The Federal Housing Finance Agency is continuing to consider how Fannie Mae, Freddie Mac, and the Federal Home Loan Banks should address Property Assessed Clean Energy (“PACE”) programs. PACE programs are established by state and local governments to allow homeowners to finance energy-efficient projects through special property tax assessments. The obligation to repay results, in
According to the Mortgage Bankers Association, the Consumer Financial Protection Bureau intends to revise its Qualified Mortgage definition by moving away from a debt-to-income ratio threshold, and instead adopting a different test, such as one based on the loan’s pricing. The CFPB also apparently indicated it may extend, for a short time, the temporary QM…
The agencies responsible for the securitization credit risk retention regulations and qualified residential mortgages (“QRMs”) are asking for public input as part of their periodic review of those requirements. Comments on the review are due by February 3, 2020.
Five years ago, in response to the Dodd-Frank Act, an interagency final rule provided that a securitizer of asset-backed securities (“ABS”) must retain not less than five percent of the credit risk of the assets collateralizing the securities. Sponsors of securitizations that issue ABS interests must retain either an eligible horizontal residual interest, vertical interest, or a combination of both. The Act and the rule establish several exemptions from that requirement, including for ABS collateralized exclusively by residential mortgages that qualify as “qualified residential mortgages,” as defined in the rule.
The Act provides that the definition of QRM can be no broader than the definition of a “qualified mortgage” (“QM”), as that term is defined under the Truth in Lending Act (“TILA”) and applicable regulations. QMs are a set of residential mortgage loans deemed to comply with the requirement for creditors to determine a borrower’s ability to repay. The Office of the Comptroller of the Currency (“OCC”), Federal Reserve Board, Federal Deposit Insurance Corporation (“FDIC”), Securities and Exchange Commission (“SEC”), Federal Housing Finance Agency (“FHFA”), and Department of Housing and Urban Development (“HUD”) decided to define a QRM in full alignment with the definition of a QM. The agencies concluded that alignment was necessary to protect investors, enhance financial stability, preserve access to affordable credit, and facilitate compliance. Their rule also includes an exemption from risk retention for certain types of community-focused residential mortgages that are not eligible for QRM status but that also are exempt from the TILA ability-to-pay rules under the TILA. The credit risk retention requirements became effective for securitization transactions collateralized by residential mortgages in 2015, and for other transactions in 2016.
The agencies of the credit risk retention regulations committed to reviewing those regulations and the definition of QRM periodically, and in coordination with the CFPB’s statutorily mandated assessment of QM.…
Along with other federal agencies, the Consumer Financial Protection Bureau recently released its Fall 2019 regulatory agenda, announcing its intentions over the next several months to address the GSE QM Patch, HMDA, payday/small dollar loans, debt collection practices, PACE financing, business lending data, and remittances. Over the longer-term, the CFPB indicated it may even address feedback on the Loan Originator Compensation Rule under the Truth in Lending Act.
- Qualified Mortgages. As we have previously described, the CFPB must in short order address the scheduled expiration of the temporary Qualified Mortgage status for loans eligible for purchase by Fannie Mae or Freddie Mac (often referred to as the “Patch”). The Patch is set to expire on January 10, 2021, leaving little time to complete notice-and-comment rulemaking, particularly on such a complex and arguably controversial issue. The CFPB has indicated that it will not extend the Patch, but will seek an orderly transition (as opposed to a hard stop). The CFPB asked for initial public input over the summer, and announced that it intends to issue some type of statement or proposal in December 2019.
- Home Mortgage Disclosure Act. The CFPB intends to pursue several rulemakings to address which institutions must report home mortgage data, what data they must report, and what data the agency will make public. First, the CFPB announced previously that it was reconsidering various aspects of the 2015 major fortification/revamping of HMDA reporting (some – but not all – of which was mandated by the Dodd Frank Act). The CFPB announced its intention to address in one final rule (targeted for next month) its proposed two-year extension of the temporary threshold for collecting and reporting data on open-end lines of credit, and the partial exemption provisions for certain depository institutions that Congress recently enacted. The CFPB intends to issue a separate rule in March 2020 to address the proposed changes to the permanent thresholds for collecting and reporting data on open-end lines of credit and closed-end mortgage loans.
The Department of Labor has finalized its new salary thresholds applicable to an employer’s obligation to pay overtime and minimum wage. Beginning on January 1, 2020, white collar employees who earn less than $684 per week will not qualify for the executive, administrative, or professional employee exemption, and therefore will be entitled to those protections. The Department estimates that the higher salary thresholds will create approximately 1.3 million additional eligible employees.
As we described here previously, the Department acknowledged earlier this year that the current thresholds are outdated, and sought to expand the eligibility for overtime to additional employees. The Department has long used a salary level test, as well as a duties test, to define who is a bona fide executive, administrative, or professional (“EAP”) employee who is exempt.
