Posts tagged ‘GSEs’

Four Things You Need To Know To Start Your Credit Union Day

For the first time in a while, I am overflowing with news you need to know to start your credit union day. As long time readers know, what follows is a series of quick hits, any one of which would be worthy of its own blog on a quieter day.

Treasury Pushes For Expanded Reporting Responsibilities

Anyone who thought we were out of the woods after the House Ways and Means Committee approved a plan to pay for a $3.5 trillion spending package that did not include increased reporting requirements for banks and credit unions is mistaken. Treasury Secretary Janet Yellen and IRS Commissioner Charles Rettig have written letters urging Congress to include the proposal in the final budget package.

With the caveat that there has been no language officially proposed, the idea under consideration would mandate that financial institutions report gross report flows of income in and out of accounts that exceed $600.

Clearly this would impose an onerous new mandate on credit unions and alienate more than a few members. Stay tuned for more information from the Association.

How Was Your Examination Service?

The NCUA announced yesterday that federal credit unions will be asked to submit a post examination survey that will be administered by the NCUAs Ombudsman’s office as part of a pilot program.

If you have fantasies about using the survey to vent after a rough examination, you will be disappointed. The letter explains that “examination disagreements or reports of waste, fraud, or abuse should not be reported through the survey response.” At the risk of being branded a heretic, the industry spends way too much time obsessing over the examination process.  After all, disagreements are inevitable and it’s actually a sign the system is working.

FHFA Makes It Easier To Finance Investment Property

The Federal Housing Finance Administration and Treasury announced that they were suspending certain agreements entered into this past January which placed caps on the number of investment property mortgages that Fannie Mae and Freddie Mac could purchase. This is the latest in a series of moves by the new leadership at the FHFA to use the GSEs to more aggressively provide aid for homebuyers.

Acting Director Thomson discussed the changes at NAFCUs Congressional Caucus. In a closely related development, the FHFA is also proposing changes to the capital requirements for the GSEs.

Let The Redistricting Games Begin

Yesterday marked the first formal step in the once-a-decade political blood sport that is redistricting. By the time the process is complete, the Legislature will have approved new Congressional and Legislative Districts that will shape the direction of politics and policy for decades to come. This morning’s Times Union is reporting that the bipartisan commission designed to propose the initial redistricting plan has instead proposed two separate plans. One supported by Republicans, the other by Democrats. It boldly predicted that a partisan stalemate looms in New York redistricting, which is tantamount to Claude Rains’ character Captain Renault claiming to be shocked that gambling is taking place in a casino. 

September 16, 2021 at 10:14 am Leave a comment

Untangling the Mortgage Mess

In the immortal words of William Shakespeare “Oh, what a tangled web we weave when we try to mess up the regulatory agenda of the incoming administration”. 

Over the last few months yours truly has been hesitant to talk too much about changes to the Qualified Mortgage regulations since the rules are as likely to take effect as Joe Biden is to be endorsed by a coal miner union.  But, those of you who originate mortgages for sale to the GSEs are experiencing one of the most confusing periods of regulatory uncertainty in more than a decade.  It is beginning to have some real consequences.  Here is some background. 

Dodd-Frank mandated that the CFPB promulgate regulations defining a Qualified Mortgage. As readers of this blog also know, Dodd-Frank also stipulated that mortgages purchased by Fannie Mae and Freddie Mac would also qualify for Qualified Mortgage protections.  This exemption was only expected to last as long as Congress figured out what to do with the GSEs, or January 10, 2021.  The CFPB finalized regulations late last year eliminating the QM patch and amending the general QM regulations.  Under these new regulations qualified mortgage designation would be determined based on a mortgage’s APOR.  The Bureau issued a final rule to amend the General QM definition in December of 2020. This rule took effect on March 1, 2021 and has a mandatory compliance date of July 1, 2021. 

To the surprise of absolutely no one, the new leadership at the CFPB announced that it was considering making changes to the revised QM definition.  It has proposed extending the compliance deadline until 2022.  In the ensuing months it will undoubtedly be coming up with a new QM definition. 

But here is where the deal gets even more complicated.   Remember back in 2008 when the federal government had to bail out Fannie and Freddie for fear of triggering a Great Depression?  As part of that bailout, a conservatorship was created for the GSEs and since that time the Treasury has imposed contractual obligations on the GSEs in return for the hundreds of billions of dollars they received from the American tax payer.  (We don’t like using this term in America, but Fannie and Freddie have been nationalized.)  This agreement was recently amended.  Under this agreement, as things currently stand, the GSEs are obligated to begin implementing the new APOR standard on July 1st.  This means that even though the CFPB has already signaled its intention to reconsider the new QM definition, lenders that work with the GSEs have to start preparing new policies and procedures for the July 1st deadline.

