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FHA seeks to increase small balance mortgages
On October 4, FHA announced a request for information (RFI) seeking input on ways to facilitate greater origination of small balance mortgages for FHA insurance. FHA will use feedback received in response to the RFI to help identify barriers to the origination of small mortgages in its program. The agency will also consider the development of policies and programs to better support and expand affordable homeownership opportunities in underserved markets with lower housing prices and to close the racial homeownership gap. According to the announcement, the RFI seeks input on topics related to “the current availability of small mortgage financing, barriers and disincentives to small mortgage lending transactions, changes to policies or processes that would encourage origination of more FHA-insured small balance mortgages, and considerations regarding liquidity provided through securitization.” Comments on the RFI are due December 5.
In conjunction with the RFI, HUD released a report assessing factors that limit the supply of small mortgage loans and highlighting challenges facing borrowers who need loans to purchase lower-priced homes. The report, titled Financing Lower-Priced Homes: Small Mortgage Loans, found that mortgage loans having an original principal obligation of $70,000 or less represent less than 3.5 percent of originations in 2020. Many of these loans secure properties valued at more than $70,000—an indication that the purchases included substantial down payments, HUD said. Among other things, the report also found that FHA disproportionately insures loans for lower-priced homes compared to the rest of the mortgage market and has loan insurance programs for financing property improvements and manufactured homes that are particularly targeted to lower loan amounts. Additionally, the report flagged the fixed costs of loan origination and servicing as a significant barrier to small mortgage lending, noting that this makes small mortgage loans less profitable and may necessitate additional incentives for lenders, such as reducing costs or providing additional lender or loan originator compensation.
Oregon issues remote work guidance to licensed loan originators
On September 21, the Oregon Department of Consumer and Business Services filed permanent administrative order FSR 3-2022 with the Secretary of State to allow licensed loan originators and employees to work from home. Under the order, Oregon licensed mortgage loan originators “may originate loans from a location other than from a licensed branch office if the location is the licensed mortgage loan originator’s home; the licensed mortgage loan originator is an employee of a mortgage banker or mortgage broker; and the mortgage banker or the mortgage broker complies with OAR 441-860- 0040, as applicable.” Mortgage bankers or brokers must have in place appropriate policies and procedures to supervise licensees working from home, including data security measures to protect consumers’ personal data. Additionally, licensees working from home “are prohibited from engaging in person with consumers for loan origination purposes at the home of the loan originator or employee, unless the home is licensed as a branch.” Licensees may, however, “engage with consumers for loan origination purposes at the home of the loan originator or employee by means of conference telephone or similar communications equipment that allows all persons participating in the visitation to hear each other, provided that participation is controlled and limited to those entitled to attend, and the identity of participants is determinable and reasonably verifiable.” Licensees who work from home are also prohibited from keeping any physical business records at any location other than a licensed location, and must also ensure that all origination records are available at a licensed location.
Hawaii enacts licensing legislation
On June 17, the Hawaii governor signed two bills into law. HB 2113 permits money transmitter license applicants to submit to either a state or federal criminal history record check, rather than both, upon application. SB 1105 establishes that, in addition to application fees, and any fees required by NMLS, a mortgage loan originator licensee must pay a mortgage loan recovery fund fee of $200, and upon application for renewal of a license, a mortgage loan originator licensee must pay $100. The bill also permits a person aggrieved by the fraud, misrepresentation, or deceit of a mortgage loan originator company licensee to receive restitution payment upon a final court order. The bills are effective July 1.
States settle with company on fraudulent MLO certifications
On February 10, the Conference of State Bank Supervisors announced that the California Department of Financial Protection and Innovation, Maryland’s Office of the Commissioner of Financial Regulation, and the Oregon Division of Financial Regulation have reached a settlement agreement with the owner of a California-based company for providing false certificates claiming that mortgage loan originators (MLOs) took mandatory eight-hour continuing education courses as required for licensure under state and federal law. The three state financial regulators brought separate enforcement actions alleging violations of the Secure and Fair Enforcement for Mortgage Licensing Act (SAFE Act) against the individual and his family (collectively, “respondents”) for their role in the “multi-state fraud scheme that involved hundreds of mortgage loan originators.” According to the announcement, the respondents have “agreed to fully cooperate and provide testimony against implicated mortgage loan originators,” and have “agreed to a lifetime restriction from direct and indirect involvement in businesses that provide mortgage lending-related education.” In addition to a $75,000 monetary penalty (which will be divided between the three states), the respondents have agreed to a non-compliance penalty of $15 million should they fail to fully comply with the terms of the settlement agreement.
