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CFPB seeks feedback on TRID
On November 20, the CFPB issued a request for information (RFI) regarding the TILA-RESPA Integrated Disclosures Rule (TRID Rule) assessment, which is required by Section 1022(d) of the Dodd-Frank Act. Section 1022(d) requires the Bureau to conduct an assessment of each “significant rule or order” no later than five years after its effective date. The Bureau issued the TRID Rule in November 2013, and the rule took effect on October 3, 2015. In addition to comments received on this RFI, the Bureau notes that it is also considering the approximately 63 comments already received regarding the TRID Rule from the 2018 series of RFIs issued on the adopted regulations and new rulemakings, as well as the inherited regulations (covered by InfoBytes here and here).
The RFI seeks public feedback on any information relevant to assessing the effectiveness of the TRID Rule, including (i) comments on the feasibility and effectiveness of the assessment plan; (ii) recommendations to improve the assessment plan; (iii) data and information about the benefits, costs, and effectiveness of the TRID Rule; and (iv) recommendations for modifying, expanding, or eliminating the TRID Rule.
Comments must be received within 60 days of publication in the Federal Register.
FDIC quarterly looks at growth in nonbank lending
On November 14, the FDIC released its latest issue of the FDIC Quarterly, which analyzes the U.S. banking system and focuses on changes occurring since the 2008 financial crisis, particularly within nonbank lending growth. The three reports—published by the FDIC’s Division of Insurance and Research—“address the shift in some lending from banks to nonbanks; how corporate borrowing has moved between banks and capital markets; and the migration of some home mortgage origination and servicing from banks to nonbanks.”
- Bank and Nonbank Lending Over the Past 70 Years notes that total lending in the U.S. has grown dramatically since the 1950s, with a shift in bank lending that reflects the growth of nonbank loan holders as nonbanks have gained market share in residential mortgage and corporate lending. The report states that in 2017, nonbanks represented 53 percent of mortgages originated by HMDA filers, and originated a significant volume of loans for sale to the GSEs. Mortgage servicing also saw a shift from banks to nonbanks, with nonbanks holding “42 percent of mortgage servicing rights held by the top 25 servicers in 2018.” The report also discusses shifts in lending for commercial real estate, agricultural loans, consumer credit, and auto loans, and notes that bank lending to nondepository financial institutions has grown from roughly $50 billion in 2010 to $442 billion in the second quarter of 2019.
- Leveraged Lending and Corporate Borrowing: Increased Reliance on Capital Markets, With Important Bank Links examines the shift in corporate borrowing from banks to nonbanks, with nonfinancial corporations “relying more on capital markets and less on bank loans as a funding source.” The report also, among other things, discusses resulting risks and notes that “[d]espite the concentration of corporate debt in nonbank credit markets, banks still face both direct and indirect exposure to corporate debt risks.”
- Trends in Mortgage Origination and Servicing: Nonbanks in the Post-Crisis Period examines changes to the mortgage market post 2007, including the migration outside of the banking system of a substantive share of mortgage origination and servicing. The report also discusses trends within the mortgage industry, key characteristics of nonbank originators and servicers, potential risks posed by nonbanks, as well as potential implications the migration to nonbanks may pose for banks and the financial system. Specifically, the report lists several factors contributing to the resurgence of nonbanks in mortgage origination and servicing, including (i) crisis-era legacy portfolio litigation at bank originators; (ii) more aggressive nonbank expansion (iii) nonbanks’ technological innovations and mortgage-focused business models; (iv) large banks’ sales of crisis-era legacy servicing portfolios due to servicing deficiencies and other difficulties; and (v) capital treatment changes to mortgage servicing assets applicable to banks. The report emphasizes, however, that “[c]hanging mortgage market dynamics and new risks and uncertainties warrant investigation of potential implications for systemic risk.”
California says all CFL licensees should use NMLS
On October 25, the California Department of Business Oversight (DBO) published proposed regulations that (i) require all licensees under the California Financing Law (CFL) to register through NMLS; and (ii) establishes regulatory requirements for the oversight of Property Assessed Clean Energy (PACE) program administrators. Currently, under the CFL, some licensees engaged in residential mortgage origination and brokering are already licensed through the NMLS, while other lenders and brokers not engaged in the business of making or brokering loans secured with residential real property or financing PACE transactions are not on NMLS. According to the initial statement of reasons, the proposed regulations would amend existing licensing rules to transition all licensees under the CFL to registration through NMLS. Moreover, the proposed regulations implement AB 1284—which was signed into law on October 4, 2017, and, beginning January 1, 2019, requires a private entity that administers a PACE program on behalf of a public agency to be licensed under the CFL—and make conforming changes to the existing rules under the CFL. According to the DBO, the objectives of the proposed regulations “are to protect property owners who are offered PACE financing from deception, misrepresentations, or misunderstandings, to promote transparency in PACE financing, to provide oversight of persons soliciting property owners, and to facilitate a fair marketplace where the financing option can provide benefits to both property owners and the environment.” Comments on the proposed regulations are due by December 9.
