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  • CFPB posts blog entry analyzing cash-out refinancing

    Federal Issues

    On December 18, the CFPB posted a blog entry regarding cash-out refinance mortgages and their borrowers between 2013 to 2023. According to the entry, which noted reflects the authors’ views, and not those of the CFPB, refinance mortgage originations decreased amid 2022’s rapid interest rate hikes, and notably favored cash-out refinances over non-cash-out options. Cash-out refinances involve borrowing significantly more than the amount owed on an existing mortgage, often used for diverse purposes like debt settlement or home improvements. Despite reduced volumes due to rising rates, the post noted that cash-out refinances are “worth monitoring” since they were considered one of the factors that contributed to the 2008 financial crisis.

    Analyzing loans from 2013 to 2023 from data in the National Mortgage Database, the blog entry revealed some insights into delinquencies. Some of the findings include: (i) cash-out refinances held a larger share of all refinances when interest rates rose; (ii) borrowers opting for cash-out refinances typically had lower income and lower credit scores compared to those pursuing different refinancing avenues; (iii) borrowers with stronger credit scores showed minimal serious delinquencies irrespective of the refinancing type; and (iv) borrowers with lower credit scores showed similar two-year delinquency rates for both cash-out and non-cash-out refinancing, except for borrowers in 2017, a year marked by rising interest rates and lower credit scores for cash-out borrowers.  Based on this last finding, the blog post noted that there may be increased delinquencies among cash-out refinances originated in 2022, a year with similar interest rate increases and decrease in cash-out borrowers’ credit score.

    Federal Issues CFPB Cash-Out Refinance Refinance Consumer Finance Mortgages

  • Fannie Mae announces updates to the servicing guide

    Federal Issues

    On December 20, Fannie Mae issued SVC-2023-06, announcing updates made to its Servicing Guide. The updates include new financial reporting requirements requiring large non-depository sellers/servicers to submit a Mortgage Banker’s Financial Reporting Short Form (Form 1002A) within 30 days of the end of each month, beginning May 31, 2024 for the April 2024 monthly reporting. An additional change to the Servicing Guide involves a revised policy for loans transferred to an LLC, eliminating the specific timing requirement for the title transfer and instead directing sellers to refer to the Selling Guide for guidance on the timing requirement. This policy clarification is effective immediately. The announcement also contains, among other miscellaneous changes, an updated Special Lender Approval Form (Form 1000A) that improves the application process for sellers and servicers applying to sell or acquire a particular renovation mortgage.

    Federal Issues Fannie Mae Servicing Guide Mortgages

  • California’s new mortgage servicer during a “state of emergency” to be effective

    State Issues

    Recently, California enacted SB 455 to address mortgage servicing during a state of emergency. SB 455 will require a mortgage servicer (transferring a mortgage secured by a property within a proclaimed emergency zone) to provide the new servicer with written records between the borrower and the old servicer on the borrower’s election to use insurance proceeds to repair or replace property damaged by a disaster. Additionally, SB 455 prevents the new servicer from disregarding any prior written agreements between the original servicer and the borrower regarding property repairs that were approved by the owner of the promissory note. The SB 455 bill will be effective January 1, 2024. 

    State Issues California State Legislation Mortgages Mortgages Servicing

  • OCC reports on the federal banking system’s mortgage performance during the third quarter

    Federal Issues

    On December 12, the OCC released a report on first-lien mortgage performance for the third quarter of 2023. The OCC compares the third quarter’s statistics to this year’s second quarter statistics, as well as a year-over-year analysis in comparison to the third quarter of 2022.

    The OCC found that there was a 0.1 percent increase in “current and performing” mortgages and a 0.2 percent drop in mortgages that are seriously delinquent from the previous year. As for mortgage servicing, there were 7,436 loan modifications completed in the third quarter of 2023, which is a 13.8 percent decrease from the second quarter. The OCC notes that while the third quarter saw an increase in foreclosures from the previous quarter, such figures still represent a decrease from the number of foreclosures from last year. The report breaks down several statistics for each state, including the number of mortgage modification actions, the number of modification actions in combination actions, the changes in monthly principal and interest payments by state, and the number of re-defaults for loans modified six months previously.

    Federal Issues OCC Mortgages Foreclosure

  • Freddie Mac standardizes down payment assistance programs

    Agency Rule-Making & Guidance

    On December 4, Freddie Mac announced new, standardized mortgage documents aimed at of making down payment assistance (DPA) programs more accessible nationwide. According to Freddie Mac, the subordinate lien programs for DPA programs have been specific to particular housing finance agencies which created confusion. By standardizing these documents, Freddie Mac hopes to benefit lenders by making DPA programs more efficient.

    To create the standardized documents, Freddie Mac partnered with Fannie Mae and state housing finance agencies. These documents will initially be available for 19 states, and eventually for all 50 states and the District of Columbia. These changes come in tandem with Freddie Mac’s new tool, DPA One®, to aggregate and showcase down payment assistance programs on a single platform.

