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CFPB provides update on housing insecurity during pandemic
On June 22, the CFPB issued a release with data updating its March report on the effects of the Covid-19 pandemic on housing insecurity, finding some improvement but still elevated risks for borrowers relative to prior periods. The report summarized data and research regarding the impact of the pandemic on the rental and mortgage market, and specifically its effects on low income and minority households. According to the report, as of December 2020, 11 million renter and homeowner households were significantly overdue on their regular housing payments, which placed them, especially Black and Hispanic households, at a heightened risk of their homes being subjected to foreclosure or eviction. The report also indicated that as of January 2021, there were 2.7 million borrowers in active forbearance. As of June 2021, 600,000 fewer consumers were in mortgage forbearance than in January 2021, with forbearance rates significantly decreasing in April when many borrowers exited forbearance after reaching 12 months. According to the CFPB, this was a positive indication because many of these borrowers would have qualified for longer extensions of total forbearance. The release also notes, however, that for borrowers who have exited forbearance, payment deferrals or partial claims were the most common repayment option, and that “[o]f the borrowers still in forbearance, many may face a precarious financial situation upon exiting.” Additionally, while indicating that foreclosure rates remained at historic lows during the first quarter of 2021, with 0.54 percent of mortgages in foreclosure, the release also notes that the CARES Act and direction from Fannie Mae and Freddie Mac (GSEs), FHA, VA, and USDA “have prohibited lenders and servicers of GSE and federally-backed loans from beginning or proceeding with foreclosures.” Seriously delinquent mortgage borrowers remain approximately three times higher than before the pandemic, with 1.9 million mortgage borrowers over three months behind on mortgage payments or in active foreclosure, with more than one in 10 borrowers with an FHA loan remaining seriously delinquent on their mortgage, a rate higher than the peak during the Great Recession. The release also notes that during the pandemic, mortgage forbearance and delinquency have been significantly more common in communities of color and lower-income communities (covered by Infobytes here).
FFIEC releases 2020 HMDA data
On June 17, the Federal Financial Institutions Examinations Council (FFIEC) released the 2020 Home Mortgage Disclosure Act (HMDA) data on mortgage lending transactions at 4,475 covered institutions. Available data products include: (i) the HMDA Dynamic National Loan-Level Dataset, which is updated on a weekly basis to reflect late submissions and resubmissions; (ii) the Snapshot National Loan-Level Dataset, which contains the national HMDA datasets as of a fixed date, in the case of 2020 data, May 1, 2021; (iii) the Aggregate and Disclosure Reports, which provides summaries on individual institutions and geographies; (vi) the HMDA Data Browser where users can customize tables and download datasets for further analysis; and (v) the modified Loan/Application Registers for filers of 2020 HMDA data.
The data currently includes “a total of 48 data points providing information about the applicants, the property securing the loan or proposed to secure the loan in the case of non-originated applications, the transaction, and identifiers.” The 2020 data includes information on 22.7 million home loan applications, 14.5 million of which resulted in loan originations, and 2.8 million purchased loans. Among the observations from the data relative to the prior year: (i) the number of reporting institutions decreased by roughly 19 percent; (ii) closed-end loan applications increased by roughly 63 percent, while open-end line of credit applications decreased by 19 percent; (iii) the total number of originated closed-end loans increased by roughly 67 percent; (iv) refinance originations for 1-4 family properties increased by 150 percent; (v) home purchase lending increased by almost 7 percent; and (vi) non-depository, independent mortgage companies accounted for approximately 60 percent of first-lien owner-occupied home purchase loans (up from approximately 56 percent in 2019).
HUD issues mortgagee letter on student loan payments
On June 18, HUD issued Mortgagee Letter 2021-13, which provides updates to its student loan monthly payment calculations to offer greater access to affordable single family FHA-insured mortgage financing for creditworthy individuals with student loan debt. According to HUD, the revised policy more closely aligns FHA student loan debt calculation policies with other housing agencies, which further helps clarify originations for borrowers with student loan debt obligations. The updated policy eliminates a current requirement “that lenders calculate a borrower’s student loan monthly payment of one percent of the outstanding student loan balance for student loans that are not fully amortizing or are not in repayment.” According to HUD, the updated policy “bases the monthly payment on the actual student loan payment, which is often lower, and helps home buyers who, with student debt, meet minimum eligibility requirements for an FHA-insured mortgage.”
