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Bank agrees to pay $1.8 billion to settle RMBS bond insurance claims
On October 7, a national bank announced in a regulatory filing that it has agreed to pay $1.84 billion to settle claims brought by a bond insurer concerning policies provided on residential mortgage-backed securities before the 2008 financial crisis. According to the regulatory filing, the agreement will “resolve all pending [bond insurer] lawsuits” (containing damages claims of more than $3 billion) against the bank and its subsidiaries, will cause all pending litigation to be dismissed with prejudice, and will release the bank and its subsidiaries from “all outstanding claims” related to bond insurance policies for certain securitized pools of residential mortgage loans.
CFPB blogs about challenging inaccurate appraisals
On October 6, the CFPB released a blog post regarding mortgage borrowers’ ability to challenge inaccurate appraisals through the reconsideration of value process (ROV). Among other things, the CFPB explained that “[a] lender’s reconsideration of value process must ensure that all borrowers have an opportunity to explain why they believe that a valuation is inaccurate and the benefit of a reconsideration to determine whether an adjustment is appropriate.” As required under the Equal Credit Opportunity Act Valuations Rule, the Bureau explained that some lenders include information regarding how to request a ROV in appraisals and other home valuations. The Bureau further noted that when lenders provide clear, plain-language notice of ROV opportunities to borrowers, lenders help ensure that their ROV process is nondiscriminatory. Lenders that do not have a clear and consistent method to ensure that borrowers can seek a ROV may risk violating federal law. The Bureau added that it has taken steps to implement legal requirements to limit bias in algorithmic appraisals, and that regulators are also providing more oversight over the activities of the Appraisal Foundation.
CFPB seeks comments on mortgage refinance and forbearance standards
On September 27, the CFPB issued a notice in the Federal Register requesting input from the public regarding (i) the availability of refinance loans for borrowers with smaller mortgage loan balances, and (ii) options for mortgage forbearance. Specifically, the Bureau sought ways to: (i) “facilitate mortgage refinances for consumers who would benefit from refinancing, especially consumers with smaller loan balances”; and (ii) “reduce risks for consumers who experience disruptions in their financial situation that could interfere with their ability to remain current on their mortgage payments.” The Bureau also noted that some stakeholders have suggested that changes to the Bureau’s ability-to-repay/qualified mortgage rule (ATR–QM rule) may play a role in facilitating beneficial refinances through targeted and streamlined programs, noting that the current rule references “frictions” in the refinance process tied to QM standards. Comments are due by November 28.
FHA seeks to increase small balance mortgages
On October 4, FHA announced a request for information (RFI) seeking input on ways to facilitate greater origination of small balance mortgages for FHA insurance. FHA will use feedback received in response to the RFI to help identify barriers to the origination of small mortgages in its program. The agency will also consider the development of policies and programs to better support and expand affordable homeownership opportunities in underserved markets with lower housing prices and to close the racial homeownership gap. According to the announcement, the RFI seeks input on topics related to “the current availability of small mortgage financing, barriers and disincentives to small mortgage lending transactions, changes to policies or processes that would encourage origination of more FHA-insured small balance mortgages, and considerations regarding liquidity provided through securitization.” Comments on the RFI are due December 5.
In conjunction with the RFI, HUD released a report assessing factors that limit the supply of small mortgage loans and highlighting challenges facing borrowers who need loans to purchase lower-priced homes. The report, titled Financing Lower-Priced Homes: Small Mortgage Loans, found that mortgage loans having an original principal obligation of $70,000 or less represent less than 3.5 percent of originations in 2020. Many of these loans secure properties valued at more than $70,000—an indication that the purchases included substantial down payments, HUD said. Among other things, the report also found that FHA disproportionately insures loans for lower-priced homes compared to the rest of the mortgage market and has loan insurance programs for financing property improvements and manufactured homes that are particularly targeted to lower loan amounts. Additionally, the report flagged the fixed costs of loan origination and servicing as a significant barrier to small mortgage lending, noting that this makes small mortgage loans less profitable and may necessitate additional incentives for lenders, such as reducing costs or providing additional lender or loan originator compensation.
