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CFPB provides update on housing insecurity during pandemic
On June 22, the CFPB issued a release with data updating its March report on the effects of the Covid-19 pandemic on housing insecurity, finding some improvement but still elevated risks for borrowers relative to prior periods. The report summarized data and research regarding the impact of the pandemic on the rental and mortgage market, and specifically its effects on low income and minority households. According to the report, as of December 2020, 11 million renter and homeowner households were significantly overdue on their regular housing payments, which placed them, especially Black and Hispanic households, at a heightened risk of their homes being subjected to foreclosure or eviction. The report also indicated that as of January 2021, there were 2.7 million borrowers in active forbearance. As of June 2021, 600,000 fewer consumers were in mortgage forbearance than in January 2021, with forbearance rates significantly decreasing in April when many borrowers exited forbearance after reaching 12 months. According to the CFPB, this was a positive indication because many of these borrowers would have qualified for longer extensions of total forbearance. The release also notes, however, that for borrowers who have exited forbearance, payment deferrals or partial claims were the most common repayment option, and that “[o]f the borrowers still in forbearance, many may face a precarious financial situation upon exiting.” Additionally, while indicating that foreclosure rates remained at historic lows during the first quarter of 2021, with 0.54 percent of mortgages in foreclosure, the release also notes that the CARES Act and direction from Fannie Mae and Freddie Mac (GSEs), FHA, VA, and USDA “have prohibited lenders and servicers of GSE and federally-backed loans from beginning or proceeding with foreclosures.” Seriously delinquent mortgage borrowers remain approximately three times higher than before the pandemic, with 1.9 million mortgage borrowers over three months behind on mortgage payments or in active foreclosure, with more than one in 10 borrowers with an FHA loan remaining seriously delinquent on their mortgage, a rate higher than the peak during the Great Recession. The release also notes that during the pandemic, mortgage forbearance and delinquency have been significantly more common in communities of color and lower-income communities (covered by Infobytes here).
CFPB publishes rulemaking agenda
On June 11, the Office of Information and Regulatory Affairs released the CFPB’s spring 2021 rulemaking agenda. According to a Bureau announcement, the information released represents regulatory matters the Bureau is “currently pursuing under interim leadership pending the appointment and confirmation of a permanent Director.” Any changes made by the new permanent director will be reflected in the fall 2021 rulemaking agenda. Additionally, the Bureau indicates that it plans to continue to focus resources on actions addressing the adverse impacts to consumers due to the ongoing Covid-19 pandemic, and highlighted an interim final rule issued in April that addresses certain debt collector conduct associated with the CDC’s temporary eviction moratorium order (covered by InfoBytes here). The Bureau will also continue to take concrete steps toward furthering the agency’s “commitment to promoting racial and economic equity.”
Key rulemaking initiatives include:
- Small Business Rulemaking. Last September, the Bureau released a Small Business Regulatory Enforcement Fairness Act of 1996 (SBREFA) outline of proposals under consideration, convened an SBREFA panel last October, and released the panel’s final report last December (covered by InfoBytes here and here). The Bureau reports that it anticipates releasing a notice of proposed rulemaking (NPRM) for the Section 1071 regulations this September to “facilitate enforcement of fair lending laws as well as enable communities, governmental entities, and creditors to identify business and community development needs and opportunities of women-owned, minority-owned, and small businesses.”
- Consumer Access to Financial Records. The Bureau notes that it is considering 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 last fall regarding consumer data access (covered by InfoBytes here).
- 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. The Bureau notes 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, [ ] avoid conflicts of interest, require random sample testing and reviews,” and account for any other appropriate factors. An NPRM is anticipated for December.
- Amendments to Regulation Z to Facilitate LIBOR Transition. As previously covered by InfoBytes, the Bureau issued an NPRM in June 2020 to amend Regulation Z to address the sunset of LIBOR, and to facilitate creditors’ transition away from using LIBOR as an index for variable-rate consumer products. A final rule is expected in January 2022.
- Reviewing Existing Regulations. The Bureau notes in its announcement that while it will conduct an assessment of a rule implementing HMDA (most of which took effect January 2018), it will no longer pursue two HMDA proposed rulemakings previously listed in earlier agendas related to the reporting of HMDA data points and public disclosure of HMDA data. Additionally, the Bureau states that it finished a review of Regulation Z rules implementing the Credit Card Accountability Responsibility and Disclosure Act of 2009 and plans to publish any resulting changes in the fall 2021 agenda.
