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  • FHFA Releases July 2017 Refinance Report

    Lending

    On September 14, the Federal Housing Finance Agency (FHFA) published its Refinance Report for July 2017. As previously reported by the FHFA and other sources, interest rates continued to increase for 30-year fixed-rate mortgages in July (from 3.9 percent in June to 3.97 percent), while overall refinance volume decreased. Specific to the Home Affordable Refinance Program (HARP), the report found, among other things, that borrowers completed 2,305 HARP refinances in July, bringing the total HARP refinances to 3,473,109. Consistent with recent Refinance Reports, the report also notes that borrowers who refinanced through HARP had a lower delinquency rate compared to borrowers eligible for HARP who did not refinance through the program. Last month, the FHFA extended HARP until December 31, 2018.

    Lending FHFA Mortgages Refinance Home Affordable Refinance Program

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  • Agencies Issue Proposed Rulemaking to Amend CRA Regulations to Conform With HMDA Regulation Changes

    Lending

    On September 13, the Federal Reserve Board, the FDIC, and the OCC (Agencies) issued a joint notice of proposed rulemaking to amend Community Reinvestment Act (CRA) regulations to conform to the CFPB’s changes to Regulation C, which implements the Home Mortgage Disclosure Act (HMDA). The proposed amendments revise the definition of “home mortgage loan” and “consumer loan,” update the public file content requirements to comply with recent Regulation C changes, and make various technical corrections. In addition, the proposal will eliminate obsolete references to the Neighborhood Stabilization Program (NSP), an initiative created by HUD to help stabilize communities contending with foreclosures and abandonment. In 2016, under CRA regulations, NSP-eligible activities were no longer considered “community development.” The Agencies anticipate that the proposed rule will become effective on January 1, 2018, when most of the changes to the HMDA rules go into effect.

    Home Mortgage Loan. Under the 2015 HMDA Rule changes, “most consumer-purpose transactions, including closed-end mortgage loans, closed-end home equity loans, home-equity lines of credit, and reverse mortgages will be reported under HMDA if they are secured by a dwelling.” To conform to the Regulation C amendments, effective January 1, 2018, for purposes of CRA regulations, a “home mortgage loan” will now mean a “closed-end mortgage loan” or an “open-end line of credit,” both of which will now apply only to loans that are secured by a dwelling. Financial institutions will now have the option to decide whether they want home improvement loans that are not secured by a dwelling, which will no longer be HMDA, considered for CRA purposes, although the Agencies note that they may choose to still evaluate some of these loans in certain circumstances “where the consumer lending is so significant a portion of an institution’s lending by activity and dollar volume of loans that the lending test evaluation would not meaningfully reflect lending performance if consumer loans were excluded.”

    Consumer Loan. The proposed rulemaking would no longer include “home equity loans” in the list of “consumer loan” categories for CRA purposes, as it will now be included within the proposed revised definition of a “home mortgage loan.”  

    Comments on the proposal will be accepted for 30 days after publication in the Federal Register.

    Lending Agency Rule-Making & Guidance OCC Federal Reserve FDIC CFPB CRA HMDA Mortgages

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  • Department of Education Terminates Student Loan Sharing Agreements with CFPB, Announces Expanded Focus on Enforcement and Consumer Protection

    Lending

    On August 31, the US Department of Education submitted a letter notifying the CFPB that it intends to terminate two Memoranda of Understanding (MOUs) between the agencies regarding the sharing of information in connection with the oversight of federal student loans. The MOUs that will terminate on September 30, 2017, are the “Memorandum of Understanding Between the Bureau of Consumer Financial Protection and the U.S. Department of Education Concerning the Sharing of Information” (Sharing MOU), dated October 19, 2011, and the “Memorandum of Understanding Concerning Supervisory and Oversight Cooperation and Related Information Sharing Between the U.S. Department of Education and the Consumer Financial Protection Bureau,” dated January 9, 2014.

    The letter rebukes the CFPB for overreaching and undermining the Education Department’s mission to serve students and borrowers, and states that it “takes exception to the CFPB unilaterally expanding its oversight role to include the Department's contracted federal student loan servicers.” The letter also accuses the CFPB of failing to share all complaints related to Title IV federal student loans within 10 days of receipt as required by the MOUs, and that the Bureau’s intervention in these cases “adds confusion to borrowers and servicers who now hear conflicting guidance related to Title IV student loan services for which the Department is responsible.”