Agencies announce hurricanes Fiona and Ian disaster relief guidance
On September 29, the FDIC, Federal Reserve Board, NCUA, OCC, and the Conference of State Bank Supervisors issued a joint interagency statement covering supervisory practices for financial institutions affected by Hurricanes Fiona and Ian. Among other things, the agencies informed institutions facing operational challenges that the regulators will expedite requests for temporary facilities, noting that in most cases, “a telephone notice to the primary federal and/or state regulator will suffice initially to start the approval process, with necessary written notification being submitted shortly thereafter.” The agencies also called on financial institutions to “work constructively” with affected borrowers, noting that “prudent efforts” to adjust or alter loan terms in affected areas “should not be subject to examiner criticism.” Institutions facing difficulties in complying with any publishing and reporting requirements should contact their primary federal and/or state regulator. Additionally, the agencies noted that institutions may receive Community Reinvestment Act consideration for community development loans, investments, or services that revitalize or stabilize federally designated disaster areas. Institutions are also encouraged to monitor municipal securities and loans impacted by Hurricanes Fiona and Ian.
HUD also announced disaster assistance for areas in Puerto Rico affected by Hurricane Fiona. The disaster assistance follows President Biden’s major disaster declaration on September 21. According to the announcement, effective immediately, HUD is issuing 29 regulatory and administrative waivers intended to provide flexibility and relief to impacted communities. The waivers cover the following HUD programs: The Community Development Block Grant Program, HOME Investment Partnerships Program, Housing Opportunities for Persons with AIDS Program, Continuum of Care Program, and Emergency Solutions Grant Program. HUD is also providing an automatic 90-day moratorium on foreclosures of FHA-insured home mortgages for covered properties effective September 21, as well as for mortgages to Native American borrowers guaranteed under Section 184 Indian Home Loan Guarantee program and home equity conversion mortgages. HUD is also making various FHA insurance options available to victims whose homes require repairs or were destroyed or severely damaged. HUD’s Section 203(h) program allows borrowers from participating FHA-approved lenders to obtain 100 percent financing, including closing costs, for homes in which “reconstruction or replacement is necessary.” Additionally, HUD’s Section 203(k) loan program will allow individuals to finance the purchase of a house, or refinance an existing house and the costs of repair, through a single mortgage. The program also allows homeowners with damaged property to finance the repair of their existing single-family homes. HUD will also share information on housing providers and HUD programs with FEMA and the state, and will provide flexibility to public housing agencies. Similar disaster assistance measures were also announced (see here and here) for areas of Alaska affected by severe storms, flooding, and landslides from September 15-20, and areas in Florida impacted by Hurricane Ian.
The FDIC also issued FIL-42-2022 to provide regulatory relief to financial institutions and help facilitate recovery in areas of Puerto Rico affected by Hurricane Fiona from September 17 and later. The FDIC acknowledged the unusual circumstances faced by institutions affected by the storms and suggested that institutions work with impacted borrowers to, among other things: (i) extend repayment terms; (ii) restructure existing loans; or (iii) ease terms for new loans to those affected by the severe weather, provided the measures are done “in a manner consistent with sound banking practices.” Additionally, the FDIC noted that institutions “may receive favorable Community Reinvestment Act consideration for community development loans, investments, and services in support of disaster recovery.” The FDIC will also consider regulatory relief from certain filing and publishing requirements.
Additionally, the OCC issued a proclamation permitting OCC-regulated institutions, at their discretion, to close offices affected by Hurricane Ian in Florida “for as long as deemed necessary for bank operation or public safety.” The proclamation directed institutions to OCC Bulletin 2012-28 for further guidance on actions they should take in response to natural disasters and other emergency conditions. According to the 2012 Bulletin, only bank offices directly affected by potentially unsafe conditions should close, and institutions should make every effort to reopen as quickly as possible to address customers’ banking needs.
NYDFS also issued an industry letter advising state-regulated financial institutions to take reasonable and prudent measures to assist consumers and businesses affected by Hurricane Fiona in Puerto Rico. The guidance recommends that financial institutions (i) waive ATM and overdraft fees; (ii) increase ATM withdrawal limits; (iii) ease restrictions on cashing out-of-state and non-customer checks; (iv) ease credit terms for new loans; (v) increase credit card limits for creditworthy customers; (vi) waive late fees on credit card and other loan balances; (vii) work with customers to defer payments or extend payment due dates on loans to help prevent delinquencies and negative credit reporting caused by disaster-related disruptions; and (viii) work with money transmitters and money services businesses to facilitate and expedite the transmission of funds. The actions are intended to help ease financial burdens for New Yorkers seeking to support individuals located in Puerto Rico, as well as consumers in Puerto Rico who hold New York bank accounts.
