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FHFA Includes a Language Preference Question in the Universal Residential Loan Application
On October 20, the Federal Housing Finance Agency (FHFA) announced that it would include a language preference question on its updated Universal Residential Loan Application (URLA). The question will allow borrowers to indicate if they prefer to communicate in a language other than English and to identify that language. In response to industry concerns, in the preferred language question text, FHFA includes disclosure language that informs borrowers their response will not negatively affect their application, indicates a preferred language does not mean the lender agrees to communicate in that language, and provides language assistance resources.
FHFA plans to issue the new URLA form later this year, which will go into effect beginning in July 2019. The form will be mandatory for loans made by Fannie Mae and Freddie Mac beginning in February 2020.
NYDFS Announces Two New Regulations Targeting Title Insurance Practices
On October 17, the New York Department of Financial Services (NYDFS) adopted two final regulations designed to stop “unscrupulous practices” in the title insurance industry. The final regulations—which are the culmination of a NYDFS’ investigation into the practices of title insurers—supersede “emergency” versions of both regulations that went into effect earlier this year. (See previously InfoBytes coverage here.) Specifically, the first rule clarifies that certain “reasonable and customary” advertising and marketing expenses will be permitted provided “they are without regard to insured status or conditioned directly or indirectly on the referral of title business.” Meals, entertainment, and other forms of inducements are prohibited. According to a NYDFS press release, the state’s “anti-inducement statute is not limited to situations in which there is a direct quid pro quo for business.” The second rule requires, among other things, that title insurance companies or agents function independently from any affiliates through which they generate a portion of their business and make “good faith” efforts to accept business from non-affiliate sources.
CFPB Updates HMDA Implementation Materials; Federal Regulatory Agencies Release Key Data Fields
On October 17, the CFPB published a new reference chart titled “Reportable HMDA Data: A Regulatory and Reporting Overview Reference” designed to be used as a reference tool for required data points to be collected, recorded, and reported under Regulation C. The chart takes into account HMDA rules issued on August 24, which generally take effect January 1, 2018. (See previous InfoBytes coverage here.) The CFPB noted that the reporting reference 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.”
Separately that same day, in a measure to promote efficiency and consistency, the Board of Governors of the Federal Reserve, FDIC, and OCC identified 37 key data fields that examiners will typically use to test and validate the accuracy and reliability of data collected under the new HMDA requirements beginning in 2018. In certain circumstances, however, examiners may find it necessary to review additional HMDA data fields as appropriate. OCC Acting Comptroller of the Currency Keith Noreika noted in a statement that these actions should help ensure the accurate collection of HMDA data without creating “needless burden” on community banks surrounding the full resubmission of data “simply because of a few minor errors.”
Federal Agencies Offer Consumer Relief Measures Following Recent Natural Disasters
On October 13, the Department of Veterans Affairs (VA) released two circulars (here and here) describing measures mortgagees may employ to provide relief to VA home loan borrowers affected by recent California wildfires and Hurricane Nate. Referencing the VA’s guidance on natural disasters, the VA’s recommendations include: (i) extending forbearance to distressed borrowers; (ii) establishing a 90-day moratorium on initiating foreclosures on affected loans; (iii) waiving late charges; (iv) suspending credit bureau reporting with the understanding that servicers will not be penalized by the VA; and (v) extending “special forbearance” to National Guard members who report for active duty to assist recovery efforts.
Separately, on October 17, the Federal Reserve Board, FDIC, National Credit Union Administration, and OCC released a joint notice under the Financial Institutions Reform, Recovery, and Enforcement Act that temporarily eases appraisal requirements for real estate-related financial transactions in areas impacted by recent hurricane disasters. The four agencies will allow appraisal exceptions, provided that financial institutions determine, and obtain documentation related to, the following: (i) the property involved is located in a major disaster area; (ii) there exists a binding commitment to fund the transaction within 36 months of the date the area was declared a major disaster; and (iii) “the value of the real property supports the institution’s decision to enter into the transaction.” The expiration date for exceptions in each area covered by the notice is three years after the date the President declared the area to be a major disaster area.
