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Financial Services Law Insights and Observations

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  • CFPB proposes extending General QM Final Rule compliance date

    Agency Rule-Making & Guidance

    On March 3, the CFPB released a notice of proposed rulemaking (NPRM) to delay the mandatory compliance date of the General Qualified Mortgage (QM) Final Rule from July 1, 2021 to October 1, 2022. As previously covered by InfoBytes, last December the Bureau issued the General QM Final Rule to amend Regulation Z and revise the definition of a “General QM” by eliminating the General QM loan definition’s 43 percent debt-to-income ratio (DTI) limit and replacing it with bright-line price-based thresholds. The new General QM definition became effective on March 1, 2021. The General QM Final Rule also eliminates QM status resulting solely from loans meeting qualifications for sale to Fannie or Freddie Mac (GSEs), known as the “GSE Patch.” In issuing the NPRM, the Bureau expressed concerns “that the potential impact of the COVID-19 pandemic on the mortgage market may continue for longer than anticipated at the time the Bureau issued the General QM Final Rule, and so could warrant additional flexibility in the QM market to ensure creditors are able to accommodate struggling consumers.” Extending the compliance date will allow lenders to offer QM loans based on either the old or new QM definitions, including the GSE Patch (unless the GSEs exit conservatorship), until October 1, 2022. Comments on the NPRM must be received by April 5.

    The NPRM follows a statement issued last month (covered by InfoBytes here), in which the Bureau said it is considering whether to revisit final rules issued last year that took effect March 1 concerning the definition of a Qualified Mortgage and the establishment of a “Seasoned QM” category of loans. In the NPRM, the Bureau stated “this rulemaking does not reconsider the merits of the price-based approach adopted in the General QM Final Rule. . . .Rather, this proposal addresses the narrower question of whether it would be appropriate in light of the continuing disruptive effects of the pandemic to help facilitate greater creditor flexibility and expanded availability of responsible, affordable credit options for some struggling consumers” by keeping both the old and new rule until October 1, 2022.

    Agency Rule-Making & Guidance CFPB Qualified Mortgage Ability To Repay Mortgages Covid-19

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  • FDIC releases January enforcement actions

    Federal Issues

    On February 26, the FDIC released a list of administrative enforcement actions taken against banks and individuals in January. During the month, the FDIC issued 11 orders consisting of “two consent orders, two section 19 orders, two prohibition orders, two orders to pay civil money penalties, one order terminating consent order, and two orders terminating consent orders and orders for restitution.” Among the orders is a civil money penalty issued against a Tennessee-based bank related to alleged violations of the Flood Disaster Protection Act. Among other things, the FDIC claims that the bank (i) failed to provide required lender-placed flood insurance notices to borrowers about the availability of flood insurance under the National Flood Insurance Act; (ii) provided an incomplete lender-placed flood insurance notice to a borrower; (iii) allowed flood insurance to lapse during the terms of several loans without placing flood insurance on borrowers’ behalf; (iv) failed to maintain an adequate amount of flood insurance; and (v) failed to provide timely notice of special flood hazards and the availability of federal disaster relief assistance. The order requires the payment of a $4,000 civil money penalty.

    Federal Issues FDIC Enforcement Flood Insurance Flood Disaster Protection Act National Flood Insurance Act Mortgages

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  • CFPB analyzes effects of Covid-19 on the housing market

    Federal Issues

    On March 1, the CFPB released a report, Housing Insecurity and the COVID-19 Pandemic, analyzing the effects of the Covid-19 pandemic on the housing market, particularly with respect to low-income and minority households. According to the Bureau, as of December 2020, more than 11 million households were overdue on their rent or mortgage payments, placing them at heightened risk of losing their homes to foreclosure or eviction as Covid-19 relief programs expire in the upcoming months. Of these households, the Bureau noted that Black and Hispanic households bear a disproportionate financial burden and “were more than twice as likely to report being behind on housing payments than white families.” Additional statistics include: (i) 2.1 million households are more than 90 days behind on their payments; (ii) roughly 263,000 families noted as being “seriously behind” on their mortgages (and not enrolled in forbearance plans) will have limited options to avoid foreclosure once relief programs end; (iii) an estimated 8.8 million tenant households are behind on their rent, with 9 percent of renters reporting that they are likely to be evicted in the next two months; and (iv) of the 2.7 million borrowers noted as being in active forbearance as of January 2021, more than 900,000 of these borrowers will have been in forbearance for more than a year as of April 2021. The Bureau noted most borrowers that have exited forbearance after six or fewer months “have been able to resume payments without any issue.” However, borrowers who have been in forbearance longer are more likely to have difficulties resuming payments.

    In a blog post released the same day, acting Director Dave Uejio acknowledged that mortgage servicers and landlords have been working to help keep borrowers and renters in their homes, noting that “[m]ost mortgage servicers are working hard to engage with the record number of homeowners in forbearance and the many other homeowners struggling to make payments.”

