Posts tagged ‘mortgage lending’

CFBP Extends QM Compliance Deadline

The increasingly drawn out fate of regulations creating a new definition of what qualifies as a Qualified Mortgage took another turn this week when the CFPB announced that it was extending the deadline for compliance from July 1,, 2021 until October 1, 2022.  This is good news especially for those of you intending to sell mortgages to the secondary market.  As I explained in a recent blog, the GSE recently put its partners on notice that without a change to the deadline it would not accept for purchase mortgages which qualify under the existing QM patch with its higher debt-to-income parameters. 

The preamble to this announcement includes this graph demonstrating just how dependent the housing market remains on access to the GSEs even as private label securitization continues to recover.

Second Circuit Examines Standing In Data Breach Cases

I will be delving into this more extensively next week but I did not want this week to end without informing my faithful readers that the U.S. Court of Appeals for the Second Circuit has decided an important case in which it explains the circumstances under which individuals whose data has been exposed to theft by unauthorized third parties can bring lawsuits in New York federal courts.  The case is McMorris v. Carlos Lopez & Assocs., LLC .

On that note, enjoy your weekend.  Yours truly will be paying for his first haircut and shave in about 16 months.

April 30, 2021 at 9:58 am Leave a comment

The Most Important Mortgage Guidance

Good morning! I hope everyone enjoyed their Easter weekend. By the way, you know you have been working from home a bit too long when your dog stares at you with a look that says “What are you still doing here?”

Anyway, I spent some of the weekend looking over the avalanche of mortgage guidance that has been churned out on both the state and federal level. I’ve decided that the single best sources of information in dealing with mortgages are this joint statement issued by Federal and State financial regulators and this FAQs issued by the CFPB. Taken together, they encapsulate the major considerations your compliance team should be considering as it seeks to balance the need for compliance against the need to help your credit union members deal with the realities of the pandemic.

Most importantly, the regulators recognize that many of the timelines you are expected to adhere to in normal times cannot realistically be complied with given the onslaught of business. For example, delays in sending loss mitigation related mortgage disclosures will be tolerated so long as your credit union is making a “good faith effort” to comply with its obligations.

The one thing that the regulators stress in both of these documents is the obligation to comply with COVID-19 forbearance requests. The regulators emphasize that:

Servicers must provide a CARES Act forbearance if the borrower makes this request and affirms that the borrower is experiencing a financial hardship during the COVID-19 emergency. Servicers may not require any additional information from the borrower before granting a CARES Act forbearance.

(By the way, the bold emphasis was provided by the regulators, not me.)

Does this mean you are not going to document the forbearance? Of course not. It simply means that you grant the forbearance based on the conversation. You will follow-up by sending the member documentation indicating what has been agreed to including an attestation that the member has requested a forbearance because of COVID-19 related hardship. This approach would also comply with New York’s emergency regulation Part 119.

HERE COMES THE MONEY!

If all goes according to plan, this is the week your members will begin having emergency payments from the government put into their accounts. Here is a good article in the CU Today outlining some best practices credit unions may want to consider in talking to their members about their cash.

 

April 13, 2020 at 9:39 am Leave a comment

When Forbearances Aren’t the Best Option For Your Members

Within hours of New York State’s promulgation of emergency regulations, two grizzled veterans of loss mitigation gave me a call to vent. To set the stage, both of these individuals work with credit unions and understand that most credit unions are committed to going the extra mile when it comes to helping out troubled borrowers. Still, they made a very convincing argument that New York’s forbearance regulations and the national glorification of the forbearance option may actually do more harm than good for many homeowners. Here’s why.

Most importantly, a forbearance is not a loan modification. New York’s regulation does not provide a definition of forbearance. It is a term of art referring to a lender’s agreement to withhold enforcing repayment obligations for a specified period. Under New York’s regulation, that period is 90 days and under both Fannie and Freddie guidelines, the forbearances can go much longer. The key point to keep in mind and explain to the anxious borrowers who are calling both banks and credit unions by the thousands every day is that at the end of the forbearance period, the member owes the same amount he or she would have owed had they simply continued to make payments in the first place. In other words, your financially troubled borrower now immediately owes three months of payments. Do they understand this? Clearly, many of your members will end up having to formally modify their loans to remain in good standing.