Against this sordid backdrop, CUNA yesterday issued this letter urging the Treasury to promptly remedy this situation.  As CUNA noted, forcing the GSEs to implement these changes “would be unnecessary, wasteful, and ultimately harmful for consumers as the implementation cost may also increase the cost of credit.”

It is hard to underestimate the man hours involved in preparing for these types of major changes.   

Let’s hope this glitch gets resolved quickly before all of this confusion begins to have practical consequences. 

NCUA Meeting Recap

Here is NCUA’s recap of yesterday’s Board meeting.  Remember that the Board already approved the interim regulations giving credit unions greater PCA flexibility.

On that note, enjoy your weekend.  Let’s hope it gets warmer. 

April 23, 2021 at 10:28 am Leave a comment

CFPB Puts Brakes on Mortgage Reform

Late last year, the CFPB passed a series of regulations making dramatic changes to the definition of qualified mortgages (QM) under TRID. Now, to the surprise of no one, the new leadership of the CFPB is holding off on these final regulations. This can get kind of confusing, so pay attention.

The regulations to which I am referring were finalized by the CFPB on December 10th of last year. One of the regulations created a new category of qualified mortgages, under which mortgages held in a lender’s portfolio for 36 months, which also met certain other criteria, would qualify as qualified mortgages. This distinction provides lenders with increased protections in the event the legality of the loan is challenged in a foreclosure. In finalizing the regulation, the CFPB had decided that regulations would not retroactively apply for this expanded QM definition, but also decided that the regulation would take effect March 1, 2021. In a statement yesterday, the CFPB indicated that it is going to let this regulation take effect, but that it is considering a new round of rulemaking that would amend this regulation. 

A second key development involves everyone’s favorite friend, the QM patch. The patch is that “temporary” provision, under which mortgages eligible for sale to the GSEs are classified as qualified mortgages. Also on December 10th of last year, the CFPB finalized amendments to this regulation which would replace the QM patch with a new QM definition classifying mortgages as qualified provided the interest rate terms of the loan are comparable to similar mortgages.

Currently, credit unions must be in compliance with this second regulation by July 1, 2021. In its statement yesterday, the CFPB indicated that it would also be considering making amendments to this regulation and most likely delaying the mandatory compliance deadline. 

February 24, 2021 at 9:49 am Leave a comment

CFPB Grants A Stay of Execution to GSE Patch

One of the biggest issues in the mortgage industry is the approaching expiration of the so-called GSE Patch on January 10, 2021. The patch refers to regulations which stipulate that any mortgage sold to Fannie Mae or Freddie Mac is automatically a qualified mortgage. Yesterday, the CFPB issued a final regulation which will extend the GSE Patch past its expiry date, but there’s a catch. The patch will only last until a new regulation doing away with it takes effect sometime next year. 

There’s actually more going on here than a simple question of extending an expiring regulation. Under the CFPB’s regulations, in order for a mortgage not being sold to the GSEs to be considered a qualified mortgage, it cannot exceed a 43% debt to income limit. In addition, Appendix Q imposes strict guidelines on how that debt and income is to be determined. At the time these regulations were promulgated, the CFPB considered using criteria other than DTI, or utilizing a higher debt to income threshold. 

In June, the CFPB proposed a replacement to the GSE Patch. Under this proposal, debt to income would be replaced as a condition. Instead, a mortgage would be considered a qualified mortgage “only if the APR exceeds APOR for a comparable transaction by less than two percentage points as of the date the interest rate is set.” To be clear, this is just one of several conditions that would have to be satisfied. This regulation has not been finalized yet, but it will be in the coming weeks. Under the initial proposal, which could of course change in the final regulation, the new definition of qualified mortgage would take effect six months after the regulation is enacted. This proposal also undoubtedly warms the heart of those who want to see the outsized role that the GSEs play in the mortgage market reduced, since it would end a built in regulatory advantage they currently have.