    Federal Issues CFPB Consumer Finance Covid-19 CARES Act Forbearance Foreclosure Mortgages

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  • FHFA further extends foreclosure moratorium

    Federal Issues

    On February 25, the FHFA announced that Fannie Mae and Freddie Mac (GSEs) will extend their moratorium on single-family foreclosures and real estate owned (REO) evictions until June 30. The foreclosure moratorium applies only to homeowners with a GSE-backed, single-family mortgage, and the REO eviction moratorium applies only to properties that were acquired by the GSEs through foreclosure or deed-in-lieu of foreclosure transactions. Additionally, FHFA announced that borrowers may be eligible for up to a three-month forbearance extension so long as they are on a Covid-19 forbearance plan as of February 28 (details on the Covid-19 forbearance covered by InfoBytes here), and that the Covid-19 payment deferral may now cover up to 18 months of missed payments (previously covering up to 15 months of missed payments, additional details covered by InfoBytes here). The extensions are implemented in Fannie Mae Lender Letter LL-2021-07 and Freddie Mac Guide Bulletin 2021-8.

    Federal Issues FHFA Covid-19 Fannie Mae Freddie Mac GSE Forbearance Foreclosure Mortgages

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  • Agencies provide Texas winter storm guidance

    Federal Issues

    On February 22, the Federal Reserve Board, OCC, FDIC, NCUA, and the Conference of State Bank Supervisors issued a joint statement covering supervisory practices for financial institutions affected by winter storms in Texas. Among other things, the agencies called on financial institutions to “work constructively” with affected borrowers, noting that “prudent efforts” to adjust or alter loan terms in affected areas “should not be subject to examiner criticism.” Institutions facing difficulties in complying with any publishing and reporting requirements should contact their primary federal and/or state regulator. Additionally, the agencies noted that institutions may receive Community Reinvestment Act consideration for community development loans, investments, and services that revitalize or stabilize federally designated disaster areas. Institutions are also encouraged to monitor municipal securities and loans impacted by the winter storms.

    Additionally, HUD announced it will make disaster assistance available to Texas by providing foreclosure relief and other assistance to homeowners living in counties affected by the severe winter storms. Specifically, HUD is providing an automatic 90-day moratorium on foreclosures of FHA-insured home mortgages for covered properties in the affected counties and is making mortgage insurance available to those victims whose homes were destroyed or severely damaged. Additionally, HUD’s Section 203(k) loan program will allow individuals who have lost homes to finance the purchase of a house, or refinance an existing house along with the costs of repair, through a single mortgage. The program will also allow homeowners with damaged property to finance the rehabilitation of existing single-family homes.

    Federal Issues FDIC Federal Reserve CSBS NCUA OCC Disaster Relief HUD Mortgages FHA

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  • CFPB considering compliance delay for QM final rules

    Agency Rule-Making & Guidance

    On February 23, the CFPB issued a statement noting it is considering whether to revisit final rules issued last year regarding the definition of a Qualified Mortgage and the establishment of a “Seasoned QM” category of loans. As previously covered by InfoBytes, last December the Bureau issued the General QM Final Rule to amend Regulation Z and revise the definition of a “General QM” by eliminating the General QM loan definition’s 43 percent debt-to-income ratio (DTI) limit and replacing it with bright-line price-based thresholds. The General QM Final Rule also eliminates QM status resulting solely from loans meeting qualifications for sale to Fannie or Freddie Mac (GSEs), known as the “GSE Patch.” The Bureau issued a second final rule, the Seasoned QM Final Rule, to create a new category of safe-harbor QMs applicable to first-lien, fixed-rate mortgages that are held in portfolio by the originating creditor or first purchaser for a 36-month period while meeting certain performance requirements, and comply with general QM restrictions on product features and points and fees. The effective date for both final rules is March 1. The General QM Final Rule also has a mandatory compliance date of July 1.

    In the statement, the Bureau noted that it is “considering whether to initiate a rulemaking to revisit the Seasoned QM Final Rule,” including whether to revoke or amend the Seasoned QM Final Rule and how that would affect covered transactions for which applications were received after the March 1 effective date. In addition, the Bureau stated that it expects to issue a rule to delay the July 1, 2021 mandatory compliance date of the General QM final rule. Should a proposed rule be finalized, creditors would then “be able to use either the current General QM loan definition or the revised General QM loan definition for applications received during the period from March 1, 2021, until the delayed mandatory compliance date,” the Bureau said. Additionally, the GSE patch would also remain in effect until the new mandatory compliance date, or until the GSEs cease to operate under conservatorship prior to that date.

    The same day, the Bureau updated its small entity compliance guide and other compliance aids for the Ability-to-Repay and Qualified Mortgage Rule. The updates reflect amendments set forth in the GSE Patch Extension Final Rule, the General QM Final Rule, and the Seasoned QM Final Rule.

