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Financial Services Law Insights and Observations


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  • CFPB seeks better refi, loss-mitigation options

    Federal Issues

    On September 22, the CFPB issued a request for information (RFI) regarding ways to improve mortgage refinances for homeowners and how to support automatic short-term and long-term loss mitigation assistance for homeowners who experience financial disruptions. According to the Bureau, refinancing volume has decreased almost 70 percent from last year as interest rates have risen. Additionally, periods of economic turmoil, such as the Covid-19 pandemic, can pose significant challenges for mortgage borrowers, the Bureau noted. Throughout the pandemic, 8.2 million borrowers entered a forbearance program, and as of July 2022, 93 percent have exited. Of those who have exited forbearance, five percent are delinquent or in active foreclosure. The Bureau is interested in the features of pandemic-related forbearance programs that should be made more generally available to borrowers. Specifically, the RFI requests information regarding, among other things: (i) targeted and streamlined refinance programs; (ii) innovative refinancing products; and (iii) automatic forbearance and long-term loss mitigation assistance. Comments are due 60 days after publication in the Federal Register.

    Federal Issues Agency Rule-Making & Guidance CFPB Consumer Finance Mortgages Refinance Forbearance Federal Register

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  • FHFA makes GSE desktop appraisals permanent, expands refinance programs for LMI borrowers

    Federal Issues

    On October 18, FHFA announced two measures to advance housing sustainability and affordability. Speaking before the 2021 Mortgage Bankers Association Annual Convention and Expo, acting Director Sandra Thompson announced that Fannie Mae and Freddie Mac (GSEs) “will incorporate desktop appraisals into their guides for many new purchase loans starting in early 2022.” Thompson explained that including desktop appraisals in the selling guides will change what was a temporary flexibility into an option that will “mitigate risk for use over the long-term” and will “become an established option for originating [GSE] loans.” According to Thompson, this certainty should allow lenders, borrowers, and appraisers to take advantage of efficiency gains provided through desktop appraisals.

    Thompson also announced that the GSEs will expand their refinance programs for low- and moderate-income borrowers that were introduced last year. Several enhancements will be made to the RefiNow and RefiPossible programs to expand eligibility requirements and make the programs easier for lenders to offer. Thompson noted that income threshold for eligible borrowers will be raised from 80 percent of area median income to 100 percent. Additionally, the GSEs are making other modifications to reduce operational frictions for lenders.

    Federal Issues FHFA Mortgages Appraisal Fannie Mae Freddie Mac GSE Refinance Consumer Finance

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  • FHA issues underwriting guidelines on prior forbearances

    Federal Issues

    On September 10, FHA released Mortgagee Letter 2020-30, which discusses FHA’s underwriting guidelines for mortgages involving borrowers who were previously granted a forbearance. The letter notes that FHA is “expanding its underwriting guidelines” to address situations in which borrowers are seeking new FHA insured financing after being granted a forbearance, due to either a Presidentially Declared major disaster or some other hardship, including the Covid-19 pandemic. The letter specifies that a borrower will be eligible for a new FHA insured mortgage after being granted a forbearance if, among other things, (i) the borrower continued to make regularly scheduled payments and the forbearance plan is terminated; or (ii) for cash-out refinances, the borrower has completed the forbearance and has subsequently made 12 consecutive monthly payments; or (iii) for purchases and no cash-out refinances, the borrower has completed the forbearance and has subsequently made at least three consecutive monthly payments; or (iv) for “Credit Qualifying Streamline” refinances, the borrower has completed the forbearance and has subsequently made less than three consecutive monthly payments; and (v) for all “Streamline refinance” transactions, the borrower has made at least six payments on the FHA insured mortgage being refinanced.

    FHA requires the new underwriting guidelines be implemented for all case numbers assigned on or after November 9.

