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FHA proposes to ease branch office registration
On March 1, FHA published FHA INFO 2023-14 announcing a proposed rule to eliminate a requirement that mortgagees and lenders register all branch offices conducting FHA business with HUD. Currently, all FHA-approved mortgagees and lenders are required to register any branch office where they originate Title I or II loans or submit applications for mortgage insurance. Due to technological advances and remote service delivery, this requirement is inconsistent with current industry practices, FHA said, explaining that the proposed rule will grant mortgagees and lenders the choice as to whether to register and maintain branch offices with HUD. The proposed rule also will make branch registration fees applicable only to those branch offices registered with HUD. Unregistered branch offices will not be subject to unnecessary registration fees and will not be placed on the HUD Lender List Search page. Comments on the proposed rule are due May 1.
FHA codifies SOFR for LIBOR-based ARMs
On March 1, FHA published a final rule in the Federal Register removing LIBOR as an approved index for adjustable-rate mortgages (ARMs) and replacing it with the Secured Overnight Financing Rate (SOFR) as the approved index for newly-originated forward ARMs. The final rule also codifies HUD’s removal of LIBOR and approval of SOFR as an index for newly-originated home equity conversion mortgages (HECM) ARMs, and establishes “a spread-adjusted SOFR index as the Secretary-approved replacement index to transition existing forward and HECM ARMs off LIBOR.” Additionally, the final rule makes several clarifying changes and establishes a 10 percentage points maximum lifetime adjustment cap for monthly adjustable rate HECMs. The agency considered comments received to its proposed rule published last October (covered by InfoBytes here), and said the updated policy will now “generally align with Fannie Mae, Freddie Mac, and Ginnie Mae's policies replacing LIBOR with the SOFR index.” The final rule is effective March 31.
CFPB asks for comments on alternative disclosures for construction loans
On February 27, the CFPB announced it is in the final stages of reviewing an application for alternative mortgage disclosures for construction loans submitted by a trade group representing small U.S. banks. The applicant maintains that it is not uncommon for first-time homebuyers in rural communities to build their home instead of purchasing an existing home due to the scarcity of “existing affordable ‘starter’ homes.” The applicant seeks to adjust existing mortgage disclosures to facilitate the offering of loans that finance both the construction phase and the permanent purchase of a home. According to the applicant, a consumer’s understanding of construction loans would be improved if disclosures are more specifically tailored to these types of transactions. The Bureau stated that should it approve this “template” application, individual lenders will be able to apply for enrollment in an in-market testing pilot. However, the Bureau noted that, as indicated in its Policy to Encourage Trial Disclosure Programs (covered by InfoBytes here), the mere approval of a template neither permits a lender to unilaterally conduct a trial disclosure program without further approval by the CFPB, nor does it “bind the CFPB to grant individual applications.”
The disclosure of the application comes as a result of efforts undertaken by the Bureau to be more open and transparent when adjusting regulations for new business models. The Bureau stated that in addition to publicly releasing the application, it is seeking input from stakeholders who have experience with construction loans. Comments will be accepted through March 29.
DFPI modifies CCFPL proposal
On February 24, the California Department of Financial Protection and Innovation (DFPI) released modifications to proposed regulations for implementing and interpreting certain sections of the California Consumer Financial Protection Law (CCFPL) related to commercial financial products and services. As previously covered by InfoBytes, DFPI issued a notice of proposed rulemaking (NPRM) last June to implement sections 22159, 22800, 22804, 90005, 90009, 90012, and 90015 of the CCFPL related to the offering and provision of commercial financing and other financial products and services to small businesses, nonprofits, and family farms. According to DFPI, section 22800 subdivision (d) authorizes the Department to define unfair, deceptive, and abusive acts and practices in connection with the offering or provision of commercial financing. Section 90009, subdivision (e), among other things, authorizes the Department’s rulemaking to include data collection and reporting on the provision of commercial financing or other financial products and services.