    Agency Rule-Making & Guidance CFPB Ability To Repay Qualified Mortgage GSE Mortgages

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  • New York Court of Appeals reverses mortgage foreclosure timeliness claims

    Courts

    On February 18, the New York Court of Appeals reversed appellate division orders in four cases concerning the timeliness of mortgage foreclosure claims, seeking to develop “clarity and consistency” for cases affecting real property ownership. In particular, the decision clarifies questions regarding what actions will constitute acceleration of a debt and how such acceleration can be revoked, or de-accelerated, which resets the foreclosure timeline.

    The Court of Appeals first addressed the question about how and when a default letter to a borrower constitutes an acceleration, thus commencing the six-year statute of limitations period for initiating a foreclosure action. With respect to two of the cases (appellants three and four), the Court of Appeals applied the ruling from Albertina Realty Co. v. Rosbro Realty Corp., which held “that a noteholder must effect an ‘unequivocal overt act’ to accomplish such a substantial change in the parties’ contractual relationship.” The Court of Appeals reviewed a default letter sent in one of the cases and agreed with the bank that merely warning a borrower of a potential future foreclosure via a default letter does not count as an “overt, unequivocal act.” “Noteholders should be free to accurately inform borrowers of their default, the steps required for a cure and the practical consequences if the borrower fails to act, without running the risk of being deemed to have taken the drastic step of accelerating the loan,” the Court of Appeals stated. Instead, the letter must be accompanied by some other overt, unequivocal act. In addition, the Court of Appeals also reviewed a portion of the appellate division’s decision in appellant four’s case, which held that the bank “could not de-accelerate because it ‘admitted that its primary reason for revoking acceleration of the mortgage debt was to avoid the statute of limitations bar.’” The Court of Appeals majority wrote, “We reject the theory. . .that a lender should be barred from revoking acceleration if the motive of the revocation was to avoid the expiration of the statute of limitations on the accelerated debt. A noteholder's motivation for exercising a contractual right is generally irrelevant.”

    The Court of Appeals also addressed the issue of “whether a valid election to accelerate, effectuated by the commencement of a prior foreclosure action, was revoked upon the noteholder’s voluntary discontinuance of that action” in the two other cases (appellants one and two). According to Court of Appeals, when a noteholder has accelerated a loan by filing a foreclosure action, “voluntary discontinuance” of that foreclosure action de-accelerates the loan unless the noteholder states otherwise. Thus, the noteholder can later choose to re-accelerate the loan and file another foreclosure action with a new six-year statute of limitations period, the Court of Appeals wrote, reversing appellate division orders that had dismissed the two cases as untimely.

    While largely unanimous, one judge issued a dissenting opinion on two of the rulings concerning whether the noteholders effectively revoked acceleration. The judge stated that if the court is going to impose a deceleration rule based on a noteholder’s voluntary withdrawal of a foreclosure action, she would require that noteholders “provide express notice to the borrower regarding the effect of that withdrawal.”

    Courts Mortgages Appellate State Issues Foreclosure Statute of Limitations

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  • FHA extends Covid-19 origination and 203(k) servicing flexibilities

    Federal Issues

    On February 23, FHA announced the extension of several Covid-19-related flexibilities for single-family lenders and servicers through June 30, generally to continue to limit face-to-face contact as part of the mortgage origination process for FHA loans. Specifically, Mortgagee Letter 2021-06 extends the re-verification of employment guidance and the exterior-only appraisal scope of work option, while Mortgagee Letter 2021-07 will “allow industry partners additional opportunity to utilize flexible guidance related to” self-employment and rental income verification. Both extensions are applicable to Single Family Title II forward and Home Equity Conversion Mortgages. Additionally, FHA is extending temporary flexibilities “for the administration of 203(k) Rehabilitation Mortgage Insurance Program escrow accounts for borrowers in forbearance” for Single Family Title II forward 203(k) rehabilitation mortgages only.

    Federal Issues FHA Covid-19 Mortgages HUD Mortgage Origination Servicing

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  • Washington D.C. launches financial advisement hotline for those effected by Covid-19

    State Issues

    On  February 22, Washington D.C. Mayor Muriel Bowser announced that the District of Columbia Department of Insurance, Securities and Banking would be partnering with the United Planning Organization to administer a free hotline to connect District residents who were financially harmed by Covid-19 with trained financial “navigators.”  These navigators will offer advice and help connect residents to various programs and services to help manage income disruptions and other financial concerns, including foreclosure mediation.

    State Issues Covid-19 District of Columbia Mortgages Banking

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  • Nebraska governor introduces rental assistance program

    State Issues

    On February 22, the governor of Nebraska announced the launch of an emergency rental assistance program. Through the program Nebraska’s Housing Finance Agency, $158 million in federal stimulus funds will be available for distribution to eligible tenants and landlords.

    State Issues Covid-19 Nebraska Mortgages

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