The action follows a multistate $1.2 million settlement reached last month with 441 MLOs. As previously covered by InfoBytes, the enforcement action included the participation of 44 state agencies from 42 states, and required the settling MLOs to surrender their licenses for three months, pay a $1,000 fine to each state that is a signatory to the consent order in which the MLO holds a license, and take pre-licensing and continuing-education courses before petitioning or reapplying for an MLO endorsement or license.
States reach $1.2 million settlement with MLOs over fraudulent SAFE Act education certifications
On January 18, the Conference of State Bank Supervisors (CSBS) announced that 441 mortgage loan originators (MLOs) have agreed to pay approximately $1.2 million to settle allegations that they falsely claimed to have completed annual mortgage education programs required under the Secure and Fair Enforcement for Mortgage Licensing Act (SAFE Act). The enforcement action, which included the participation of 44 state agencies from 42 states, targeted a mortgage education scheme offered by a California-based company and its owner that provided false certificates claiming that MLOs took mandatory eight-hour continuing education courses as required for licensure under state and federal law. (See additional background information on the enforcement action here.) The states’ investigation—led by the California Department of Financial Protection and Innovation—revealed that the owner allegedly, in some instances, completed online education courses on behalf of the MLOs, and in other instances “granted course credit to [MLOs] who had enrolled in his approved course but who neither attended the course nor completed the required coursework necessary to receive course credit.” Administrative enforcement actions have been taken against the company, the owner, and members of the owner’s family. The settling MLOs have agreed to surrender their licenses for three months, pay a $1,000 fine to each state that is a signatory to the consent order in which the MLO holds a license, and take pre-licensing and continuing-education courses before petitioning or reapplying for an MLO endorsement or license. CSBS noted that MLOs implicated in the investigation that did not sign a consent order will face further enforcement actions with their appropriate state financial regulator for additional disciplinary action against their MLO licenses.
CFPB updates Mortgage Origination Examination Procedures
On December 22, the CFPB updated its Mortgage Origination Examination Procedures to reflect amendments to Regulation Z’s Qualified Mortgage (QM) provisions. The Mortgage Origination Examination Procedures address various elements of the mortgage origination process and provide guidance for examinations of mortgage brokers and mortgage lenders. As previously covered by InfoBytes, last April the Bureau issued a final rule extending the mandatory compliance date of the General QM final rule to October 1, 2022. By extending the mandatory compliance date, lenders will now have the option of complying with either the revised General QM definition or the original DTI-based General QM definition on applications received on or after March 1, but prior to October 1, 2022.
CFPB, FHFA release updated data on borrowers’ mortgage experiences
On July 29, the CFPB and FHFA released updated loan-level data for public use, which provides insights into borrowers’ experiences during the process of obtaining residential mortgages, as well as their perceptions of the mortgage market and future expectations. The data, collected through the National Survey of Mortgage Originations, adds mortgage data from 2018 through 2019. Key highlights include: (i) the percentage of respondents who reported not being concerned about qualifying for a mortgage during the application process increased from 48 to 51 percent for home purchase mortgages and 57 to 66 percent for refinances; (ii) having an option for a paperless online mortgage process continued to remain relatively high in terms of importance (40 percent for home purchase mortgages and 44 percent for refinances); and (iii) the percentage of respondents who applied for a mortgage through a mortgage broker increased from 42 to 46 percent for home purchase mortgages and 30 to 38 percent for refinances, whereas the percentage of respondents who applied directly through a bank or credit union decreased from 54 to 49 for home purchase mortgages and 67 to 61 for refinances.
