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OCC's Semiannual Risk Perspective highlights key risks affecting the federal banking system
On December 3, the OCC released its Semiannual Risk Perspective for Fall 2018, identifying and reiterating key risk areas that pose a threat to the safety and soundness of national banks and federal savings associations. The report focuses on risks to the federal banking system based on five areas: the operating environment, bank performance, special topics in emerging risk, trends in key risks, and supervisory actions. Overall, loans and bank profitability grew in 2018 as the U.S. economy continued to grow. Moreover, recent examination findings indicate incremental improvements in banks’ general risk management practices. Specific risk areas of concern noted by the OCC include: (i) the origination quality of new loans and potential embedded risks from previously successive years of relaxed underwriting standards; (ii) an increasingly complex operating environment, including the continually evolving threat to cybersecurity; (iii) elevated money-laundering risks; and (iv) rising market interest rates, including certain risks associated with heightened competition for deposits.
The report also notes that outstanding enforcement actions continue to decline since peaking in 2010, which, according to the OCC, reflects an overall improvement in, among other things, banks’ risk management practices. The leading cause of current enforcement actions continues to be compliance or operational failures.
VA Clarifies Third-Party Verification Requirements
On December 29, the Department of Veterans Affairs (VA) issued Circular 26-17-43 to clarify its policy that lenders may use third-party vendors to verify borrower income, employment, and asset information subject to the following caveats: (i) lenders must retain full responsibility for verifying the accuracy of information provided in the borrower’s loan application; (ii) lenders must initiate and receive all verifications related to employment and deposits, credit report requests, and credit information; (iii) lenders must assume responsibility for the quality and accuracy of information provided to the VA collected from third-parties; (iv) lenders must disclose the third party vendor relationships on VA form 26-1820, Report and Certification of Loan Disbursement, and (v) lenders must not charge veterans for the cost of obtaining third-party verification of borrower income, employment, or asset information. Where a real estate broker/agent or any other party requests borrower income, employment, or asset information, lenders must (i) identify the parties as their agents, (ii) ensure that report(s) are returned directly to them, and (iii) ensure completion of the required certification on the loan application.
Fannie Mae Updates Selling Guide with Underwriting Information on Borrower Credit Freezes
On December 19, Fannie Mae announced updates to its Selling Guide, including guidance related to underwriting a loan for borrowers who have frozen their credit files at one or more of the three national credit repositories. The Selling Guide now states that a credit report is acceptable for manual underwriting or “Desktop Underwriter” when a borrower’s credit information is frozen at only one of the credit repositories as long as credit data is available from two repositories, a credit score is obtained from at least one of those two repositories, and the lender requested a three in-file merged report. If the borrower’s credit file is frozen at two or more of the credit repositories, the loan will not be eligible for either form of underwriting. Other notable updates to the Selling Guide include, (i) adding requirements on premium pricing to the mortgage eligibility policy; (ii) relief from the enforcement of selling representations and warranties for mortgages that are subject to a disaster-related forbearance plan, where the disaster impacting the loan occurred on or after August 25, 2017 and other requirements are met; (iii) additional details about minimum requirements for internal audit and management controls for all seller/servicers; and (iv) consolidation in the Selling Guide of individual mortgage loan file records retention provisions from the Servicing Guide (as previously covered by InfoBytes here).
Freddie Mac Announces Guide Bulletin 2017-26 Covering Changes to Eligibility for Certain Mortgage Products
On November 15, Freddie Mac announced the issuance of Guide Bulletin 2017-26 (Bulletin), which, among other things, expands borrower options for mortgage financing, eases certain underwriting requirements, and adds non-discrimination language. Specifically, the Bulletin announces the availability of 5-year ARMs as a newly eligible product under “Home Possible,” “Freddie Mac Relief Refinance,” and “Financed Permanent Buydown” mortgage programs. Freddie Mac is also removing the requirement that all income reported on Home Possible Mortgage applications must be verified. Additionally, effective March 15, 2018, consistent with the FHFA Minority and Women Inclusion Amendments Final Rule, all covered sellers “must not discriminate on the basis of race, color, religion, sex, age, marital status, disability, veteran status, genetic information (including family medical history), pregnancy, parental status, familial status, national origin, ethnicity, sexual orientation, gender identity or other characteristics protected by law.”