CFPB issues FAQs on SAFE Act amendments
On September 25, the CFPB published four FAQs pertaining to compliance with federal SAFE Act amendments created by the Economic Growth, Regulatory Relief, and Consumer Protection Act (the Act), which take effect on November 24. According to the Bureau, the Act’s amendments “establish temporary authority, which provides a way for eligible loan originators who have applied for a new state loan originator license to act as a loan originator in the application state while the state considers the application.” Specifically, the FAQs address (i) residential mortgage loan originator categories and requirements; (ii) the temporary authority to act as a loan originator, as added by Section 106 of the Act; (iii) guidance concerning state transitional license availability under the SAFE Act; and (iv) the impact of the Act’s amendments on the permissibility of state transitional licensing under the SAFE Act and Regulation H.
Washington DFI proposes MLO and student loan servicer amendments
On September 24, the Washington State Department of Financial Institutions (DFI) will hold a rulemaking hearing to discuss amendments concerning mortgage loan originators (MLOs) as well as provisions related to student loan servicers. The proposed amendments will amend rules impacting Washington’s Consumer Loan Act and the Mortgage Broker Practices Act, including those related to the regulation of student loan servicers under a final rule that went into effect January 1. (See previous InfoBytes coverage on DFI’s adoption of amendments concerning student loan servicers here.) According to DFI, the proposed amendments are currently scheduled to take effect November 24.
Among other proposed changes impacting MLOs are additional disclosure requirements concerning interest rate locks. Under the proposed amendments, MLOs will be required to provide a new interest rate lock agreement to a borrower within three business days of a locked interest rate change. Valid reasons for a change in a locked interest rate include changes in loan value, credit score, or other factors that may directly affect pricing. The amendments will also permit MLOs to include a prepayment penalty or fee on an adjustable rate residential mortgage loan provided “the penalty or fee expires at least sixty days prior to the initial reset period.” Among other provisions, the amendments also stipulate that a loan processor may work on files from an unlicensed location provided the processor accesses the files directly from the licensed mortgage broker’s main computer system, does not conduct any of the activities of a licensed MLO, and the licensed MLO has in place safeguards to protect borrower information.
The proposed amendments also contain several changes applicable to student loan servicers regulated under the Consumer Loan Act, including that: (i) licensees servicing student loans for borrowers in the state “may apply to the director to waive or adjust the annual assessment amount”; (ii) licensees are required to disclose to all service members their rights under state and federal service member laws and regulations connected to their student loans; and (iii) student loan servicers must review all student loan borrowers against the Department of Defense’s database to ensure borrower entitlements are applied appropriately, and maintain written policies and procedures for this practice. The proposed amendments also state that compliance with federal law is sufficient for complying with several Washington requirements applicable to student loan servicers, including borrower payment provisions.
CFPB issues summer 2019 Supervisory Highlights
On September 13, the CFPB released its summer 2019 Supervisory Highlights, which outlines its supervisory and enforcement actions in the areas of automobile loan origination, credit card account management, debt collection, furnishing, and mortgage origination. The findings of the report cover examinations that generally were completed between December 2018 and March 2019. Highlights of the examination findings include:
- Auto loan origination. The Bureau noted that one or more examinations found that guaranteed asset protection (GAP) products were sold to consumers with low loan-to-value (LTV) loans, resulting in those consumers purchasing a product that was not beneficial to them. The Bureau concluded these sales were an abusive practice, as “the lenders took unreasonable advantage of the consumers’ lack of understanding of the material risks, costs, or conditions of the product.”
- Credit card account management. The Bureau found several issues with credit card account servicing, including violations of Regulation Z for failing to clearly and conspicuously provide disclosures required by triggering terms in online advertisements and for offsetting consumers’ credit card debt against funds that the consumers had on deposit with the issuers without sufficient indication that the consumer intended to grant a security interest in those funds.
- Debt collection. The Bureau noted violations of the FDCPA’s prohibition on falsely representing the amount due when debt collectors claimed and collected interest that was not authorized by the underlying contracts between the debt collectors and the creditors.
- Credit information furnishing. The Bureau found multiple violations of the FCRA, including furnishers failing to complete dispute investigations within the required time period and failing to promptly send corrections or updates to all applicable credit reporting agencies after a determination that the information was no longer accurate.
- Mortgage origination. The Bureau noted that creditors had violated Regulation Z by disclosing inaccurate APRs for closed-end reverse mortgages and also by using a unit-period of one month instead of one year to calculate the total annual loan cost (TALC) rate and the future value of all advances, leading to inaccurate TALC disclosures.
The report notes that in response to most examination findings, the companies have taken, or are taking, remedial and corrective actions, including by identifying and compensating impacted consumers and updating their policies and procedures to prevent future violations.
Lastly, the report also highlights the Bureau’s recently issued rules and guidance.