After considering comments received on the NPRM, changes proposed by the DFPI include the following:
- Amended definitions. The proposed modification defines a “commercial financing transaction” to mean “a consummated commercial financing transaction for which a disclosure is provided in accordance with California Code of Regulations, title 10, section 920, subdivision (a).” The modifications to the definitions also amend a “covered provider” to exclude “any person exempted from division 24 of the Financial Code under Financial Code section 90002,” and defines a “small business” to be “a business entity organized for profit with annual gross receipts of no more than $16,000,000 or the annual gross receipt level as biennially adjusted by the Department of General Services in accordance with Government Code section 14837, subdivision (d)(3), whichever is greater.” In determining a business entity’s annual gross receipts, the proposed modifications state that covered providers “may rely on any relevant written representation by the business entity, including information provided in any application or agreement for commercial financing or other financial product or service.”
- UDAAP. In addition to making several technical changes, the proposed modifications clarify that “[i]t is unlawful for a covered provider to engage or have engaged in any unfair, deceptive, or abusive act or practice in connection with the offering or provision of commercial financing or another financial product or service to a covered entity.” The changes remove text that would have made it unlawful should a covered provider “propose to engage” in any if these practices.
- Annual reporting requirements. The proposed modifications specify that covered providers who offer commercial financing will be required to electronically file reports to the DFPI on or before March 15 of each year starting in 2025. The proposed changes to the reporting requirements also clarify certain terms, address when covered providers are not required to calculate or report certain information, and stipulate that covered providers “licensed under division 9 (commencing with section 22000) of the Financial Code shall not include in the report required under this section information for activity conducted under the authority of that license.”
Comments on the proposed modifications are due March 15.
FHFA proposes changes to GSE regulatory capital framework
On February 23, FHFA issued a notice of proposed rulemaking (NPRM) to amend the Enterprise Regulatory Capital Framework (ERCF) that governs Fannie Mae and Freddie Mac. (See also FHFA fact sheet here.) Changes include modifications to the capital requirements for commingled securities, the introduction of a 0.6 risk multiplier for calculating multifamily mortgage exposures backed by properties with certain government subsidies, the introduction of a standardized approach for calculating counterparty credit risk for derivatives and cleared transactions, and modifications for how representative credit scores for single-family loans are determined. Fannie and Freddie would also be required to “assign an original credit score of 680 to single-family mortgage exposure without a permissible credit score at origination” instead of 600. The NPRM also modifies “guarantee assets, mortgage servicing assets, time-based calls for [credit risk transfer] exposures, interest-only [mortgage-backed securities], the single-family countercyclical adjustment, the stability capital buffer, and the compliance date for the advanced approaches.” Comments on the NPRM are due 60 days after publication in the Federal Register.
CFPB finalizes updates to Rules of Practice for Adjudication Procedures
On February 24, the CFPB finalized updates to the agency’s Rules of Practice for Adjudication Procedures (Rules of Practice). Under Section 1053(e) of the Consumer Financial Protection Act, the Bureau is required to establish procedures for administrative adjudications. Last February, the Bureau issued a request for comments on proposed amendments to the Rules of Practice, which are intended to provide greater procedural flexibility, provide parties earlier access to relevant information, expand deposition opportunities, and make various other changes (covered by InfoBytes here). After considering comments received, the Bureau said it will retain the proposed updates in the final procedural rule. According to the Bureau, the updated Rules of Practice expand opportunities for parties in adjudication proceedings to conduct depositions of potential witnesses to allow hearings to “proceed more efficiently and focus more on issues central to the proceeding.” The final rule also makes several amendments related to “timing and deadlines, the content of answers, the scheduling conference, bifurcation of proceedings, the process for deciding dispositive motions, and requirements for issue exhaustion, as well as other technical changes.” The final rule is effective upon publication in the Federal Register. The Bureau noted in its announcement that while it “still plans to bring the vast majority of its matters in district court,” it will continue to conduct administrative adjudications in certain circumstances.
