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FDIC’s OIG Issues Evaluation of Agency’s Implementation of ATR/QM and Loan Originator Rules
On December 6, the FDIC’s Office of Inspector General (OIG) released an evaluation report to examine how the agency implements certain consumer protection rules concerning consumers’ ability to repay mortgage loans and limits for loan originator compensation. The OIG report, FDIC’s Implementation of Consumer Protection Rules Regarding Ability to Repay Mortgages and Compensation for Loan Originators (EVAL-18-001), focused on the FDIC’s Division of Depositor and Consumer Protection (DCP), which is responsible for implementing the Ability to Repay/Qualified Mortgage (ATR/QM) and Loan Originator rules and tracking violations of the rules. The report found that the DCP “incorporated these rules into its examination program, trained its examiners, and communicated regulatory changes to FDIC-supervised institutions.” However, based on a sample of 12 examinations, the OIG also determined that examination workpapers generally needed improvement, finding (i) inconsistent documentation by examiners on decisions to exclude compliance testing for the ATR/QM and Loan Originator rules, and (ii) in certain circumstances, incomplete, incorrect, or improperly stored examiners’ workpapers, “which would preclude someone independent of the examination team from fully understanding examination findings and conclusions, based on the workpapers alone.”
OIG further noted that, because DCP’s examination practices did not include tracking the number of institutions subject to the rules or recording how frequently examiners tested for compliance, any identified variances among the FDIC’s six regional offices could not be assessed for significance due to lack of context.
As a result of these findings, the OIG made several recommendations for the DCP to strengthen its compliance examination process, including:
- “research potential reasons for the regional variances in the number of rule violations by banks in the FDIC’s six regional offices”;
- “track the aggregate number of FDIC-supervised institutions in each region that are subject to the rules”;
- “track how often examiners test for compliance with the rules”; and
- ‘‘take steps to improve workpaper documentation and retention.”
The DCP agreed to implement these recommendations June 30, 2018.
Senate Banking Committee Approves Financial Regulatory Relief Bill
On December 5, the Senate Banking Committee approved bill S. 2155, Economic Growth, Regulatory Relief, and Consumer Protection Act, which would alter certain financial regulations under the Dodd-Frank Act of 2010. While not as sweeping as previous legislative relief proposals (see previous InfoBytes coverage on House Financial CHOICE Act of 2017), the bill was introduced and passed the Committee with bipartisan support. The bill’s highlights include, among other things:
- Consumer Access to Credit. The bill deems mortgage loans held in portfolios by insured institutions with less than $10 billion in assets to be “qualified mortgages” under TILA, and removes the three-day waiting period for TILA-RESPA Integrated Disclosures if the second credit offer is a lower rate. The bill also instructs the CFPB to provide “clearer, authoritative guidance” on certain issues such as the applicability of TRID to mortgage assumptions and construction-to-permanent loans. Additionally, the bill eases appraisal requirements on certain mortgage loans and exempts small depository institutions with low mortgage originations from certain HMDA disclosure requirements.
- Regulatory Relief for Certain Institutions. The bill exempts community banks from Section 13 of the Bank Holding Company Act if they have, “[i] less than $10 billion in total consolidated assets, and [ii] total trading assets and trading liabilities that are not more than five percent of total consolidated assets” – effectively allowing for exempt banks to engage in the trading of, or holding ownership interests in, hedge funds or private equity funds. Additionally, the bill raises the threshold of the Federal Reserve’s Small Bank Holding Company Policy Statement and the qualification for certain banks to have an 18-month examination cycle from $1 billion to $3 billion.
- Protections for Consumers. Included in an adopted “manager’s amendment,” the bill requires credit bureaus to provide consumers unlimited free security freezes and unfreezes. The bill also limits certain medical debt information that can be included on veterans’ credit reports.
- Changes for Bank Holding Companies. The bill raises the threshold for applying enhanced prudential standards from $50 billion to $250 billion.
The bill now moves to the Senate, which is not expected to take up the package before the end of this year.
