News from Washington: Regulatory Updates
The U.S. Department of Housing and Urban Development (HUD) proposes extending the permissible amortization term from 30 to 40 years when modifying loans to help delinquent borrowers of insured Federal Housing Administration (FHA) mortgages.
On April 1, 2022, HUD published a proposed rule in the Federal Register to provide up to a 40-year loan modification option to delinquent borrowers of FHA Title II forward mortgages. HUD currently allows lenders to modify loans for delinquent borrowers by recasting the unpaid loan balance with a maximum new term limit of 30 years. See 24 C.F.R. §203.616. This proposal would allow lenders to recast the total unpaid loan with a new term limit of up to 40 years to further reduce the borrower’s monthly payment. To qualify for the 40-year option, borrowers must be unable to achieve a minimum targeted 25 percent reduction in the principal and interest of their mortgage payment through the 30-year mortgage modification option. This change is designed to align the FHA’s loan mitigation options with the options offered by the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac), which offer a 40-year loan modification option for the mortgages they purchase.
HUD provided further details about the proposed 40-year loan modification option in
Mortgagee Letter 2022-07 and the prior 30-year option in Mortgagee Letter 2021-18. If the borrower elects either option, a zero-interest subordinate lien would be recorded against the property for the mortgage arrearages. The arrearages would have to be repaid when the first of the following events occurs:
- the FHA-insured mortgage matures
- the property is sold
- the FHA mortgage is paid, or
- (if provided for under the partial claim note), FHA insurance is terminated, except that HUD will agree to subordinate the partial claim note to an FHA-Streamline Refinance.
The comment period closed on May 31, 2022. On April 18, 2022, HUD provided additional guidance about the 40-year modification option. HUD indicated that “mortgage servicers may begin implementing the new 40-year modification with partial claim option immediately but must begin offering this solution to eligible borrowers with FHA-insured Title II forward mortgages, except those funded through Mortgage Revenue Bonds under certain circumstances, within 90 calendar days.” (Emphasis added.)
The Federal Reserve Board (Board) is accepting applications for its Community Advisory Council.
On April 11, 2022, the Board announced it is accepting individual applications for membership on its Community Advisory Council (CAC), which advises the Board on issues affecting consumers and communities. The CAC includes experts and representatives of consumer and community development interests, including affordable housing, workforce development, small business, and asset and wealth building. The CAC meets semiannually with the Board to share the views of its members on the economic circumstances and financial services needs of consumers and communities, focusing on low- and moderate-income consumers and communities. The deadline for submitting an application was on June 10, 2022.
The Consumer Financial Protection Bureau (Bureau) issues a proposal under Regulation V (Fair Credit Reporting Act) that would prohibit consumer reporting agencies from furnishing consumer reports that include adverse information that resulted from documented human trafficking.
On April 8, 2022, the Bureau published a notice of proposed rulemaking in the Federal Register to implement a recent amendment in the National Defense Authorization Act for Fiscal Year 2022 that added new §605C to the Fair Credit Reporting Act (FCRA). Section 605C, which is codified at 15 U.S.C. §1681C-3, prohibits a consumer reporting agency (CRA) from “furnish[ing] a consumer report containing any adverse item of information about a consumer that resulted from a severe form of trafficking in persons or sex trafficking if the consumer has provided trafficking documentation to the consumer reporting agency.” See 15 U.S.C. §1681C-3(b).
The Bureau’s proposal would implement this requirement and define the type of documentation a consumer must provide to the CRA. The proposal would also specify the circumstances in which the CRA can decline to block information or rescind a prior block. For example, under the proposal, a CRA could decline to block information if the consumer fails to satisfy the proof of identity requirements in §1022.123 of Regulation V. The proposal also would require a CRA to provide written notice to the consumer of actions taken in response to submission of trafficking documentation five calendar days after receiving the documentation or, if rescinding a prior block, five days after rescinding it. The comment period closed on May 9, 2022.
