Mortgage Loan Origination

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).
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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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Congress amended the Truth in Lending Act in May 2018 by directing the Consumer Finance Protection Bureau to prescribe ability-to-repay regulations with respect to Property Assessed Clean Energy (“PACE”) financing. PACE financing helps homeowners cover the costs of home improvements, which financing results in a tax assessment on the consumer’s property. Ability-to-repay regulations, which TILA

Federal banking agencies issued a final rule, effective July 1, 2019, implementing the requirement in the Biggert-Waters Flood Insurance Reform Act (the “Act”) for the acceptance of private flood insurance on covered properties. The final rule largely mimics the proposal (which we addressed previously here), but with a few interesting revisions and additional details.

First, the agencies adopted the proposed definition of “private flood insurance” largely unchanged. The Act defines the term, so the agencies had little discretion. However, the agencies clarified what coverage is “at least as broad as” coverage provided under a standard flood insurance policy (“SFIP”). Specifically, the final rule removes the requirement that the policy cover both the mortgagors and mortgagees as loss payees.

The most important change from the proposed stage may be a revision to the rule’s so-called compliance aid. To assist in determining whether a particular private flood insurance policy meets the necessary criteria, the agencies initially proposed that a policy would meet the definition of “private flood insurance” if: (1) the policy includes a written summary identifying the policy provisions meeting each criterion and confirming the insurer’s licensing/approval status; (2) the regulated lending institution verifies in writing the provisions identified in the summary, and that those provisions in fact satisfy the criteria; and (3) the policy includes the following assurance clause: “This policy meets the definition of private flood insurance contained in 42 U.S.C. 4012a(b)(7) and the corresponding regulation.”

The final rule indicated that the reaction to that proposed compliance aid was largely negative.
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Freddie Mac is an outlier among the three primary secondary market investors with its mid-month investor reporting cycle. In an effort to standardize the marketplace, Freddie Mac is joining Fannie Mae and Ginnie Mae by shifting its investor reporting cycle to the beginning of each month. In this regard, Freddie Mac is implementing the following changes: (i) the investor reporting cycle will run from the first day of each calendar month to the last day of such month; (ii) Freddie Mac is encouraging daily loan-level reporting, with reporting of at least one loan level-transaction detailing activity submitted no later than the 15th calendar day of each month (or next business day) (the “P&I Determination Date”); (iii) servicers will report the actual principal received and the forecasted scheduled interest based on unpaid principal balance reported at the end of the current one-month period; (iv) Freddie Mac will draft principal and interest from the servicer’s custodial account two business days after the P&I Determination Date; (v) on the fifth business day following a payoff, Freddie Mac will draft payoff proceeds, provided such payoff was reported within two business days of the payoff date, subject to certain requirements; and (vi) Freddie Mac will process and settle loan modifications on a daily basis.

Freddie Mac has released several bulletins outlining the transition (2016-15, 2017-4, 2017-15, and 2018-14), summarized in the following timeline:


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The Consumer Financial Protection Bureau issued final policy guidance on December 21, 2018, explaining how it will make available to the public data submitted by financial institutions under the Home Mortgage Disclosure Act (HMDA). The CFPB comprehensively revised HMDA reporting requirements in 2015, and extensive new data collection requirements became effective this year, with a reporting deadline of March 2019. With three months to go before that deadline, the CFPB could not have waited much longer to announce how it will publicly disclose the HMDA data while still protecting sensitive information.

Under the new HMDA requirements, reporting financial institutions must notify the public that the institutions’ data may be obtained on the CFPB’s website. The CFPB is then responsible for protecting applicant and borrower privacy, even as privacy risks evolve. The industry has expressed concern about the breadth of the data the CFPB will be collecting under the new HMDA reporting requirements, and about the increased reidentification risks that could arise upon making the data public (that is, the risk that someone could link an identified individual to his or her HMDA data). Commenters emphasized that if borrowers or applicants could be identified from the HMDA data, predators could target consumers for identity theft, fraudulently pose as the borrower’s lender, or otherwise misuse the data.

However, the CFPB declined to follow the commenters’ requests to exclude from the public all the new data required to be reported under the 2015 HMDA final rule. The CFPB recognized the inherent reidentification risk, but determined that the benefits of certain data disclosure outweigh that risk. The CFPB determined that most of the HMDA data is not sensitive and does not substantially facilitate reidentification or create a risk of harm. The CFPB reportedly employed a balancing test, requiring that HMDA data be excluded from public disclosure or modified when the release of the unmodified data would create risks to applicant and borrower privacy interests that are not justified by the benefits to the public of that release.

Accordingly, at least for 2018 data, the CFPB will modify the HMDA loan-level data to exclude the following fields:
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Good news from the Government for a change. Yesterday, October 22, 2018, the Department of Housing and Urban Development (HUD) revised its requirements for lenders submitting Home Equity Conversion Mortgage (HECM) loans that have reached 98% of their maximum claim amounts. FHA-approved HECM servicers can now use more easily accessible supporting documentation to get their claims paid faster.

The new requirements were announced in FHA Mortgagee Letter 2018-08. The requirements became effective yesterday, but HUD will accept public comments for a period of 30 calendar days, if you have further suggestions for this beleaguered insurance program.

So what’s all the shouting about? To begin with, HUD will now accept alternative documentation to establish evidence of current hazard insurance. No more hazard insurance declaration pages. Servicers may now provide documentation from the hazard insurance provider so long as it includes pertinent information spelled out in ML 2018-08. In addition, it just got easier to provide evidence of the borrower’s death . While HUD will still accept a copy of the borrower’s death certificate, effective immediately, servicers may now submit an obituary or documentation from a health care institution (if unable to obtain a death certificate). That should speed up the filing process considerably.

The new mortgagee letter also adds a few new requirements.
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The American Financial Services Association (AFSA) gathers for its 2018 Annual Meeting in Marina del Rey, California on October  21 – 24. Mayer Brown partner Jon Jaffe, of the firm’s Financial Services Regulatory Enforcement Group, will present for the AFSA Law Committee on Mortgage Lending – Hot Topics. He also will help

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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Kris Kully, of Mayer Brown’s Financial Services and Regulatory Enforcement group, will speak to credit union mortgage lenders at the 22nd Annual Conference of the American Credit Union Mortgage Association (ACUMA) in Las Vegas.

On September 24th, she will lead a discussion regarding Communication and Compliance, addressing many principles to keep in mind as