    In a press release issued by the House Committee on Education and the Workforce on September 1, Representative Virginia Foxx (R-N.C.) praised the Department’s decision stating, “[t]he Department of Education has made it clear that its partnership with the CFPB is doing more harm than good when it comes to how it can best serve students and borrowers.” However, advocacy groups such as Americans for Financial Reform and the National Consumer Law Center (NCLC) criticized the Department’s decision, with the NCLC calling it “outrageous and deeply troubling” and refuting the Department’s claims that the CFPB “’unilaterally’ expanded its oversight role over servicers and collectors of federal student loans.” Instead it argued that the Department’s “failures are what led Congress to give the CFPB authority to help students.”

    On the same day, the Education Department issued a press release announcing “a stronger approach to how Federal Student Aid (FSA) enforces compliance by institutions participating in the Federal student aid programs by creating stronger consumer protections for students, parents and borrowers against ‘bad actors.’” The strategy will focus on illegitimate debt relief organizations and schools that defraud students, and FSA will engage in “comprehensive communications and executive outreach to ensure parties and their leadership understand their responsibilities, the consequences of non-compliance and appropriate remedies.” The CFPB was notably absent, however, from the release’s reference to FSA’s continued stakeholder coordination, which listed the FTC and the DOJ.

    On September 7, the CFPB responded to the CFPB’s letter to request time to “engage in a constructive conversation” with the Department to determine a path for continued collaboration to best serve the needs of student loan borrowers. Director Richard Cordray noted that because the Department has access to the CFPB’s Government Portal as part of the agencies’ arrangement, the Department is able to view borrower complaints in “near real-time.” According to Director Cordray, the Department has accessed the portal 80 times over the past three months. Several examples of the Bureau’s supervisory examinations are also provided to highlight the CFPB’s position that its actions have not been “inconsistent with the Department’s directives or [in conflict with the] shared goal of protecting student loan borrowers.”

    Lending Student Lending Federal Issues Department of Education CFPB House Committee on Education MOUs NCLC FSA

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  • CFPB Publishes Final Rule Amending Annual Dollar Threshold in TILA Regulations

    Lending

    On August 30, the CFPB issued a final rule amending Regulation Z, which implements the Truth in Lending Act (TILA), under the Credit Card Accountability Responsibility and Disclosure Act of 2009 (CARD Act), the Home Ownership and Equity Protection Act of 1994 (HOEPA), and the Dodd-Frank ability-to-repay and qualified mortgage provisions (ATR/QM). The CFPB is required to make adjustments to dollar amounts in the Regulation Z provisions implementing these laws based on the annual percentage change reflected in the Consumer Price Index effective June 1, 2017. For open-end consumer credit plans under TILA, the minimum interest charge disclosure threshold will remain unchanged at $1.00 in 2018. For open-end consumer credit plans under the CARD Act amendments, the adjusted dollar amount for the safe harbor for a first violation penalty fee will remain unchanged at $27 in 2018, and the adjusted dollar amount for the safe harbor for a subsequent violation penalty fee will remain unchanged at $38 in 2018. For HOEPA loans, the adjusted total loan amount threshold for high-cost mortgages in 2018 will increase to $21,032, and the adjusted points and fees dollar trigger for high-cost mortgages in 2018 will be $1,052. To satisfy the underwriting requirements under the ATR/QM rule, the maximum thresholds for total points and fees for qualified mortgages in 2018 will be: (i) 3 percent of the total loan amount for loans greater than or equal to $105,158; (ii) $3,155 for loan amounts greater than or equal to $63,095 but less than $105,158; (iii) 5 percent of the total loan amount for loans greater than or equal to $21,032 but less than $63,095; (iv) $1,052 for loan amounts greater than or equal to $13,145 but less than $21,032; and (v) 8 percent of the total loan amount for loan amounts less than $13,145. The final rule is effective January 1, 2018.

