Skip to main content
Menu Icon
Close

InfoBytes Blog

Financial Services Law Insights and Observations

Filter

Subscribe to our InfoBytes Blog weekly newsletter and other publications for news affecting the financial services industry.

  • Fannie Mae Announces Lender Quality Control Requirements, Other Selling Guide Updates

    Lending

    On July 30, Fannie Mae announced in Selling Guide Announcement SEL-2013-05 significant revisions to its Lender Quality Control Requirements, including specific requirements related to lender’s ongoing quality control (QC) assessment of loan origination activities and associated procedures, with the aim of reducing the risk of repurchases. The announcement provides a table of numerous revised requirements and highlights several new requirements, including that lenders (i) ensure that the QC vendor complies with the lender’s QC plan and Fannie Mae’s requirements, (ii) review at least 10% of the loans reviewed by vendors, (iii) only use Fannie Mae’s appraisal field review forms, and (iv) provide to Fannie Mae upon request a copy of QC audits and audits of the QC process. The announcement also includes numerous other Selling Guide updates related to, among other things (i) compensatory fees, (ii) field reviews, and (iii) authorizations to transfer funds.

    Fannie Mae Mortgage Origination

  • CFPB Sues Mortgage Company Over Alleged Loan Officer Compensation Practices

    Lending

    This afternoon, the CFPB released a complaint it filed today against a Utah-based mortgage company and two of its officers for giving bonuses to loan officers who allegedly steered consumers into mortgages with higher interest rates. The complaint alleges that the company, and its president and senior vice-president of capital markets, violated the Federal Reserve Board’s Loan Originator Compensation Rule by instituting a quarterly bonus program that paid more than 150 loan officers greater bonus compensation based on the terms and conditions of the loans they closed.  The CFPB claims the program incentivized loan officers to steer consumers into loans with higher rates.

    According to the complaint, when the Loan Originator Compensation Rule took effect in April 2011, the company amended its program to eliminate any written reference to compensation based upon terms or conditions, making it appear on its face to be a compliant compensation program.  The CFPB alleges that although the company’s regular compensation was no longer tied to terms or conditions under the new program, the managers actually continued to adjust the quarterly bonuses based upon the terms and conditions established under the compensation program.

    The complaint further alleges violations of Regulation Z’s requirement that a creditor retain records of compensation paid to loan originators for two years.  According to the complaint, the company violated this requirement by failing to record what portion of quarterly bonuses paid to loan originators were attributable to a given loan and by failing to maintain accurate and complete compensation agreements.

    The case highlights a number of points:

    • The CFPB will look beyond a company’s written compensation and compliance plans to include analysis of a company’s actual compensation payments to its loan originators;

    • The CFPB is pursuing individuals in senior management;

    • $1 billion companies are within range for CFPB actions;

    • The CFPB is seeking an injunction, restitution, civil money penalties for each bonus paid, and costs; and

    • The case was referred to the CFPB by the Utah Department of Commerce.

    CFPB Mortgage Origination Compensation Regulation Z

  • Freddie Mac Updates Numerous Selling Requirements

    Lending

    On July 18, Freddie Mac issued Bulletin Number 2013-13, which updates or revises numerous selling requirements. For Relief Refinance Mortgages sold under fixed rate cash commitments taken out on or after July 19, 2013, Freddie Mac is reinstating the cash adjustor for mortgages with loan-to-value ratios greater than 105% and less than or equal to 125% and is adjusting the cash adjustor value for mortgages with LTV ratios over 125%. Effective immediately, Freddie Mac is relaxing requirements regarding authorized user accounts to give sellers that option to evaluate the impact of authorized user accounts on a borrower’s credit report. If a seller determines that the impact on a borrower’s overall credit history is insignificant and the information on the credit report is representative of a borrower’s credit reputation, then (i) for Loan Prospector mortgages, the Loan Prospector decision may be considered valid and (ii) for manually underwritten mortgages the FICO score may be considered usable. The Bulletin also (i) simplifies eligibility and review requirements for condominium projects; (ii) eliminates requirements contained within Section 22.24 of the Seller/Servicer Guide for properties in subdivisions that do not have resale restrictions; (iii) updates section 22.23 of the Guide with new terminology to eliminate references to “inclusionary zoning;” (iv) updates certain ULDD data point requirements for Condominium Projects and Manufactured Homes; and (v) clarifies the eligibility of living trusts for Texas Equity Section 50(a)(6) mortgages.

