InfoBytes Blog
Filter
Subscribe to our InfoBytes Blog weekly newsletter and other publications for news affecting the financial services industry.
CFPB releases report on state community reinvestment acts
On November 2, the CFPB issued a report on several states’ community reinvestment laws. The report focused on how much outstanding mortgage debt banks hold in the residential mortgage market: in 1977, “banks held 74 percent of outstanding mortgage debt. By 2007, this share had declined to just 28 percent.”
In 1977, Congress passed the Community Reinvestment Act (CRA) to combat redlining practices that prevailed despite the passing of the Fair Housing Act of 1968 and the Home Mortgage Disclosure Act of 1975. While the federal CRA applies to banks only, many states created their community reinvestment laws to cover non-bank mortgage companies, including CT, IL, MA, NY, RI, WA, WV, and DC.
Key findings from the CFPB's report are below:
- Some states require mortgage companies to provide affirmative lending, service delivery, and investment services;
- Some states conduct independent examinations, while other states review federal performance evaluations in conjunction with state factors;
- Enforcement includes limitations on mergers, acquisitions, branching activities, and licensing;
- Some states collect information beyond federal requirements for evaluation; and
- Some state acts have been amended in response to market changes.
The CFPB finds that states play an active role in promoting reinvestment by institutions, but further review is necessary to understand these developments.
FHFA releases comprehensive report of entire FHLBank system
On November 7, the FHFA released a report titled “FHLBank System at 100: Focusing on the Future,” providing a comprehensive overview of the Federal Home Loan Banks (FHLBank) system in its entirety. The FHLBank system is comprised of domestic and small, community-focused lenders that are connected to the global capital markets, engendering lenders to “better support housing and community development” through liquidity. The FHFA’s report acknowledged that the banking sector volatility in March 2023 led to a “significant advance demand” and it “provided a record volume of advances” to their members.
Furthermore, the report details the background of the FHLBank System, such as its history, member type, and business functions. The features from the FHLBank system’s mission are to provide liquidity to members, as well as support housing and community developments. The chapter on stable and reliable sources of liquidity confirms that the FHLBank system is not the lender of last resort due to its funding structure of bonds and short-term notes. In addition, the Moving Forward chapter offers a list of goals for the FHLBank system to adopt. Interestingly, Appendix 5 of the report highlights an analysis of four crises from the banking failures from March to May 2023.
FSB reports on nonbank resilience efforts
On November 1, the Financial Stability Board (FSB) released a report providing an update on its efforts to enhance the resilience of nonbank financial intermediation. According to FSB’s report, Enhancing the Resilience of Non-Bank Financial Intermediation, the non-bank financial intermediation (NBFI) sector has become more diverse and grown significantly to nearly half of global financial assets, compared to 42 percent in 2008. The report, among other things, provided an overview of the NBFI ecosystem and a framework for analyzing the availability of liquidity and the effective intermediation under stressed market conditions. The report noted that FSB’s “main focus of work to date” is intended “to assess and address vulnerabilities in specific areas that may have contributed to the build-up of liquidity imbalances and their amplification,” which includes, among other things: (i) enhancing money market fund resilience through policy work; (ii) assessing liquidity risk and its management in open-ended funds; (iii) examining the structure and drivers of liquidity during stress in government and corporate bond markets; (iv) examining “the frameworks and dynamics of margin calls in centrally cleared and non-centrally cleared derivatives and securities markets, and the liquidity management preparedness of market participants to meet margin calls”; and (v) assessing the fragilities in USD cross-border funding and their vulnerabilities in emerging market economies interactions. Based on these findings, the report noted that FSB’s future work will pursue a systemic approach to NBFI, which involves expanding the understanding of systemic risks in NBFI and ensuring that the current policy toolkit is adequate and effective from a system-wide perspective.