This is what is getting my grizzled veterans so frustrated and concerned. Under New York’s regulation, it is now an unsafe and unsound practice to deny a forbearance to a qualified individual, although you can take the individual’s financial resources into account. In other words, there will be many instances in which it makes sense for a family to continue to make payments even if one of the spouses has been laid off. Hopefully, New York State regulators will understand that financial determinations are ultimately as unique as the individuals making the request. This may not be the intent of New York’s regulations, but I hope people like my grizzled veterans are not penalized for encouraging individuals to forgo forbearances that they may technically be eligible for when doing so is not in a member’s medium or long term interest.

This raises one obvious compliance point. Document, document, document. Document what was explained to the member. Document the criteria you use in making forbearance determinations. Also, make it crystal clear to the member that they are still responsible for the payments they skip during the forbearance period.

March 26, 2020 at 8:25 am Leave a comment

NCUA Committed To Gradual Phase In Of CECL

Greetings from Washington DC where I hope to see many of you at our Association Briefing today in preparation for tomorrow’s Hike The Hill.

Although the legislative stuff is a lot of fun to talk about, with Congress gridlocked the most important developments continue to be on the regulatory and legal front. At last Thursday’s Board meeting, NCUA approved a joint agency guidance explaining baseline examiner expectations for banks, credit unions and thrifts as they prepare to comply with the Current Expected Credit Loss Methodology we lovingly refer to as “Cecil” CECL. The best news I have to report in a while is that NCUA included a footnote in the preamble to the guidance in which it reiterated that it has the authority to phase in CECL Compliance over a three year period. In addition, speaking to a group of small credit unions on Sunday, Chairman Hood noted that phasing in CECL is one of his top priorities.

Why is this so important? Remember that the basic idea of CECL is that financial institutions should record expected credit losses earlier in the lending cycle. There are a number of credit unions for whom a decisive shift to this methodology would have extremely negative consequences. For example, how many credit unions would be harmed if they had to report medallion values under a CECL model? A phasing in of CECL compliance in addition to the already delayed effective date applied to credit unions is one more way that regulators can help smooth the transition.

That being said, the transition is coming and there is a lot of work to be done. Take a look at this guidance and you will see that CECL Compliance impacts much more than accounting. It impacts everything from your board governance to your off balance sheet investments. Now really is the time to get started.

Credit Unions Offer Good Mortgage Value

Here is one more point to raise when you talk to your Congressman tomorrow. Home buyers save thousands of dollars by getting their loans from credit unions. This is the conclusion of a report released by NCUA’s economist at Thursday’s Board meeting. It’s always been interesting to me that when consumers think about credit unions they are much more likely to mention a great rate they received on a car loan than a great mortgage they received. Perhaps this report can help broaden the focus of consumers and policy makers particularly as they consider how to ensure secondary mortgage access if Fannie and Freddie ever go away. On that note, have a nice day.

 

 

 

February 25, 2020 at 8:49 am Leave a comment

More HMDA Guidance Issued; Student Lending Requirements Take Effect

It’s getting more confusing keeping track of proposed amendments to HMDA than it is to keep track of the developments in the Trump impeachment inquiry. That being said, after 45 minutes, albeit with no coffee, I think I have it straight.

Yesterday, the CFPB finalized a regulation extending a partial exemption from HMDA reporting requirements for institutions that do not meet certain mortgage thresholds. Specifically, for open-end lines of credit, the rule extends for another two years, until January 1, 2022, the current temporary coverage threshold of 500 open-end lines of credit. For data collection years 2020 and 2021, financial institutions that originated fewer than 500 open-end lines of credit in either of the two preceding calendar years will not need to collect and report data with respect to open-end lines of credit.

In addition to this announcement, there are pending regulatory proposals for which comment is due by Tuesday, or forever hold your piece. One proposed rule would also extend to January 1, 2022, the current temporary threshold of 500 open-end lines of credit for open-end institutional and transactional coverage. Once that temporary extension expires, the proposed rule would set the open-end threshold permanently at 200 open-end lines of credit in each of the preceding two calendar years. The other is an Advanced Notice of Proposed Rulemaking. This will likely be the more significant of the two going forward. In the Dodd-Frank Act, Congress mandated that HMDA-reporting institutions collect several additional data points, and gave the CFPB the discretion to add other data field reporting requirements that it deemed to be appropriate. The Bureau took up this task with gusto. The ANPR is likely to be the first step by the Kraninger-led Bureau to scale back the reporting requirements imposed by King Cordray.

DFS Creates Student Loan Advisory Task Force

To mark the effective date of a new law imposing licensing and servicing standards on student loan providers, DFS Superintendent Linda Lacewell announced the creation of a student advisory board to advise the Bureau on consumer protection issues related to students. Remember that in addition to establishing baseline servicing requirements on student loan providers, the new law also imposes licensing requirements, but credit unions and banks are exempt from these regulations. Credit unions should notify the Department of their exempt status by email at SLSLicensing@dfs.ny.gov.