The 2021 public loan-level Loan Application Register (LAR) data under the Home Mortgage Disclosure Act (HMDA) are now available on the Federal Financial Institutions Examination Council (FFIEC) website.
On March 24, 2022, the FFIEC made available the public loan-level LAR data for approximately 4,316 HMDA filers. To protect consumers’ privacy, the public data are modified. For example, the public LAR discloses the credit scoring model used in the credit decision but not the applicant’s actual score. Similarly, the HMDA field of the property location is not reported. The site allows a user to search for the public LAR of a HMDA filer and download the data in a text file. The Bureau will issue a report later this year analyzing the 2021 data.
The federal banking agencies issue a rulemaking proposal to amend their Uniform Rules of Practice and Procedure.
On April 13, 2022, the Office of the Comptroller of the Currency, the Board, the Federal Deposit Insurance Corporation, and the National Credit Union Administration, published a rulemaking proposal in the Federal Register seeking comment on an interagency proposal to update their regulations governing administrative proceedings for the institutions they supervise. The proposal would update these rules to align them with current practices and to facilitate the use of electronic communications and technology in administrative proceedings. In addition, the Board invited comment on proposed changes to rules that only apply to its administrative proceedings. The comment period closed on June 13, 2022.
The Interagency Task Force on Property Appraisal and Valuation Equity (PAVE) issues an action plan to address property appraisal bias.
On June 1, 2021, President Joseph Biden created the PAVE Task Force composed of 13 federal agencies, including the Board, to address bias in real estate appraisals. On March 23, 2022, the task force issued its “Action Plan to Advance Property Appraisal and Valuation Equity.” The plan recommends various actions to address potential bias in real estate appraisals, including:
- Clarifying that the Fair Housing Act and the Equal Credit Opportunity Act apply to the appraisal industry to ensure appraisers have clear guidance on antidiscrimination obligations under current federal laws.
- Strengthening coordination among supervisory and enforcement agencies to identify discrimination in appraisals and other valuation processes.
- Expanding regulatory agency examination procedures of mortgage lenders to include identification of patterns of appraisal bias.
The plan is available here.
The Bureau updates its Unfair, Deceptive, or Abusive Acts or Practices (UDAAP) examination manual to address discriminatory practices.
On March 16, 2022, the Bureau announced a change to its UDAAP examination manual for the institutions it supervises to address discrimination across the board in consumer financial products and services. Federal law currently prohibits discrimination on certain prohibited bases in credit transactions (the Equal Credit Opportunity Act) and housing transactions (the Fair Housing Act). The Bureau’s updated examination manual states that discrimination in credit and noncredit products can meet the standard for unfairness under the Consumer Financial Protection Act (CFPA):
“In the course of examining banks’ and other companies’ compliance with consumer protection rules, the CFPB will scrutinize discriminatory conduct that violates the federal prohibition against unfair practices. The CFPB will closely examine financial institutions’ decision-making in advertising, pricing, and other areas to ensure that companies are appropriately testing for and eliminating illegal discrimination.”
Under the CFPA, a practice is unfair if: (1) it causes or is likely to cause substantial injury to consumers, (2) the injury is not reasonably avoidable by consumers, and (3) the injury is not outweighed by countervailing benefits to consumers or to competition. See 12 U.S.C. §5531(c). The revised manual discusses how this test could apply to discriminatory conduct.
The Bureau’s updated examination manual guides its examiners in how to oversee institutions under the Bureau’s supervisory authority, which include banks, thrifts, and credit unions with assets (including affiliates) over $10 billion. The Bureau also supervises certain nonbank companies, including mortgage originators and servicers, payday lenders, private student lenders, and certain larger participants in nonbank financial markets, including automobile finance lenders, consumer reporting agencies, consumer debt collectors, foreign remittance transfer providers, and student loan servicers. See 12 C.F.R. Part 1090.