Texas permits banks to provide virtual currency custody services
On June 10, the Texas Department of Banking issued Industry Notice 2021-03, which notifies supervised Texas state-charted banks that they “may provide customers with virtual currency custody services, as long as the bank has adequate protocols in place to effectively manage the risks and comply with applicable law.” The Department noted that Texas state-chartered banks have long provided customers with safekeeping and custody resources through secure storage of assets, which is a critical role in the banking business. “While custody and safekeeping of virtual currencies will necessarily differ from that associated with more traditional assets the [Department] believes that the authority to provide these services with respect to virtual currencies already exists pursuant to Texas Finance Code §32.001,” the notice provided. In addition, the type of virtual currency a bank chooses to utilize will depend on that bank’s expertise, risk appetite, and business model. The notice also pointed out that the Department determined that custody services may be offered by a Texas state-chartered bank in a capacity that is fiduciary or non-fiduciary. A non-fiduciary capacity will allow the bank to act “as a bailee, taking possession of the customer’s asset for safekeeping while legal title to that asset remains with the customer.” Alternatively, in its fiduciary capacity, the bank will have oversight to control virtual currency assets as it would any other type of asset held in such capacity. The notice warned, however, that if a bank is offering virtual currency services, bank management must conduct due diligence and carefully examine the risks involved in offering a new product or service through a methodical risk assessment process.
Washington D.C. launches financial advisement hotline for those effected by Covid-19
On February 22, Washington D.C. Mayor Muriel Bowser announced that the District of Columbia Department of Insurance, Securities and Banking would be partnering with the United Planning Organization to administer a free hotline to connect District residents who were financially harmed by Covid-19 with trained financial “navigators.” These navigators will offer advice and help connect residents to various programs and services to help manage income disruptions and other financial concerns, including foreclosure mediation.
Nebraska Dept. of Banking and Finance updates guidance on temporary branch relocations
The Nebraska Department of Banking and Finance recently updated its March 12, 2020 guidance regarding temporary branch relocations (previously discussed here). The Department will continue to temporarily allow licensed and sponsored mortgage loan originators (MLOs), loan processors, underwriters, and other staff to work from an unlicensed branch upon notification by the sponsor, and approval by the department. Licensed mortgage bankers who have staff working from unlicensed locations must submit an updated list of those employees to the Department through the NMLS on, or before, March 1, June 1, September 1, and at renewal, in 2021. In addition, licensed MLOs must take certain data security measures and not allow customers to come to the unlicensed location. The guidance is effective January 1, 2021.
Connecticut Department of Banking extends work from home guidance for licensees
On August 21, the Connecticut Department of Banking issued a memorandum extending through December 31, 2020, its no-action position (previously discussed here and here) with respect to various licensees temporarily working from home during Covid-19, provided that certain criteria set forth in the memorandum are met.
Kansas issues executive order temporarily prohibiting certain foreclosures and evictions
On August 17, the Kansas governor issued Executive Order No. 20-61, which imposes restrictions on foreclosures and evictions. Banks and lending entities are prohibited from foreclosing on residential properties in Kansas where all defaults or violations of the mortgage are substantially caused by a financial hardship resulting from the Covid-19 pandemic, subject to certain exemptions. Landlords are similarly prohibited from evicting a residential tenant when all defaults or violations of the rental agreement are substantially caused by a financial hardship resulting from the pandemic. Banks, financial lending entities, or landlords initiating judicial foreclosure or eviction proceedings after August 17, 2020, bear the burden of pleading and proving that the foreclosure or eviction is not solely based on defaults or violations resulting from financial hardships resulting from the pandemic. The order does not apply to foreclosures initiated by the U.S. government.
Boston Fed updates Main Street Lending Program FAQs
On June 20, the Federal Reserve Bank of Boston updated FAQs for its Main Street Lending Program (see here, here and here for previous coverage). Among other things, new FAQs address the treatment of applicant debt to third party lenders for purposes of calculating outstanding and undrawn debt, certifications regarding conflicts of interest, and the application of regulatory lending limits imposed on national banks, federal savings associations, and state savings associations to loans issued under the Main Street Lending Program.
Massachusetts Division of Banks issues guidance to credit unions on annual meetings
On June 12, the Massachusetts Office of Consumer Affairs and Business Regulation, Division of Banks, issued industry guidance regarding annual meetings for Massachusetts chartered credit unions. Massachusetts credit unions that have not yet held their annual membership meeting may postpone the annual meeting until the state of emergency is lifted, the order declaring the state of emergency has expired or is rescinded, or such time as the credit union believes it may safely hold the meeting. Alternatively, a credit union may remotely hold the annual meeting, or may conduct a hybrid meeting consisting of a combination of remote communication in conjunction with a limited in-person meeting. A credit union may also utilize mail voting with either options. Credit unions that exercise a virtual meeting option must comply with certain requirements in the guidance.