 Like everything else, the election hangs over this proposal. If Joe Biden wins the presidency, you can bet that one of the first things a new CFPB Director will do is put a hold on all pending regulations. But in the meantime, you should at least start considering how your credit union would be impacted by this new QM rule. Six months isn’t that much time to prepare

October 21, 2020 at 9:55 am Leave a comment

Everything You Need to Know about Foreclosures but have been Too Afraid to Ask

The only thing more confusing than the latest government pronouncements about the proper response to the pandemic has been trying to figure out the status of foreclosures in New York State. There has been a multitude of guidance ranging from emergency regulations to pronouncements by the Department of Financial Services on the state level to federal legislation and industry letters from the GSEs on the federal level. These competing orders each have their own end dates and nuances, creating the perfect storm for compliance departments trying to do the right thing. Fortunately, there are signs that the confusion is beginning to come to an end as the courts step in and clarify the scope of all these competing requirements. 

Against this backdrop, the case that I think you all should read this morning is Money Source, Inc. v. Mevs, in which Judge Thomas Whelan wrote an extensive analysis describing the state of foreclosure law in New York. Although a court decision in Suffolk county does not bind the rest of the state, it can be used as persuasive authority for those of you still trying to figure out how to deal with foreclosures during the pandemic. Before I get into the weeds, the Judge succinctly summarizes the state of New York’s foreclosure laws as follows: 

“(1) that the moratorium of the CARES Act has expired; (2) the Governor’s most current EO, that is, 202.48, only precludes enforcement of commercial foreclosure proceedings; and (3) the most recent and controlling AO from the CAJ, that is, AO/131/20 (as amended), only remains in effect for such time “as state and federal [*8]emergency measures addressing the COVID-19 pandemic amend or suspend statutory provisions governing foreclosure proceedings…” There is no longer any state prohibition on pre-COVID-19 residential foreclosure proceedings and the new state legislation, detailed above, is addressed to initiation of new proceedings.”

The first source of confusion were the Governor’s executive orders. To be clear, much of this confusion was unavoidable since executive orders must be renewed every 30 days, and must be amended to reflect changes in law. Originally, EO 202.14 prohibited residential foreclosure actions stipulating that there should be “no initiation of a proceeding or enforcement of a foreclosure action.” Yours truly has always read this order conservatively. Specifically, since the order applied not only to foreclosure actions, but to proceedings “leading to foreclosures,” it is my opinion that the order not only prevented foreclosures, but the sending of pre-foreclosure notices mandated by Section 1304 of New York’s Real Property and Proceedings Law. 

Fortunately, this is no longer a valid concern. On June 7th, the Governor issued EO 202.48, which recognized that the executive orders were now superseded by the creation of Section 9-x of the Banking Law. This law applies to individuals in need of residential mortgage forbearances beginning in March 2020 and will be in existence on a county by county basis until there are no restrictions on non-essential gatherings of any size in the county in which the residence is located. According to the court, “there is little doubt that the new statute is designed to address mortgages affected by the COVID-19 pandemic, and should not apply to borrowers who defaulted before March 7, 2020.” Remember, where the law does apply, lenders seeking to go forward with foreclosures must demonstrate that they have complied with 9-x. 

Section 9-x does not apply to federally-backed mortgages. In other words, if you are servicing a mortgage loan and holding it in your portfolio, 9-x applies, but if you are simply servicing a loan that has been sold off to the GSEs, federal standards apply. 

This seems clear enough at first. After all, the CARES Act only provided a moratorium on foreclosures through May 15, 2020. The GSEs, however, are technically private companies that can set their own standards. I say technically because they are also bankrupt and are overseen by the Congressionally created Federal Housing Finance Agency. The FHFA recently announced they would not foreclose on property until at least December 31, 2020.

September 29, 2020 at 9:39 am Leave a comment

Don’t Forget About LIBOR  

Now that the compliance induced frenzy triggered by the pandemic has stabilized (knock on wood), I wanted to remind you of one of those meddlesome compliance changes that seemed so far away when it was first announced in early 2017, but is fast approaching.

I am talking about the end of the London Interbank Offered Rate (LIBOR) which is the index that many financial institutions and credit unions use to set interest rates for their adjustable rate mortgages and credit cards.  If you start working now, you still have enough time to easily make the necessary adjustments.  If you wait any longer, a simple problem will become increasingly troublesome, just like those college papers that some people—of course not readers of this blog—put off to the day before it was due.  Some of you actually got an adrenaline rush from doing this.  But to this day, yours truly is a morning person.

