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…
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…
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. …
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While most of the federal government remained shuttered in mid-January, the Consumer Financial Protection Bureau (CFPB or the Bureau) was on the job, thinking about the Military Lending Act (MLA or the Act). On January 17, 2019, the Bureau’s Director, Kathleen Kraninger, issued a statement asking Congress to “explicitly grant the Bureau authority to conduct…
The California legislature was active in 2018, enacting several new requirements and provisions applicable to the financial services industry. Those requirements include an important and comprehensive privacy regime (the California Consumer Privacy Act of 2018, or CCPA), which establishes new protections for personal information that covered commercial enterprises collect. The CCPA becomes effective January 1,…
Oversight of the Consumer Financial Protection Bureau (Bureau) by the U.S. House of Representatives is expected to become more aggressive when the 116th Congress convenes in January 2019. On December 11, 2018, members of the new Democratic House majority nominated Representative Maxine Waters to chair the House Financial Services Committee, which oversees the Bureau. During Rep. Waters’ time as ranking member on the Committee, she heavily criticized many of the changes Acting Director Mick Mulvaney made at the Bureau. Mayer Brown summarized those changes in a recent Legal Update.
As chair, Rep. Waters will set the Committee agenda, enabling her to turn her criticism into more direct pressure on the Bureau and its new Director Kathleen Kraninger. Proposed legislation sponsored by the incoming chair may hold some clues to the actions the Committee may take.
In September 2018, Rep. Waters introduced the Consumers First Act. The bill is largely designed to restore the Bureau to how it looked and functioned before Acting Director Mulvaney’s tenure. Some of its major topics include the following:…
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New California legislation will impose disclosure requirements, similar to those under the federal Truth in Lending Act, on commercial-purpose loans of $500,000 or less, including arrangements such as factoring, merchant cash advances, and certain assignments of accounts and receivables. The disclosures will generally include the total cost of the financing, expressed both as a…
Senators Mark Warner (D-VA) and Mike Rounds (R-SD) recently introduced Senate Bill 3401 to facilitate access to residential mortgage loans for consumers who are self-employed or otherwise receive income from nontraditional sources. The lawmakers indicated that lenders have shied away from loans to those consumers due to overly strict or ambiguous federal requirements for documenting the consumers’ income. The bill would, if enacted, provide mortgage lenders greater flexibility in documenting income during the underwriting process. They call the bill the Self-Employed Mortgage Access Act.
Federal regulations require that for most closed-end, dwelling-secured loans, a lender must make a reasonable and good faith determination that the consumer will have a reasonable ability to repay the loan, based on (among other factors) the consumer’s verified income. To take advantage of a presumption of compliance with that requirement, most lenders follow the regulations’ Qualified Mortgage (QM) guardrails, described in part in Appendix Q of the regulations. Appendix Q generally dictates the type of income documentation a lender must obtain.
For example, for a self-employed individual (any consumer with a 25 percent or greater ownership interest in a business), Appendix Q requires that a lender seeking to make a QM must get the consumer’s signed, dated individual tax returns, with all applicable tax schedules, for the most recent two years. For a corporation, “S” corporation, or partnership, the lender must get signed copies of the federal business income tax returns, with all applicable tax schedules, for the last two years. Finally, the lender must get a year-to-date profit-and-loss statement and a balance sheet. Appendix Q does not expressly provide for any flexibility in those documentation requirements.…
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Foreign statutory trusts that acquire delinquent residential mortgage loans are NOT required to be licensed under the Maryland Collection Agency Licensing Act (the “Act”), based on an opinion released today by the Maryland Court of Appeals. The opinion reverses lower court rulings that called for such licensing. According to the opinion, the Act’s plain…
On October 17, 2017, in response to an investigation concluding that title insurance companies and agents were spending millions of dollars a year in “marketing costs” provided to attorneys, real estate professionals, and mortgage lenders in the form of meals, gifts, entertainment, free classes, and vacations that ultimately were passed on to consumers through heightened title insurance rates, the New York Department of Financial Services (“DFS”) issued Insurance Regulation 208, in which it identified a non-exhaustive list of prohibited inducements and permissible marketing expenses. The new rule went into effect on February 1 of 2018. Five months later, on July 5th, 2018, the New York State Supreme Court (the state’s trial-level court) annulled the part of the DFS regulation addressing marketing practices, holding that any such rule must be issued by the state legislature, not a regulating agency.…
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