The Bureau’s announcement also highlights several completed rulemaking items, including (i) a final rule that formally extended the mandatory compliance date of the General Qualified Mortgage final rule to October 1, 2022 (covered by InfoBytes here); (ii) proposed amendments to the mortgage servicing early intervention and loss mitigation-related provisions under RESPA/Regulation X (covered by a Buckley Special Alert) (the Bureau anticipates issuing a final rule before June 30, when the federal foreclosure moratoria are set to expire); and (iii) a proposed rule (covered by InfoBytes here), which would extend the effective date of two final debt collection rules to allow affected parties additional time to comply due to the ongoing Covid-19 pandemic (the Bureau plans to issue a final rule in June on whether, and for how long, it will extend the effective date once it reviews comments).
Fed winding down Secondary Market Corporate Credit Facility
On June 2, the Federal Reserve Board announced plans to wind down the portfolio of the Secondary Market Corporate Credit Facility (SMCCF), a temporary emergency lending facility that was established and provided by the Treasury Department under the CARES Act, which closed in December 2020. The SMCCF (covered by InfoBytes here) played a role in restoring market functioning, supported the availability of credit for certain employers, and assisted employment numbers during the Covid-19 pandemic. According to the announcement, sales from the SMCCF portfolio will be “gradual and orderly,” aiming to decrease the likelihood of “any adverse impact on market functioning by taking into account daily liquidity and trading conditions for exchange traded funds and corporate bonds.” The announcement also indicates that the Federal Reserve Bank of New York, which manages the operations of the SMCCF, will release more details before sales begin.
PPP closes to new applications
On June 1, the Small Business Administration (SBA) issued an announcement on the closure of the Paycheck Protection Program (PPP) to new loan guaranty applications. The PPP has provided over $798 billion in economic relief to over 8.5 million small businesses and nonprofits across the nation, and was among the first Covid-19 economic disaster relief programs to provide small businesses affected by the pandemic with emergency funds. According to the announcement, the PPP supported the “smallest of small businesses with 32 percent of the loans going to Low-and-Moderate Income (LMI) communities.” Additionally, Community Financial Institutions played a role in PPP lending to underserved communities by providing 1.5 million loans, which totaled around $30 billion. SBA Administrator Isabella Casillas Guzman pointed out, “in 2021, 96 percent of PPP loans went to small businesses with fewer than 20 employees. Moving forward, [the SBA] will continue to prioritize equity in all SBA programs and services.”
VA establishes VAPCP requirements
On May 28, the Department of Veterans Affairs (VA) published a final rule in the Federal Register, which establishes the “COVID–19 Veterans Assistance Partial Claim Payment” (VAPCP) program to help veterans resume making normal loan payments on VA-guaranteed loans after exiting forbearance due to the Covid-19 pandemic. The final rule incorporates several revisions in response to comments submitted by veterans, lenders, servicers, consumer groups, and trade associations on the VA’s proposed rule published last December (covered by InfoBytes here). Under the final rule, the partial claim maximum limit is increased from the proposed 15 percent to 30 percent of the unpaid principal balance of the guaranteed loan as of the date the veteran entered into a Covid-19 forbearance. The timeframe for servicers to submit partial claim payment requests to the VA also was increased from 90 to 120 days. Additionally, the final rule will allow servicers to use the Covid-VAPCP program “even if other home retention options are feasible, provided the partial claim payment option is in the veteran’s financial interest.” For a loan to qualify for a Covid-VAPCP, among other things, (i) the guaranteed loan must have been either current or less than 30 days past due on March 1, 2020, or made on or after March 1, 2020; (ii) the veteran must have received a Covid-19 forbearance and missed at least one scheduled monthly payment; (iii) at least one unpaid scheduled monthly payment must remain that the veteran did not make while under a Covid-19 forbearance; (iv) the veteran must indicate the ability to “resume making scheduled monthly payments, on time and in full, and that the veteran occupies, as the veteran’s residence, the property securing the guaranteed loan for which the partial claim is requested”; and (v) the veteran must timely execute all necessary loan documents in order to establish an obligation to repay the partial claim payment.
Notably, the final rule strikes the following requirements that were included in the proposed rule: (i) veterans will not be required to repay the partial claim within 120 months; (ii) interest will not be charged on the Covid-VAPCP; and (iii) servicers will not have to complete financial evaluations of veterans in the program.
The rule is effective July 27.