    Federal Issues Covid-19 FHA Disaster Relief Mortgages Refinance Forbearance

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  • FHFA delays implementation of new refinance fee

    Federal Issues

    On August 25, FHFA announced that it will delay implementation of Fannie Mae and Freddie Mac’s new adverse market refinance fee until December 1. As previously covered by InfoBytes, the adverse market refinance fee of 50 basis points, or 0.5 percent, was originally slated to apply to certain refinance mortgages with settlement dates on or after September 1. FHFA received significant pushback regarding the fee, including concerns about its expedited implementation period, and lack of information regarding the market conditions that would be addressed by the change (see InfoBytes coverage here). In the new announcement, FHFA states that the fee is “necessary to cover projected COVID-19 losses of at least $6 billion at the Enterprises,” noting that $6 billion is the “conservatively projected” cost of actions taken to protect renters and borrowers based on (i) “$4 billion in loan losses due to projected forbearance defaults”; (ii) “$1 billion in foreclosure moratorium losses”; and (iii) “$1 billion in servicer compensation and other forbearance expenses.”

    Federal Issues FHFA Refinance Fannie Mae Freddie Mac Covid-19 Mortgages

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  • Senators question FHFA on adverse market refinance fee

    Federal Issues

    On August 19, a group of Democratic Senators wrote to FHFA Director Mark Calabria expressing concern over the newly announced adverse market refinance fee of 50 basis points, or 0.5 percent, on certain refinance mortgages (covered by InfoBytes here). The letter acknowledges that throughout the Covid-19 pandemic, Fannie Mae and Freddie Mac (GSEs) “have adopted policies to ease purchase and most refinance transactions,” to assist homeowners. However, the new refinance fee “that will be implemented just three weeks after it was announced” was a “surprise to see,” according to the letter. The senators stress that the new fee “will shift more of a financial burden to consumers,” which would contradict the GSEs’ purpose of providing stability in the secondary mortgage market.

    The letter follows an August 14 letter from the Chair of the Senate Banking Committee, Mike Crapo (R-ID), which expresses similar concern for consumers but also notes that the short window before the effective date can complicate the refinance process for current buyers and negatively impact community lenders who already have closed loans that cannot be delivered before September 1.

    Both letters request Calabria provide more information on the policy change, including details regarding the market conditions that would be addressed by the fee and how the fee amount was determined.

    Federal Issues Covid-19 FHFA Fannie Mae Freddie Mac GSE Refinance

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  • Fannie and Freddie announce new refinance fee

    Federal Issues

    On August 12, Fannie Mae and Freddie Mac announced a new adverse market refinance fee of 50 basis points, or 0.5 percent, on certain refinance mortgages. According to Freddie Mac’s Guide Bulletin 2020-32, the refinance fee applies to cash-out and no cash-out refinance mortgages “except for Construction Conversion Mortgages that qualify for single-closing Interim Construction Financing and Permanent Financing.” The Bulletin notes that the fee is a result of economic and market uncertainty due to the Covid-19 pandemic. Fannie Mae’s Lender Letter LL-2020-12 notes that the new fee applies to limited cash-out refinances and cash-out refinances but provides a limited exception for certain single-closing construction-to-permanent loans.

    The new fee is effective for applicable refinance mortgages with settlement dates on or after September 1.

    Federal Issues Fannie Mae Freddie Mac GSE Refinance Mortgages Covid-19

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  • VA issues lender guidance on Covid-19

    Federal Issues

    On June 30, the Department of Veterans Affairs issued Circular 26-20-25 (and subsequently issued Circular 26-20-25, Change 1), which provides guidance on the impact of the CARES Act foreclosure protections on VA-guaranteed purchase and refinance transactions. The circular states that for purchase and cash-out refinance loans, the “VA will not consider a Veteran as an unsatisfactory credit risk, based solely upon the fact that the Veteran received some type of credit forbearance or experienced some type of deferred payment during the COVID-19 national emergency.” With regard to Interest Rate Reduction Refinance Loans (IRRRL), the Circular notes that the VA is waiving certain prior approval requirements for delinquent loans if (i) the lender is approved to close loans on an automatic basis; (ii) the loan being refinanced is under CARES Act forbearance protections; (iii) the borrower is no longer experiencing the financial hardship caused by the Covid-19 pandemic; and (iv) the borrower qualifies for other IRRRL credit standards. Moreover, the Circular details additional IRRRL considerations for lenders, including maximum loan amounts, loan seasoning, and valuation requirements. Lastly, the Circular encourages lenders to waive origination fees and consider discount points and premium pricing offsets for veterans impacted by the Covid-19 pandemic.