    Freddie Mac Mortgage Origination

  • Senate Banking Leaders Offer Bipartisan FHA Reform Bill

    Lending

    On July 15, Senate Banking Committee Chairman Tim Johnson (D-SD) and Ranking Member Mike Crapo (R-ID) released a discussion draft of a bill intended to improve the solvency of the FHA’s Mutual Mortgage Insurance Fund (MMI Fund). As with legislation recently passed by the House, the bill would allow HUD to manage its HECM program through mortgagee letters. Unlike the House bill, this draft further would require that, whenever HUD issues a HECM mortgagee letter, it also initiate a proposed rulemaking that addresses the subject of the mortgagee letter. The bill also would require that, for a mortgage to be eligible for insurance under the HECM program, the mortgage must contain terms and provisions for ensuring property maintenance, establishing escrow accounts, performing financial assessments, or limiting the amount of any payment made available under the mortgage.

    In addition, the bill includes changes to the broader FHA insurance program, including provisions similar to those in a bill passed by the House last year with overwhelming bipartisan support. It would, for example, (i) set a minimum annual mortgage insurance premium of at least 55 basis points and increase existing up-front and annual premium caps by 50 basis points, (ii) direct HUD to establish underwriting standards using criteria similar to the CFPB’s criteria for Qualified Mortgages, and (iii) require that the MMI Fund achieve a capital reserve ratio of 3% within 10 years of enactment and establish escalating reporting requirements and program evaluations that take effect immediately if the capital ratio falls below required levels. Further, the bill would, among other things, (i) enhance HUD’s ability to seek indemnification from FHA-approved mortgagees approved to originate loans under the lender insurance program or the direct endorsement program, (ii) expand the criteria HUD uses to compare mortgagee performance and to allow HUD to terminate a mortgagee’s approval on a national basis, and (iii) require HUD to develop a single resource guide for lenders and servicers regarding the requirements, policies, processes, and procedures that apply to loans insured by FHA.

    The committee has scheduled a legislative hearing on the bill for July 24, 2013.

    Mortgage Origination Mortgage Servicing HUD Reverse Mortgages FHA U.S. Senate Qualified Mortgage

  • New York Financial Regulator Issues Guidance on Determination of Subprime Home Loans Under State Law

    Lending

    On July 3, the New York Department of Financial Services (DFS) sent a letter to regulated institutions and issued a temporary order relating to the determination of thresholds for “subprime home loans” under Section 6-m of the New York Banking Law. Due to recent increases in interest rates, many lenders who utilize a loan’s closing date as the time period for determining the “fully indexed rate” feared that they may be originating loans that meet the definition of subprime home loans under Section 6-m. The letter reminds lenders that in 2009, DFS amended Section 6-m of the Banking Law to instruct lenders to use the date that they provide good faith estimates to borrowers as the date for calculating the “fully indexed rate.” The letter also states that the DFS believes that calculating the “fully indexed rate” properly should allay many lenders fears that they may be triggering Section 6-m. Relatedly, recent changes to the calculation of Mortgage Insurance Premiums mandated by the FHA in Mortgagee Letter 2013-04 has increased the annual percentage rate on subject loans and is causing them to fall under Section 6-m’s definition of subprime home loan. To address the issue, the DFS issued a temporary order that, for 60 days from the date of the order, directs lenders not to use the MIP changes effectuated by FHA when calculating the APR and fully indexed rates for purposes of Section 6-m.

