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Financial Services Law Insights and Observations


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  • NYDFS releases proposed guidance for mitigating climate-related risks

    State Issues

    On December 21, NYDFS proposed guidance for regulated banking and mortgage institutions to support efforts for responding to evolving risks stemming from climate change. The proposed guidance—which was developed to align with the climate-related work of federal and international banking regulators—will aid institutions in identifying, measuring, monitoring, and controlling material climate-related financial risks, consistent with existing risk management principles. Institutions should “minimize and affirmatively mitigate adverse impacts on low- and moderate-income communities while managing climate-related financial risks,” NYDFS said, explaining that the proposed guidance focuses on areas of risk management related to corporate governance, internal control frameworks, risk management processes, data aggregation and reporting, and scenario analysis that also accounts for unknown future risks. Among other things, the proposed guidance warned institutions of the importance of ensuring fair lending is provided to all communities, including low- to moderate-income neighborhoods that may face heightened risks, when managing climate-related financial risks. The proposed guidance also outlined tools institutions should use to measure and protect against climate change risks. NYDFS warned institutions that they may have to directly absorb a greater portion of losses and should plan for insurance coverage premiums to either increase or be withdrawn entirely in areas where climate risks are prevalent.

    NYDFS commented that the proposed guidance serves as a basis for supervisory dialogue and instructed interested parties to provide input as it undertakes a data-driven approach to formulating the final guidance. Comments are due by March 21, 2023. A webinar will be held on January 11, 2023 to provide an overview of the proposed guidance.

    “Regulators must anticipate and respond to new risks to operational resiliency and safety and soundness, jeopardizing an institution’s future,” Superintendent Adrienne A. Harris said. “NYDFS is committed to working with all stakeholders to further refine expectations and finalize guidance appropriate for institutions to address material climate-related financial risks.”

    State Issues State Regulators Bank Regulatory NYDFS Climate-Related Financial Risks Redlining New York Mortgages Risk Management Supervision Fair Lending

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  • NYDFS announces benchmark for mortgage lending institutions

    State Issues

    On December 16, NYDFS issued industry guidance to all mortgage lending institutions in the state regarding a New York subprime law requirement and the discontinued publication of the primary mortgage market survey rate for 5/1 adjustable rate mortgage (ARM) loans. According to NYDFS, as required by state law, lending institutions must use the weekly Primary Mortgage Market Survey (PMMS), published by Freddie Mac, for loans that are comparable to the term of the underlying loan, to assess whether a home loan qualifies as “subprime” in New York. In November, Freddie Mac discontinued publication of its weekly PMMS average commitment rate for loans in the U.S. for the 5/1 ARM. NYDFS noted that Freddie Mac’s decision “disrupted the ability of lending institutions to determine whether a residential mortgage loan with a comparable duration to the 5/1 ARM is a subprime home loan.” NYDFS continued that the “inability to ensure compliance with the requirements of Section 6-m has made it impossible for lending institutions to offer this loan product in New York, limiting the availability of certain mortgage financing for consumers in New York.” To address availability of mortgage financing in New York, NYDFS announced the designation of the Average Prime Offer Rate for 5/1 ARMs, as published by the Federal Financial Institutions Examination Council, as the replacement benchmark lending institutions should use for calculating the subprime threshold for loans with a fixed rate for at least three years.

    State Issues New York NYDFS Mortgages Bank Regulatory State Regulators Subprime

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  • OCC reports on third quarter mortgage performance

    On December 15, the OCC announced the release of OCC Mortgage Metrics Report, Third Quarter 2022, in which it reported that “97.2 percent of mortgages included in the report were current and performing at the end of the quarter, compared to 95.6 percent a year earlier.” As explained in the report, servicers initiated 9,835 new foreclosures in the third quarter of 2022—a decrease from the previous quarter but an increase from a year ago. The foreclosure volume in this reporting period is lower than pre-Covid-19 pandemic foreclosure volumes, the OCC said. Servicers also completed 16,160 mortgage modifications in the third quarter—a 42.5 percent decrease from the previous quarter. Of these modifications, 72.4 percent reduced a loan’s pre-modification monthly payment, and 93.1 percent consisted of a combination modification containing multiple actions such as interest rate reductions and term extensions. Additionally, the OCC found that during the reporting period, first-lien mortgages represented 22 percent of all outstanding residential mortgage debt (or approximately 12 million loans equaling $2.7 trillion in principal balances).

