into two types, (i) Type I, the loan being refinanced is already guaranteed or insured by VA and the new loan amount is equal to or less than the payoff amount of the loan being refinanced; and (ii) Type II, cash-outs in which the amount of the principal for the new loan is larger than the payoff amount of the refinanced loan. Under the interim rule, for both Type I and Type II, the VA will permit a cash-out refinance provided:
- Reasonable Value. The new loan may not exceed an amount equal to 100 percent of the reasonable value of the dwelling or farm residence that secures the loan.
- Funding Fee. The funding fee may be financed in the new loan amount; however, any portion of the funding fee that would cause the new loan amount to exceed 100 percent of the reasonable value of the property must be paid in cash at the loan closing.
- Net Tangible Benefit. The loan must provide a net tangible benefit to the borrower, which can be satisfied in one of eight ways (i) the new loan eliminates monthly mortgage insurance, whether public or private, or monthly guaranty insurance; (ii) the term of the new loan is shorter; (iii) the interest rate on the new loan is lower; (iv) the payment on the new loan is lower; (v) the new loan results in an increase in the borrower’s residual monthly income; (vi) the new loan refinances an interim loan to construct, alter, or repair the home; (vii) the new loan amount is equal to or less than 90 percent of the reasonable value of the home; or (viii) the new loan refinances an adjustable rate loan to a fixed rate loan.
- Disclosure. The lender must provide the borrower, and the borrower must certify, net tangible benefit information, a loan comparison disclosure, and an estimate of the amount of home equity removed from the refinance, in a standardized format, on two separate occasions (not later than 3 business days from the date of application and again at closing).
- Other. As required by the current regulation, any borrower paid discount must be considered reasonable in accordance with § 36.4313(d)(7)(i) and the loan must also otherwise be eligible for the VA guarantee.
For Type I cash-out refinances, the VA also requires (i) all the fees and incurred costs to be scheduled to be recouped within 36 months after the date of loan issuance; (ii) a loan seasoning period of the later date of 210 days after the date of the first payment made and the date the sixth monthly payment is made on the loan; and (iii) under the net tangible benefit requirement, for a fixed interest rate to a fixed interest rate, the rate must be reduced by 50 basis points and for a fixed to adjustable interest rate, the rate must be reduced by 200 basis points.
For Type II cash-out refinances, if the loan being refinanced is a VA loan, the same loan seasoning requirement applies (the later date of 210 days after the date of the first payment made and the date the sixth monthly payment is made on the loan). There are no additional restrictions on fee recoupment or rate reductions.
The interim final rule takes effect February 15, 2019, with comments due on or before the effective date.
On December 7, the Federal Reserve Board, the FDIC, and the OCC issued guidance regarding the HMDA key data fields that Federal Reserve examiners use to evaluate the accuracy of HMDA data collected since January 1 pursuant to the CFPB’s October 2015 and August 2017 amendments and the May 2018 Economic Growth, Regulatory Relief, and Consumer Protection Act (the Act) exemptions (all of which have been previously covered by InfoBytes here, here, and here).
The guidance cites to the October 2017 list of 37 key data fields identified by the agencies and notes that “[o]nce examiners have selected a random sample of entries from an institution’s HMDA Loan Application Register (HMDA LAR) and have received the corresponding loan files, they would verify the accuracy of the applicable HMDA key data fields in the entries in the HMDA LAR sample(s) against information in the loan files.” Additionally, for institutions eligible for the partial exemption granted by the Act, and covered by the Bureau’s August interpretive and procedural rule (InfoBytes coverage here), the guidance notes that these institutions are responsible for collecting, recording, and reporting only 21 of the 37 designated HMDA key data fields, as the exemption covers the other 16 fields.
The Federal Financial Institutions Examination Council members are currently developing a set of revised interagency HMDA examination procedures regarding HMDA requirements relating to data collected from January 1, 2018 onward.
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- Matthew P. Previn and Walter E. Zalenski to discuss "Is valid when made ... valid?" at the Women in Housing & Finance Partner Series webinar
- Warren W. Traiger and Caroline K. Eisner to discuss "CRA modernization and the OCC final rule" at CBA Live
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- Thomas A. Sporkin to discuss "Managing internal investigations and advanced government defense" at the Securities Enforcement Forum
- H Joshua Kotin to discuss "Mortgage servicing in a recession: Early intervention, loss mitigation and more" at the NAFCU Virtual Regulatory Compliance Seminar
- Daniel R. Alonso to discuss "Independent monitoring in the United States" at the World Compliance Association Peru Chapter IV International Conference on Compliance and the Fight Against Corruption
- Jonice Gray Tucker to discuss "The future of fair lending" at the Mortgage Bankers Association Regulatory Compliance Conference
- Michelle L. Rogers to discuss "Major litigation" at the Mortgage Bankers Association Regulatory Compliance Conference
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