First, although a drop dead date for LIBOR’s demise has not been announced, the keepers of the index are still committed to stop publishing some time in 2021.  There are important compliance considerations tied to the drop dead date.  Most importantly, adjustable rate mortgage indexes can be switched without notice provided that the replacement index is substantially similar to the old one.  The CFPB has proposed regulations and guidance which would make this transition straightforward by providing examples of comparable indexes and providing specific dates when the transition can take place irrespective of what the actual drop dead date ends up being.

If you provide adjustable rate mortgages for sale for the secondary market, then your compliance deadline is fast approaching.  Fannie Mae will no longer be offering LIBOR based products effective September 30, 2020.  Freddie Mac will no longer be offering LIBOR based floating rate products after this year.  These deadlines do not impact your ability to continue to service existing loans using LIBOR.

Then there are those pesky adjustable rate credit cards.  The CFPB proposes to permit creditors for home equity lines of credit (HELOCs) and credit card issuers to replace a LIBOR index with a replacement index on or after March 15, 2021, if certain conditions are met.

While a specific new index is not being required, unless you have a baseline level of sophistication which allows you to compare competing indexes, regulators are implicitly encouraging you to replace the LIBOR with the Secured Overnight Financing Rate (SOFR) which is the new index of choice for the GSEs.

On the bright side, it is quite possible that your credit union has no LIBOR based products.  I would still document that your credit union took the time to confirm that LIBOR has no impact on your compliance framework.

Peace out!

September 17, 2020 at 9:26 am Leave a comment

FHFA Pushes Back Refinance Fee

In one of the most swift and effective lobbying efforts yours truly has seen, the Federal Housing Finance Agency (FHFA) announced it would delay imposition of a 50 basis point mortgage refinance fee on loans sold to Fannie Mae or Freddie Mac until December 1, 2020.

As I explained in a recent blog, FHFA announced on August 12th that Fannie and Freddie would begin imposing the fee on loans sold to the GSEs starting in September.  Since most loans are locked 45 to 60 days in advance of such sales, this meant that mortgage lenders, including credit unions, would have to pay the fee out of their own pocket.  The industry responded quickly and forcefully to this de-facto tax on mortgage lending.

When the fee does take effect in December it is anticipated that it will result in increasing the cost of refinancing by an average of $1,400.

The fact that the FHFA feels that the fee is necessary is the clearest sign yet that the future is far from bright for mortgage lenders who must begin absorbing the cost of forbearances and delinquencies.

 

August 26, 2020 at 8:34 am 1 comment

New York State Releases Emergency Mortgage Regulations

Good morning folks, with a special shout-out to our sleep deprived federal lobbyists who are eagerly awaiting final passage of the massive stimulus package reportedly agreed on by Senate negotiators early this morning.

While we wait to see what is tucked away in the trillion-dollar stimulus package, New York’s governor continues to impact banking operations on a daily basis.  Late yesterday afternoon, the Department of Financial Services released emergency regulations that lay out the legal obligations of New York State regulated institutions that have members suffering a financial hardship because of the COVID-19 pandemic.  Today’s blog is a high level snapshot with more analysis forthcoming, particularly as the Association fields questions regarding its implementation.

What does the Regulation require?

            It requires financial institutions to provide 90-day mortgage forbearances for New York State residents with New York State property who have a demonstrated financial hardship as a result of the COVID-19 pandemic.  In addition, such institutions must also waive ATM, overdraft and credit card fees for such individuals.  This last requirement applies to ATMs that are owned and operated by the banking organization.

By when do I have to get this program up and running?

            You have up to ten days to provide notice to your members of these options.

How do I determine if someone qualifies?

              You develop the criteria that can include an examination of an individual’s financial resources.  This means that you have to develop an application for individuals seeking to apply.  Denials have to be in writing and members have to be given notice of the opportunity to contact DFS to challenge a negative determination.

Does it apply to my credit union?

            This answer involves some gray area.  What we know for sure is the mortgage regulations do not apply to mortgages owned or being serviced on behalf of the GSEs.  We also know unequivocally that the mortgage regulations only apply to New York State property owned by New York State residents.  In contrast, these regulations apply to:

“…any New York regulated banking organization as defined under New York Banking Law and any New York regulated mortgage servicer entity subject to the authority of the Department.”

The gray area involves an assessment as to whether or not this definition extends to exempt organizations subject to registration requirements under New York Law.

Stay safe. Stay healthy, and remember, if you are reading this blog, you have a roof over your head and a safe place from which to wait out this bizarre period in our history.

