Mortgage Loan Servicing

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The Consumer Financial Protection Bureau (“CFPB”) issued two relatively welcome surprises yesterday. First, along with ditching a debt-to-income ratio (“DTI”) ceiling, the agency expanded its proposed general Qualified Mortgage (“QM”) to include loans up to 2.25 percentage points over the average prime offer rate. Mortgage lenders can opt in to the new QM as early as 60 days after the rule is published (so, likely by late February 2021), although compliance becomes mandatory July 1, 2021. Second, the CFPB will begin allowing loans to season into a QM after 36 months of timely payments, so long as the loan is not sold more than once (and is not securitized) during that time.

The CFPB otherwise recently issued a separate final rule, confirming once and for all that the GSE Patch – a temporary QM category for loans eligible for purchase by Fannie Mae or Freddie Mac – would expire on the mandatory compliance date of the agency’s rule revising the general QM definition. Since 2014, in general terms, a closed-end residential mortgage loan could only constitute a QM if the borrower’s DTI did not exceed 43%, or if the loan were GSE-eligible. As the GSE Patch’s expiration date (January 10, 2021) loomed, the CFPB promised to rethink the 43% DTI requirement and provide for a smooth and orderly transition to a post-Patch QM. In considering the public comments it received, the CFPB decided to loosen up on a couple of its proposals.

Specifically, the new general QM and its compliance protection will apply, under the final rule, to a covered transaction with the following characteristics:

  • The loan has an annual percentage rate (“APR”) that does not exceed the average prime offer rate (“APOR”) by 2.25 or more percentage points;
  • The loan meets the existing QM product feature and underwriting requirements and limits on points and fees;
  • The creditor has considered the consumer’s current or reasonably expected income or assets, debt obligations, alimony, child support, and DTI ratio or residual income; and
  • The creditor has verified the consumer’s current or reasonably expected income or assets, debt obligations, alimony, and child support.

The final rule removes the 43% DTI threshold and the troublesome Appendix Q. …
Continue Reading CFPB Issues New QM Definition and Seasoning Provisions

Should US state nonbank mortgage servicers be subject to “safety and soundness” standards of the type imposed by federal law on insured depository institutions, even though the nonbanks do not solicit and hold customer funds in federally insured deposit accounts or pose a direct risk of a government bailout? Well, state mortgage banking regulators think…

The California legislature ended its legislative session late on Monday, August 31, 2020, by passing two significant bills that will be of interest to the state’s mortgage servicers and other licensees—AB 3088 and AB 1864.

AB 3088 imposes new forbearance-related requirements on mortgage servicers related to the COVID-19 pandemic (in addition to significant protections for tenants in California beyond the scope of this summary). AB 1864 renames, reorganizes, and grants new authority to California’s primary financial services regulator to create a “mini-CFPB”—although many licensees are exempt from the new authority. Governor Newsom has signed AB 3088 into law, which took effect immediately as an urgency measure, and is expected to follow suit with AB 1864 in the near future.

Below we summarize those provisions from the bills that are particularly relevant to California mortgage licensees and federal- and state-chartered depository institutions servicing mortgage loans in California.…
Continue Reading California Enacts Two Bills with Significant Impacts on Mortgage Licensees in the State

Earlier this week the CFPB released an interim final rule that allows mortgage servicers flexibility to offer additional short-term loss mitigation options to borrowers impacted by the COVID-19 pandemic.  The mortgage servicing rules include many requirements for the servicing of mortgage loans in default, including limitations on the types of loss mitigation that may be offered in certain instances.  The unique challenges facing servicers and borrowers in the wake of the pandemic, as well as the unique loss mitigation options being announced by federal housing agencies designed to assist borrowers negatively impacted by COVID-19 that do not fit neatly into the CFPB’s existing servicing requirements, have prompted the CFPB to amend those rules to provide servicers with additional flexibility. …
Continue Reading CFPB Provides Relief to Servicers Offering Loss Mitigation in Wake of Pandemic

In recent weeks, the US federal housing agencies and government-sponsored enterprises (GSEs) that insure, guarantee, or purchase “federally backed mortgage loans” covered by Section 4022 of the CARES Act (Act) have continued their intense pace of issuing temporary measures, and updates to such measures, intended to implement the Act’s provisions applicable to such loans. These…

Against the backdrop of the COVID-19 pandemic and the economic stress it is imposing on residential mortgage borrowers, lenders and servicers, the Consumer Financial Protection Bureau recently released a compliance bulletin and policy guidance regarding the handling of information and documents in mortgage servicing transfers. While not specifically motivated by the COVID-19 crisis, Bulletin 2020-02…

The use of representations and warranties insurance policies in M&A transactions has grown exponentially in the past decade. While the use of this type of insurance in acquisitions of residential mortgage originators and servicers is less common, there is tremendous opportunity for growth in the mortgage sector. This Legal Update discusses the benefits of these…

In a development that industry observers may have overlooked amid more pressing concerns caused by the COVID-19 pandemic, the Idaho legislature enacted a measure that will require mortgage servicers to be licensed by July 1, 2020, unless the date is extended. With last month’s enactment, Idaho joins the majority of states that license mortgage servicing and provides a useful reminder that, when things eventually return to some degree of normalcy, non-pandemic-related compliance obligations will remain. This blog post discusses Idaho’s new mortgage servicer licensing obligation and other pertinent provisions of the legislation.

The New Mortgage Servicer Licensing Obligation

Idaho House Bill 401 (“H401” or the “Bill”) amends the Idaho Residential Mortgage Practices Act (Idaho Code §§ 26-31-101 et seq.) (the “RMPA” or the “Act”) to include mortgage servicing among the activities that trigger licensing under the Act.…
Continue Reading Regulatory Life Goes On—Idaho Legislature Remained in Session During COVID-19 Pandemic to License Mortgage Servicers

Today, the Federal Housing Finance Agency (“FHFA”) announced an eagerly awaited policy allowing Fannie Mae and Freddie Mac (the “Agencies”) to address one aspect of the liquidity crisis for mortgage servicers facing mounting advance obligations due to forbearances. Going forward, once a servicer of single-family mortgage loans pooled into an Agency mortgage-backed security has advanced four months of missed payments on a loan in forbearance, it will have no further obligation to advance scheduled payments of principal and interest.[1] The FHFA reports that this applies to all Agency servicers.

This answers one of the four main questions that servicers have asked about forbearance required under the CARES Act in the context of Agency servicing advances. …
Continue Reading Fannie and Freddie to Relax Servicer Advance Requirements for Loans in Forbearance

Residential mortgage loan servicers, trade associations and various members of Congress have been urging the Department of Treasury and the Federal Reserve Board to provide a dedicated servicing advance facility.  On April 10, 2020, Ginnie Mae did just that, announcing the terms of its much-anticipated Pass-Through Assist Program for Issuers of mortgage-backed securities that are…