Effective January 1, 2020, the standard salary level for the EAP exemption will be $684 per week ($35,568 per year), with special salary levels applicable to employees in U.S. Territories. The final rule will allow employers to satisfy up to 10% of the standard or special salary levels with nondiscretionary bonuses or incentive payments, including commissions, provided that such payments are paid no less frequently than on an annual basis. Employers may meet the salary level requirement by making a catch-up payment within one pay period of the end of the 52-week period.
“Highly compensated” employees (“HCEs”), who receive a certain (higher) amount of compensation and meet a less-stringent duties test, also are exempt from federal overtime and minimum wage requirements. The Department’s final rule establishes the new HCE total annual compensation level at $107,432. …
Several of Mayer Brown’s Consumer Financial Services partners will be featured at the upcoming Regulatory Compliance Conference in Washington DC, sponsored by the Mortgage Bankers Association.
On Sunday, September 22, Tori Shinohara will address Fair Lending and Equal Opportunity Laws.
On Monday, September 23, Phil Schulman will address marketing and advertising activities in compliance with…
While banks must be prudent and follow applicable regulations, the latest guidelines from the Office of the Comptroller of the Currency may allow banks to justify a nuanced asset dissipation or depletion underwriting program, so long as it is backed by analysis.
On July 23, 2019, the OCC issued a bulletin reminding its regulated institutions to use safe and sound banking practices when underwriting a residential mortgage loan based on the applicant’s assets. While the bulletin does not provide much satisfaction for those seeking safe harbors or any specific guidance, it provides certain hints at what the OCC will look for in an examination.
Asset dissipation underwriting (or asset amortization or depletion underwriting) is a way for mortgage lenders to calculate a stream of funds derived from an applicant’s assets that could be available for loan payments, in addition to income (if any) received from employment or other sources. The bulletin notes that while the OCC’s regulated institutions have prudently administered asset depletion models for many years, examiners have seen an uptick that is unsupported by credit risk management practices and insufficiently compliant with existing regulations and guidelines.
One such existing regulation, which the bulletin mentions in a footnote, is the Consumer Financial Protection Bureau’s Ability to Repay/Qualified Mortgage (QM) Rule, applicable to most closed-end residential mortgage loans. That Rule allows a mortgage lender to consider an applicant’s current or reasonably expected assets in determining his/her ability to repay a mortgage loan, so long as the lender verifies the assets through financial institution statements or other reliable documents. Still, mortgage lenders must – when making QMs or non-QMs – calculate a debt-to-income ratio (DTI). (Non-QM lenders could also use a residual income figure.) Accordingly, if lenders are relying on an applicant’s assets, the lenders must come up with a monthly amount available for mortgage payments. However, unlike the Rule’s Appendix Q, which regulates how lenders may consider various types of income when making general QMs, neither the Rule nor Appendix Q specifies any requirements for unacceptable types of assets, discounts of asset values based on liquidity, amortization periods, or rate-of-return estimates.
While the OCC bulletin does not directly fill in any of those blanks, it does provide some clues. …
On July 25th, the CFPB announced plans to allow the temporary Qualified Mortgage (QM) status given to loans eligible for purchase by Fannie Mae or Freddie Mac (the GSEs) to expire. However, the agency stated it could allow a short extension past the January 10, 2021 expiration date, and is in any case soliciting public comments on the general QM definition, including its income and debt documentation requirements.
When the CFPB issued its Ability-to-Repay/QM Rule in response to the Dodd-Frank Act, it sought to provide some bright-line tests for loans deemed generally safe for residential mortgage borrowers. The CFPB decided that a debt-to-income ratio (DTI) that does not exceed 43% was an appropriate proxy, along with several other factors. While the CFPB believed that many consumers can afford a DTI above 43%, those consumers should be served by the non-QM market, where lenders must individually evaluate the consumers’ compensating factors. However, the CFPB recognized that it may take some time, post-crisis, for a non-QM market to develop, even for credit-worthy borrowers. Accordingly, the CFPB created a category of loans that would temporarily enjoy QM status – loans that meet the GSEs’ underwriting criteria (plus a few other requirements). The CFPB set the expiration date for the temporary QM category at five years (unless the GSEs were to emerge from conservatorship prior to that).
Now, several years later, the CFPB has found that the temporary GSE QM “patch” represents a “large and persistent” share of originations, and likely was the reason the Rule did not result in decreased access to credit for those with DTIs over 43%. …
Lauren B. Pryor, a co-leader of Mayer Brown’s Financial Institutions Mergers & Acquisitions group, has been named to HousingWire’s list of 2019 Rising Stars, which highlights 50 individuals who represent an up-and-coming generation of innovative leaders in the #mortgage industry. Read more in Mayer Brown’s news feed, here.
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.