District Court criticizes CFPB’s cost-benefit analysis in HMDA change
On September 23, the U.S. District Court for the District of Columbia granted partial summary judgment to a group of consumer fair housing associations (collectively, “plaintiffs”) that challenged changes made in 2020 that permanently raised coverage thresholds for collecting and reporting data about closed-end mortgage loans and open-end lines of credit under HMDA. As previously covered by InfoBytes, the 2020 Rule, which amended Regulation C, permanently increased the reporting threshold from the origination of at least 25 closed-end mortgage loans in each of the two preceding calendar years to 100, and permanently increased the threshold for collecting and reporting data about open-end lines of credit from the origination of 100 lines of credit in each of the two preceding calendar years to 200. The plaintiffs sued the CFPB in 2020, arguing, among other things, that the final rule “exempts about 40 percent of depository institutions that were previously required to report” and undermines HMDA’s purpose by allowing potential violations of fair lending laws to go undetected. (Covered by InfoBytes here.) The plaintiffs also claimed that the agency’s cost-benefit analysis underlying the 2020 Rule was “flawed because the Bureau exaggerated the ‘benefits’ of increasing the loan-volume reporting thresholds by failing to adequately account for comments suggesting that the savings would be much smaller than estimated, and by relying on overinflated estimates of cost savings to newly-exempted lending institutions with smaller loan volumes.” The plaintiffs asked that the 2020 Rule be vacated and set aside on the grounds that the Bureau acted outside of its statutory authority in issuing the 2020 Rule and violated the Administrative Procedure Act. The Bureau countered that issuing the 2020 Rule was within its scope of authority because HMDA’s text “does not unambiguously foreclose” the agency’s interpretation of the statute.
The court first determined that promulgation of the 2020 Rule did not exceed the Bureau’s statutory authority because “HMDA grants broad discretion ‘in the judgment of the’ agency to create ‘exceptions’ to the statutory reporting requirements…” “[E]ven a regulation relieving roughly forty percent of institutions from data collection and reporting requirements is an exception to the ‘rule’ of disclosure, which continues to apply to the majority of institutions,” the court wrote, adding that the 2020 Rule preserves the reporting requirements, “as compared to the 2015 Rule, for most institutions, the vast majority of loans, and the vast majority of communities.”
However, the court agreed with the plaintiffs that the cost-benefit analysis for the 2020 Rule’s increased reporting threshold for closed-end mortgage loans was arbitrary and capricious. The court expressed criticism of the cost-benefit analysis used by the Bureau to justify setting the minimum number of closed-end loans in each of the two preceding calendar years at 100, and found that the Bureau failed to adequately explain or support its rationales for revising and adopting the closed-end reporting thresholds under the 2020 Rule. The Bureau “conceded the new rule would cause identifiable harms to the public, but effectively threw up its proverbial hands, citing an inability to incorporate these harms into its analysis as quantifiable ‘costs,’ and moved on to the next topic of discussion,” the court said.
The Bureau “exaggerated the savings to ‘covered persons’ under the new rule, and did not engage appropriately with the nonquantifiable ‘harms’ of the 2020 Rule, and the disparate impact of those harms on the traditionally underserved populations HMDA is intended to protect, even as it conceded the revised threshold would certainly result in some harm to consumers,” the court said, questioning the Bureau’s analysis of disparate impacts on rural and low-to-moderate-income communities. The court determined that the plaintiffs identified several flaws in the Bureau’s cost-benefit analysis supporting the increased closed-end mortgage loan threshold, thus rendering this aspect of the 2020 Rule “arbitrary, capricious and requiring vacatur.” The court asked the Bureau for a “more reasoned explanation as to whether and how the cost-benefit analysis accounted for the ongoing need to collect data on home mortgages pursuant to other statutory requirements and underwriting purposes, and why, when a lender must collect and report multiple data points for each mortgage and loan application, the marginal cost of collecting the additional, HMDA-specific data points is so significant that the increased reporting threshold of the 2020 Rule renders unique cost savings.”