March 25, 2020 at 9:37 am Leave a comment

New York State Releases Emergency Mortgage Regulations

Good morning folks, with a special shout-out to our sleep deprived federal lobbyists who are eagerly awaiting final passage of the massive stimulus package reportedly agreed on by Senate negotiators early this morning.

While we wait to see what is tucked away in the trillion-dollar stimulus package, New York’s governor continues to impact banking operations on a daily basis.  Late yesterday afternoon, the Department of Financial Services released emergency regulations that lay out the legal obligations of New York State regulated institutions that have members suffering a financial hardship because of the COVID-19 pandemic.  Today’s blog is a high level snapshot with more analysis forthcoming, particularly as the Association fields questions regarding its implementation.

What does the Regulation require?

            It requires financial institutions to provide 90-day mortgage forbearances for New York State residents with New York State property who have a demonstrated financial hardship as a result of the COVID-19 pandemic.  In addition, such institutions must also waive ATM, overdraft and credit card fees for such individuals.  This last requirement applies to ATMs that are owned and operated by the banking organization.

By when do I have to get this program up and running?

            You have up to ten days to provide notice to your members of these options.

How do I determine if someone qualifies?

              You develop the criteria that can include an examination of an individual’s financial resources.  This means that you have to develop an application for individuals seeking to apply.  Denials have to be in writing and members have to be given notice of the opportunity to contact DFS to challenge a negative determination.

Does it apply to my credit union?

            This answer involves some gray area.  What we know for sure is the mortgage regulations do not apply to mortgages owned or being serviced on behalf of the GSEs.  We also know unequivocally that the mortgage regulations only apply to New York State property owned by New York State residents.  In contrast, these regulations apply to:

“…any New York regulated banking organization as defined under New York Banking Law and any New York regulated mortgage servicer entity subject to the authority of the Department.”

The gray area involves an assessment as to whether or not this definition extends to exempt organizations subject to registration requirements under New York Law.

Stay safe. Stay healthy, and remember, if you are reading this blog, you have a roof over your head and a safe place from which to wait out this bizarre period in our history.

March 25, 2020 at 9:31 am 1 comment

Treasury Releases its Post-GSE Blueprint and Why it Matters

Yesterday, the Treasury Department unveiled its long-awaited vision of a post-GSE housing market. Here are my initial takeaways:

  • RIP to “the Patch.” As I explained in previous blogs, Dodd Frank authorized mortgages eligible for sale to Fannie or Freddie to be classified as “Qualified Mortgages.” This is an important designation, as it provides mortgage holders a presumption that the borrower had the ability to repay a mortgage loan should it have to be foreclosed on. To the surprise of no one, the report recommends that this important exception for the GSE expire. The CFPB is already preparing for a post-Patch world. The Patch is set to die in July 2021.
  • Fannie and Freddie would become recapitalized entities, no longer having a government charter with the implicit backing of the U.S. Treasury. In addition, the Treasury recommends that Congress encourage the creation of competitors to the GSEs. To ease the barrier of entry into the industry, it suggests that Fannie and Freddie would have to make some of their proprietary information available to the public. This idea intrigues me as I think it’s an approach that should be used in many other big data contexts, but that’s a blog for another day.
  • One of the primary concerns of credit unions and community banks is that a world without Fannie or Freddie would be a world in which they could not cost-effectively and competitively sell mortgages. The big guys with their volume will always be able to undercut smaller institutions. To address this issue, the Treasury recommends that the new GSE-like institutions be required to purchase mortgages for cash and give the seller the option of whether or not to sell their servicing rights. The buyers would also be prohibited from offering volume discounts.

What does all of this mean? Realistically, there is no way that serious housing reform will be undertaken before the November 2020 election. That being said, the demise of the Patch gives whoever is in power real leverage to get Congress talking following the election. Translation: expect housing reform to be the top issue following the next election and at least some of these ideas to gain traction.

On that note, enjoy your first weekend of football. Let’s hope for real lousy weather on Sunday so that those of us committed to forgoing any physical movement or interaction with the family for approximately the next 22 Sundays don’t have to feel too guilty.

September 6, 2019 at 8:54 am Leave a comment

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Authored By:

Henry Meier, Esq., Senior Vice President, General Counsel, New York Credit Union Association.

The views Henry expresses are Henry’s alone and do not necessarily reflect the views of the Association. In addition, although Henry strives to give his readers useful and accurate information on a broad range of subjects, many of which involve legal disputes, his views are not a substitute for legal advise from retained counsel.

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