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Financial Services Law Insights and Observations


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  • Agencies release 2023 list of distressed, underserved communities

    On June 23, the FDIC, Federal Reserve Board, and the OCC released the 2023 list of distressed or underserved nonmetropolitan middle-income geographies where revitalization or stabilization activities are eligible to receive Community Reinvestment Act (CRA) consideration. According to the joint release, the list of distressed nonmetropolitan middle-income geographies and underserved nonmetropolitan middle-income geographies are designated by the agencies under their CRA regulations and reflect local economic conditions such as unemployment, poverty, and population changes. Under CRA, banks are encouraged to help meet the credit needs of the local communities listed. For any geographies that were designated by the agencies in 2022 but not in 2023, the agencies apply a one-year lag period, so such geographies remain eligible for CRA consideration for another 12 months.

    Bank Regulatory Federal Issues OCC FDIC Federal Reserve CRA Underserved Consumer Finance

  • CFPB puts spotlight on “banking deserts” in the south

    Federal Issues

    On June 21, the CFPB published a data spotlight, titled Banking and Credit Access in the Southern Region of the U.S., addressing banking and credit access, particularly mortgage lending, in in the south (Alabama, Arkansas, Georgia, Louisiana, Mississippi, North Carolina, South Carolina, Tennessee). Considering the prevalence of “banking deserts” in the south, the report seeks to identify gaps and opportunities to increase financial access in the region. The report also includes a comparative analysis of rural and nonrural areas. For example, in rural communities and communities of color, the Bureau reports that “even though 23 percent of the population lives in a rural county, only 14 percent of home purchase loans in 2021 went to those areas. Between 2018 and 2021, only 9 percent of home purchase loans went to Black rural borrowers in the region, even though they represent 24 percent of the region’s rural population.” Moreover, the report notes that home loan applications from rural southerners are more likely to be denied than in the rest of the country. The Bureau also states that mortgage interest rates further set the rural south apart, as they tend to be higher, on average, than interest rates nationally. The Bureau’s initial analysis shows that credit scores alone do not explain these lower levels of lending.

    With respect to banking access, the data spotlight highlights the association between the presence of a bank branch and access to necessary financial services—a common concern reported from stakeholders from the south. The Bureau reports that with only 3.6 branches per 10,000 people in the south (as compared to 5.0 branches per 10,000 people nationally), financial services access is limited, particularly when combined with inaccessible online banking due to limited broadband. The report also highlights how small businesses employ nearly half of the region’s workforce; thus, small business lending is a crucial resource to the south. In support of small business lending, the report references resources for business owners to leverage. (­­­­­­­­­­­As previously covered by InfoBytes, when the Small Business Lending Rule goes into effect, the Bureau believes that it will provide “visibility” into small business lending.) The report further includes a reminder that “lenders have the ability to create Special Purpose Credit Programs, which enable the development of directed lending programs to reach historically underserved populations.” The Bureau goes on to state that even when branch locations are present, top barriers include minimum balance requirements, distrust of banks, high fees, and barriers to meeting identification requirements.

    A second report, the Consumer Finances in Rural Areas of the Southern Region, was also published the same day. The report analyzes southern consumer financial profiles, compared to other geographies, including credit scores, financial distress, medical debt, and other debt categories. Among other things, the report highlights the unique position of mortgage borrowers from the rural south. Findings include that the share of chattel loans (for which the land underneath the home is not used as collateral) is seven times higher in the rural south than in other parts of the country. These borrowers are reportedly more venerable to both repossession and rent hikes or eviction. Also, student loan borrowers in the rural south tend to have lower monthly payments and delinquent balance amounts than the respective national averages, but given the area’s lower median incomes, borrowers in this region face a much higher student loan debt burden. Other findings include that rural southerners are less likely to have a credit card or an outstanding mortgage, which is partially reflective of the lower likelihood of successfully taking out credit, even within credit score tiers. According to the report, rural southerners are also more likely to pay higher interest rates on average and are more likely to have medical collections, with medical collections as the most common type of delinquency. These findings, the Bureau says, are an attempt to provide a “starting point” to better understand the financial situations, needs, and challenges of consumers in the south.

