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North Dakota amends mortgage licensing requirements
On March 13, the North Dakota governor signed SB 2090, which, among other things, revises licensing requirements for residential mortgage lenders. The act provides that “a person other than a residential mortgage lender licensed and authorized under this chapter may not engage in residential mortgage lending in the state without a residential mortgage lender license issued by the commissioner. A person engages in residential mortgage lending if the borrower resides in North Dakota.” The act outlines provisions related to application for licensure; licensing fees; surety bond and minimum net worth requirements; license renewal, expiration, revocation, suspension, and surrender; recordkeeping requirements; prohibited acts and practices; prohibitions on advance fees; and permitted maximum charges for loans and installment payments. Provisions relating to orders, injunctions, investigations, subpoenas, examinations, and penalties are also discussed. The act also provides a comprehensive list of exemptions.
The act stipulates that lenders in possession of a valid state money broker’s license as of August 1, are not required to obtain a residential mortgage lenders license until December 31. All other provisions of this chapter are applicable to residential mortgage lenders as of August 1.
CSBS seeks comments on uniform mortgage licensing standards
On March 16, the Conference of State Bank Supervisors (CSBS), on behalf of the NMLS Policy Committee, issued a request for public comments on proposed uniform state licensing standards for mortgage companies. The Proposal: Mortgage Business-Specific Requirements would create a national standard for mortgage industry licensing to help improve uniformity within the state system and streamline the licensing process for mortgagees seeking licensure in multiple states.
The proposal is broken down into eight components:
- Contacts. All licensees will be required to provide contacts within the company for accounting, legal, licensing, data breach/cybersecurity, exam billing, exam delivery, and mortgage call reports, in addition to a primary company contact and a primary consumer complaint contact. If a licensee chooses to list a third-party contact, “the company will be deemed to have expressly authorized a state agency to contact the third party without further approval from the company” and “the company is ultimately responsible for the area of responsibility.”
- Periodic reporting. All licensees will be required to complete periodic reports covering mortgage call reports, audited financial statements, and reportable incidents.
- Data requirements. All licensees will be required to “provide numbers for any approvals or designations the company holds[,]” as well as business bank account information for accounts held in the name of the applicant and used for mortgage activities.
- Document requirements. Required documentation includes financial statements; policies and certifications; current Bank Secrecy Act/anti-money laundering and Gramm-Leach Bliley Privacy Act policies; current disaster recovery or business continuity plans; a current consumer grievance/complaint policy (as well as the required certification); and documents used in the regular course of business such as operating agreements, consumer complaint notices, customer agreements, and third-party contracts.
- Required functionality. All licensees must abide by a three-party electronic surety bond agreement in order to guarantee “the surety’s performance or monetary compensation to the obligee should there be a failure by the principal to perform specified acts within a stated time period.” The surety bond will be electronically managed by NMLS.
- Location reporting. All licenses will be required to provide locations where licensed activity will be performed, where records will be stored, or where support staff for licensed activities will be located. Licensees must also provide the primary location for accounting services, regardless of whether they are provided in house or by a third-party accounting firm, cloud storage services (including services used to collect data from customers), and the primary location for legal services, regardless of whether they are provided in house or by a third-party law firm.
- Company operated work locations’ information. The proposal outlines information required for each company operated work location, including business activities, licensing authorities, addresses, books and records information, and “doing business as” names.
- Key individual requirements. Licensees will be required to identify key individuals in the areas of management, ownership, functional risk areas, and industry specific roles. The proposal explains that the key individual inquiry focuses on key risk and functional areas (operations, finance, compliance, and information security), rather than titles. Key individuals for mortgages must also submit credit reports and complete an FBI criminal background check. Key individuals who have lived outside the United States at any time in the past 10 years must also provide an investigative background report.
Comments on the proposal are due May 15.
FFIEC releases 2022 HMDA data
On March 20, the CFPB announced the release of the 2022 HMDA modified loan application register (LAR) data. The LAR data, available on the Federal Financial Institutions Examination Council’s HMDA platform, contains modified loan-level information on approximately 4,394 HMDA filers. The Bureau also announced plans to produce the 2022 HMDA data “in other forms to provide users insights into the data,” including through a nationwide loan-level dataset, which will provide all publicly available data from all HMDA reporters, as well as aggregate and disclosure reports with summary information by geography and lender, to allow users the ability to create custom datasets and reports. The Bureau also said it plans to publish a Data Point article highlighting key trends in the annual HMDA data.