How Low Should Mortgage Rates Go?

Finally, here is a great article in today’s Wall Street Journal suggesting that mortgage rates should be even lower than they are based on traditional indicators, such as 10-year treasury notes, the fact that lenders haven’t cut rates more aggressively underscores how big an appetite there is among consumers to refinance their existing mortgages.

On that note, enjoy your weekend. If you’re like me, you’re already happy because you know you don’t have to waste your Sunday watching the Giants lose to the Patriots. You already wasted Thursday night. By the way, we now know how bad the Patriots can play and still easily defeat the Giants.

October 11, 2019 at 9:42 am Leave a comment

Time to Clamp Down on Mortgage Lending Standards?

The Federal Housing Authority (FHA) certainly thinks so. On March 14th it issued an updated guidance in response to increasing “risk trends” in its single family mortgage portfolio. Under the new approach announced by the FHA, it is flagging more loans for manual underwriting and imposing tougher minimum loan criteria. According to the WSJ, roughly 40,000-50,000 loans a year will be impacted by the new standards.

While the announcement is likely to be criticized by some housing advocates, concerns have been raised for years about the solvency of the FHA. In the letter announcing the move, FHA Commissioner Montgomery argued that the FHA “must seek the right balance between managing risk and fulfilling its mission of supporting sustainable homeownership.” In contrast, according to the FHA in January, 28% of its mortgages had a debt to income ratio greater than 50%.

Are You Ready For The Day After Tomorrow?

I really do have to come up with a different movie reference when I’m writing about natural disasters but I really can’t get that dumb movie, The Day After Tomorrow, out of my head.

In any event, in response to flooding in the mid-west, regulators, including the NCUA, issued the obligatory statement imploring financial institutions to be flexible when dealing with consumers in the affected areas. The statement includes a link to a 2017 guidance to examiners which I would suggest including in your materials preparing for your credit union’s own natural disaster. I’m no meteorologist but I would work on the assumption that the question is no longer if but when Mother Nature will wallop your operations.

Anyway, the guidance is an interesting read. For example, it stipulates that when evaluating an institution’s natural disaster preparedness, examiners should access a financial institutions “effectiveness in responding to changes in the institution’s, markets as a result of the disaster. And of course, they should expect management to conduct annual risk assessments and update their disaster preparation plans where appropriate.

Enjoy the spring weather. See you tomorrow.

March 26, 2019 at 8:42 am Leave a comment

FinTech Is Fundamentally Changing Mortgage Lending Right Now

The digitalization of mortgage lending is not a gimmick to attract millennials but a fundamental shift in the way mortgage lending is done. If you don’t have plans in the works for a fully automated mortgage production process, you should. And if you already do have such plans in the works, you should speed up your timetable for deployment. That is my takeaway from this fascinating bit of research released in February by the Federal Reserve Bank of New York. It’s actually worth reading on your own.

The researchers examined the impact of FinTech lenders. For purposes of their research they defined these companies as lenders employing a beginning-to-end online mortgage application platform with centralized mortgage underwriting and processing augmented by automation. In other words, while aspects of the mortgage origination process have been automated for more than two decades now, what they were interested in examining was the efficacy of Rocket Mortgages of the world. The research looked at some of the most fundamental questions involving FinTech mortgage Lending and concluded that beginning-to-end automation of the mortgage process has so far proven to be not only faster but beneficial to consumers across socioeconomic groups.

The efficiencies speak for themselves. According to the researchers, FinTech lenders process loans 7.9 days faster than non-FinTech lenders. This is true even when FinTech’s are compared to non-deposit taking mortgage lenders suggesting that these results aren’t simply a reflection of fewer regulations.

Critics have suggested that FinTech’s are quicker because they are less careful about who they lend to. Not so the researchers concluded. Loans originated by FinTech lenders are 35% less likely to default than comparable loans originated by non-FinTech lenders.

Does this mean that FinTech lenders are simply picking off the best potential applicants? The researchers found “that the lower default rates associated with FinTech lending is not simply due to positive selection of low risk borrowers.” This is speculation on my part but maybe automation makes it easier for lenders to quickly adjust underwriting standards in response to changing market conditions.

For example, it appears that because the FinTech model is so automated it can more quickly adjust to changes in the interest rate environment. This typically benefits borrowers whose interest rates average 2.3 basis points lower than those offered by brick and mortar lenders.