    Federal Issues CFPB Consumer Finance Mortgages Medical Debt Credit Report Underserved Small Business Lending

  • Hsu discusses significance of consumer trust in banking

    On June 8, acting Comptroller of Currency Michael J. Hsu discussed the significance of consumer trust in banking, and announced the OCC is considering designing and releasing an annual survey to measure the extent of consumer trust in banking. (See OCC’s request for comments on its proposed annual trust survey.) Hsu noted that public trust in banking is imperative to a good relationship with the communities served and to ensure consumers do not rely on risky means for storing funds. Distrust also presents risks for banks, Hsu said, explaining that “banks that have material fairness and compliance deficiencies may face stiff civil money penalties, restrictions on growth, and sustained reputational damage, limiting their capacities to make loans.” Hsu’s focus on trust in the banking system is also inspired by the threatening impact of unfairness and a lack of inclusivity. Therefore, in addition to the survey, the OCC is focusing on methods of consumer protection to underpin public trust in banks. Efforts include strengthening and modernizing the Community Reinvestment Act to create more lending opportunities to those in low- and moderate-income areas, reforming overdrafts by issuing guidance on overdraft protection programs, and addressing bias in the appraisal of homes by issuing a proposed rule to implement quality control standards for automated valuation models.

    Bank Regulatory Federal Issues OCC Consumer Finance Financial Inclusion CRA Underserved Overdraft AVMs

  • FHFA seeks to codify fair lending oversight

    Agency Rule-Making & Guidance

    On April 19, FHFA issued a notice of proposed rulemaking (NPRM) to codify several existing practices and programs relating to the agency’s fair lending oversight requirements for the Federal Home Loan Banks and Fannie Mae and Freddie Mac (GSEs). Intended to provide increased public transparency and greater oversight and accountability to the regulated entities’ fair housing and fair lending compliance, the NPRM seeks to also formalize requirements for the GSEs to maintain Equitable Housing Finance Plans, which are designed to address racial and ethnic disparities in homeownership and wealth and foster housing finance markets that provide equitable access to affordable and sustainable housing (covered by InfoBytes here). The NPRM will also codify requirements for the GSEs to collect and report homeownership education, housing counseling, and language preference information from the Supplemental Consumer Information Form (SCIF). Lenders are required to use the SCIF as part of the application process for loans with application dates on or after March 1, that will be sold to the GSEs (covered by InfoBytes here). Comments on the NPRM are due 60 days after publication in the Federal Register.

    Agency Rule-Making & Guidance Federal Issues FHFA Freddie Mac Fannie Mae GSEs FHLB Underserved Fair Lending Consumer Finance

  • FHFA rule targets GSE eligibility in colonias

    Agency Rule-Making & Guidance

    On April 12, FHFA published a final rule amending its Enterprise Duty to Serve Underserved Markets regulation. The final rule, which was adopted without change from the proposed rule issued last year (covered by InfoBytes here), allows Fannie Mae and Freddie Mac (GSE) activities in all colonia census tracts to be eligible for Duty to Serve credit. Specifically, the amendment adds a “colonia census tract” definition to serve as a census tract-based proxy for a “colonia” (as generally applied to “unincorporated communities along the U.S.-Mexico border in California, Arizona, New Mexico, and Texas that are characterized by high poverty rates and substandard living conditions”). The final rule also amends the “high-needs rural region” definition by substituting “colonia census tract” for “colonia,” and revises the definition of “rural area” to include all colonia census tracts regardless of their location, in order to make GSE activities in all colonia census tracts eligible for duty to serve credit. The final rule takes effect July 1.

    Agency Rule-Making & Guidance Federal Issues FHFA Underserved Fannie Mae Freddie Mac GSEs Consumer Finance

  • Treasury awards $1.7 billion in CDFI grants

    Federal Issues

    On April 10, Vice President Kamala Harris and Deputy Secretary of the Treasury Wally Adeyemo announced that the U.S. Treasury Department’s Community Development Financial Institutions (CDFIs) Fund has awarded more than $1.73 billion in grants to 603 CDFIs to help low- and moderate-income communities recover from the Covid-19 pandemic. Financial institutions that received grants through the CDFI Equitable Recovery Program include banks, holding companies, and credit unions, as well as CDFI-designated non-depository loan funds and venture funds. Treasury noted that the recipients of the grants are “mission-driven financial institutions [that] specialize in delivering responsible capital, credit, and financial services to underserved communities.” The CDFI grants “may be used to support lending related to small businesses and microenterprises, community facilities, affordable housing, commercial real estate, and intermediary lending to nonprofits and CDFIs,” Treasury explained, adding that funds may also go towards financial and developmental services to support borrowers, as well as operational support for grant recipients.

