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CFPB releases 2022 HMDA data
On September 27, the CFPB released a data point report titled 2022 Mortgage Market Activity and Trends, which analyzes residential mortgage lending activity and trends for 2022. The 2022 HMDA data reflects the fifth year of data that incorporates amendments to HMDA made by Dodd-Frank.
The CFPB noted in its press release accompanying the report that “in 2022, mortgage applications and originations declined markedly from the prior year, while rates, fees, discount points, and other costs increased. Overall affordability declined significantly, with borrowers spending more of their income on mortgage payments and lenders more often denying applications for insufficient income.” They also noted that “as in years past, independent lenders continued to dominate home mortgage lending, with the exception of home equity lines of credit.” Specifically, Lenders previously reported a 2.4 percent increase in closed-end site-built single-family originations from 2020 to 2021. In 2022, lenders reported 6.7 million closed-end site-built single-family originations, a 50.9 percent decrease from 13.7 million in 2021. Other highlighted trends in mortgage applications and originations found in the 2021 HMDA data point include, among other things:
- The total number of applications dropped 38.6 percent, and originations decreased by 44.1 percent;
- Borrowers’ costs and fees for taking out mortgages rose 22 percent from 2021, and a higher percentage of borrowers paid discount points than any year since this type of data has been collected;
- Refinances were down by 73.2 percent from 2021, with most refinances being cash-out refinances, which the CFPB noted can increase the risk of foreclosure. The CFPB noted that “in a reversal of recent trends, the median credit score of refinance borrowers declined below the median credit score of purchase borrowers.” Home-equity refinances, however, rose in 2022, with depository institutions dominating the home-equity lines of credit;
- Black and Hispanic white borrowers, borrowers of low- or moderate-income, and borrowers taking out loans secured with properties in low- or moderate-income neighborhoods accounted for a large share of refinance loans;
- Due to a rise in mortgage interest rates, average monthly mortgage payments increased by more than 46 percent;
- Debt to income ratio became more likely to be reported as a denial reason for denied applications across racial/ethnic groups in 2022.
In CFPB Director Rohit Chopra’s statement regarding the results of the 2022 HMDA data, he stated, “The significant changes in the rate environment in 2022 are having considerable impacts on the mortgage market. I expect these trends will continue in 2023 given further increases in average mortgage interest rates.”
FDIC's chairman addresses CRA rulemaking, unbanked households, and nonbank payment services
On September 20, FDIC Chairman Martin J. Gruenberg delivered prepared remarks at the Exchequer Club, discussing the risks posed by nonbank financial institutions (nonbanks) to the U.S. financial system. He noted that nonbanks hold a significant share of the financial sector, with assets totaling around $20.5 trillion in 2021, emphasizing their importance alongside traditional banks. Gruenberg highlighted the financial stability concerns associated with nonbanks, especially their limited regulation and supervision compared to traditional banks. He further mentioned the interconnectedness between nonbanks and banks, and the potential for nonbanks to transmit risk during market shocks, which underscores the need for attention to these issues. Specifically, Gruenberg stated that the “information about the risks undertaken by a variety of nonbanks is severely lacking”, and transparency about these issues will ensure a safer financial system. Gruenberg also pointed out that nonbanks are becoming increasingly active in mortgage finance, business lending, and consumer financial services. He discussed some risks associated with hedge funds and leveraged investment vehicles generally, such as their reliance on short-term funding, and their potential to disrupt the stability of financial markets. Gruenberg concluded by advocating for a comprehensive strategy to address the financial stability risks posed by nonbanks, emphasizing the importance of transparency, oversight, and prudential requirements for nonbank financial institutions.
CFPB denies petition to set aside investigative demand in student loan discharge probe
On September 19, the CFPB published a recent decision and order denying the petition of one of the nation’s largest private student loan servicers to set aside the CFPB’s civil investigative demand (CID) in connection with its investigation into potential violations of the CFPA’s prohibition of unfair, deceptive, and abusive acts and practices for attempting to collect on loans that had been previously discharged in bankruptcy. The order instructs the servicer to “comply in full” with the requests for documents and information set forth in the Bureau’s June 2023 CID.
The servicer objected to the CFPB’s investigation, arguing, among other things, that the Bureau lacks authority to enforce the U.S. Bankruptcy Code. The servicer also argued that the Bankruptcy Code displaces the CFPA if the reason a debt is not owed is due to a bankruptcy discharge.
The Bureau rejected the servicer’s arguments, stating “[t]he Bureau seeks to determine whether a student loan servicer violated the prohibition on unfair, deceptive, and abusive acts and practices not just by making individual attempts to collect discharged debts from individual debtors, but also, more globally, by having no policies and procedures in place to determine whether loans in the servicer’s portfolio are dischargeable in bankruptcy via standard bankruptcy orders, a practice that could put entire populations of borrowers at risk of harmful and unlawful collection efforts.” It went on to say “[t]he bureau does not seek to investigate potential violations of the Bankruptcy Code, but rather potential violations of the CFPA.” The CFPB also noted that courts have “repeatedly held that the Bureau can bring CFPA claims based on companies’ attempts to collect debts that consumers do not owe due to the impact of some other statute.”
