Industry Developments

CFPB Proposes Mortgage Servicing Changes to Prevent Wave of COVID-19 Foreclosures

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On April 5, the Consumer Financial Protection Bureau (CFPB) proposed rule changes intended to prevent avoidable foreclosures as emergency federal foreclosure protections put in place due to the global pandemic expire. The rules aim to assist both borrowers and servicers to navigate an expected surge of borrowers exiting forbearance. The proposed rules (1) provide a pre-foreclosure review period that generally prohibits servicers from starting foreclosure until after December 31, 2021; (2) permit servicers to offer certain streamlined loan modification options to borrowers with COVID-19-related hardships based on the evaluation of an incomplete application; and (3) update required servicer communications to keep borrowers informed of their options. Release.

Federal Reserve Board Publishes FAQs on Certain Long-Standing Regulations

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On March 31, the Board of Governors of the Federal Reserve System (Federal Reserve Board) published six sets of responses to Frequently Asked Questions (FAQs) consisting of existing legal interpretations regarding Regulations H, K, L, O, W and Y. Additional FAQs will be released periodically and posted to the agency’s website as part of an ongoing effort to increase transparency and enhance accessibility to Federal Reserve Board legal interpretations. Release. FAQs.

Federal Bank Regulators Issue Rule Supporting Treasury’s Investments in Minority Depository Institutions and Community-Development Financial Institutions

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On March 9, federal bank regulatory agencies announced an interim final rule that supports the Treasury Department’s implementation of a program established by Congress to make capital investments in minority depository institutions and community-development financial institutions. The Treasury Department’s Emergency Capital Investment Program (ECIP) will support the efforts of these financial institutions to provide loans, grants and forbearance to small businesses, minority-owned businesses and consumers, especially in low-income and underserved communities, which may be disproportionately affected by COVID-19. Release.

FHFA Extends COVID-19 Forbearance Period and Foreclosure and REO Eviction Moratoriums

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On February 25, the Federal Housing Finance Agency (FHFA) announced that Fannie Mae and Freddie Mac (the Enterprises) are extending moratoriums on single-family foreclosures and real-estate-owned (REO) evictions until June 30, 2021. Moratoriums on single-family foreclosures apply to Enterprise-backed, single-family mortgages only, while moratoriums on REO evictions apply to properties that have been acquired by an Enterprise through foreclosure or deed-in-lieu-of-foreclosure transactions. The FHFA also announced that borrowers with a mortgage backed by Fannie Mae or Freddie Mac may be eligible for an additional forbearance extension for three additional months for up to 18 months. Further, COVID-19 Payment Deferral for borrowers with an Enterprise-backed mortgage can now cover up to 18 months of missed payments. Release.

Federal Reserve Board Clarifies Guidance as it Relates to Definitions for Minority Depository Institutions

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On March 5, the Federal Reserve Board clarified guidance as it relates to definitions for minority depository institutions (MDIs) by expanding the MDI definition to include women-owned financial institutions, and highlighting resources available to MDIs through its Partnership for Progress (PFP) program. Release.

OCC, Board of the Federal Reserve and FDIC Publish Final Rule Implementing Net Stable Funding Ratio

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On February 24, the Office of the Comptroller of the Currency (OCC), the Board of Governors of the Federal Reserve System and the Federal Deposit Insurance Corporation (FDIC) published a final rule in the Federal Register implementing the net stable funding ratio. The rule implements a minimum stable funding requirement for covered institutions, with the intention of reducing the likelihood that disruptions to a covered institution’s regular sources of funding would affect such institution’s liquidity position in a way that could lead to systemic stress. The covered institutions include U.S. depository institution holding companies, depository institutions or U.S. intermediate holding companies of a foreign banking organization with more than $100 billion in total consolidated assets that meet certain asset size and risk factor requirements. Bulletin.

 

Board of the Federal Reserve Announces Final Rule Amending Regulation EE

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On February 18, the Board of the Federal Reserve announced a final rule amending Regulation EE, which is intended to reduce risk and increase efficiency in the financial system. The final rule applies netting protections to a broader range of financial institutions. The expanded definition of financial institutions now includes swap dealers and security-based swap dealers, nonbank systemically important financial institutions, foreign banks and qualifying central counterparties, among other new additions. The final rule also made minor clarifications to the existing activities-based test in Regulation EE, which clarify the application of the test following a consolidation of legal entities. Release.

SEC Charges Rating Agency Morningstar with Failures of Disclosure and Internal Controls in CMBS Rating Model Adjustments

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On February 16, the Securities and Exchange Commission (SEC) filed a civil action in federal district court in the Southern District of New York against the former credit ratings agency, Morningstar Credit Ratings LLC, regarding alleged failure to disclose and maintaining internal control provisions in violation of federal securities law in its CMBS ratings practice. The complaint alleges that, in 30 transactions rated by Morningstar between 2015 and 2016, Morningstar failed to disclose that its rating criteria permitted analysts to adjust property cash flow and valuation stresses on a “loan-specific basis,” which resulted in lower expected losses on CMBS classes and the assignment of credit ratings and failed to adequately maintain a system of internal controls to ensure adherence to its ratings criteria. The complaint alleges violations of the Securities Exchange Act of 1934 against Morningstar and seeks injunctive relief, disgorgement and civil penalties. Release.

OCC Approves Final Rule Regarding Effect of Supervisory Guidance

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On February 16, the OCC approved a final rule that confirms that supervisory guidance, unlike statutes or regulations, does not create binding legal obligations for the public. The final rule reaffirms that the OCC does not take enforcement actions on the basis of non-compliance with supervisory guidance. The proposed rule was published on November 5 and was adopted without material change. The final rule becomes effective on March 15. Bulletin.

FHFA Further Extends COVID-Related Loan Flexibilities

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On February 10, Fannie Mae and Freddie Mac will extend several loan origination flexibilities until March 31, 2021, including (1) alternative appraisals on purchase and rate term refinance loans; (2) alternative methods for documenting income and verifying employment before loan closing; and (3) expanding the use of power of attorney to assist with loan closings. These flexibilities aim to support borrowers impacted by the COVID-19 pandemic. Release.