Mortgage Loan Origination

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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…

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.

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On October 28, 2019, the U.S. Department of Housing and Urban Development announced: (1) proposed revisions to lenders’ loan-level lender certifications in Federal Housing Administration (FHA)-insured mortgage transactions; (2) issuance of a revised Defect Taxonomy; (3) execution of a Memorandum of Understanding (MOU) with the U.S. Department of Justice regarding False Claims Act (FCA) actions…

On August 19, the U.S. Department of Housing and Urban Development (HUD) published a proposed rule for the purpose of aligning HUD’s 2013 Disparate Impact Rule with the Supreme Court’s 2015 decision in Texas Department of Housing and Community Affairs v. Inclusive Communities. HUD sought comments from relevant stakeholders and the public on the…

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. …
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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…

If only the U.S. Treasury had a magic wand to ensure that the dozens of recommendations released last night in its long-awaited reform proposals for housing finance would become a reality; in that case, one could expect real-time results in the quest for an end to GSE conservatorship and the strengthening of the FHA. Instead,…

The saga over whether to include a controversial “preferred language” question on the new redesigned Uniform Residential Loan Application (URLA) continues. Last week, the Federal Housing Finance Agency (FHFA) changed course yet again and decided to remove the language preference question from the redesigned URLA. Instead, the question will be moved to a separate, optional…

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. …
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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%. …
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