Banking company pleads guilty to mortgage fraud
On March 15, a Michigan-headquartered bank holding company agreed to plead guilty to securities fraud for filing misleading statements related to its 2017 initial public offering (IPO) and its 2018 and 2019 annual filings. According to the DOJ’s announcement, the bank holding company and its wholly owned subsidiary were under investigation over allegations that loan officers were encouraged to increase the volume of residential mortgage loan originations in order to artificially inflate bank revenue leading up to and following the IPO. The DOJ explained that the bank filed false securities statements about its residential mortgage loan program in its IPO, as well as in subsequent annual filings that “contained materially false and misleading statements that touted the soundness of the [] loans.” These loans were actually “rife with fraud,” the DOJ said and cost non-insider victim-shareholders nearly $70 million. Senior management allegedly knew that loan officers were falsifying loan documents and concealing the fraudulent information from the bank’s underwriting and quality control departments, the DOJ maintained, noting that the actions caused the bank to originate loans and extend credit to borrowers who would have otherwise not qualified.
Under the terms of the plea agreement (which must be accepted by the court), the bank holding company will “be required to serve a term of probation through 2026, submit to enhanced reporting obligations to the department, and pay more than $27.2 million in restitution to its non-insider victim-shareholders.” The DOJ considered several factors when determining the criminal resolution, including the nature and seriousness of the offense and the pervasiveness of the misconduct at the most senior levels. The bank holding company received credit for its cooperation and for implementing extensive remedial measures, and has agreed to continue to fully cooperate with the DOJ in all matters relating to the covered conducts and other conduct under investigation. It is also required to self-report criminal violations and must continue to implement a compliance and ethics program to detect and deter future violations of U.S. securities law.
As previously covered by InfoBytes, the bank holding company’s subsidiary paid a $6 million civil money penalty to the OCC last September for alleged unsafe or unsound practices related to the residential mortgage loan program.
FHFA delays effective date of DTI ratio-based fee
On March 15, FHFA delayed the implementation of a new debt-to-income ratio-based fee to August 1, in order to ensure lenders have sufficient time to prepare. In January, FHFA made several changes relating to upfront fees for certain borrowers with debt-to-income (DTI) ratios above 40 percent. The updated and recalibrated pricing grids also include the upfront fee eliminations announced last October to increase pricing support for purchase borrowers limited by income or by wealth, FHFA said. The agency made the decision to delay the effective date by three months based on feedback from mortgage industry stakeholders who raised concerns about the operational challenges of implementing the DTI ratio-based fee. FHFA also confirmed that “lenders will not be subject to post-purchase price adjustments related to this DTI ratio-based fee for loans acquired by [Fannie Mae and Freddie Mac] between August 1, 2023, and December 31, 2023.” The agency explained that this temporary exception “will not alter any other quality control review decisions by [Fannie Mae and Freddie Mac].”
CFPB issues 2023 HMDA institutional and transactional coverage charts
On March 15, the CFPB released the 2023 HMDA institutional and transactional coverage charts. The charts update the reporting thresholds for transactions that involve a closed-end mortgage loan, pursuant to an order issued last September by the U.S. District Court for the District of Columbia in National Community Reinvestment Coalition v. CFPB. (Covered by InfoBytes here.) As previously covered by InfoBytes, in 2020 the CFPB issued a final rule, which amended Regulation C and 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.
The 2023 HMDA Institutional Coverage Chart outlines criteria for determining whether an institution is covered by Regulation C. Additionally, the 2023 HMDA Transactional Coverage Chart explains that under HMDA/Regulation C, a transaction is reportable only if it is an application for, an origination of, or a purchase of a covered loan. The chart explains how to determine whether a transaction involves a covered loan and whether it meets the applicable loan-volume thresholds.
CFPB seeks feedback on LO comp
On March 10, the CFPB issued a Request for Comment (RFC) seeking feedback on the Regulation Z Mortgage Loan Originator Rules, including the provisions often referred to as the Loan Originator Compensation or “LO Comp” Rule. (See also blog post here.) The Bureau states that a significant focus of the RFC is to assist in determining whether the Rule should be amended or rescinded to minimize the Rule’s economic impact upon small entities.
