The U.S. House of Representatives is considering a bill to address the underwriting difficulties and resulting lack of access to mortgage credit for self-employed borrowers and others with nontraditional income sources.

Representatives Bill Foster (D-IL) and Tom Emmer (R-MN) introduced H.R. 2445, a House companion to the Senate bill recently re-introduced by Senators Mike Rounds (R-SD) and Mark Warner (D-VA). H.R. 2445 calls itself the “Self-Employed Mortgage Access Act of 2019,” although its effects would not be limited to those borrowers. It would, if enacted, amend the ability-to-repay and qualified mortgage provisions of the Truth in Lending Act to allow mortgage lenders to satisfy those requirements by relying on one of several sets of industry-recognized underwriting guidelines. Specifically, the bill would state that a mortgage lender may satisfy the ability-to-repay requirements, and obtain qualified mortgage status, by considering income, assets, and obligations in accordance with either Regulation Z’s Appendix Q, or a guide or handbook maintained by Fannie Mae, Freddie Mac, a Federal Home Loan Bank, the Department of Housing and Urban Development/Federal Housing Administration, the Department of Veterans Affairs, the Department of Agriculture, or the Rural Housing Service.

As we noted previously in this space, Appendix Q currently requires lenders making a qualified mortgage to a self-employed borrower to obtain a significant amount of income documentation, without providing any flexibility. For borrowers with certain other types of income (besides income from W-2 employment), Appendix Q provides either scant or no instructions, leaving mortgage lenders unclear as to how to comply, and often unwilling to take the chance. The apparent purpose of the Self-Employed Mortgage Access Act of 2019 would be to allow lenders access to other tested industry guidelines as an alternative to Appendix Q.

Since the CFPB is already considering how to address the expiration of the temporary Fannie Mae/Freddie Mac “patch” (which allows lenders to rely on those enterprises’ guidelines until January 10, 2021, so long as the enterprises remain in conservatorship), this legislation might direct the agency to use the new standard as the replacement for the “patch.” This will be welcomed by those in the industry that want a wider underwriting standard for QM lending, but will not satisfy others that believe that acceptable underwriting under QM should not be limited to standards set by the government or government-related entities.

On April 29, 2019, New Jersey joined a growing number of states that license mortgage loan servicers when Governor Phil Murphy signed the Mortgage Servicers Licensing Act, to be effective in July 2019. Mayer Brown’s latest Legal Update discusses implications for mortgage servicers, including new licensing requirements, certain exemptions, and the Act’s relationship to federal requirements.

Read more in Mayer Brown’s Legal Update.

Just two months after financial institutions submitted their so-called “new” data as required under the Home Mortgage Disclosure Act (HMDA), the Consumer Financial Protection Bureau (CFPB) is considering whether to eliminate or revise the requirement to collect and report those new data elements, and whether to change the requirements to report certain business- or commercial-purpose transactions.

Specifically, the CFPB issued an advance notice of proposed rulemaking (ANPR) on May 8, 2019, asking the public for input on those changes. (An agency may issue an ANPR to gather information needed to formulate a proposed rule.) The ANPR fulfills part of the promise announced by former CFPB acting director Mick Mulvaney last year to reconsider nearly all aspects of HMDA reporting, including not just the new data points, but also newly-covered institutions and transactions.

While HMDA (as amended by the Dodd Frank Act) requires certain institutions to collect and report a significant list of data elements regarding the institutions’ home lending activities, the CFPB revised and added to that list during a comprehensive 2015 HMDA rulemaking. Continue Reading CFPB Issues ANPR Seeking Input on HMDA

On Thursday (May 2, 2019), a federal district court in the Southern District of New York issued an order allowing the New York Department of Financial Services (DFS) to proceed with a lawsuit seeking to block the Office of the Comptroller of the Currency (OCC) from issuing federal charters to fintech companies. As explained in a prior blog post, in December 2017, another federal judge dismissed a predecessor lawsuit by DFS because the OCC had not yet made “a final determination” that it would issue such charters. Subsequently, in July 2018, the OCC announced that it would begin accepting charter applications from fintech companies.

After the OCC’s July 2018 announcement, DFS filed another lawsuit seeking to block the OCC from issuing charters to fintech companies. The OCC moved to dismiss the lawsuit, arguing that the challenge was still premature because the OCC had not received or approved any fintech charter applications.