To sum it all up, if you are a traditional lender, you are competing against a business model which provides cheaper mortgages to a large cross-section of the mortgage marketplace more quickly and efficiently than was conceivable even five years ago. It’s no wonder the market share of FinTech lenders is growing at a rate of 30% annually from a mere 34 billion in originations in 2010 to 916 billion in 2016.

For those of you hoping to be more actively involved in mortgage lending, the writing is on the wall. You better move quickly before your existing approach to lending ends up as an exhibit in the Smithsonian.

March 8, 2018 at 9:50 am 1 comment

CFPB Proposes Small Creditor Mortgage Relief

Yesterday brought us another example of the CFPB at its best. It proposed several amendments to its mortgage rules that will make it easier for institutions to quality as small creditors for purposes of the mortgage rules. This designation is important because it is easier for smaller institutions to make qualified mortgages than it is for their larger counterparts. For example, small creditors aren’t subject to stringent debt to income ratio requirements.

Under existing law, to qualify as a small creditor an institution must make 500 or fewer mortgages in a calendar year and have $2 billion or less in assets. The CFPB is proposing to raise that threshold from 500 to 2,000 mortgages. In addition, creditors that reach the magical 2,000 threshold will be given a grace period so they have time to adjust to the tougher QM standards.

In addition, according to the preamble, the Bureau’s proposal “also makes the limit applicable only to loans not held in portfolios by the creditor or its affiliates.” This clarifies that a loan transferred by a creditor to its affiliates does not count toward the threshold limit as long as the affiliate doesn’t subsequently sell the mortgage.  The proposal also expands the definition of rural areas, which is helpful for QM purposes. On the negative side, the proposal would include the assets of a creditor’s mortgage originating affiliate(s) for purposes of calculating the $2 billion threshold.

Say what you want about the Bureau. It not only talks the talk, it walks the walk. It estimates that this proposal would expand the number of institutions that qualify as small creditors from 9,700 to about 10,400. The Bureau has been handed the unenviable task of strengthening mortgage underwriting standards without dramatically decreasing the number of people who ultimately qualify for a mortgage. To be sure, you won’t find this mandate in statute, but the American public and the politicians they elect are still inclined to believe that you can raise mortgage standards without keeping people from owning the home of their dreams. The Bureau’s the only agency I know that assiduously monitors the impact of its regulations on an ongoing basis and moves swiftly when it sees that its proposals have gone too far. Here’s a link to the proposal.

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I’ll be back blogging on Tuesday as I am taking Monday off so that I don’t have to rush back from Long Island after celebrating at the 39th Annual Meier Family Superbowl Party.

January 30, 2015 at 8:30 am 1 comment

CFPB Clamps Down on Originator Compensation and Prepaid Cards

The CFPB continued its incredibly frenzied pace yesterday.  In the same day, it proposed federal regulations on prepaid cards and fined Franklin Loan Corporartion, a California-based mortgage banker for illegally compensating its loan originators.  In the pre-Dodd-Frank days, either one of these would have been among the biggest news of the year for one of our federal regulators.  But for our good friends at the Bureau that Never Sleeps, it’s all in a day’s work.

First, let’s talk about the illegal compensation settlement.  In 2010, the Federal Reserve Board imposed restrictions on the way loan originators could be compensated.  Specifically, the Federal Reserve Board promulgated regulations prohibiting compensating originators based on a term or condition of a mortgage loan.  The CFPB is now responsible for enforcing this provision and to avoid making this discussion any more complicated than it has to be, my references are to the re-codified regulation.  Before the Board’s prohibition, Franklin had a straightforward compensation system in which originators would get a percentage of each mortgage loan they closed.  The compensation would be based on the total cost of the loan, which included an originating fee, discount points and the retained cash rebate associated with the loan.  As a result, loans with higher interest rates generated higher commissions.  After the Board passed it prohibition in 2010, Franklin instituted a new system.  All loan officers were given an upfront commission for each loan they closed.  However, on a quarterly basis, they would receive the difference, if any, between the adjusted total commission, which was based in part on the interest rate of the mortgage, and the upfront commission.  In other words, the higher the interest rate the more a Franklin originator would be compensated.