FHA reduces mortgage insurance premiums to improve home affordability
On February 22, FHA announced a 30 basis point reduction in the annual premium charged to mortgage borrowers, resulting in mortgage insurance premiums of 0.55 percent for most borrowers seeking FHA-insured mortgages (down from 0.85 percent). (See also Mortgagee Letter 2023-05.) The reduction will apply to nearly all FHA-insured Single Family Title II forward mortgages, and is applicable to all eligible property types including single family homes, condominiums, and manufactured homes, all eligible loan-to-value ratios, and all eligible base loan amounts. According to the announcement, the reduction is intended to build on steps taken by the Biden administration to make homeownership more affordable and accessible, particularly for households of color, and could save an estimated 850,000 borrowers an average of $800 annually. As previously covered by InfoBytes, last September HUD modified FHA’s underwriting policies to allow lenders to consider a first-time homebuyer’s positive rental payment history as an additional factor in determining eligibility for an FHA-insured mortgage, and in March, the Property Appraisal and Valuation Equity Task Force outlined steps for addressing alleged racial bias in home appraisals (covered by InfoBytes here). Additional actions taken by HUD to improve homeownership accessibility can be found here.
VA reduces funding fee for certain loans
On February 14, the Department of Veterans Affairs announced a funding fee charge update for loans closed on or after April 7, 2023. According to Circular 26-23-06, funding fees are charged on VA transactions involving a home loan where a borrower does not qualify for a fee waiver. A reduced funding fee also applies to borrowers purchasing or constructing a home with a five or 10 percent down payment. The VA explained that lenders are to continue charging non-exempt veterans the current funding fee percentage for loans closed prior to April 7 (fee rates are listed here). For loans closed on or after April 7, lenders must charge the new funding fee percentage (fee rates are listed here).
Agencies propose Call Report revisions
On February 22, the FDIC, Federal Reserve Board, and the OCC announced the publication of a joint notice and request for comment proposing changes to three versions of the Call Report (FFIEC 031, FFIEC 041, and FFIEC 051), as well as changes to the Report of Assets and Liabilities of U.S. Branches and Agencies of Foreign Banks (FFIEC 002), as applicable. Section 604 of the Financial Services Regulatory Relief Act of 2006 mandates agency review of information collected in the Call Reports “to reduce or eliminate any requirement to file certain information or schedules if the continued collection of such information or schedules is no longer necessary or appropriate.” The proposed changes would eliminate and consolidate certain items in the Call Reports based on an evaluation of responses to a user survey addressing the Call Report schedules. The agencies are also requesting comments on certain technical clarifications made last year concerning the reporting of certain debt securities issued by Freddie Mac and proposed Call Report process revisions. The proposed changes if approved, will take effect as of the June 30, 2023, report date. Comments are due April 24.
NCUA approves final cyber incident reporting rule
On February 16, the NCUA approved a final rule that requires federally-insured credit unions (FICUs) to notify the agency as soon as possible (and no later than 72 hours) after a FICU “reasonably believes that a reportable cyber incident has occurred.” Specifically, the rule requires FICUs to report cyber incidents that lead “to a substantial loss of confidentiality, integrity, or availability of a network or member information system as a result of the exposure of sensitive data, disruption of vital member services, or that has a serious impact on the safety and resiliency of operational systems and processes.” Under the rule, FICUs must report any cyberattacks that disrupt their business operations, vital member services, or a member information system within 72 hours of the FICU’s “reasonable belief that it has experienced a cyberattack.” The NCUA explained that the 72-hour notification requirement provides an early alert to the agency but that the rule does not require the submission of a detailed incident assessment within this time frame. The final rule takes effect September 1. Additional reporting guidance will be provided prior to the effective date.
“Through these high-level early warning notifications, the NCUA will be able to work with other agencies and the private sector to respond to cyber threats before they become systemic and threaten the broader financial services sector,” NCUA Chairman Todd M. Harper said. Harper further explained that “[t]his final rule will also align the NCUA’s reporting requirements with those of the federal banking agencies and the Cyber Incident Reporting for Critical Infrastructure Act.”