CFPB issues guidance on adverse action reasons by creditors using AI
On September 19, the CFPB issued guidance about legal requirements that creditors must follow when using artificial intelligence and other complex models.
In prior guidance, the agency stated that lenders must provide specific and accurate reasons for adverse actions against consumers. The latest guidance expanded upon that prior guidance to clarify that lenders cannot simply use CFPB sample adverse action forms and checklists when taking adverse actions against consumers, but must explain the reasons for such adverse actions to help improve consumers’ chances for future credit, and protect consumers from illegal discrimination.
In its announcement of the updated guidance, the CFPB discussed the potential that consumers may be denied credit as a result of the increased use of complex, predictive decision-making technologies to analyze large datasets that may include consumer surveillance data or other information that the consumer may not believe is relevant to their finances. The agency confirmed that creditors must disclose the specific reasons for adverse action, even if consumers may be surprised, upset, or angered to learn their credit applications were being graded on data that may not intuitively relate to their finances. According to the guidance, a creditor is not absolved from the requirement to specifically and accurately inform consumers of the reasons for adverse actions because the use of predictive decision-making technologies in their underwriting models makes it difficult to pinpoint the specific reasons for such adverse actions.
California AG advocates for medical payment reforms
California Attorney General Rob Bonta submitted a letter to federal agencies urging the federal government to adopt regulations and statutory protections to help protect patients who may need to use medical credit cards and installment loans to pay for healthcare-related bills.
The letter notes that medical payment products exacerbate health disparities, that patients seeking medical care may not be in an appropriate position to make complex financial decisions, and offers California’s protections against medical payment products as a model framework.
In the letter, which is addressed to the U.S. Department of Health and Human Services, Centers for Medicare & Medicaid Services, the CFPB, and the Treasury, Bonta recommends (i) designating medical credit card debt as medical debt and not consumer debt; (ii) ensuring providers properly screen patients for financial aid and charity care before offering a medical payment product; (iii) limiting enrollment when patients may be distressed or under the influence of medication; (iv) providing written notice of financial assistance and potential eligibility for charity care; (v) making reasonable efforts to notify patients about the level of insurance coverage of medical expenses; and (vi) reducing patient cost-sharing responsibilities.
CFPB adjusts annual dollar amount thresholds under TILA, HMDA regulations
On September 18, the CFPB released a final rule revising the dollar amounts for provisions implementing TILA and its amendments that impact loans under the Home Ownership and Equity Protection Act of 1994 (HOEPA) and qualified mortgages (QM). The Bureau is required to make annual adjustments to dollar amounts in certain provisions in Regulation Z, and has based the adjustments on the annual percentage change reflected in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) in effect on June 1, 2023. The following thresholds are effective January 1, 2024:
- For HOEPA loans the adjusted total loan amount threshold for high-cost mortgages will be $26,092, and the adjusted points-and-fees dollar trigger for high-cost mortgages will be $1,305;
- For qualified mortgages under the General QM loan definition, the thresholds for the spread between the annual percentage rate and the average prime offer rate will be: “2.25 or more percentage points for a first-lien covered transaction with a loan amount greater than or equal to $130,461; 3.5 or more percentage points for a first-lien covered transaction with a loan amount greater than or equal to $78,277 but less than $130,461; 6.5 or more percentage points for a first-lien covered transaction with a loan amount less than $78,277; 6.5 or more percentage points for a first-lien covered transaction secured by a manufactured home with a loan amount less than $130,461; 3.5 or more percentage points for a subordinate-lien covered transaction with a loan amount greater than or equal to $78,277; or 6.5 or more percentage points for a subordinate-lien covered transaction with a loan amount less than $78,277”; and
- For all QM categories, the adjusted thresholds for total points and fees will be “3 percent of the total loan amount for a loan greater than or equal to $130,461; $3,914 for a loan amount greater than or equal to $78,277 but less than $130,461; 5 percent of the total loan amount for a loan greater than or equal to $26,092 but less than $78,277; $1,305 for a loan amount greater than or equal to $16,308 but less than $26,092; and 8 percent of the total loan amount for a loan amount less than $16,308.”
With respect to credit card annual adjustments, the Bureau noted that its 2024 annual adjustment analysis on the CPI-W in effect on June 1, did not result in an increase to the current minimum interest charge threshold (which requires “creditors to disclose any minimum interest charge exceeding $1.00 that could be imposed during a billing cycle”).
Ginnie Mae released the Social Impact and Sustainability Framework and supports broader access to mortgage financing
On September 14, Ginnie Mae announced the launch of its “Social Bond” label to indicate underlying collateral that is designed to support a positive social and affordable housing outcome, and released the Social Impact and Sustainability Framework.