As previously discussed in InfoBytes, several federal agencies have announced regulatory relief for victims of recent natural disasters.
HUD Secretary Carson Testifies at House Financial Services Committee Hearing, Discusses Use of FCA Against FHA Lenders
On October 12, Secretary of HUD, Ben Carson, testified at a hearing before the House Financial Services Committee. The hearing entitled “The Future of Housing in America: Oversight of the Department of Housing and Urban Development,” provided an update on HUD’s vision for federal housing policy and touched upon topics such as the conservatorship of Fannie Mae and Freddie Mac, the agency’s role in hurricane disaster relief, and regulatory reform efforts. In his written testimony, Carson reaffirmed his personal interest, and that of the President Trump’s Administration, in working with the Committee on housing finance reform, specifically referencing the FHA mortgage insurance program and Ginnie Mae mortgage-backed security guaranty as “vital components” of the housing finance system. Towards the end of the three-hour-long hearing, Carson was asked by Representative Dave Trott (R-MI) about the federal government’s “unprecedented” use of the False Claims Act (FCA) as a means to “impose outrageous penalties against lenders for immaterial defects” in HFA loan originations, which, according to Rep. Trott, is turning lenders away from FHA lending and is resulting in increased costs to borrowers. Carson stated that his staff is already engaged in discussions with the DOJ staff and is “committed to getting that resolved, because it’s ridiculous, quite frankly.” Carson added, “I’m not exactly sure why there had been such an escalation previously, but the long-term effects of that escalation is obviously providing fewer appropriate choices for consumers, and that’s exactly the opposite of what we should be doing.”
FDIC to Host Teleconference on HMDA Implementation
On October 26, the FDIC’s Division of Depositor and Consumer Protection is scheduled to host a teleconference that will focus on the implementation of the 2015 HMDA Final Rule requirements scheduled to take effect January 1, 2018. The FDIC encourages financial institutions to submit questions prior to October 20 to be included during a Q&A segment following the formal presentation. Registration is required.
Trade Groups Lobby for Exemption of Small Independent Mortgage Lenders from CFPB Examinations
On September 18, the Community Home Lenders Association and the Community Mortgage Lenders of America sent a joint letter to Treasury Secretary Mnuchin urging relief for smaller independent mortgage bankers from CFPB supervision, enforcement, and vender management audits. Specifically, the trade groups requested support for legislation that would help eliminate the risk of enforcement actions from the CFPB for smaller nonbanks. The letter cites the conclusions drawn in the Treasury Report on financial regulations, released in June (this report was a product of the February Executive Order, covered by a Buckley Sandler Special Alert). Of particular interest from the trade groups was the report’s conclusion that Congress should repeal the CFPB’s supervisory authority and return the supervision of nonbanks to state regulators.
FHFA Director Provides Update on GSE Conservatorship to House Financial Services Committee
On October 3, the Director of the Federal Housing Finance Agency (FHFA), Melvin L. Watt, testified at a hearing before the House Financial Services Committee. The testimony provided an update on FHFA’s conservatorship of Fannie Mae and Freddie Mac (GSEs) and Watt’s views on housing financing reform. In his prepared remarks, Watt informed the Committee that the GSEs’ financial performance has improved significantly over the course of the FHA’s conservatorship and that the GSEs continue to provide liquidity to the housing finance market. Nonetheless, Watt stressed that in less than three months, both Fannie Mae and Freddie Mac’s taxpayer-financed capital buffer will run out, and any loss the GSEs experience after that would require additional money from taxpayers. Watt warned that any additional draw of taxpayer support could erode investor confidence in the GSEs, which could result in reduced liquidity in the mortgage-backed securities market and increase the cost of credit for borrowers.