FHA will consider first-time homebuyer’s positive rental history in mortgage eligibility
On September 27, HUD announced that FHA will consider a first-time homebuyer’s positive rental payment history as an additional factor in determining eligibility for an FHA-insured mortgage. HUD emphasized that adding a positive rental history indicator to FHA’s Technology Open to Approved Lenders (TOTAL) Mortgage Scorecard enables the credit evaluation to be more comprehensive and equitable. “If you’re regularly paying your rent on time, that’s a good indication you will also pay your mortgage on time,” FHA Commissioner Julia Gordon said. “We hope that adding this positive factor to all of the characteristics currently considered in an FHA credit evaluation will increase access to affordable FHA-insured mortgages for first-time homebuyers.” According to FHA’s Mortgagee Letter 2022-17, “positive rental payment history refers to the on time payment by a borrower of all rental payments in the previous 12 months.” Lenders may begin indicating a borrower’s positive rental payment history in the TOTAL Mortgage Scorecard for scoring events on or after October 30, and for case numbers assigned on or after September 20, 2021.
Oregon issues remote work guidance to licensed loan originators
On September 21, the Oregon Department of Consumer and Business Services filed permanent administrative order FSR 3-2022 with the Secretary of State to allow licensed loan originators and employees to work from home. Under the order, Oregon licensed mortgage loan originators “may originate loans from a location other than from a licensed branch office if the location is the licensed mortgage loan originator’s home; the licensed mortgage loan originator is an employee of a mortgage banker or mortgage broker; and the mortgage banker or the mortgage broker complies with OAR 441-860- 0040, as applicable.” Mortgage bankers or brokers must have in place appropriate policies and procedures to supervise licensees working from home, including data security measures to protect consumers’ personal data. Additionally, licensees working from home “are prohibited from engaging in person with consumers for loan origination purposes at the home of the loan originator or employee, unless the home is licensed as a branch.” Licensees may, however, “engage with consumers for loan origination purposes at the home of the loan originator or employee by means of conference telephone or similar communications equipment that allows all persons participating in the visitation to hear each other, provided that participation is controlled and limited to those entitled to attend, and the identity of participants is determinable and reasonably verifiable.” Licensees who work from home are also prohibited from keeping any physical business records at any location other than a licensed location, and must also ensure that all origination records are available at a licensed location.
Chopra highlights CFPB efforts on competitive consumer financial markets
On September 21, CFPB Director Rohit Chopra discussed Bureau efforts to ensure markets for consumer financial products and services are “fair, transparent, and competitive.” Speaking during the Exchequer Club Fireside Chat, Chopra explained that the agency’s authorizing statute specifically directs the Bureau to promote competition by consistently enforcing the law regardless of whether an entity takes deposits. He clarified that there should not be different standards for assessing when a firm violates the law, and highlighted several ways that the Bureau is working to fulfill its mandate to ensure competitive markets. One example Chopra provided relates to reshaping the Bureau’s approach to promoting new products and offerings, especially as they relate to refinancing options. He pointed to Bureau efforts to ensure both banks and nonbanks could launch products to save private student loan borrowers money as an example of making sure all potential market entrants could benefit. Chopra stated that the Bureau is also requesting feedback from investors, lenders, and the public on topics related to improving mortgage refinancing options (covered by InfoBytes here), and is working on ways to stimulate more credit card and auto loan refinancing. Additionally, Chopra touched on other areas of focus, including consumer finance offerings that rely on emerging technologies such as banking in augmented reality and the metaverse, nonbank supervision and oversight, bright-line regulatory approaches, competitive pricing and back-end fees, regulatory arbitrage, and personal financial data rights.
CFPB seeks better refi, loss-mitigation options
On September 22, the CFPB issued a request for information (RFI) regarding ways to improve mortgage refinances for homeowners and how to support automatic short-term and long-term loss mitigation assistance for homeowners who experience financial disruptions. According to the Bureau, refinancing volume has decreased almost 70 percent from last year as interest rates have risen. Additionally, periods of economic turmoil, such as the Covid-19 pandemic, can pose significant challenges for mortgage borrowers, the Bureau noted. Throughout the pandemic, 8.2 million borrowers entered a forbearance program, and as of July 2022, 93 percent have exited. Of those who have exited forbearance, five percent are delinquent or in active foreclosure. The Bureau is interested in the features of pandemic-related forbearance programs that should be made more generally available to borrowers. Specifically, the RFI requests information regarding, among other things: (i) targeted and streamlined refinance programs; (ii) innovative refinancing products; and (iii) automatic forbearance and long-term loss mitigation assistance. Comments are due 60 days after publication in the Federal Register.