In Thursday’s order, U.S. District Court Judge Victor Marrero rejected the OCC’s argument and found that DFS’s claims were ripe for adjudication. Judge Marrero noted that the OCC had invited fintech companies to discuss potential charters, which demonstrated some demand for, and interest in, the charters. According to Judge Marrero, this interest, coupled with the observation that the OCC spent years developing its July 2018 decision, indicated that the OCC “has the clear expectation of issuing” such charters.

Judge Marrero also rejected the OCC’s argument that DFS had failed to state a claim for relief under the Administrative Procedure Act (APA). DFS argued that the OCC’s proposal to charter fintech companies exceeds the agency’s authority under the National Bank Act, which permits the OCC to charter firms that engage in the “business of banking.” On that issue, Judge Marrero found that the term “business of banking,” as used in the National Bank Act, “unambiguously requires receiving deposits as an aspect of the business.”

However, Judge Marrero granted the OCC’s motion to dismiss DFS’s claim under the Tenth Amendment to the U.S. Constitution. The Court found that DFS’s claim did not implicate the Tenth Amendment because it related only to whether Congress had clearly chosen to preempt state chartering authority, rather than whether Congress had exceeded its enumerated powers.

As explained in a prior Legal Update, in April 2018, a District of Columbia federal court dismissed a similar lawsuit filed by the Conference of State Bank Supervisors (CSBS) on the basis that the OCC had not yet issued any fintech charters. The CSBS re-filed that lawsuit in October 2018, and the lawsuit remains pending in the District of Columbia federal court.

Many of Mayer Brown’s Consumer Financial Services partners will be featured at the upcoming Legal Issues and Regulatory Compliance Conference in New Orleans, sponsored by the Mortgage Bankers Association.

On Sunday, May 5, Kris Kully will help guide attendees through the basics of the Truth in Lending Act, as part of the conference’s Certified Mortgage Compliance Track. Also on Sunday, Tori Shinohara will address Fair Lending and Equal Opportunity Laws.

On Monday, May 6, Stephanie Robinson will participate on a panel discussing unfair, deceptive, and abusive acts and practices (UDAAPs), offering real-world scenarios and key principles for understanding the risks. Later that day, she also will participate in a round-table discussion on UDAAP.

On Tuesday, Phil Schulman will address marketing and advertising activities in compliance with the Real Estate Settlement Procedures Act (RESPA), and later that day will participate in a “compliance conversation” about RESPA. In addition, Krista Cooley will participate in the Servicing Developments panel, discussing recent compliance developments of particular importance to servicers of government-insured loans. Later that day, she will participate on the Government Lending Update panel and provide an update on FHA compliance developments. Holly Spencer Bunting will participate on a panel addressing a range of updates on state laws and regulator guidance.

Many other members of Mayer Brown’s team also will attend, including Debra Bogo-Ernst, Frank Doorley, Jon Jaffe, Luci Nale, Larry Platt, Chris Smith, David Tallman, and Megan Webster.

We all look forward to seeing you in New Orleans!

Mayer Brown Partners Paul Jorissen and Lauren Pryor will speak at the 6th Annual Residential Mortgage Servicing Rights Forum being held April 15-16, 2019 in New York City. This conference explores the key industry issues, including the origination trends, views from the regulators, and more.

Paul Jorissen will moderate the panel on “Financing in the MSR Market” and Lauren Pryor will moderate the panel on “Buying a Mortgage Servicer/Originator vs. Rights vs. Subservice” on April 15.

Mayer Brown is a Silver Sponsor.

For more information, please visit the conference website.

Legalization of certain cannabis-related activities by over 30 states has led to a surge in companies that grow and produce cannabis and related products. However, banks and other financial services companies have been hesitant to serve this growing population of potential customers due to conflicting statutes and enforcement policies under federal law. On Thursday, March 28, 2019, the Financial Services Committee in the U.S. House of Representatives took a step toward clearing some ambiguity, at least for federally insured financial institutions.