Texas adopts licensing requirements for MLOs
On August 16, the Finance Commission of Texas adopted provisions to amend various licensing requirements for residential mortgage loan originators (MLOs) regulated by the state’s Office of Consumer Credit Commissioner (OCCC), and implement licensing provisions in HB 1442, which took effect September 1. The amendments adopted by the Commission in August “maintain the current one-year term, the current December 31 expiration date, and the current reinstatement period from January 1 through the last day of February.” The Commission further clarified that these amendments apply to MLOs regulated by the OCCC, not just those applying for licensure. The amendments took effect September 5.
Indiana issues rule providing temporary authority for mortgage loan originators
On August 28, the Indiana Department of Financial Institutions published in the Indiana Register an emergency rule providing 120-day temporary authority for certain mortgage loan originators (MLOs) to originate loans in Indiana without a state license, pursuant to Section 106 of the Economic Growth, Regulatory Relief, and Consumer Protection Act. The new rule provides that in order to be eligible for temporary authority to operate, an MLO, among other things, must have been licensed as an MLO in another state continuously during the past 30 days or operating as a registered MLO for a depository institution continuously for the past year. The rule permits an eligible MLO applicant to engage in mortgage transactions while their application is pending for licensure for up to 120 days or upon approval of the licensing application, whichever is sooner, beginning November 24.
Treasury, HUD release housing finance reform plans
On September 5, the U.S. Treasury Department and HUD released complementary proposals in response to a presidential memorandum issued last March (previously covered by InfoBytes here) directing the departments to develop plans to end the conservatorships of Fannie Mae and Freddie Mac (GSEs) and reform the housing finance system.
According to a press release released by the Treasury Department, the Treasury Housing Reform Plan outlines several broad goals and legislative and administrative reforms intended to protect taxpayers and assist homebuyers. Included in the Reform Plan are measures to privatize the GSEs, with the Treasury Department emphasizing that FHFA “should begin the process of ending” the conservatorships. “Central to this objective will be ensuring that the GSEs and their successors are appropriately capitalized to remain viable as going concerns after a severe economic downturn and also to ensure that shareholders and unsecured creditors, rather than taxpayers, bear losses.” Other notable agency and limited congressional action highlights include:
- Congress should authorize an explicit, paid-for guarantee by Ginnie Mae on qualified mortgage-backed securities for single-family and multifamily loans.
- Private sector participation should increase in the mortgage market to compete with the GSEs, and ensure a level playing field for lenders of all sizes.
- Congress should replace GSEs’ statutory affordable housing goals with a “more efficient, transparent, and accountable mechanism” to support underserved borrowers and expand HUD’s affordable housing activities.
- GSEs under FHFA’s capital rule should be required to maintain “capital sufficient to remain viable as a going concern after a severe economic downturn,” the cap on the GSEs’ investments in mortgage-related assets should be further reduced, and GSEs’ retained mortgage portfolios should be restricted to “solely supporting [the] business of securitizing mortgage-backed securities.”
- Mortgages eligible for GSE guarantees should have to comply with strict underwriting requirements.
- The Qualified Mortgage rule should be simplified and the so-called QM patch that allows GSEs to avoid certain regulations should be eliminated (see previous InfoBytes coverage on the CFPB’s advance notice of proposed rulemaking to allow the QM patch to expire here).
- Access to 30-year fix-rate mortgages for qualified homebuyers should be preserved.
HUD’s Housing Finance Reform Plan, released in conjunction with Treasury’s proposal, addresses the role of FHA and Ginnie Mae, and outlines steps to reduce risk in the FHA portfolio. According to HUD’s press release, the proposal focuses on four objectives: refocusing FHA to its core mission, protecting American taxpayers, providing tools to FHA and Ginnie Mae to appropriately manage risk, and providing liquidity to the housing finance system. Among other objectives, HUD’s plan (i) stresses that FHA, which serves low- and moderate-income borrowers, “must ensure that borrowers are creditworthy and that they have access to loans that meet their financial needs without creating undue risk”; (ii) recommends that FHA and FHFA establish a “formalized collaborative approach” to streamline government-supported mortgage programs to ensure they are “not competing and do not crowd private capital out of the marketplace;” (iii) encourages continued efforts to reduce loan churning; (iv) encourages a continued partnership between FHA and DOJ “to provide more clarity on how the agencies will consult on the appropriate use of the [False Claims Act]” to provide regulatory certainty to lenders; (v) encourages FHA to develop servicing standards for home equity conversion mortgage programs to reduce operational and financial burdens; and (vi) recommends that FHA develop a mortgage origination risk tool that integrates an automated underwriting system.
Hawaii approves temporary authority to act as a registered mortgage loan originator
On June 7, the Hawaii governor signed HB 988, which provides 120-day temporary authority for certain mortgage loan originators to originate loans in Hawaii without a state license. Pursuant to Section 106 of the Economic Growth, Regulatory Relief, and Consumer Protection Act, the bill allows a federally-registered mortgage loan originator (MLO) holding an MLO license in another state while employed by a Hawaii-licensed mortgage company, to have temporary authority to act as a state-licensed MLO for a period not to exceed 120 days while the MLO’s Hawaii license application is pending. MLOs with temporary authority are subject to the applicable laws of Hawaii to the same extent as persons licensed by Hawaii. The bill is effective on November 24.