Federal Banking Agencies Amend CRA Regulations to Conform With HMDA Regulation Changes
On November 24, the Federal Reserve Board, FDIC, and OCC published a joint final rule in the Federal Register, amending their respective Community Reinvestment Act (CRA) regulations. The amended regulations conform with the CFPB’s amendments to Regulation C, which implements the Home Mortgage Disclosure Act (HMDA). The amendments are designed to reduce the burden associated with CRA performance evaluation reporting requirements. Specifically, the amended regulations (i) modify the definitions of “home mortgage loan” and “consumer loan”; (ii) revise the public file content requirements; and (iii) make technical corrections and remove obsolete references to the Neighborhood Stabilization Program (see previous InfoBytes coverage here).
As previously reported in InfoBytes, amendments to Regulation C generally take effect January 1, 2018, with the agencies’ specific amendments to the CRA regulations taking effect the same day.
Agencies Announce Availability of 2016 Small Business and Farm CRA Data
On November 21, the three federal banking agency members of the Federal Financial Institutions Examination Council (FFIEC) with Community Reinvestment Act (CRA) responsibility—the Federal Reserve Board, the FDIC, and the OCC—announced the release of the 2016 small business and small farm CRA data. The analysis contains information from 726 lenders reporting data about originations and purchases of small loans (loans with original amounts of $1 million or less) in 2016, a 3.3 percent decrease from 2015.
The FFIEC disclosure statement on the data for each reporting lender is available here.
FDIC Chairman Speaks About Financial Inclusion
On November 7, the Chairman of the FDIC, Martin J Gruenberg, addressed the Local Initiatives Support Corporation (LISC) in New York, New York regarding financial inclusion and expanding economic opportunity for the underbanked. In his speech, Gruenberg discussed the agency’s most recent report, FDIC National Survey of Unbanked and Underbanked Households, which found that nearly 27 percent of American households are unbanked or underbanked. Gruenberg also highlighted the initiatives the agency has undertaken to address the results of this report, including (i) creating access to “Safe Accounts,” which are electronic transaction accounts with low costs; (ii) conducting research on mobile financial services and how technology can lead to more sustainable banking relationships; and (iii) continuing financial education initiatives with a particular focus on youth savings.
Federal Banking Agencies Seek Comments on Proposal to Further Streamline Call Reports
On November 2, the Federal Reserve Board, FDIC, and OCC (agencies)—all members of the Federal Financial Institutions Examination Council (FFIEC)—issued a joint notice and request for comment on a proposal to further streamline the Consolidated Reports of Condition and Income (Call Reports) in an effort to reduce data reporting requirements and regulatory burdens for financial institutions. The proposal would modify Call Reports applicable to banks with (i) domestic offices only and less than $1 billion in total assets (FFIEC 051); (ii) domestic offices only (FFIEC 041); and (iii) domestic and foreign offices (FFIEC 031). The proposed revisions, which would eliminate or combine several data items and revise certain existing reporting thresholds, would take effect as of the June 30, 2018, report date. Comments on the proposal are due within 60 days after its publication in the Federal Register.
Previous requests for proposed burden-reducing Call Report revisions were submitted by the agencies in August 2016 and June 2017. (See InfoBytes’ coverage of the August request here.)
FDIC Releases List of Enforcement Actions Taken Against Banks and Individuals in September 2017
On October 27, the FDIC released a list of 23 orders of administrative enforcement actions that it has taken against banks and individuals in September, as well as one consent order termination issued in August. Civil money penalties were assessed against two banks, including one citing violations of the Flood Disaster Protection Act and the National Flood Insurance Act for (i) failing to obtain flood insurance during loan origination or to obtain “adequate” flood insurance, and (ii) failing to provide written notice in a timely fashion—or at all—to borrowers that the property securing the loan was in a special flood hazard area.
Consent orders were issued against eight institution-affiliated parties related to unsafe or unsound banking practices and breaches of fiduciary duty concerning their actions when supervising a Pennsylvania bank’s mortgage division. Also on the list are five Section 19 orders, which allow applicants to participate in the affairs of an insured depository institution after having demonstrated “satisfactory evidence of rehabilitation,” and three terminations of consent orders, among others.
There are no administrative hearings scheduled for November 2017. The FDIC database containing all 24 enforcement decisions and orders may be accessed here.