    Mortgage Origination Subprime FHA

  • HUD Seeks Comments on Potential Changes to FHA's Quality Assurance Process

    Lending

    Recently, HUD published a notice seeking public comments on “ways to improve the efficiency and effectiveness” of FHA’s quality assurance process (QAP). In the notice, HUD explains that it is seeking to enhance its oversight of FHA single-family lenders by evaluating single family quality assurance alternatives that would better align with FHA’s mission. Specifically, HUD aims to ensure that it maintains and improves a quality assurance framework that (i) does not hinder or dissuade lending to FHA-targeted populations; (ii) enhances the efficiency and effectiveness of the QAP; (iii) ensures compensation to FHA for defects resulting from the lender manufacturing process; and (iv) applies fairly to all lenders. In addition, HUD also endeavors to establish a framework that ensures that loans are reviewed within a reasonable time period, post-endorsement; in order to allow FHA to use loan quality findings to improve credit policy and to allow lenders to improve their FHA origination practices. HUD particularly seeks public comments on (i) the types of loan manufacturing or compliance defects found in the QAP that should be subject to indemnification or other administrative remedies or a combination of responses; (ii) how the FHA’s review and comparison of early defaults and claims may achieve an improved assessment of a mortgagee’s performance – for example, HUD is considering establishing a specific standard of defaults and claims which mortgagees should not exceed within a given construct; (iii) whether FHA should establish a threshold manufacturing (or loan deficiency) risk tolerance; and (iv) whether FHA should establish a process to review a statistically significant random sample of loans for each mortgagee within a prescribed time frame after loan endorsement to estimate defect rates. Comments on the potential changes are due by September 9, 2013.

    Mortgage Origination HUD FHA Agency Rule-Making & Guidance

  • Governor Duke Announces Resignation from Federal Reserve Board

    Consumer Finance

    On July 11, the Federal Reserve Board announced that Governor Elizabeth Duke submitted her resignation effective August 31, 2013. She was appointed to the Board in August 2008 to fill a term that expired January 31, 2012. During her time on the Federal Reserve Board, Ms. Duke, a former community banker, focused on housing issues and financial regulation, including with regard to the impact of such regulation on community banks. For example, last year she cautioned regulators about the potential impact of the various mortgage and capital rules on small institutions. Ms. Duke, who also previously led the American Bankers Association, did not indicate her future plans.

    Mortgage Origination Federal Reserve Capital Requirements Community Banks

  • CFPB Publishes Mortgage Rules Readiness Guide

    Lending

    On July 8, the CFPB published a guide intended to help financial institutions prepare to comply with the various mortgage-related rules the CFPB promulgated in January 2013, some of which it continues to revise. The guide briefly describes each of the rules and provides (i) a readiness questionnaire, (ii) frequently asked questions, and (iii) a list of other resources available to companies seeking to come into compliance with the new rules. The readiness questionnaire covers (i) implementation plans, (ii) policies and procedures, (iii) training, (iv) audit/quality control, (v) consumer complaints, and (vi) vendor management.

    CFPB Mortgage Origination Mortgage Servicing

  • Freddie Mac Changes Low Activity Fee to No Activity Fee

    Lending

    On June 25, Freddie Mac announced in Bulletin 2013-12 that, based on industry feedback, it is changing its recently-announced “low activity fee” to a “no activity fee.” In May, Freddie Mac announced that, effective January 1, 2014, a seller/servicer would be charged a $7,500 fee if the seller/servicer did not either (i) sell mortgages to Freddie Mac with an aggregate unpaid principal balance greater than $5 million during the immediately preceding calendar year, or (ii) service, or act as a servicing agent for, mortgages for Freddie Mac with an aggregate unpaid principal balance of at least $25 million as of December 31 of the immediately preceding calendar year. Under the revised policy, seller/servicers can avoid the fee if they (i) sell to Freddie Mac during the immediately preceding 36 months, or (ii) service, or act as a servicing agent for, a mortgage portfolio for Freddie Mac as of December 31 of the immediately preceding calendar year. In addition, new seller/servicers are exempt from the fee until they have been approved by Freddie Mac for three years.

    Freddie Mac Mortgage Origination Mortgage Servicing

  • Freddie Mac Makes Loan Quality Advisor Available to Sellers

    Lending

    On June 24, Freddie Mac issued Bulletin 2013-11, which announced that a new web-based risk and eligibility assessment tool, Loan Quality Advisor (LQA), is now available to sellers. It is designed to help sellers identify loan eligibility issues both pre- and post-closing. The Bulletin provides information regarding a new agreement that provides the terms and conditions for sellers using the LQA. In addition, effective immediately, sellers are permitted to resubmit construction conversion and renovation mortgages to Loan Prospector after the note date or the effective date of permanent financing.

    Freddie Mac Mortgage Origination

Pages

Upcoming Events