    Lending Agency Rule-Making & Guidance CFPB TILA Credit Cards HOEPA Ability To Repay Qualified Mortgage Federal Register Regulation Z Mortgages

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  • OCC Issues Guidance for Banks Originating Mortgages with LTV Ratios Greater than 100 Percent as Part of Community Revitalization Efforts

    Lending

    On August 21, in an effort to assist in revitalizing distressed communities, the OCC released guidance for national banks and federal savings associations considering owner-occupied residential mortgage originations with loan-to-value (LTV) ratios greater than 100 percent. Bulletin 2017-28 includes, among other thing, the program criteria, which includes (i) permanent first-lien mortgages with LTV ratios exceeding 100 percent at time of origination, without mortgage insurance or other acceptable collateral, and with an original loan balance of $200,000 or less, (ii) communities that are “officially targeted for revitalization by a federal, state, or municipal government entity or agency,” (iii) a set of program policies and procedures, and (iv) providing notice to the OCC thirty days prior to starting or modifying a program.

    Established programs will be actively monitored and evaluated to examine the performance of the LTV loans, and the programs as a whole will be evaluated at least annually to determine the extent to which they are aiding in revitalization efforts. Depending on its findings, the OCC reserves the right to amend or rescind Bulletin 2017-28, but maintains that any loans originated in agreement with the required provisions will not be affected “solely because of any measurable amendment or rescission of this [B]ulletin.”“Bank lending under such a program may serve the credit needs of individual borrowers and the community, and the bank may receive Community Reinvestment Act consideration depending on the specifics of the program,” the OCC noted.

    Lending Agency Rule-Making & Guidance OCC CRA Mortgage Origination LTV Ratio

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  • Freddie Mac to Begin Accepting Automated Appraisals for Eligible Home Buyers

    Lending

    On August 18, Freddie Mac issued a press release announcing an automated appraisal alternative for eligible consumers purchasing homes or refinancing existing mortgages. The program, known as an “automated collateral evaluation,” will permit lenders to utilize Freddie Mac’s proprietary platforms to see if an estimate of home value can be used in lieu of obtaining a traditional appraisal. Freddie predicts the program could save home buyers several hundred dollars and reduce closing times by as many as 10 days if it determines a traditional appraisal is unnecessary. Automated appraisals will become available for qualified transactions starting September 1, 2017. The program has been available for qualified home refinances since June 19, 2017.

    Lending Appraisal Mortgages Freddie Mac Refinance

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  • CFPB, 13 State Attorneys General Take Action Against Private Equity Firm for Allegedly Aiding For-Profit College Company’s Predatory Lending Scheme

    Lending

    On August 17, the CFPB announced a proposed settlement against a private equity firm and its related entities for allegedly aiding a now bankrupt for-profit college company in an illegal predatory lending scheme. In 2015, the CFPB obtained a $531 million default judgment against the company based on allegations that it made false and misleading representations to students to encourage them to take out private student loans. (See previous InfoBytes summary here.) However, the company was unable to pay the judgment because it had dissolved and its assets were distributed in its bankruptcy case that year. Because of the company’s inability to pay, the CFPB indicated that it would continue to seek additional relief for students affected by the company’s practices.  In a complaint filed by the CFPB on August 17 in the U.S. District Court for the District of Oregon, the Bureau relied on its UDAAP authority to allege that the private equity firm engaged in abusive acts and practices when it funded the college company’s private student loans and supported the college company’s alleged predatory lending program.  Specifically, the CFPB alleged that the private equity firm enabled the company to “present a façade of compliance” with federal laws requiring that at least 10 percent of the for-profit school’s revenue come from sources other than federal student aid in order to receive Title IV funds.  The Bureau further alleged that both the company and the private equity firm knew that the high-priced loans made under the alleged predatory lending scheme had a “high likelihood of default.” According to the complaint, the private equity firm continues to collect on the loans made under the alleged predatory lending program. In regard to these loans, the proposed order requires the private equity firm to, among other things: (i) forgive all outstanding loan balances in connection with certain borrowers who attended one of the company’s colleges that subsequently closed; (ii) forgive all outstanding balances for defaulted loans; and (iii) with respect to all other outstanding loans, reduce the principal amount owed by 55 percent, and forgive accrued and unpaid interest and fees more than 30 days past due.

    Relatedly, New York Attorney General Eric T. Schneiderman,  announced on August 17 that his office, in partnership with the CFPB and 12 other state attorneys general, had reached a $183.3 million nationwide settlement with the private equity firm in partnership with the CFPB. According to a press release issued by AG Schneiderman’s office, under the terms of the settlement, an estimated 41,000 borrowers nationwide who either defaulted on their loans or attended the company’s colleges when it closed in 2014 are entitled to full loan discharges—an amount estimated to be between “$6,000 and $7,000.”