OCC supports national bank’s challenge to state law requiring interest payments on escrow accounts
On June 15, the OCC filed an amicus curiae brief in support of a defendant-appellant national bank in an appeal challenging a requirement under New York General Obligation Law § 5-601 that a defined interest rate be paid on mortgage escrow account balances. As previously covered by InfoBytes, the bank argued that the National Bank Act (NBA) preempts the state law, but the district court disagreed and issued a ruling in 2019 concluding that there is “clear evidence that Congress intended mortgage escrow accounts, even those administered by national banks, to be subject to some measure of consumer protection regulation.” The district court also determined that, with respect to the OCC’s 2004 real estate lending preemption regulation (2004 regulation), there is no evidence that “at this time, the agency gave any thought whatsoever to the specific question raised in this case, which is whether the NBA preempts escrow interest laws,” citing to and agreeing with the U.S. Court of Appeals for the Ninth Circuit’s decision in Lusnak v. Bank of America (which held that a national bank must comply with a California law that requires mortgage lenders to pay interest on mortgage escrow accounts, previously covered by InfoBytes here). The district court further applied the preemption standard from the 1996 Supreme Court decision in Barnett Bank of Marion County v. Nelson, and found that the law does not “significantly interfere” with the bank’s power to administer mortgage escrow accounts, noting that it only “requires the [b]ank to pay interest on the comparatively small sums” deposited into the accounts and does not “bar the creation of mortgage escrow accounts, or subject them to state visitorial control, or otherwise limit the terms of their use.”
In its amicus brief filed with the U.S. Court of Appeals for the Second Circuit, the OCC wrote that it “respectfully submits that the [appellate court] should reverse the decision of the [d]istrict [c]ourt and find that application of Section 5-601 to [the bank] is preempted by federal law,” adding that the 2019 ruling “upsets…settled legal principles” and “creates uncertainty regarding national banks’ authority to fully exercise real estate lending powers under the [NBA].” In addressing the district court’s application of Barnett, the OCC argued that the district court had incorrectly concluded that state laws cannot be preempted unless they “practical[ly] abrogat[e] or nullif[y] a national bank’s exercise of a federal banking power—a “stark contrast to the preemption standard set forth in Barnett and the OCC’s—as well as many other federal courts’—interpretation of that standard.” The OCC urged the appellate court to “conclude that a state law that requires a national bank to pay even a nominal rate of interest on a particular category of account impermissibly conflicts with a national bank’s power by disincentivizing the bank from continuing to offer the product. This is sufficient to trigger preemption under Barnett.”
The OCC further stated, among other things, that the district court also incorrectly disregarded the agency’s 2004 regulation, which the OCC said “specifically authorizes national banks to exercise their powers to make real estate loans ‘without regard to state law limitations concerning…[e]scrow accounts, impound accounts, and similar accounts….’” The agency further cautioned that the district court’s determination that the OCC’s 2004 regulation was not entitled to any level of deference was done in error and warned that “[i]f the OCC’s regulation regarding escrow accounts is rendered ineffective, this result could cause disruption within the banking industry by upsetting long-settled law regarding the applicability of state laws to national bank powers.”
Juneteenth creates compliance challenges for mortgage industry
On June 17, President Biden signed S. 475 establishing June 19, Juneteenth, as a federal holiday. The “Juneteenth National Independence Day Act” amends 5 U.S.C. § 6103(a) which codifies the legal public holidays. Because June 19 falls on a Saturday this year, the holiday will be observed on Friday, June 18.
The establishment of a new federal holiday mere hours before the first observance of that holiday poses novel compliance challenges for the mortgage industry. Notably, both TRID and TILA rescission requirements have important timing standards that reference federal holidays.
TRID
Under TRID, the Loan Estimate must be provided to the consumer at least seven business days prior to consummation, and the Closing Disclosure must be provided to the consumer at least three business days prior to consummation. For purposes of these requirements, “business day” is defined as “all calendar days except Sundays and legal public holidays” as specified in 5 U.S.C. § 6103(a). As the holiday occurs on a Saturday this year, Saturday, June 19 is not a “business day” for purposes of calculating either the 7-business day waiting period after delivery of the Loan Estimate or the 3-business-day waiting period after delivery of the Closing Disclosure. Commentary to Regulation Z also states that, for purposes of rescission and the provision of mortgage disclosures, when a federal holiday falls on a Saturday but is observed on the preceding Friday, the observed holiday is a business day.
Accordingly, for purposes of providing the Loan Estimate at least seven business days prior to closing and the Closing Disclosure at least three business days prior to closing, lenders may not count Saturday, June 19, as a business day, but must count Friday, June 18, as a business day. Absent clarification from the CFPB, lenders are advised to push closings back one day where they were previously counting Saturday (June 19) as a business day. For example, if a Closing Disclosure was received by the consumer on Thursday, June 17, closing may not occur until Tuesday, June 22.