    Federal Issues Department of Treasury Underserved Consumer Finance CDFI Covid-19

  • FHFA updates GSE equitable housing finance plans

    Agency Rule-Making & Guidance

    On April 5, FHFA announced updates to Fannie Mae and Freddie Mac’s (GSEs) equitable housing finance plans for 2023. (See plans here and here.) The updates include adjustments to plans first announced last year (covered by InfoBytes here), which faced pushback from several Republican senators who argued that the plans raised “significant legal concerns” and that “no law authorizes FHFA to use a GSE’s assets to pursue affirmative action in housing.” (Covered by InfoBytes here.) The senators also argued that the Biden administration was “conscripting the GSEs as instrumentalities of its progressive racial equity agenda to achieve outcomes it cannot achieve legislatively or even legally.”

    According to FHA’s announcement, the updated plans provide the GSEs with a three-year roadmap to address barriers to sustainable housing opportunities. Updates include (i) taking actions to remove barriers faced by Latino renters and homeowners in Fannie Mae’s plan; (ii) an improved focus on ensuring existing borrowers are able to receive fair loss mitigation support and outcomes through monitoring and developing strategies to close gaps; (iii) providing financial capabilities coaching to build credit and savings; (iv) supporting locally-owned modular construction facilities in communities of color; and (v) increasing the reach of GSE special purpose credit programs to support homeownership attainment and housing sustainability in underserved communities.

    Agency Rule-Making & Guidance Federal Issues FHFA Fannie Mae Freddie Mac GSEs Fair Lending Consumer Finance Underserved Disparate Impact

  • FHA seeks feedback on enhancements to rehabilitation mortgage insurance program

    Agency Rule-Making & Guidance

    On February 14, FHA issued a request for information (RFI) seeking input on ways the agency can enhance its Single Family 203(k) Rehabilitation Mortgage Insurance Program. Under the 203(k) Program, borrowers who are purchasing or refinancing a home may obtain FHA insurance on a mortgage that will cover the home’s current value plus rehabilitation costs. The 203(k) Program currently offers two options for borrowers: (i) the Standard 203(k) Mortgage, which is used for remodeling and major repairs, carries a minimum repair cost of $5,000, and requires the use of a 203(k) consultant; and (ii) the Limited 203(k) Mortgage, which is used for minor remodeling and non-structural repairs, has a maximum repair cost of $35,000, and does not require the use of a 203(k) consultant. FHA will use information gathered in response to the RFI “to identify barriers that limit the origination of 203(k) insured mortgages and lender participation in the program and consider opportunities to enhance the 203(k) Program to support HUD’s goal of increasing the available supply of affordable housing in underserved communities.” Comments on the RFI are due April 17.

    Agency Rule-Making & Guidance Federal Issues HUD FHA Mortgages Mortgage Insurance Underserved Consumer Finance

  • CFPB releases 2023 rural or underserved counties list

    Federal Issues

    Recently, the CFPB released its annual lists of rural counties and rural or underserved counties for lenders to use when determining qualified exemptions to certain TILA regulatory requirements. In connection with these releases, the Bureau also directed lenders to use its web-based Rural or Underserved Areas Tool to assess whether a rural or underserved area qualifies for a safe harbor under Regulation Z.

    Federal Issues Agency Rule-Making & Guidance CFPB Underserved Consumer Finance TILA Regulation Z

  • FHFA proposes amendments to help GSEs better serve colonias

    Agency Rule-Making & Guidance

    Recently, FHFA announced a notice of proposed rulemaking (NPRM) to amend its Enterprise Duty to Serve Underserved Markets regulation. Under Section 1129 of the Housing and Economic Recovery Act of 2008, Fannie Mae and Freddie Mac (GSEs) are required to develop loan products and flexible underwriting guidelines for facilitating “a secondary market for mortgages on housing for very low-, low-, and moderate-income families for the manufactured housing, affordable housing preservation, and rural housing markets.” The amendments would add a “colonia census tract” definition, which would serve as a census tract-based proxy for a “colonia” (as generally applied to “unincorporated communities along the U.S.-Mexico border in California, Arizona, New Mexico, and Texas that are characterized by high poverty rates and substandard living conditions”), and would amend the “high-needs rural region” definition by substituting “colonia census tract” for “colonia.” The NPRM would also revise the definition of “rural area” to include all colonia census tracts regardless of their location, in order to make GSE activities in all colonia census tracts eligible for duty to serve credit. “FHFA is committed to promoting affordability, equity, and sustainability in the nation’s housing finance markets, especially in underserved communities,” FHFA Director Sandra L. Thompson said in the announcement. “With this rule, we seek to remove barriers that have hindered the [GSEs’] Duty to Serve activities for people living in colonias.”

    Agency Rule-Making & Guidance Federal Issues FHFA Mortgages Fannie Mae Freddie Mac HERA GSEs Consumer Finance Underserved


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