    Lending State AG CFPB Student Lending UDAAP

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  • DOJ Announces Settlements with Non-Bank Mortgage Lender to Resolve Alleged False Claims Act Violations

    Lending

    On August 8, the DOJ announced a $74.5 million settlement with a non-bank mortgage lender and certain affiliates to resolve potential claims that they violated the False Claims Act by knowingly originating and underwriting mortgage loans insured by the U.S. Department of Housing and Urban Development and the Veterans Administration (VA), and by selling certain loans to Fannie Mae and Freddie Mac that did not meet applicable requirements. According to the terms of the two settlement agreements, $65 million of the settlement will be paid to resolve allegations relating to FHA loans, and $9.45 million will be paid to resolve potential civil claims relating to certain specified VA, Fannie Mae, and Freddie Mac loans. The settlements also fully resolved a False Claims Act qui tam lawsuit that had been pending in the United States District Court for the Eastern District of New York.

    The settlement included no admission of liability by the lender. The lender issued a statement responding to the settlements: “We have agreed to resolve these matters, which cover certain legacy origination and underwriting activities, without admitting liability, in order to avoid the distraction and expense of potential litigation. While we cooperated fully in these investigations since receiving subpoenas in 2013, we concluded that settling these matters is in the best interest of [the company] and its constituents.”

    Lending Mortgages False Claims Act / FIRREA Mortgage Origination HUD Fannie Mae Freddie Mac FHA Settlement DOJ Nonbank Supervision

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  • Massachusetts Regulator Fines Auto Finance Companies for Violations of State Fair Lending Rules

    Lending

    On August 7, the Division of Banks of the Massachusetts Office of Consumer Affairs and Business Regulation (Division) announced it had entered into consent orders with several motor vehicle sales finance companies to address allegations of unlicensed and illegal auto lending practices uncovered during an investigation of approximately 200 car dealerships. According to a press release issued by the Division, the investigation resulted in “five enforcement actions, 135 cease directives, $170,000 in fines and penalties, and more than $200,000 in consumer reimbursements.” Violations include, among others, (i) pricing vehicles far above blue book value; (ii) charging interest rates that approach or are at, or exceed the state’s maximum level, which is set at 21 percent, including interest rate violations occurring as a result of the financing of debt cancellation (GAP) coverage premiums; (iii) assessing interest and/or late fees after repossession of a vehicle “on which a repossession of the collateral has been executed”; and (iv) failure to obtain a motor vehicle sales finance company license through the Division, failure to address license renewal application deficiencies, or operating without a valid license. According to one consent order, the company allegedly failed to provide consumers an opportunity to “cure a default” before using starter interrupt devices to shut down their cars. A different consent order ordered the company to identify borrowers for whom their finance charges were calculated incorrectly, or those who overpaid due to a total loss insurance claim, and reimburse borrowers the amount that was overcharged or overpaid. A third consent order was issued to a California-based auto lender who purchased finance contracts from Massachusetts auto dealers without being licensed through the Division and engaged in several of the aforementioned violations.

    None of the companies entering into the consent orders admitted to any of the allegations or the existence of any violation of state or federal law concerning their operations as motor vehicle sales finance companies.

    Lending Fair Lending Auto Finance Consumer Finance UDAAP

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  • FHFA Releases Q1 2017 Credit Risk Transfer Progress Report; Fannie Mae, Freddie Mac Transfer $5.5 Billion in Risk to Investors

    Lending

    On July 26, the Federal Housing Finance Agency (FHFA) released its Credit Risk Transfer Progress Report, presenting a comprehensive overview of the status and volume of credit risk transfer transactions to the private sector by Fannie Mae and Freddie Mac (the Enterprises) through the first quarter of 2017 in the single-family market. As outlined in the progress report, since the beginning of the Enterprises’ Single-Family Credit Risk Transfer Programs in 2013 through March 2017, the Enterprises have transferred more than $54.2 billion in credit risk to private investors, amounting to about 3.4 percent of $1.6 trillion in unpaid principal balance. In Q1 the Enterprises transferred about $5.5 billion worth of credit risk. Transfers occurred through “debt issuances, insurance/reinsurance transactions, senior-subordinate securitizations, and a variety of lender collateralized recourse transactions.” Additionally, the report examines the role of primary mortgage insurance in credit risk transfer transactions and the Enterprises’ debt issuances.

    Lending FHFA Fannie Mae Freddie Mac

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