House subcommittee explores fintech companies’ role in PPP loan processing
On May 27, the House Select Subcommittee on the Coronavirus Crisis sent letters to two banks and two fintech companies seeking information on the companies’ handling of loan applications under the Paycheck Protection Program (PPP). According to a press release announcing the launch of the subcommittee’s investigation, the letters (available here, here, here, and here) were sent to four companies that facilitated PPP loans but may have allegedly failed to adequately screen PPP loan applications for fraud. The subcommittee notes that recent reports lend “credence to reports that criminal actors sought out [fintechs] for fraudulent PPP loans because of the speed with which the [fintech] companies processed the loans—which in some cases could be approved in ‘as little as an hour’—and the fact that the [fintech] loan application process appeared to include very little scrutiny of its applicants.” The letters request documents and information to assist the Subcommittee in understanding the fraud controls and compliance systems that the companies applied to their PPP loan programs.
Fed continues to allow bank insiders access to PPP loans
On May 14, the Federal Reserve Board announced the third extension of a temporary exception from the requirements of section 22(h) of the Federal Reserve Act and corresponding provisions of Regulation O to allow certain bank directors and shareholders to apply for Small Business Administration (SBA) Paycheck Protection Program (PPP) loans from their affiliated banks. The extension is effective immediately and applies to PPP loans made from March 31 through June 30. If the PPP is extended, the rule change will ultimately end on March 31, 2022. The Fed reiterated that any PPP loans extended to bank directors and shareholders must be consistent with SBA’s PPP lending restrictions and done without favoritism from the bank. The original extension was announced on April 17 (covered by InfoBytes here).
Industry group sues to stop Washington’s emergency rule banning credit scoring in insurance underwriting
On April 8, the American Property Casualty Insurance Association (APCIA) filed a lawsuit in Washington Superior Court in an attempt to stop an emergency rule issued last month by the Washington Insurance Commissioner, which bans the use of credit-based insurance scores in the rating and underwriting of insurance for a three-year period. The rule specifically prohibits insurers from “us[ing] credit history to place insurance coverage with a particular affiliated insurer or insurer within an overall group of affiliated insurance companies” and applies to all new policies effective, and existing policies processed for renewal, on or after June 20, 2021.
According to a press release issued by the Commissioner, the emergency rule is intended to prevent discriminatory pricing in private auto, renters, and homeowners insurance in anticipation of the end of the CARES Act, which will expire 120 days after President Biden declares an end to the national emergency caused by the Covid-19 pandemic. Under the CARES Act, Congress required furnishers of information to credit bureaus to modify credit reporting practices if and when they grant an “accommodation”—that is, an agreement to defer payments, modify a loan, or grant other relief—to borrowers impacted by the Covid-19 pandemic, irrespective of asset type to ensure that borrowers who sought and obtained forbearance or other relief were not credit reported as becoming delinquent or further delinquent as a result of the forbearance or other relief (see Buckley Special Alert), which the Commissioner believes has disrupted the credit reporting process and reportedly caused credit bureaus to collect inaccurate credit histories for some consumers. The Commissioner further contends that because “the predicative ability of current credit scoring models cannot be assumed,” scoring models used by insurers to set rates for policyholders have been degraded and will have a disparate impact on consumers with lower incomes and communities of color. Sources report that APCIA’s lawsuit—which seeks declaratory and injunctive relief (and asks the court to declare the Commissioner’s rule invalid and to enjoin its enforcement)—claims the Commissioner’s rule will harm insured consumers in the state who pay less for auto, homeowners, and renters insurance because of the use of credit-based insurance scores to predict risk and set rates.
Biden extends PPP deadline
On March 30, President Biden signed the PPP Extension Act of 2021, extending the covered period for the Paycheck Protection Program from March 31 to June 30. However, new loan applications will not be accepted after May 31.
SBA gives guidance on PPP loan-error codes
On March 29, the Small Business Administration (SBA) issued an updated procedural notice to lenders providing instructions on Paycheck Protection Program (PPP) loan error codes. The notice revises guidance provided in a previously issued procedural notice (covered by InfoBytes here) and addresses (i) Second Draw PPP loan guaranty applications where there is a hold code on the borrower’s First Draw PPP loan, as well as (ii) First Draw PPP loan guaranty applications and Second Draw PPP loan guaranty applications with compliance check error messages. The updates address compliance check error messages related to disqualifying criminal history, delinquent or defaulted federal student loan restrictions, and updated lender certification.