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  • CFPB, Federal and State Banking Agencies Issue Guidance for Financial Institutions on Providing Disaster Relief to Consumers

    Consumer Finance

    As previously reported in InfoBytes, several federal banking agencies have already issued guidance and resources for national banks and federal savings associations aiding consumers affected by recent disasters. On September 1, the CFPB issued a statement for CFPB-supervised entities on ways to provide assistance to consumers who may be at financial risk. The list includes:

    • offering penalty-free forbearance or repayment periods with disclosed terms;
    • limiting or waiving fees and charges, including overdraft fees, ATM fees, or late fees;
    • restructuring or refinancing existing debt, including extending repayment terms;
    • easing documentation or credit-extension requirements;
    • increasing capacity for customer service hotlines, particularly those that serve consumers in languages other than English; and
    • increasing ATM daily cash withdrawal limits.

    The statement further suggests that supervised entities should utilize existing regulatory flexibility if doing so would benefit affected consumers. Included are examples from Regulations B, X, and Z. Additionally, the Bureau stated it will “consider the circumstances that supervised entities may face following a major disaster and will be sensitive to good faith efforts to assist consumers.”

    The CFPB separately published a blog post for consumers containing a financial toolkit that includes links to disaster relief organizations, ways to secure financial needs, and information on forbearance options, insurance settlements, and contractor evaluations. The CFPB also issued a warning to consumers of the increased risk of scams and fraud.

    In related news, on September 6, the Federal Reserve Board, Conference of State Bank Supervisors, FDIC, and OCC issued a joint press release for financial institutions that may be impacted by Hurricane Irma. The agencies encouraged constructive cooperation with borrowers, noting that “prudent efforts to adjust or alter terms on existing loans in affected areas should not be subject to examiner criticism.” Guidance was also issued on matters concerning Community Reinvestment Act considerations, investments, regulatory reporting requirements, publishing requirements, and temporary banking facilities.

    Consumer Finance CFPB Federal Reserve CSBS FDIC OCC CRA Lending Mortgages Disaster Relief Mortgage Modification

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

    Lending

    On August 31, the U.S. 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

  • 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

  • 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

  • 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

  • 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 Attorney General CFPB Student Lending UDAAP Predatory Lending

  • Oregon Enacts Law Regulating Residential Mortgage Loan Servicers

    State Issues

    On August 2, Oregon Governor Kate Brown signed into law the Mortgage Loan Servicer Practices Act (SB 98), which places certain residential mortgage loan servicers under the supervision of the state’s Department of Consumer and Business Services (DCBS) and requires them to comply with a range of requirements. Among other things, the law gives licensing, examination, investigation, and enforcement authority to the DCBS, and requires applicable residential mortgage loan servicers to: (i) obtain and renew a license through the DCBS if they “directly or indirectly service a residential mortgage loan” in Oregon; (ii) maintain “sufficient liquidity, operating reserves and tangible net worth”; (iii) notify the DCBS in writing before certain operational changes occur; and (iv) comply with a range of consumer protection, antifraud, and recordkeeping requirements, including those related to borrower communications, payment processing, and fee assessments. The law becomes operative on January 1, 2018, and applies “to service transactions for residential mortgage loans that occur on or after” that date.

    State Issues State Legislation Reverse Mortgages Lending Mortgage Servicing

  • NCUA Seeks Comments on Comprehensive Regulatory Reform Agenda

    Agency Rule-Making & Guidance

    On August 16, the National Credit Union Association (NCUA) announced plans to publish in the Federal Register a notice requesting comments on its four-year regulatory reform agenda. As an independent agency, the NCUA is not required to comply with President Trump’s Executive Order 13777, which compels agencies to review and carry out regulatory reform, but it chose to voluntarily comply with the spirit of this Order by forming an internal regulatory reform task force to determine if any of the agency’s existing regulations should be eliminated, revised, improved, or clarified. The Task Force Report outlines its initial findings and recommendations for the amendment or repeal of regulatory requirements that it has determined are outdated, ineffective, or excessively burdensome. The report provides a three-tiered prioritization approach to regulatory reform based on “degree of impact and degree of effort” covering a four-year period, where “impact” focuses on the “magnitude of the benefit that would result from the change, and how broadly the stakeholder community would be impacted”, and “effort” considers the time and energy required to make the change.

    Tier 1 recommendations, assigned the highest level of priority with a two year target time frame, address the following key recommendations: (i) revisions to the “loans to members and lines of credit to members” rules, which govern federal credit union loan maturity limits, single borrower limits, third-party servicing of indirect vehicle loans and executive compensation plans; (ii) modernization of the federal credit union bylaws; (iii) revisions to the agency’s chartering and field of membership manual; (iv) potential changes to capital planning and stress test threshold requirements; and (v) implementation of certain fidelity bond and insurance coverage requirements.

    Tier 2 recommendations, which provide a three-year target time frame, address the following key recommendations: (i) revisions to aggregate loan participation limits; (ii) conducting a review to determine whether prior NCUA approval is required to purchase and assume liabilities from market participants other than federal credit unions; and (iii) easing restrictions on investment activities not required by the Federal Credit Union Act.

    Tier 3 recommendations, which provide a four-year target time frame, address the following key recommendations: (i) enhanced third-party due diligence rules; (ii) changes concerning loans and credit lines to members to “[e]nhance Federal preemption where possible and appropriate” in an effort to reduce overlap with state laws and regulatory burden; and (ii) conducting a review of the regulation pertaining to security programs, suspected crimes and transactions reporting, catastrophic acts, and Bank Secrecy Act compliance.

    Comments on the proposed plan are due 90 days after publication in the Federal Register.

    Agency Rule-Making & Guidance NCUA Federal Register Lending

  • 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

  • Mortgage Closing Relies Exclusively on Electronic Loan Documents

    Fintech

    On August 9, a Wall Street Journal article reported the first mortgage refinance conducted entirely through a remote electronic online closing using electronic signatures. The loan will soon be electronically sold to Freddie Mac. While electronic mortgages are not new, this was the first closing that did not require a notary public be physically present, according to the article. Using an online notary service, the borrowers answered a series of questions to authenticate their identities, and without the need to “wet sign” any of the documents. Freddie Mac’s Vice President of Single-Family Business Transformation Management, Samuel E. Oliver III, stated that “by having things digitized, a loan would be able to get to the secondary market much more quickly. . . . [M]ortgages could be delivered to an investor in as little as one day—a process that takes a median of 29 days now.”

    As previously covered in InfoBytes, Freddie Mac released a bulletin last September outlining conditions, which allow closing documents to be electronically recorded. Freddie Mac also provides several resources concerning eClosings  and eMortgages on their website.

    Fintech Lending Mortgages Electronic Mortgages Electronic Signatures

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