The “Social Bonds” revision to Ginnie Mae’s standard forms of prospectus details attributes of Ginnie Mae MBS to provide transparency to investors. The insurance or guaranties extended under certain government programs reduce borrower credit risk, which promotes broader access to mortgage credit and/or less costly credit for borrowers, thereby expanding homeownership access and affordability among targeted populations (low-to-moderate income borrowers, veterans, senior citizens, rural communities, and/or tribal, Alaska Native, and Native Hawaiian communities).
The Social Impact and Sustainability Framework highlighted Ginnie Mae’s role in connecting the global capital markets to America’s housing financial system and providing liquidity to support access to affordable housing and lending for first first-time homebuyers, low-to-moderate income households, veterans, seniors, and members of urban, rural, and tribal communities from inception.
Risks in college tuition payment plans revealed in CFPB report
On September 14, the CFPB released a report highlighting risks associated with college tuition payment plans. Analyzing nearly 450 college websites, the report found that many plans lack clear disclosures and have confusing repayment terms, potentially causing students to miss payments and accumulate debt. Additionally, the CFPB noted that some institutions use transcript withholding as a debt collection tool, a practice deemed illegal and detrimental to students' career prospects.
Key findings include:
- Inconsistent and confusing disclosures in tuition payment plans.
- Substantial fees, including enrollment fees, returned payment fees, and late fees, leading to high costs for students.
- Intrusive debt collection practices, such as withholding transcripts, negatively impacting students' futures.
- High costs for missed payments and potential conversion of no-interest plans into interest-bearing loans.
- Contracts that may force students to waive legal rights and protections.
- Lack of standardized disclosure requirements, leading to inconsistency in how plans are presented on school websites.
The CFPB plans to continue monitoring tuition payment plans and school-based lending practices to protect consumers from potential violations of federal consumer financial laws.
CFPB announces consent order against leasing company
On September 11, the CFPB issued a consent order against an Ohio-based nonbank consumer finance company (respondent), for deceptive practices related to consumer leasing agreements. The CFPB, along with 41 states and the District of Columbia, addressed respondent’s conduct in a parallel multi-state settlement. According to the consent order, respondent, operating through major retailers, allegedly concealed contract terms and costs from consumers, leading them to unknowingly enter into costly leasing agreements. The Bureau claims that deceptive practices left consumers unable to return products and burdened with unexpectedly high payments, violating the CFPA and Regulation M, implementing the Consumer Leasing Act.
The consent order states that respondent concealed lease agreement terms, often providing consumers with copies of the agreements after transactions or relying on verbal descriptions from store employees. Consumers were also allegedly trapped by unreasonable return practices, as respondent did not accept returns for many items, forcing consumers to pay excessively high prices. Additionally, the CFPB claimed respondent failed to provide legally required disclosures, leading to revenues of approximately $192 million from around 325,000 consumers.
As a result of the consent order, respondent is permanently prohibited from offering consumer leases and is required to close all outstanding consumer accounts. Consumers will be allowed to keep leased merchandise without further payment, amounting to approximately $33.6 million in released payments. Respondent must also pay a $2 million penalty, with $1 million going to the CFPB's victims’ relief fund and the remaining $1 million allocated to the participating states.
The CFPB's director, Rohit Chopra, emphasized the significance of the order, stating that it permanently bans respondent from engaging in such agreements. The alleged deceptive practices, which occurred from January 1, 2015 to the present, and allegedly affected over 1.8 million consumers who entered into financial agreements with the company covering a wide range of items, from auto parts to furniture and jewelry. Respondent neither admitted nor denied the CFPB’s claims.
Chopra shares prepared remarks about the lessons from 2008
In his recent address at the Better Markets Conference and his address at the Mortgage Collaborative National Conference, CFPB Director Rohit Chopra reflected on lessons from the 2008 financial crisis, discussing the regulatory failures exemplified by mortgage entities’ risky practices and emphasized the post-crisis reforms, including the creation of the CFPB. Chopra highlighted the CFPB's role in implementing crucial mortgage industry standards and its positive impact on borrower protections. He also mentioned the challenges facing the mortgage market today and the legal battles over CFPB rules, touching upon an upcoming Supreme Court case challenging the CFPB's constitutionality and its potential consequences for financial stability, underlining the importance of regulatory rules for financial markets and household finances. Chopra highlighted the CFPB's role in implementing standards for ensuring borrowers' ability to repay through the qualified mortgage and ability-to-repay rule, which granted legal immunity to compliant lenders. As a result of the financial crisis, Congress set requirements related to mortgage data, mortgage servicing, and mortgage lender compensation. Much of the authority that had been held by the OCC, the Fed, and the Office of Thrift Supervision were transferred to the nascent CFPB. In his remarks, Chopra also outlined areas where further action is needed, including open banking, financial data rights, bank mergers, the effectiveness of "living wills" for large financial firms, and the regulation of shadow banks.