The Secure and Fair Enforcement Banking Act of 2019 (“SAFE Act”), which the Committee approved on a vote of 45-15, with 11 of the panel’s Republican members voting in favor, has been cleared for consideration by the full House. The SAFE Act would, if enacted, provide a safe harbor against retaliatory enforcement action by federal bank regulators directed at banks (including federal branches of non-U.S. banks), savings associations, and credit unions that provide services to cannabis businesses or service providers. In addition, the SAFE Act would prohibit federal regulators from discouraging depository institutions from offering financial services, including loans, to an account holder on the basis that the account holder is a cannabis-related business or service provider; an employee, owner, or operator of a cannabis-related business; or an owner or operator of real estate or equipment leased to a cannabis-related business. Furthermore, the SAFE Act would provide that officers, directors, and employees of depository institutions and the Federal Reserve Banks may not be held liable under federal law or regulations based solely on their provision of financial services to cannabis-related businesses or for investing any income derived from such businesses. The protections would apply only to cannabis-related businesses located in states, political subdivisions of states, or an Indian country where local law permits the cultivation, production, manufacture, sale, transportation, distribution, or purchase of cannabis.  Continue Reading House Takes First Step to Open Banking for Cannabis Companies

The Department of Labor is fulfilling its promise to rethink the salary thresholds applicable to an employer’s obligation to pay overtime. The Department published a proposed rule on March 22nd that would expand eligibility for overtime (and minimum wage) to certain previously exempt employees. As explained in a prior update, Labor Secretary Alexander Acosta has acknowledged that the overtime exemption needed updating, as the current thresholds were established decades ago.

As relevant to the mortgage industry, the Department announced in 2010 that it interprets the typical duties of a mortgage loan originator not to qualify for the “administrative” exemption from the federal obligation to pay employees overtime and minimum wage. Mortgage lenders had relied on previous guidance that those originators were exempt, but then had to analyze their originators’ duties to determine whether recharacterization of the originators as exempt or nonexempt was necessary.

Paying overtime compensation to mortgage loan originators can be a complex and difficult task. They often work nonstandard schedules, seeking to be available to potential borrowers, realtors, and others on a near “24/7” basis. Accordingly, keeping track of exact working hours can be tricky. In addition, they likely earn commissions (or a mix of a salary plus commissions), making the calculation of their weekly overtime rate of pay a challenge. The Department recognizes that employers of all types may decide to raise salary levels, reorganize workloads, adjust work schedules, or spread work hours in order to avoid payment of overtime.

Under the Department’s recent proposal, the salary levels for meeting the administrative exemption would increase, broadening the scope of overtime eligibility, but not as much as the Department’s prior attempt, issued in 2016. (A Texas federal court struck down that 2016 rule, holding that the Department exceeded its authority by raising the salary thresholds so high as to essentially supplant other criteria for the overtime exemption.) The current standard salary threshold is $455 per week ($23,600 per year). The Department’s proposal would raise that threshold to $679 per week ($35,308 per year). Continue Reading Department of Labor Proposes New Overtime Salary Thresholds

The Federal Housing Administration (“FHA”) is updating its Technology Open to Approved Lenders (“TOTAL”) Mortgage Scorecard in an effort to address excessive risk layering where, for example, FHA mortgage loan applicants have low credit scores and high debt-to-income (“DTI”) ratios. The FHA announced on March 14th that the TOTAL Mortgage Scorecard updates will apply for all mortgages with FHA case numbers assigned on or after March 18, 2019. As a result, the Department of Housing and Urban Development (“HUD”) indicated that lenders should expect to receive an increase in the number of referrals from TOTAL for manual underwriting. While HUD appears to be focused on loans with low credit scores and high DTI ratios, it did not identify the specific changes it will make or the precise combinations of factors that may result in referrals for manual underwriting.

HUD created the FHA TOTAL Mortgage Scorecard as a statistical algorithm to evaluate loan applications and consumer credit using a scoring system that remains constant for all applicants. FHA lenders access TOTAL through an automated underwriting system. Lenders are required to score potential FHA mortgage transactions through TOTAL, except for streamline refinances, home equity conversion mortgages, Title I mortgages, and loans involving borrowers without credit scores. Continue Reading HUD updates FHA TOTAL Mortgage Scorecard

Earlier this week, the Bureau released the Winter 2019 edition of Supervisory Highlights.  This marks the first edition issued under the CFPB’s new Director, Kathy Kraninger, who was confirmed to a five-year term in December.  The report describes observations from examinations that were generally completed between June and November 2018 and summarizes recent publicly-released enforcement actions and guidance.

Like the sole edition of Supervisory Highlights issued under Acting Director Mick Mulvaney’s tenure, this edition emphasizes that “it is important to keep in mind that institutions are subject only to the requirements of relevant laws and regulations,” and that the purpose of disseminating Supervisory Highlights is to “help institutions better understand” how the Bureau examines them for compliance—statements that signal a shift in how the Bureau approaches its supervisory role. Continue Reading First Supervisory Highlights Under Director Kraninger Reflects Focus on Corrective Action and Prevention of Harm