News from Washington: Regulatory Updates
The Consumer Finance Protection Bureau (Bureau) issues a rulemaking proposal to implement a provision in the Economic Growth, Regulatory Relief, and Consumer Protection (EGRRCPA) that created a new exemption from the escrow requirement for higher-priced mortgage loans (HPMLs). 
On July 22, 2020, the Bureau issued a notice of proposed rulemaking in the Federal Register to implement Section 108 of the EGRRCPA (codified at 15 U.S.C. §1639d(c)(2)), which creates an additional exemption for community banks from the requirement to establish escrow accounts for HPMLs. The proposal would amend Regulation Z, which implements the Truth in Lending Act. Specifically, the proposed exemption applies to insured depository institutions or insured credit unions meeting the following requirements:
- the institution has assets of $10 billion or less (which will be annually adjusted for inflation);
- the institution and its affiliates originated 1,000 or fewer loans (including portfolio and nonportfolio loans) secured by a first lien on a principal dwelling during the preceding calendar year; and
- the criteria to qualify for an HPML exemption in Regulation Z.
The proposed exemption is in addition to the existing HPML exemption under §1026.35(b)(2)(iii) for institutions with less than $2 billion in assets, that originate no more than 2,000 first-lien, nonportfolio loans, and meet certain other requirements. The comment period closed on September 21, 2020.
The Bureau issues an interpretive rule providing guidance on how it determines which counties and areas are underserved.
On June 26, 2020, the Bureau published an interpretive rule in the Federal Register, effective immediately, providing updated guidance to creditors and other stakeholders involved in the mortgage origination process to clarify how it will use Home Mortgage Disclosure Act (HMDA) data in determining which counties and areas are “underserved” in a given calendar year. The Bureau annually issues a list of rural and underserved counties and areas, which is relevant to the application of various Regulation Z provisions. For example, creditors use the list to identify whether they qualify for the exemption to the requirement to establish an escrow account for higher-priced mortgage loans and whether they are eligible to originate balloon-payment qualified mortgages and balloon-payment high-cost mortgages. Under Regulation Z, an area is underserved in a given calendar year if, based on HMDA data from the previous year, it is a county in which no more than two creditors extended covered transactions secured by first liens on properties in the county five or more times. The Bureau’s interpretation supersedes the methodology included in the commentary to Regulation Z, which became partially obsolete when certain HMDA data points were modified or eliminated by the Bureau’s 2015 amendments to Regulation C, which implements HMDA. The interpretive rule describes the HMDA data that it will instead use to identify underserved counties and areas.
The Bureau publishes its Spring 2020 Agenda outlining its regulatory focus for the period between May 1, 2020, and April 30, 2021.
On June 30, 2020, the Bureau published its Spring 2020 Agenda listing regulatory matters on which it expects to focus between May 1, 2020, and April 30, 2021. The agenda is part of the Spring 2020 Unified Agenda of Federal Regulatory and Deregulatory Actions, the planning process for which began months before the COVID-19 pandemic emergency. The agenda outlines proposed or final rules the Bureau issued prior to its publication date, including:
- a final rule amending the Bureau’s Remittance Rule to provide tailored exceptions that permit certain insured institutions to disclose estimates instead of exact amounts to consumers in certain circumstances and also increases the threshold from 100 to 500 remittance transfers annually under which a person is not covered by the Remittance Rule;
- two proposed rules concerning amendments to the qualified mortgage (QM) provisions of Regulation Z, one of which would amend the general definition of a QM to eliminate and replace the 43 percent debt-to-income requirement with a pricing threshold to help determine a loan’s QM status, and the other of which extends the expiration date for a temporary QM category that currently permits loans purchased or insured by one of the government-sponsored enterprises to be QMs to avoid having this temporary provision expire until any proposed amendments to the General QM are finalized; and
- an extension to August 4, 2020, for the public to file comments on a supplemental proposed rule related to time-barred debt disclosures.