VA Extends Foreclosure Moratorium Following Hurricane Disasters; Federal Agencies Issue Appraisal Exceptions; Freddie Mac Extends Temporary Selling Requirements Related to Wildfire Areas
Hurricane Relief. The Department of Veterans Affairs (VA) is extending the foreclosure moratorium on properties affected by the recent hurricanes. For disaster areas impacted by Harvey, Irma, and Maria, the VA is updating the original circulars to change the 90-day moratorium to 180 days (a complete list of change notices can be found here).
On October 24, the FDIC, Federal Reserve, National Credit Union Administration, and the OCC issued a temporary exception to the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA) appraisal requirements for areas affected by the recent hurricanes. More specifically, the FDIC's Financial institution Letter states that the agency will not require financial institutions to obtain appraisals for affected transactions, if (i) the properties involved are located in areas declared major disasters; (ii) there are binding commitments to fund the transactions within 36 months of the date the areas were declared major disasters; and (iii) the value of the real properties support the institutions' decisions to enter into the transactions.
California Wildfire Relief. On October 25, Freddie Mac released Guide Bulletin 2017-24 extending the temporary selling requirements applied to hurricane disaster areas to eligible disaster areas impacted by the California wildfires. As previously covered by InfoBytes, Freddie Mac is requiring servicers to suspend foreclosure sales and eviction activities and has agreed to reimburse sellers for certain property inspections for property located in eligible disaster areas.
Here is a complete list of InfoBytes disaster relief coverage.
FinCEN Encourages Communication from Financial Institutions Affected by the California Wildfires; FDIC Offers Regulatory Relief; FHA Extends Foreclosure Moratorium
California Wildfire Relief. On October 19, FinCEN announced that financial institutions affected by the California wildfires should contact FinCEN and their functional regulator regarding any delays in their ability to file Bank Secrecy Act reports and to keep FinCEN and the regulators apprised of subsequent changes in their circumstances.
On October 20, the FDIC announced steps to provide regulatory relief to financial institutions and facilitate recovery in areas of California affected by recent wildfires. The FDIC is encouraging banks to work constructively with borrowers affected by the wildfires, including extending repayment terms, restructuring existing loans, or easing terms for new loans. The FDIC noted that financial institutions may receive favorable Community Reinvestment Act (CRA) consideration in support of disaster recovery and will consider regulatory relief from certain filing and publishing requirements.
Hurricane Relief. On October 20, HUD issued an additional 90-day extension of the initial disaster foreclosure moratorium for FHA mortgaged properties located in specified areas impacted by the recent hurricanes. The foreclosure moratorium applies to the initiation of foreclosures and foreclosures already in process. The new extended dates are as follows: February 21, 2018 for Hurricane Harvey, March 9, 2018 for Hurricane Irma, and March 19, 2018 for Hurricane Maria.
As previously discussed in InfoBytes, several federal agencies have announced regulatory relief for victims of recent natural disasters.
FDIC Chairman Delivers Remarks Concerning the Strengths and Challenges Facing Community Banks
On October 23, FDIC Chairman, Martin J. Gruenberg, spoke at an event hosted by the Illinois Department of Financial and Professional Regulation and the Conference of State Bank Supervisors about the important role community banks play in the U.S. financial system. Gruenberg noted that comparing the performance of community banks to noncommunity banks in the post-crisis period can be instructive. For instance, “community bank loans have grown faster than loans held at noncommunity banks in: 1- to 4-family mortgages, commercial real estate loans, and commercial and industrial loans.” In fact, Gruenberg stated, “[i]n each of the past three years, annual growth in community bank net income has equaled or exceeded growth at noncommunity banks.” Further, community banks continue to provide more credit for small business and banking services in general in non-metro areas.
Gruenberg went on to highlight some of the challenges facing community banks: (i) fewer resources for burdensome regulatory compliance; (ii) appraiser availability and shortages, especially in rural areas; (iii) complex capital requirements; (iv) the ability to effectively respond to information technology challenges, such as maintaining strong cybersecurity programs; and (v) succession planning and staff recruitment. Beyond agency efforts to address these concerns through advisors and proposed changes, Gruenberg spoke about the FDIC’s Community Banking Initiative, which offers resources and tools to help community banks stay informed of regulatory changes and manage costs.