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California’s new mortgage servicer during a “state of emergency” to be effective
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.
OCC reports on the federal banking system’s mortgage performance during the third quarter
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.
Freddie Mac standardizes down payment assistance programs
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.
FHFA announces increases in 2024 conforming loan limits
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.
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.
CFPB approves pilot program for construction loans
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.
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.
FHA announces update and consolidation of the HECM program
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.
CSBS offers guidance for licensees to prepare for NMLS renewal
On October 24, CSBS released tips for licensees to prepare for NMLS renewal. As previously covered by InfoBytes, NMLS announced it will be rolling out a new version of its mortgage call report which will include new requirements for many licensees. Kelly O'Sullivan, the chair of the NMLS Policy Committee and deputy commissioner of the Montana Division of Banking and Financial Institutions, advises licensees to proactively update their information in NMLS and make use of available training and resources to address their queries before the renewal period begins. This is particularly crucial for those individuals who typically only engage with NMLS during the license renewal phase.
CSBS recommended five essential tips for licensees:
- Licensees should log into NMLS and thoroughly review and update their profile record to ensure accuracy;
- Licensees should reset their NMLS password in advance to have a current password ready for accessing NMLS when needed;
- Licensees should provide and maintain a current email address to receive essential updates from NMLS during the renewal process;
- Licensees should review state-specific renewal requirements, as state agencies typically begin publishing details, including deadlines and fees, in September;
- Licensees are encouraged to take advantage of the free, on-demand renewal training resources provided by CSBS to become familiar with the renewal process.
CSBS announces release of NMLS MCR Version 6 in Q1 2024
On October 13, 2023, the Conference of State Bank Supervisors (CSBS) announced the Nationwide Multistate Licensing System & Registry (NMLS) will be rolling out a new version of its Mortgage Call Report (MCR). In an effort to standardize mortgage company data at the state level, and minimize the amount of reporting outside the system, NMLS will be launching an updated version of the MCR, Version 6 (FV6) on March 16, 2024.
Licensees will see three main improvements in Version 6:
- FV6 eliminates standard and expanded forms and consolidates them into one form. All servicers will complete the servicer schedule and all lenders will complete the lender schedule. Lenders and servicers will file financials quarterly, and brokers will file financials annually.
- Commercial and consumer lending licensees will complete a separate state-specific form, removing the obligation to report mortgage information.
- The revision of line-item definitions will improve the overall quality of the data and help implement more completeness and accuracy checks.
FV6 will go into effect for all data collected on transactions dated on and after January 1, 2024. Additionally, NMLS will provide companies with the XML specifications no later than October 23. CSBS estimates that approximately 24,000 brokers, lenders, and servicers will experience reduced requirements, and approximately 3,100 lenders will have additional filing requirements.
The Mortgage Bankers Association sent a letter to CSBS in July, raising concerns with the new version, including (i) the lack of technical specifications needed for full consideration of the proposal and its implementation; and (ii) the significant expansion and burden of reporting requirements on smaller filers resulting from the replacement of standard and expanded forms in favor of the new and more detailed FV6. CSBS noted mortgage industry concerns surrounding the timing of the rollout of FV6 ahead of Q1 2024, and shared that details for leniency to the filing deadline will be provided in future communications. NMLS will provide regular updates on the Mortgage Call Report page, targeted learning opportunities and Q&A sessions.
Visit here for additional guidance on FV6 from APPROVED.