    Federal Issues Covid-19 CARES Act Department of Veterans Affairs Refinance IRRRL Foreclosure

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  • Fannie and Freddie: Borrowers eligible for refinance or purchase while in forbearance

    Federal Issues

    On May 19, the FHFA announced that Fannie Mae and Freddie Mac issued temporary guidance that would allow borrowers who are in forbearance, or have recently ended forbearance, to be eligible to refinance or purchase a new home. According to Fannie Mae Lender Letter LL-2020-03 and Freddie Mac Bulletin 2020-17, borrowers are eligible to purchase a new home or refinance their mortgage if they are current on their mortgage—defined as having “made all mortgage payments due in the month prior to the note date of the new loan transaction by no later than the last business day of that month”—or if the mortgage is currently in a loss mitigation solution (the borrower must have made at least three timely payments as of the note date of the new transaction). Lenders are required to apply the guidance to loans with application dates on or after June 2, but may apply them immediately.

    On the same day, Fannie Mae also issued an update to LL-2020-06, which extends the effective date for eligible loans in forbearance due to a Covid-19 hardship to June 30 with delivery to Fannie Mae by August 31.

    Federal Issues Covid-19 Fannie Mae Freddie Mac Forbearance Loss Mitigation Refinance Mortgages

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  • VA issues guidance for noncompliant interest rate reduction refinance loans

    Agency Rule-Making & Guidance

    On April 20, the Veterans Benefits Administration (VA) issued Circular 26-20-16, which provides guidance for noncompliant interest rate reduction refinance loans (IRRRLs). The guidance notes that the Economic Growth, Regulatory Relief, and Consumer Protection Act (the Act) provides statutory criteria that affect whether the VA can guarantee refinance loans. In VA Circular 26-19-22, the VA notified lenders that an IRRRL must meet the requirements of the Act to receive and retain the full amount of VA’s guarantee. As such, Circular 26-20-16 sets forth requirements for IRRRLs, including enterprise level reporting and loan level reporting. The circular also discusses loan seasoning issues and the VA’s oversight of lender actions. The circular is rescinded April 1, 2023.

    Agency Rule-Making & Guidance Department of Veterans Affairs IRRRL EGRRCPA Consumer Lending Refinance

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  • VA, FHA issue valuation and appraisal guidance

    Federal Issues

    On March 27, the Department of Veterans Affairs (VA) issued guidance on valuation and appraisal practices during the Covid-19 crisis. Effective on March 27 and until modified or rescinded, VA home loan appraisers may utilize exterior-only appraisals and, in certain limited situations, desktop appraisals, for purchase and refinance transactions. When the appraiser does not inspect the interior of the property, additional sources may be used to inform the appraisal, including public records, MLS listing information, and other reliable third-party sources. The VA also issued Exhibit A to the valuation and appraisal practices circular. This document provides a statement of assumptions and limiting conditions and certifications for Desktop-only appraisals, in addition to instructions and a scope of work to be used by the appraiser.

    On the same day, the FHA issued similar guidance in Mortgagee Letter 2020-05 regarding appraisals and employment reverifications. Modifications to FHA single-family employment reverifications requirements include allowing verbal employment reverifications. The modifications also remove employment reverification requirements in certain situations, such as when certain criteria are met in forward purchase transactions, including, among other things: (i) where the mortgagee is not aware of loss of employment by the borrower; (ii) the mortgagee has year-to-date paystubs or electronic income verification for the borrower; (iii) the mortgagee has the borrower’s bank statement from immediately prior to the note date showing a direct deposit from an employer; and (iv) the mortgagee has evidence that the borrower has the equivalent of at least two months of the new payment amount, inclusive of principal, interest, taxes, and insurance. Modifications to appraisal protocols allow for exterior or desktop-only appraisals, and appraisers may utilize additional reliable information. Also, the FHA will require appraisals to include a signed certification that no interior appraisal was performed. FHA model certification forms can be found here and here.

    Federal Issues Covid-19 FHA Department of Veterans Affairs Appraisal Refinance Mortgage Lenders Mortgages

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