Rescission
A rescission period expires on midnight on the third business day after closing and uses the same definition of business days, which is “all calendar days except Sundays and legal public holidays.” As such, Saturday, June 19 this year is not a “business day” for purposes of the 3-business day rescission period and lenders should ensure that consumers are provided an extra day where the rescission period encompasses June 19, and are made aware of that extension. This raises unique funding and Notice of Right to Cancel disclosure related questions, the answers to which may depend on individual facts and circumstances. Absent further guidance from the CFPB, creditors may wish to delay closing by one day for those transactions where the three-day Closing Disclosure period is relevant, as well as consider providing updated Notices of Right to Cancel with a new rescission period taking into account both the new public holiday and when such new notice is sent.
On June 18, CFPB acting Director Dave Uejio issued a statement recognizing that "some lenders did not have sufficient time after the Federal holiday declaration to consider whether and how to adjust closing timelines" and that "some lenders may delay closings to accommodate the reissuance of disclosures adjusted for the new Federal holiday." Uejio further noted that "TILA and TRID requirements generally protect creditors from liability for bona fide errors and permit redisclosure after closing to correct errors." He added that any guidance ultimately issued by the Bureau "would take into account the limited implementation period before the holiday and would be issued after consultation with the other FIRREA regulators and the Conference of State Bank Supervisors to ensure consistency of interpretation for all regulated entities."
Montana adopts mortgage licensing requirements
On June 1, the Department of Administration of the State of Montana certified to the Secretary of State a new rule covering provisions related to, among other things, the revocation and suspension of mortgage licenses, the reinstatement of expired or suspended licenses, and applications for initial licenses near year end. Specifically, the rule provides that (i) the department may “suspend or revoke a license for a violation of the Montana Mortgage Act, this subchapter, or for any other violation of state or federal law pertaining to licensees or residential mortgage loans”; (ii) a military member or reservist whose license expired or was suspended when the licensee was on active duty at the time of renewal may have a license reinstated provided the department receives (within 30 days of the licensee’s discharge from active duty) an acceptable sponsorship request through the Nationwide Multistate Licensing System & Registry (NMLS) from the licensee’s employing mortgage broker or mortgage lender, as well as a completed mortgage loan originator license renewal or reinstatement form submitted separate from the NMLS renewal process during the same timeframe; and (iii) applicants who are approved for licensure during the renewal period of November 1 through December 31, and who are requesting the issuance of a license immediately, must submit certain application materials within a specified timeframe or their application will be deemed abandoned.
The rule also amends provisions related to mortgage licensing examination fees, the submission of consumer complaints, information-sharing arrangements, mortgage loan origination disclosure forms, and the certification process for bona fide not-for-profit entities.
Maryland passes bill regarding creditworthiness
On May 30, the Maryland governor signed HB 1213, which requires “certain credit grantors to adhere to certain rules concerning evaluations of applications and, under certain circumstances, consider alternative methods of evaluating an applicant’s creditworthiness when evaluating an application for a primary residential mortgage loan or an extension of credit.” Under HB 1213, an entity must, among other things: (i) adhere to the rules concerning evaluations of applications including history of rent or mortgage payments and utility payments, school attendance, and work attendance; and (ii) consider other verifiable alternative indications of creditworthiness if requested by the applicant. The law is effective October 1.
CFPB analyzes HMDA data of small to medium-size lenders
On June 14, the CFPB released a report analyzing differences in certain loan and borrower characteristics and general lending patterns for lenders below and above the 100-loan closed-end threshold set by the 2020 HMDA final rule. As previously covered by InfoBytes, last year the Bureau issued a final rule permanently raising coverage thresholds for collecting and reporting data about closed-end mortgage loans under HMDA from 25 to 100 loans.
While the Bureau notes that the “analysis is necessarily limited and preliminary,” the report’s findings, which analyzed publicly available HMDA data from 2019 for which the 25-loan threshold still applied, show, among other things, that (i) lenders that are exempt under the 2020 final rule (those whose origination volume exceeds the 25-loan threshold but falls below the 100-loan threshold) “do not appear to be more likely to lend to Black and non-White Hispanic borrowers than larger volume lenders”; (ii) these lenders may be more likely to lend to non-natural person borrowers such as trusts, partnerships, and corporations; (iii) a higher percentage of these loans are secured by properties in low-to-moderate income (LMI) census tracts, properties in rural areas, second liens, and investment properties; (iv) these lenders tend to make more loans to borrowers who appear to have higher income levels than large lenders’ borrowers; and (v) a slightly higher percentage of loans made by these lenders are secured by manufactured homes than by lenders with origination volumes over 300. According to the Bureau’s blog post, the “findings are consistent with a possible explanation that lenders below the 2020 rule’s 100-loan closed-end threshold are making more loans to investors buying up property in [LMI] census tracts for rental or resale.”