    Agency Rule-Making & Guidance Freddie Mac Fannie Mae Consumer Finance Mortgages Downpayment Assistance

  • FHFA announces increases in 2024 conforming loan limits

    Federal Issues

    On November 28, FHFA announced that it will raise the maximum conforming loan limits (CLL) for mortgages purchased in 2024 by Fannie Mae and Freddie Mac from $726,200 to $776,550 (the 2023 CLLs were covered by InfoBytes here) for most of the United States. In Alaska, Hawaii, Guam, and the U.S. Virgin Islands, the maximum loan limit for one-unit properties will be 1,149,825. According to the FHFA, due to rising home values (up 5.56 percent since 2022), CLLs will be higher for all but five U.S. counties.

    Federal Issues FHFA Mortgages Fannie Mae Freddie Mac Consumer Finance

  • Fed releases paper on debt substitution dynamics

    On November 21, the Fed released a paper concluding that when mortgage rates rise on cash-out refinancings, households do not significantly increase overall borrowing, but instead switch to alternative borrowing options (i.e. credit cards, personal loans, HELOCs, and second liens). Analyzing rate increases and using monetary policy surprises from 2006 to 2021, the paper finds that changes in cash-out refinancing are balanced by shifts to alternative borrowing.

    The paper’s findings further reveal that higher mortgage rates and the amount borrowed through cash-out refinancing have a positive correlation. The parallel showcases a pattern where borrowers are choosing the most cost-effective borrowing option based on the size of their liquidity need, the paper noted. The paper suggests that the way borrowers react to changes in monetary policy, like interest rate adjustments, can depend on whether they have existing mortgages and what interest rates they have on those mortgages. The paper also suggests that while some borrowers might change their mortgage terms when interest rates shift, others might choose different types of loans that don't change their original mortgage rate. This offsets the impact of changing monetary policies on refinancing decisions, the paper explained.

    Bank Regulatory Federal Issues Federal Reserve Mortgages Refinance Consumer Finance

  • CFPB approves pilot program for construction loans

    Federal Issues

    On November 21, the CFPB announced it approved an application from a community banking trade organization to pilot disclosures for construction loans. The application was submitted pursuant to the CFPB’s trial policy programs under Section 1032(e) of Dodd-Frank. According to the community banking trade organization, the application aims to increase the number of affordable loans that combine a construction phase loan with a mortgage, all within a single set of closing costs, i.e., a single-close construction-to-permanent loan. The community banking trade organization hopes to increase the number of these specific loans because first-time homebuyers in rural and small-town communities are more likely to build their first home than purchase existing ones. The community banking trade organization also stated that the current loan disclosure requirements offered by the CFPB were designed for either standard home purchase or refinance mortgage loans. The Bureau states that it wishes to receive applications for this pilot disclosure from lenders rather than single-market participants.

    Federal Issues CFPB Construction Consumer Finance Mortgages

  • Agencies finalize 2024 HPML smaller loan exemption threshold

    On November 13, the CFPB, OCC, and the Fed published final amendments to the official interpretations for regulations implementing Section 129H of TILA, which establishes special appraisal requirements for “higher-risk mortgages,” otherwise termed as “higher-priced mortgage loans” (HPMLs). The final rule increases TILA’s loan exemption threshold for the special appraisal requirements for HPMLs. Each year, the threshold must be readjusted based on the annual percentage increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers. The exemption threshold will increase from $31,000 to $32,400 effective January 1, 2024.

    Bank Regulatory Federal Issues OCC Federal Reserve CFPB Mortgages Appraisal Consumer Finance HPML TILA

  • FHA announces update and consolidation of the HECM program

    Agency Rule-Making & Guidance

    On October 31, the Federal Housing Administration (FHA) announced, after a multi-year effort, the inclusion of policies for its Home Equity Conversion Mortgage (HECM) program in the Single-Family Housing Policy Handbook 4000.1. The FHA indicated this is the first time that all HECM program requirements will be available in a single place. According to the FHA, consolidating these programs eliminates more than one hundred individual policy documents and assist with strengthening the understanding and implementation of the HECM by lenders. New sections include Section II.B covering FHA policy for the origination through post-closing and endorsement of HECMs; and Section III.B, covering FHA policy for the servicing of HECMs and loss mitigation options to assist HECM borrowers who are behind on their HECM obligations. Assistant Secretary for Housing and Federal Housing Commissioner Julia Gordon stated that the “completion of the HECM sections of our Single Family Handbook reinforces FHA’s commitment to the HECM program and is part of a larger effort to retool the program for long-term success.” The FHA also updated model documents, frequently asked questions, and training and expects the online version to be available soon.

    Agency Rule-Making & Guidance Federal Issues FHA HECM Mortgages Consumer Finance

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