The Mortgage Loan Originator Rules, among other things, prohibit compensation to loan originators that is based on the terms of a mortgage transaction (or proxies for terms), prohibit a loan originator from receiving compensation from both the creditor and consumer on the same transaction, prohibit steering a consumer to a particular loan because it will result in more compensation for the loan originator unless the loan is in the consumer’s interest, require certain records related to compensation be kept, and implement licensing and qualification requirements for loan originators.
The RFC is open-ended insofar as it requests public comment on any topic related to the impact of the Mortgage Loan Originator Rules pursuant to section 610 of the Regulatory Flexibility Act (Section 610). Section 610 mandates a review of all agency rules which have a significant economic impact upon a substantial number of small entities within ten years of its effective date. In conducting a Section 610 review, the agency must consider (i) the continued need for the rule; (ii) the nature of complaints or comments received concerning the rule from the public; (iii) the complexity of the rule; (iv) the extent to which the rule overlaps, duplicates, or conflicts with other Federal rules, and, to the extent feasible, with State and local governmental rules; and (v) the length of time since the rule has been evaluated or the degree to which technology, economic conditions, or other factors have changed in the area affected by the rule.
Notably, the RFC references feedback it has previously received from stakeholders related to the Mortgage Loan Originator Rules, specifically referring to recommendations it has received related to (i) whether to permit different loan originator compensation for originating State housing finance authority loans as compared to other loans (i.e., on bond loans); (ii) whether to permit creditors to decrease a loan originator’s compensation due to the loan originator’s error or to match competition; and (iii) how the Rule provisions apply to loans originated by mortgage brokers and retail loan originators differently. Each of these topics has been a source of significant industry input, including in response to the CFPB’s 2018 Request for Information Regarding the Bureau's Adopted Regulations.
The Bureau is most likely simply following standard procedure to comply with Section 610, which mandates the CFPB conduct a review within ten years for all rules that significantly impact small entities. But it is possible that the Bureau may be open to making certain adjustments to the Rule that industry has been clamoring for since the Rule was implemented, particularly as the Bureau chose to specifically reference three such recommendations.
HUD establishes 40-year loss-mit option
On March 8, HUD published a final rule in the Federal Register to allow mortgagees to increase the maximum term of a loan modification from 360 to 480 months for FHA-insured mortgages after a borrower defaults. HUD explained that “[i]ncreasing the maximum term limit will allow mortgagees to further reduce the borrower’s monthly payment as the outstanding balance would be spread over a longer time frame, providing more borrowers with FHA-insured mortgages the ability to retain their homes after default.” The change also aligns FHA with modifications made available to borrowers with mortgages backed by Fannie Mae and Freddie Mac, both of which provide a 40-year loan modification option. HUD considered public comments in response to a proposed rule published last April (covered by InfoBytes here), and noted that commenters said a 40-year loan modification option would provide significant relief to struggling borrowers. Concurrently, HUD published Mortgagee Letter 2023-06 to establish the standalone 40-year loan modification policy. The final rule is effective May 8.
CFPB report looks at junk fees; official says they remain agency focus
On March 8, the CFPB released a special edition of its Supervisory Highlights focusing on junk fees uncovered in deposit accounts and the auto, mortgage, student, and payday loan servicing markets. The findings in the report cover examinations completed between July 1, 2022 and February 1, 2023. Highlights of the supervisory findings include:
- Deposit accounts. Examiners found occurrences where depository institutions charged unanticipated overdraft fees where, according to the Bureau, consumers could not reasonably avoid these fees, “irrespective of account-opening disclosures.” Examiners also found that while some institutions unfairly assessed multiple non-sufficient (NSF) fees for a single item, institutions have agreed to refund consumers appropriately, with many planning to stop charging NSF fees entirely.
- Auto loan servicing. Recently examiners identified illegal servicing practices centered around the charging of unfair and abusive payment fees, including out-of-bounds and fake late fees, inflated estimated repossession fees, and pay-to-pay payment fees, and kickback payments. Among other things, examiners found that some auto loan servicers charged “payment processing fees that far exceeded the servicers’ costs for processing payments” after a borrower was locked into a relationship with a servicer selected by the dealer. Third-party payment processors collected the inflated fees, the Bureau said, and servicers then profited through kickbacks.
- Mortgage loan servicing. Examiners identified occurrences where mortgage servicers overcharged late fees, as well as repeated fees for unnecessary property inspections. The Bureau claimed that some servicers also included monthly private mortgage insurance premiums in homeowners’ monthly statements, and failed to waive fees or other changes for homeowners entering into certain types of loss mitigation options.