    Bank Regulatory Federal Issues OCC Mortgages Mortgage Servicing Covid-19 Consumer Finance

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  • FHA announces pandemic assistance on reverse mortgages

    Federal Issues

    On December 15, FHA published Mortgagee Letter 2022-23, COVID-19 Home Equity Conversion Mortgage (HECM) Property Charge Repayment Plan, which provides requirements for a new property charge repayment plan option for senior homeowners with HECMs who have gotten behind on their property charge payments as a result of the Covid-19 pandemic. The eligibility policies of the new repayment plan include, among other things:

    • Making the plan available to borrowers who have applied for Homeowner Assistance Fund (HAF) assistance, if the HAF funds combined with the borrower’s ability to repay will satisfy the servicer’s advances for the delinquent property charges;
    • Permitting the Covid-19 HECM Repayment Plan regardless of whether the borrower has been unsuccessful on a prior repayment plan and whether the borrower owes over $5,000 in property charge advances; and
    • Requiring a verbal attestation from the borrower that they have been impacted by Covid-19.

    Additionally, borrowers may receive a repayment plan regardless of the dollar amount of property charge payments owed. Further, servicers can offer homeowners a repayment plan of up to five full years (60 months) regardless of whether a prior repayment plan has been used.

    Federal Issues Agency Rule-Making & Guidance FHA HECM Mortgages Mortgage Servicing Covid-19 Consumer Finance

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  • Mortgage lender agrees to pay $38.5 million to settle False Claims Act underwriting allegations

    Federal Issues

    On December 14, the DOJ announced a $38.5 million settlement with a mortgage lender to resolve alleged False Claims Act (FCA) violations related to its origination and underwriting of mortgages insured by the Federal Housing Administration (FHA). According to the DOJ, a former underwriter filed a lawsuit under the FCA’s whistleblower provisions alleging the lender engaged in an underwriting process that allowed employees to disregard FHA rules and falsely certify compliance with underwriting requirements. These actions, the underwriter claimed, resulted in the government later paying insurance claims on loans that were improperly underwritten. Under the terms of the settlement, the lender will pay $38.5 million to the U.S., with the whistleblower receiving more than $11.5 million. Notably, not only did the DOJ not exercise its right to join the case and take over its prosecution, but also had sought unsuccessfully to have the case dismissed.  The Supreme Court heard oral argument in United States, ex rel. Polansky v. Executive Health Resources, Inc. regarding whether and when the government has authority to force such a dismissal of a False Claims Act brought by a whistleblower. 

    Federal Issues DOJ False Claims Act / FIRREA Enforcement Mortgages FHA

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  • CFPB and FHFA release updated loan-level mortgage data on borrowers’ pandemic experiences

    Federal Issues

    On December 13, the CFPB and FHFA published updated loan-level data from the National Survey of Mortgage Originations. (See also FHFA announcement here.) The publicly available data highlights borrowers’ experiences when obtaining a mortgage during the Covid-19 pandemic. Key highlights from the updated data include: (i) in 2020 a higher percentage (48 percent) of borrowers reported that a paperless online mortgage process was important; (ii) 21 percent of borrowers reported that their mortgage closing did not occur as originally scheduled (up from 17 percent in 2019); (iii) an increased number of borrowers reported that they were very familiar with available interest rates, with 78 percent of borrowers (up from 67 percent in 2019) stating that they were very satisfied with the interest rate that they qualified for; and (iv) borrowers who refinanced in 2020 versus 2019 were better off financially, with 76 percent of borrowers who refinanced reporting that they were not concerned about qualifying for a mortgage in 2020.

    “The data released today provide a clear view of borrower sentiment about the mortgage process during the COVID pandemic in 2020,” said Saty Patrabansh, FHFA Associate Director for the Office of Data and Statistics. “This data should be helpful to analysts and policymakers in understanding the complete experience of mortgage borrowers and identifying what challenges may still exist in mortgage lending.”

    Federal Issues CFPB FHFA Mortgages Mortgage Origination Covid-19 Consumer Finance

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  • CFPB issues HMDA technical amendment

    Agency Rule-Making & Guidance

    On December 12, the CFPB issued a technical amendment to the HMDA Rule to reflect the closed-end mortgage loan reporting threshold of 25 mortgage loans in each of the two preceding calendar years. As previously covered by InfoBytes, in September, the U.S. District Court for the District of Columbia granted partial summary judgment to a group of consumer fair housing associations (collectively, “plaintiffs”) that challenged changes made in 2020 that permanently raised coverage thresholds for collecting and reporting data about closed-end mortgage loans and open-end lines of credit under HMDA. The 2020 Rule, which amended Regulation C, permanently increased the reporting threshold from the origination of at least 25 closed-end mortgage loans in each of the two preceding calendar years to 100, and permanently increased the threshold for collecting and reporting data about open-end lines of credit from the origination of 100 lines of credit in each of the two preceding calendar years to 200 (covered by InfoBytes here). The plaintiffs sued the CFPB in 2020, arguing, among other things, that the final rule “exempts about 40 percent of depository institutions that were previously required to report” and undermines HMDA’s purpose by allowing potential violations of fair lending laws to go undetected. (Covered by InfoBytes here.) As a result of the September 23 order, the threshold for reporting data about closed-end mortgage loans is 25, the threshold established by the 2015 HMDA Rule.