The agenda also outlines regulatory activities planned for the remainder of 2020 through spring 2021, including:
- proposing a rule to implement Section 108 of the EGRRCPA (see previous summary of this escrow-exemption proposal);
- publicly releasing in September 2020 an outline of proposals it is considering to implement Section 1071 of the Dodd‒Frank Wall Street Reform and Consumer Protection Act, which amended the Equal Credit Opportunity Act to require financial institutions to collect, report, and make public certain information concerning credit applications made by women-owned, minority-owned, and small businesses;
- proposing in fall 2020 two new rules under the Home Mortgage Disclosure Act (HMDA) concerning certain data points reported under the 2015 HMDA rule and public disclosure of such HMDA data, in light of consumer privacy interests, respectively;
- taking final action in October 2020 to finalize the May 2019 proposed rule under Regulation F to govern the activities of debt collectors; and
- issuing a proposed rule for a new “seasoning” definition of QM that would create an alternative pathway to QM safe harbor status for certain mortgages when the borrower has consistently made timely payments for a period.
The Bureau proposes to amend Regulation Z to address the phaseout of the London Interbank Offered Rate (LIBOR) as a benchmark for variable-rate instruments.
On June 18, 2020, the Bureau issued a proposed rule in the Federal Register to amend Regulation Z to address the phaseout of LIBOR as an index for variable-rate consumer credit products. The proposed rule amends certain open- and closed-end provisions of Regulation Z to provide examples of replacement indices for LIBOR indices that meet certain standards. The proposed rule also changes certain requirements for index changes for certain open-end provisions, requires certain change-in-terms notices, and addresses how credit card rate reevaluation requirements apply. The comment period closed on August 4, 2020. Additionally, the Bureau issued a set of Frequently Asked Questions (FAQs) to address other LIBOR transition topics and regulatory questions arising under the existing rule.
The Bureau issues an interim final rule amending Regulation X to temporarily permit mortgage servicers to offer certain loss mitigation options based on the evaluation of an incomplete loss mitigation application.
On June 30, 2020, the Bureau published an interim final rule in the Federal Register amending Regulation X. Currently, Regulation X generally requires a servicer to obtain a complete loss mitigation application before evaluating a borrower for loss mitigation options. An exception applies for certain short-term loss mitigation options; see 12 C.F.R. §1024.41(c)(2)(iii). In response to the COVID-19 emergency, the interim final rule creates an additional temporary exception to allow servicers to offer certain loss mitigation options without a complete loss mitigation application to borrowers facing financial hardship because of the COVID-19 emergency. Under the interim final rule, a loss mitigation option may be provided based on an incomplete application if it satisfies three requirements:
- The option allows the borrower to delay paying certain amounts until the mortgage loan is refinanced, the mortgaged property is sold, the term of the mortgage loan ends, or, for a mortgage insured by the Federal Housing Administration, the mortgage insurance terminates;
- For any amounts that the borrower delays paying, interest does not accrue, the servicer does not charge any fee in connection with the loss mitigation option, and the servicer waives all existing late charges, penalties, and fees, after the borrower accepts the loss mitigation option; and
- The borrower’s acceptance of the loss mitigation offer ends any preexisting delinquency on the mortgage loan.
The interim final rule also provides that, if an option is accepted, the servicer is not required to continue the reasonable diligence efforts otherwise required under 12 C.F.R. §1024.41(b)(1) or send an acknowledgment notice otherwise required under §1024.41(b)(2). The interim final rule became effective on July 1, 2020. The comment period closed on August 14, 2020.
The Bureau issues a compliance aid to address questions arising under the Equal Credit Opportunity Act (ECOA) for creditors participating in the Small Business Administration’s Paycheck Protection Program (PPP).
On May 6, 2020, the Bureau issued a compliance aid in the form of FAQs to clarify ECOA questions for lenders processing PPP loan applications. The PPP provides incentives for small businesses to retain employees on their payroll and is part of the relief package Congress created in the Coronavirus Aid, Relief, and Economic Security (CARES) Act to address the unprecedented economic disruption resulting from the COVID-19 pandemic. Creditors participating in the PPP have raised novel questions about complying with ECOA’s requirements for notifying credit applicants about the status of their application.
The full FAQs, which address some of the novel questions, are available on the Bureau’s website.
Please note that as of August 8, 2020, the SBA was no longer accepting new loan applications for the PPP.