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FINRA begins pilot program for remote inspections
On July 24, FINRA announced it launched a voluntary Remote Inspections Pilot Program on July 1. FINRA described the program as a significant step in modernizing regulatory oversight in the financial industry. The pilot program will allow eligible firms to fulfill their inspection obligations remotely, subject to specific requirements such as conducting and documenting an office or location-specific risk assessment, and producing written supervisory procedures for conducting remote inspections and reporting inspection data to FINRA. A total of 741 member firms opted into the program’s initial phase.
FINRA designed the pilot to address the growing trend of remote work and the increased use of technology in the financial industry. Participation was notably high among large firms, with 60 percent of those with 500 or more registered representatives opting in. By collecting data throughout the three-year program, FINRA will aim to evaluate the effectiveness of remote inspections and determine whether they can be integrated seamlessly into the existing supervisory framework. This could lead to a more efficient and adaptable regulatory system that better aligns with modern business practices.
The first data submission from participants is due mid-October. The deadline to opt in for the second year of the pilot is December 27. Year two of the pilot will run the entire 2025 calendar year.
CFPB reports negative equity findings from the Auto Finance Data Pilot
On June 17, the CFPB published the first report in a series that will analyze detailed information from nine major auto lenders – including banks, finance companies, and captive lenders – following the launch of its Auto Finance Data Pilot. The initiative aimed to monitor the market to better understand loan attributes that may result in increased consumer distress.
This report analyzed financing of negative equity, “where the trade-in value offered for a consumer’s vehicle is less than the outstanding loan balance and the unpaid balance is rolled into the new loan.” According to the CFPB’s report, between 2018 and 2022, 11.6 percent of all vehicle loans in the dataset collected by the CFPB from industry participants included negative equity, ranging from about 8 percent of such loans in 2022, to about 17 percent in 2020. Among other findings, the report also highlighted that when compared to consumers who had a positive trade-in balance, consumers who financed negative equity: (i) financed larger loans; (ii) had lower credit scores and household income; (iii) had longer loan terms; and (iv) were more than twice as likely to have their account assigned to repossession within two years. The Bureau concluded that a higher proportion of consumers buying less expensive vehicles tended to finance negative equity into their auto loans compared with those purchasing more expensive vehicles. The CFPB said data from the pilot suggested that financing negative equity can result in unfavorable outcomes for consumers, with both the occurrence and the amount of negative equity financed increasing through 2023.
Ginnie Mae updates its rules on the securitization of digital collateral
On May 20, Ginnie Mae released an All Participant Memorandum (APM) titled “APM 24-07: Commingling Digital Collateral with Paper Collateral in Ginnie Mae Pools,” which included opening Ginnie Mae’s Digital Collateral Program Pilot from July 2020 to allow any issuer to participate in the Digital Collateral Program. In the program, Ginnie will permit the securitization of digital collateral into the same pools as traditional paper collateral. As highlighted in the memorandum, digital collateral was comprised of mortgage loans which have promissory notes that are “Eligible eNotes” as published in Ginnie Mae’s Digital Collateral Program Guide. These updates were implemented to “promote liquidity and increase participation” in the program by modernizing and digitizing Ginnie Mae’s Mortgage-Backed Securities program to align with other industry practices more closely. The updated program will go into effect on June 1.
Freddie Mac launches pilot program on loan repurchase alternatives
On January 1, Freddie Mac is launching a pilot program intended to improve the quality of performing loans for sellers. This pilot program, titled “Fee-Based Repurchase Alternative for Performing Loans,” is the fourth initiative from Freddie Mac’s Pilot Transparency programs, which included pilot programs on appraisal modernization, shared equity conversion, and asset and income modeler for direct deposits. This fee-based repurchase alternative pilot program for 2024 focuses on replacing Freddie Mac’s current repurchase policy for defective performing loans. “[L]enders will not be subject to repurchases on most performing loans and will instead be subject to a fee-based structure based on non-acceptable quality (NAQ) rates.” According to Freddie Mac, the fee-based structure will be more efficient and transparent and rewards lenders that deliver high-quality loans. Freddie Mac also notes that loans that are non-performing in 36 months or have life of loan defects could be repurchased. The pilot program is active; accordingly, the fee structure will begin rolling out in early 2024 to targeted lenders.
FHFA releases advisory bulletin for pilot and voluntary programs
On November 13, FHFA released an advisory bulletin on the FHLBank Framework for Pilot and Voluntary Programs. The desire for FHFA to develop innovative pilot programs is to support “affordable housing, equity advancement, and community development for underserved and financially vulnerable populations.” The pilot programs would be implemented and then analyzed to determine if they should continue, be expanded, or stop altogether. Some pilot programs may be to “test and learn” while some end because they do not meet FHLBank objectives. What the FHFA disallows from its pilot programs are “[p]roducts, programs, and services implemented under established FHFA statutory and regulatory authorities.” However, voluntary programs have included “grants, down payment assistance programs, and special purpose credit programs.”
The FHFA guidance recommends that FHLBank’s board of directors establish specific parameters for pilot and voluntary programs by March 29, 2024. This bulletin was a result of public input phases of the “FHLBank System at 100: Focusing on the Future” initiative, as previously covered by InfoBytes here. Stakeholder feedback claimed that “FHLBanks should do more to support the affordable housing and community development components of their mission, especially in addressing the needs of underserved or financially vulnerable populations.”
DFPI amends requirements for Increased Access to Responsible Small Dollar Loans Program
On May 10, the California Department of Financial Protection and Innovation (DFPI) issued a notice of approval of amendments to regulations under the California Financing Law (CFL) related to the agency’s pilot program for increased access to responsible small-dollar loans (RSDL program). The RSDL program, which became operative in 2014, allows finance lenders licensed under the CFL and approved by the DFPI commissioner to charge specified alternative interest rates and charges, including an administrative fee and delinquency fees, on loans subject to certain requirements.
The approved amendments, among other things, increase the upper dollar loan limit from $2,500 to $7,500, require applicants to submit mandatory policies and procedures for addressing customer complaints and responding to questions from loan applicants and borrowers, require lenders report additional information about the finders they use, and allow lenders to use qualified finders to disburse loan proceeds, collect loan payments, and issue notices and disclosures to borrowers. (See also DFPI’s final statement of reasons, which outlines specific revisions and discusses the agency’s responses to public comments.) The amendments are effective July 1.
FDIC solicits comments on innovation pilot programs
On November 6, 2019 the FDIC published a notice and request for public comment in the Federal Register seeking input on a new collection of information titled “Information Collection for Innovation Pilot Programs.” The FDIC notes that the innovation pilot program framework is a continuation of the agency’s efforts to engage and collaborate “with innovators in the financial, non-financial, and technology sectors to, among other things, identify, develop, and promote technology-driven innovations among community and other banks in a manner that ensures the safety and soundness of FDIC-supervised and insured institutions.” The framework is intended to provide a regulatory environment to facilitate the testing of innovative and novel approaches or applications involving a variety of banking products and services that may lead to cost reductions, increased access to financial services, and a decrease in operational, risk management, or compliance costs for insured depository institutions. While the FDIC plans on announcing additional details and the framework’s parameters at a later date, the agency stated that “innovators (banks and firms in partnership with banks) will be invited to voluntarily propose time limited pilot programs, which will be collected and considered by the FDIC on a case-by-case basis.”
Comments on the proposal are due January 6, 2020.