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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…

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…

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.…
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Last week the Bureau of Consumer Financial Protection (“BCFP” or “Bureau”) issued guidance on the operations of financial institutions and other supervised entities in the wake of major disasters and emergencies. The guidance explains that supervised entities have flexibility under the existing regulatory framework to take action that could benefit affected consumers.

This is not the first time the Bureau has issued guidance on this topic. Last year, the Bureau released a statement on Hurricanes Harvey and Irma and another on Hurricane Maria. Unlike the prior guidance, the statement released last week does not address a particular emergency or disaster but applies to emergencies in general.

The new guidance echoes prior guidance by providing examples in which regulations allow flexibility. For instance:

  • Although RESPA’s Regulation X generally prohibits residential mortgage servicers from offering a loss mitigation option to borrowers based on an evaluation of an incomplete application, the guidance notes servicers may nonetheless offer short-term loss mitigation options. Because it could be difficult for consumers impacted by a disaster to obtain and submit the necessary documents to complete a timely application, this exception may allow servicers to better assist those borrowers.
  • Although ECOA’s Regulation B generally requires creditors to provide first-lien loan applicants with copies of appraisals or other written valuations promptly upon completion, or three business days prior to consummation or account opening, whichever is earlier, the guidance notes that the applicant generally may waive that timing requirement and agree to receive the copy at or before consummation or account opening (except where otherwise prohibited by law). That exception may allow supervised entities to give consumers impacted by a disaster quicker access to credit.

Unlike prior guidance that expressly “encouraged” supervised entities to take these steps, this latest guidance only states that supervised entities are permitted to use the flexibility. …
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As the Mortgage Bankers Association gathers for its Regulatory Compliance conference next week in Washington, DC, Mayer Brown’s Consumer Financial Services group will be addressing all the hot topics.

Melanie Brody will be talking about the Equal Credit Opportunity Act (ECOA) on a panel called “Fair Lending and Equal Opportunity Laws” on Sunday, September 16.…

For most of 2017, the Trump Administration was quiet with regard to the Federal Housing Administration (“FHA”) loan program. However, the Department of Housing and Urban Development (“HUD”) recently offered some relief to lenders and servicers of FHA-insured loans. Through Mortgagee Letter 2017-18, HUD ended its policy of allowing FHA insurance for mortgage loans secured by properties encumbered with Property Assessed Clean Energy (“PACE”) obligations. FHA’s new policy prohibiting PACE obligations in connection with FHA-insured loans, which becomes effective for loans with FHA case numbers issued on or after January 7, 2018, reverses Mortgagee Letter 2016-11, a short-lived Obama era policy that permitted lenders to originate FHA-insured loans involving PACE obligations.

PACE loans provide homeowners an alternative to traditional financing for energy efficient home improvements such as solar panels, insulation, water conservation projects, and HVAC systems. Instead of funding the home improvements through loans, the borrower pays through special property tax assessments. PACE financing does not follow the standard review of a borrower’s income, debt, and FICO score, but rather is based on the borrower’s equity in the home and the mortgage or property tax payment history. Many states and municipalities passed legislation implementing a PACE program and establishing their own terms and conditions for PACE loans. Homeowners voluntarily sign up for PACE financing through private companies, which often offer PACE through a network of approved dealers and installers. The PACE loan is secured by a property tax lien, often with terms of up to twenty years, which takes priority over both existing and future mortgages on the property. …
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Who is responsible for the safety of drinking water?

The U.S. Department of Housing and Urban Development (HUD) Office of Inspector General (OIG) has suggested – for the second time – that lenders making Federal Housing Administration (FHA) insured loans should be held to a higher level of accountability in ensuring that FHA borrowers have a safe and potable water supply. In a report dated September 29, 2017, the OIG’s stated concerns are two-fold: first, HUD may be endorsing loans for properties with water contaminants that affect their occupants’ health; and second, property values may decrease due to water quality issues, thereby posing an increased risk of loss to both HUD and homeowners. The OIG’s solution is for HUD to improve its guidance on safe water requirements as well as to sanction lenders that fail to identify water safety issues for properties known to be affected by water contaminants.…
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On January 11, 2017, the U.S. Department of Housing and Urban Development (HUD) published Mortgagee Letter (ML) 2017-03, “Federal Housing Administration (FHA) Loan Review System – Implementation and Process Changes.”  The ML indicates that HUD is developing a new Loan Review System (LRS) that will provide an electronic platform for FHA loan-level file reviews and other functions for single family insured mortgages. The new requirements will apply to all FHA Title II Single Family programs, including reverse mortgages.…
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