Second Circuit Upholds Large Monetary Judgment Against International Bank
On September 28, the U.S. Court of Appeals for the Second Circuit affirmed a New York District Court’s 2015 ruling, which requires a major international bank to pay $806 million for selling allegedly faulty mortgage-backed bonds to Fannie Mae and Freddie Mac. In the original suit brought by the Federal Housing Finance Agency (FHFA), FHFA alleged that the bank overstated the reliability of the loans for sale. In upholding the lower court’s decision, the Second Circuit concluded that the marketing prospectus used to sell the mortgage securities to Fannie and Freddie between 2005 and 2007 contained “untrue statements of material fact.” Specifically, the prospectus falsely stated that the loans were compiled with the underwriting standards described therein, including standards related to assessing the creditworthiness of the borrowers and appraising the value of properties.
Federal Agencies Offer Regulatory Relief for Hurricane Victims
Federal agencies continue to announce regulatory relief for financial institutions aiding consumers affected by recent hurricane disasters. InfoBytes coverage on previous disaster relief measures can be accessed here, here, and here.
Freddie Mac. On September 25, Freddie Mac issued Bulletin 2017-21 (Bulletin) to extend certain temporary selling and servicing requirements meant to provide flexibility and relief for mortgages and borrowers in areas impacted by all hurricanes occurring on or after August 25 through the 2017 hurricane season. In particular, Freddie Mac will reimburse sellers for property inspections completed prior to the sale or securitization of mortgages secured by properties in disaster areas caused by a 2017 hurricane. Freddie Mac is also requiring servicers to suspend foreclosure sales and eviction activities on property located in eligible disaster areas affected by Hurricane Maria. However, the Bulletin provides that a servicer can proceed with a foreclosure sale if it can confirm that (i) inspection was completed on a mortgaged property “identified as vacant or abandoned prior to Hurricane Maria,” and (ii) the property sustained no “insurable damage.” The Bulletin also reminds servicers to report all mortgages affected by an eligible disaster that are 31 or more days delinquent to Freddie Mac.
Veterans Affairs (VA). On September 27, the VA issued Circular 26-17-28 to outline measures that it encourages mortgagees to utilize to provide relief to veterans affected by Hurricane Maria. Specific recommendations include: (i) extending forbearance to distressed borrowers; (ii) establishing a 90-day moratorium on initiating foreclosures on affected loans; (iii) waiving late charges; (iv) suspending credit bureau reporting with the understanding that servicers will not be penalized by the VA; and (v) extending “special forbearance” to National Guard members who report for active duty to assist recovery efforts.
FDIC. On September 27, the FDIC released a financial institution letter to provide additional guidance for depository institutions assisting affected consumers. As previously covered in Infobytes, the FDIC released guidance for Hurricane Harvey disaster relief, and issued a joint press release in conjunction with the Federal Reserve Board, Conference of State Bank Supervisors, and the OCC as a response to those affected by Hurricane Irma. The newest release, FIL-46-2017, announced regulatory relief for financial institutions affected by Hurricane Maria, and steps to facilitate recovery in affected areas, which include: (i) “extending repayment terms, restructuring existing loans, or easing terms for new loans,” and (i) “encourage[ing] depository institutions to use non-documentary verification methods permitted by the Customer Identification Program requirement of the Bank Secrecy Act for affected customers who cannot provide standard identification documents.” Further, banks that support disaster recovery efforts, the FDIC noted, may receive favorable Community Reinvestment Act consideration.
SEC. On September 28, the SEC issued an order providing regulatory relief to companies and individuals with federal securities law obligations who have been affected by recent natural disasters. The order provides conditional exemptions to certain securities laws requirements for specified periods of time. The Commission additionally adopted “interim final temporary rules” applicable to Regulation Crowdfunding and Regulation A filing deadline extensions.
Financial Crimes Enforcement Network (FinCEN). On October 3, FinCEN issued a notice to financial institutions that file Bank Secrecy Act reports to encourage communication with FinCEN and their functional regulator regarding any expected filing delays caused by recent hurricanes.