    Agency Rule-Making & Guidance Federal Issues CFPB HMDA Mortgages Regulation C Fair Lending Consumer Finance

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  • NYDFS finds racial disparities in mortgage lending

    State Issues

    On December 8, NYDFS announced a second report in an ongoing statewide inquiry into redlining and other forms of housing discrimination by mortgage lenders, particularly non-depository lenders. This report focuses on racial disparities in mortgage lending in Long Island, Rochester, and Syracuse, and follows one on Buffalo (covered by InfoBytes here). The report maps lending activity and details individual institutions' lending in majority-minority neighborhoods and to borrowers identifying as members of a minority group. 

    Analyzing HMDA data, NYDFS’s recent report concluded that: “ In Nassau county, where the population is 41.8 percent non-white, on average, lenders make 35.32 percent of their loans to borrowers identifying as people of color. Among lenders operating in the county, lending to borrowers identifying as people of color ranges from 14.9 percent to 50.22 percent. In Suffolk county, where the population is 33.7 percent non-white, on average, lenders make 22.44 percent of their loans to borrowers identifying as people of color. Among lenders operating in the county, lending to borrowers identifying as people of color ranges from 13.07 percent to 36.85 percent. In the Rochester metro area, where 23.9 percent of the population is non-white, on average lenders make 11.32 percent of their loans to borrowers identifying as people of color, less than half of what would be expected based solely on population make-up. Similarly in the Syracuse metro area, 18.7 percent of the population is non-white, but on average lenders make 8.67 percent of their loans to borrowers identifying as people of color.”

    In the announcement, NYDFS noted that it is currently developing regulations to implement the updated New York Community Reinvestment Act, which expands oversight to non-depository mortgage lenders operating in the state. The insights uncovered through these reports’ investigations will be reflected in these proposed regulations which will be published for public comment in 2023.

    State Issues Bank Regulatory NYDFS New York Mortgages New York CRA Fair Lending Redlining

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  • FDIC announces South Carolina disaster relief

    December 9, the FDIC issued FIL-51-2022 to provide regulatory relief to financial institutions and help facilitate recovery in areas of South Carolina affected by Hurricane Ian from September 25 to October 4. The FDIC acknowledged the unusual circumstances faced by institutions affected by the storms and suggested that institutions work with impacted borrowers to, among other things: (i) extend repayment terms; (ii) restructure existing loans; or (iii) ease terms for new loans, provided the measures are done “in a manner consistent with sound banking practices.” Additionally, the FDIC noted that institutions “may receive favorable Community Reinvestment Act consideration for community development loans, investments, and services in support of disaster recovery.” The FDIC will also consider regulatory relief from certain filing and publishing requirements.

    Bank Regulatory Federal Issues FDIC Mortgages Disaster Relief Consumer Finance

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  • Fannie expands underwriting eligibility to help "credit invisible" borrowers

    Agency Rule-Making & Guidance

    On December 6, Fannie Mae announced enhancements to its Desktop Underwriter to create more homeownership opportunities for “credit invisible” borrowers by changing its automated underwriting system to expand eligibility and further simplify the borrowing process for loans where borrowers do not have a credit score. Fannie noted that close to 15 percent of Black and Latino/Hispanic people are credit invisible (as compared to nine percent of their white and Asian counterparts), explaining that these imbalances lead to racial disparities in access to credit and quality affordable housing. “We believe consumers should benefit from their responsible money management habits and a steady stream of income when buying a home, even if they don’t have an established credit history,” Mallory Evans, Executive Vice President and Head of Single-Family Business at Fannie Mae, said in the announcement. “Traditional lending practices make it hard for borrowers with no credit score to access credit, so we’ve taken steps that may help them responsibly qualify for a home loan using data that provides a more holistic view of how they manage their money.”

    Beginning December 10, enhancements made to the Desktop Underwriter will (i) update borrower eligibility criteria for those with no credit score to align with Fannie’s standard selling guide requirements; (ii) enable the system to evaluate “a borrower’s monthly cash flow over a 12-month period to potentially enhance their credit risk assessment”; and (iii) simplify the mortgage process by automating the current selling guide requirement for documenting nontraditional sources of credit.

    Agency Rule-Making & Guidance Federal Issues Fannie Mae Mortgages Consumer Finance Underwriting

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