CFPB issues summer supervisory highlights
On June 29, the CFPB released its summer 2021 Supervisory Highlights, which details its supervisory and enforcement actions in the areas of auto loan servicing, consumer reporting, debt collection, deposits, fair lending, mortgage origination and servicing, payday lending, private education loan origination, and student loan servicing. The findings of the report, which are published to assist entities in complying with applicable consumer laws, cover examinations that generally were completed between January and December of 2020. Highlights of the examination findings include:
- Auto Loan Servicing. Bureau examiners identified unfair acts or practices related to lender-placed collateral protection insurance (CPI), including instances where servicers charged unnecessary CPI or charged for CPI after repossession. Examiners also identified unfair acts or practices related to payoff amounts where consumers had ancillary product rebates due, and also found unfair or deceptive acts or practices related to payment application.
- Consumer Reporting. The Bureau found deficiencies in consumer reporting companies’ (CRCs) FCRA compliance related to the following requirements: (i) accuracy; (ii) security freezes applicable to certain CRCs; and (iii) ID theft block requests. Specifically, examiners found that CRCs continued to include information from furnishers despite receiving furnisher dispute responses that “suggested that the furnishers were no longer sources of reliable, verifiable information about consumers.” Additionally, the report noted instances where furnishers failed to update and correct information or conduct reasonable investigations of direct disputes.
- Debt Collection. The report found that examiners found instances of FDCPA violations where debt collectors (i) made calls to a consumer’s workplace; (ii) communicated with third parties; (iii) failed to stop communications after receiving a written request or a refusal to pay; (iv) harassed consumers regarding their inability to pay; (v) communicated, and threatened to communicate, false credit information to CRCs; (vi) made false representations or used deceptive collection means; (vii) entered inaccurate information regarding state interest rate caps into an automated system; (viii) unlawfully initiated wage garnishments; and (ix) failed to send complete validation notices.
- Deposits. The Bureau discussed violations related to Regulation E and Regulation DD, including error resolution violations, issues with provisional credits, failure to investigate, failure to remediate errors, and overdraft opt-in and disclosure violations.
- Fair Lending. The report noted instances where examiners cited violations of HMDA/ Regulation C involving HMDA loan application register inaccuracies, and instances where lenders, among other things, violated ECOA/Regulation B “by engaging in acts or practices directed at prospective applicants that would have discouraged reasonable people in minority neighborhoods in Metropolitan Statistical Areas (MSAs) from applying for credit.”
- Mortgage Origination. The Bureau cited violations of Regulation Z and the CFPA related to loan originator compensation, title insurance disclosures, and deceptive waivers of borrowers’ rights in security deed riders and loan security agreements.
- Mortgage Servicing. The Bureau cited violations of Regulation X, including those related to dual tracking violations, misrepresentations regarding foreclosure timelines, and PMI terminations.
- Payday Lending. The report discussed violations of the CFPA for payday lenders, including falsely representing an intent to sue or that a credit check would not be run, and presenting deceptive repayment options to borrowers that were contractually eligible for no-cost repayment plans.
- Private Education Loan Origination. Bureau examiners identified deceptive acts or practices related to the marketing of private education loan rates.
- Student Loan Servicing. Bureau examiners found several types of misrepresentations servicers made regarding consumer eligibility for the Public Service Loan Forgiveness (PSLF) program, and identified unfair acts or practices related to a servicer’s “failure to reverse negative consequences of automatic natural disaster forbearances.” Additionally, examiners identified unfair act or practices related to failing to honor consumer payment allocation instructions or providing inaccurate monthly payment amounts to consumers after a loan transfer.
The report also highlights recent supervisory program developments and enforcement actions.
Certain FHA Covid-19 guidance to expire June 30
On June 22, FHA published an announcement with a reminder that certain relaxed Covid-19-related standards that had allowed for single-family lenders and servicers to limit face-to-face contact as part of the mortgage origination process for FHA loans would expire as intended on June 30. The temporary guidance, which was first announced last March to provide flexibility related to the re-verification of employment guidance and the exterior-only appraisal scope of work option, was extended several times during the pandemic (covered by InfoBytes here). FHA noted that due to low usage it believes that the expiration of the guidance will have minimal impact on the industry.
Vermont passes law allowing mortgage employees to work from home
On May 4, the Vermont legislature passed SB 88 (now known as Act 25), which among other things, permits mortgage loan activity to be conducted outside of an entity’s main place of business or branches. Act 25 allows a mortgage originator, broker, or servicer’s employees to work from their residence, assuming the individual is adequately supervised by the employer.