- Payday and title lending. Examiners found that lenders, in connection with payday, installment, title, and line-of-credit loans, would split and re-present missed payments without authorization, thus causing consumers to incur multiple overdraft fees and loss of funds. Some short-term, high-cost payday and title loan lenders also charged borrowers repossession-related fees and property retrieval fees that were not authorized in a borrower’s title loan contract. The Bureau noted that in some instances, lenders failed to timely stop repossessions and charged fees and forced consumers to refinance their debts despite prior payment arrangements.
- Student loan servicing. Examiners found that servicers sometimes charged borrowers late fees and interest despite payments being made on time. According to the Bureau, if a servicer’s policy did not allow loan payments to be made by credit card and a customer representative accidentally accepted a credit card payment, the servicer, in certain instances, would manually reverse the payment, not provide the borrower another opportunity for paying, and charge late fees and additional interest.
CFPB Deputy Director Zixta Martinez recently spoke at the Consumer Law Scholars Conference, where she focused on the Bureau’s goal of reigning in junk fees. She highlighted guidance issued by the Bureau last October concerning banks’ overdraft fee practices, (covered by InfoBytes here), and commented that, in addition to enforcement actions taken against two banks related to their overdraft practices, the Bureau intends to continue to monitor how overdrafts are used and enforce against certain practices. The Bureau noted that currently 20 of the largest banks in the country no longer charge surprise overdraft fees. Martinez also discussed a notice of proposed rulemaking issued last month related to credit card late fees (covered by InfoBytes here), in which the Bureau is proposing to adjust the safe harbor dollar amount for late fees to $8 for any missed payment—issuers are currently able to charge late fees of up to $41—and eliminate a higher safe harbor dollar amount for late fees for subsequent violations of the same type. Martinez further described supervision and enforcement efforts to identify junk fee practices and commented that the Bureau will continue to target egregious and unlawful activities or practices.
CFPB publishes HMDA review
On March 3, the CFPB published findings from a voluntary review of the 2015 HMDA Final Rule issued in October 2015, as well as subsequent related amendments that eased certain reporting requirements and permanently raised coverage thresholds for collecting and reporting data about closed-end mortgage loans and open-end lines of credit (covered by InfoBytes here). Under Section 1022(d) of Dodd-Frank, the Bureau is required to conduct an assessment of each significant rule or order adopted by the agency under federal consumer financial law. The Bureau noted that it previously determined that the 2015 HMDA Final Rule “is not a significant rule for purposes of section 1022(d)” and said the decision to conduct the review was voluntary.
The Report on the Home Mortgage Disclosure Act Rule Voluntary Review found, among other things, that (i) “[c]onsistent with the 2015 HMDA Final Rule’s increase in the closed-end reporting threshold for depository institutions, HMDA coverage of first lien, closed-end mortgages decreased between Q1 of 2017 and Q1 of 2018, from 97.0 percent to 93.8 percent”; (ii) for all financial institutions originating closed-end mortgages, “the share of those institutions reporting HMDA data decreased between 2015 and 2020, with the largest decreases observed in 2017 and 2020” after the reporting threshold rose from 25 loan originations to 100 loan originations; (iii) revising data points to include the age of applicant and co-applicant race, ethnicity, gender, and income, increased the amount of compiled data; and (iv) analyzing data assists in detecting fair lending risk and discrimination in mortgage lending. “HMDA’s expanded transactional coverage improved the risk screening used to identify institutions at higher risk of fair lending violation by improving the accuracy of analysis and thus reducing the false positive rate at which lenders were mistakenly identified as high risk,” the report said.
The report also noted that interest rate data “provides an important observation that enables data users, including government agencies, researchers, and consumer groups to analyze mortgage pricing in order to better serve HMDA’s purposes. In particular, interest rate information brings a greater transparency to the market and facilitates enforcement of fair lending laws.” The Bureau further noted that HMDA data is “crucial” to federal regulators when conducting supervisory examinations and enforcement investigations. The Bureau commented that the “requirement to report new HMDA data points greatly increased the accuracy of supervisory data since the additional data points are now used to assess fair lending risks and are subject to supervisory exams for accurate filing to HMDA,” adding that the data is “also used to estimate appropriate remuneration amounts for harmed consumers.”