1st Circuit holds Fannie, Freddie not “government actors” despite FHFA control
On June 8, the U.S. Court of Appeals for the 1st Circuit stated that Fannie Mae and Freddie Mac (GSEs) can continue non-judicial foreclosures in states that permit them, holding that the GSEs are not “government actors” despite being controlled by FHFA. According to the opinion, the plaintiffs obtained mortgages that were later sold to Fannie Mae. After the borrowers defaulted on their loans, Fannie Mae, consistent with Rhode Island law, conducted non-judicial foreclosure sales of the properties. The plaintiffs filed suit, arguing that Fannie Mae and FHFA (which acts as Fannie Mae’s conservator) are government actors and that the nonjudicial foreclosure sales violated their Fifth Amendment procedural due process rights. The district court disagreed, however, and granted the defendants’ motion to dismiss on the grounds that “because FHFA stepped into Fannie Mae’s shoes as its conservator and its ability to foreclose was a ‘contractual right inherited from Fannie Mae by virtue of its conservatorship,’ FHFA was not acting as the government when it foreclosed on the plaintiffs’ mortgages and was not subject to the plaintiffs’ Fifth Amendment claims.” The court further determined that FHFA’s conservatorship over Fannie Mae did not make Fannie Mae a government actor subject to the plaintiffs’ constitutional claims because FHFA “does not exercise sufficient control” over the GSE. The plaintiffs appealed, arguing, among other things, that the FHFA’s nearly 13-year conservatorship of the GSEs makes its control permanent and renders them governmental actors.
On appeal, the appellate court concluded that in its role as conservator, “FHFA is not a government actor because it has ‘stepped into the shoes’ of the private GSEs” and assumed all of their private contractual rights, including the right to perform non-judicial foreclosures. The appellate court also refuted the plaintiffs’ argument that FHFA’s 13-year conservatorship made its control permanent, pointing out that the “housing and mortgage financial markets are highly complex, as are the various indicators of their financial health, so the fact that FHFA has maintained the conservatorship for almost thirteen years does not mean that the government’s control is permanent.” As such, because the GSEs are not government actors they are also not subject to the plaintiffs’ due process claims, the appellate court concluded.
CFPB releases mortgage servicing FAQs
On June 2, the CFPB released new FAQs regarding the Mortgage Servicing Rule and Regulation X and Regulation Z relating to escrow account guidance and analysis. General highlights from the FAQs are listed below:
- Regulation X provides that (i) an escrow account is any account established or controlled by a servicer for a borrower to pay taxes or other charges associated with a federally related mortgage loan, including charges that the servicer and borrower agreed to have the servicer collect and pay; and (ii) the computation year for an escrow account is a 12-month period that the servicer establishes for the account, starting with the borrower’s first payment date and including each subsequent 12-month period, unless the servicer issues a short year statement.
- Servicers must send the borrower an annual escrow account statement “within 30 days of the completion of the escrow account computation year.”
- Disbursement date is defined as “the date the servicer pays an escrow item from the escrow account.”
- “The initial escrow statement is the first disclosure statement that the servicer delivers to the borrower concerning the borrower’s escrow account,” and must include: (i) “the amount of the monthly mortgage payment”; (ii) “the portion of the monthly payment going into the escrow account”; (iii) “itemized anticipated disbursements to be paid from the escrow account”; (iv) “anticipated disbursement dates”; (v) “the amount the servicer elects as a cushion”; and (vi) “trial running balance for the account.”
- The annual escrow statement must include, among other things, “an account history that reflects the activity in the escrow account during the prior escrow account computation year and a projection of the activity in the account for the next escrow account computation year.”
- An escrow account analysis is the accounting a servicer conducts in the form of a trial running balance for an escrow account to: (i) “determine the appropriate target balances”; (ii) “compute the borrower’s monthly payments for the next escrow account computation year and any deposits needed to establish or maintain the account”; and (iii) “determine whether a shortage, surplus, or deficiency exists.”
- “If there is a shortage that is equal to or more than one month’s escrow account payment, the servicer may accept an unsolicited lump sum repayment to resolve the shortage. However, the servicer cannot require or provide the option of a lump sum payment on the annual escrow account statement. In addition, Regulation X does not govern whether borrowers can freely pay the servicer to satisfy an escrow account shortage. Therefore, “the acceptance of a voluntary, unsolicited payment made by the borrower to the servicer to satisfy an escrow account shortage is not a violation of Regulation X.”
- Servicers may inform borrowers that borrowers “may voluntarily provide a lump sum payment to satisfy an escrow shortage if they choose to” if “the communication is not in the annual escrow account statement itself and does not appear to indicate that a lump sum payment is something that the servicer requires but rather is an entirely voluntary option.”