The originator clearly crossed the line with its compensation structure.  But remember, the regulation isn’t as clear cut as it first appears.  Take a look at the official staff commentary accompanying 12 CFR 1026.36(d)(1)(I):

  1. Permissible methods of compensation. Compensation based on the following factors is not compensation based on a term of a transaction or a proxy for a term of a transaction:
  2. The loan originator’s overall dollar volume (i.e., total dollar amount of credit extended or total number of transactions originated), delivered to the creditor. See comment 36(d)(1)–9 discussing variations of compensation based on the amount of credit extended.
  3. The long-term performance of the originator’s loans.
  4. An hourly rate of pay to compensate the originator for the actual number of hours worked.
  5. Whether the consumer is an existing customer of the creditor or a new customer,

Whether or not the way you compensate your originators is acceptable is a fact-specific analysis.  The bottom line is this:  in trying to comply with this prohibition it is best to keep in mind what the CFPB is seeking to prevent.  It doesn’t want to create an incentive for originators to provide mortgages with higher interest rates and transaction costs than a member needs to pay in order to get an appropriate mortgage.

As for the CFPB’s proposed regulation of prepaid cards, in concept anyway, this is a proposal that is long overdue.  More than a decade ago, legislation was introduced in the NYS Assembly that placed restrictions on prepaid cards which were increasingly being used by employers.  At the time, one of the primary arguments against the proposal was that regulation of prepaid cards should be done on the federal and not the state level.  Prepaid cards are increasingly being used as de facto bank accounts, particularly for the poor and young.  It makes sense both from a competition standpoint and from a consumer protection standpoint that consumers that choose to use these cards get basic protections.  I will undoubtedly have more to say about this regulation as a I read through its specific provisions.  I know you can’t wait.

In the meantime, have a great weekend.

November 14, 2014 at 9:11 am Leave a comment

How great an impact is Dodd-Frank having on mortgage lending?

I want to thank the American Bankers Association for letting me be an honorary member for this post today. As I looked around for stuff to write about what struck me as most interesting and informative came from the banker’s side of the aisle.  

That was the question the Federal Reserve tried to answer in its most recent Survey of Senior Loan Officers and the results provide support for both opponents and proponents of the mortgage lending rule changes. (Incidentally, I would love to report on the same type of survey results for credit unions, our industry should take this on).

Most importantly, while banks are certainly loosening the spigot on mortgage lending, if you don’t qualify for a conforming loan you aren’t going to find it anywhere near as easy to qualify for a mortgage as you did before the meltdown. As summarized by the Federal Reserve: “[t]he majority of banks reported that the new rule has had no effect on the approval rate of prime conforming mortgages, in part because those loans qualify for a safe harbor under the exemption for loans that meet the underwriting criteria of the government-sponsored housing enterprises (GSEs). In contrast, about half of the respondents indicated that the ATR/QM rule has reduced approval rates on applications for prime jumbo home-purchase loans and nontraditional mortgages.“

Dodd-Frank is having a pronounced impact with 47.8% of respondents indicating that they would be approving more prime mortgages but for the QM rules. Interestingly, that is almost the same response the banks gave when asked about not-traditional mortgages.

The parts of the survey that concern me most are those indicating that smaller banks are pulling the reigns in tighter than larger ones. For instance, 33% of larger banks are making fewer nontraditional loans while 61% of all other banks are tightening standards.

Bottom-line: the stated goal of Dodd-Frank was to cut back on reckless underwriting. So far, so good. The hope of the CFPB was that it could accomplish this goal with minimal impact to smaller credit unions and community banks. This may ultimately prove to be an impossible challenge. After all, larger banks are better able to absorb real estate losses and legal costs than smaller depository institutions ever will be.

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Since I’m channeling my inner-banker today let me compliment the American Bankers Association on a recent letter to the Bureau requesting clarification on notice requirements for delinquent real estate loans, as well as other areas where guidance would be helpful. You now must wait 120 days before commencing a foreclosure action. The ABA asks how this requirement applies to “rolling delinquencies” where a member pays off some but not all of the debt over the 120 day period. As the ABA explains “[e]ven though the borrower may resume making scheduled monthly payments, s/he never becomes fully current on the loan and is unresponsive to loss mitigation outreach efforts. The CFPB’s servicing regulations do not specify how a servicer is to calculate delinquency for purposes of the 120-Day Rule.”

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If you are thinking of selling your debt to third-party debt collectors then you might want to take a look at this Guidance warning depositors to be mindful of the operational and reputational risks that come with such sales. Now I’m talking specifically about companies that buy your debt and then pursue payment not the run-of-the mill third-party collector that all creditors have to turn to occasionally.

Third-party debt purchasers have really moved up the depth chart of groups that consumer advocates love to hate in recent months. As I explained in a previous blog, NYS has also proposed regulations limiting third-party collection practices.

August 5, 2014 at 8:59 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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