ARTICLE
Compliance Update with Amy K
by Amy Kleinschmit, Chief Compliance Officer
FinCEN Proposed Rulemaking – Beneficial Ownership Requirements
The Financial Crimes Enforcement Network recently issued an Advanced Notice of Proposed Rulemaking (ANPR) to implement provisions of the Corporate Transparency Act which was included in the recent National Defense Authorization Act.
This ANPR, which can be found here, has an open comment period until May 5, 2021.
Provisions of the Corporate Transparency Act require reporting companies (corporations, limited liability companies (LLCs), and similar entities, subject to certain statutory exemptions) to submit to FinCEN specified information on their beneficial owners—the individual natural persons who own or control them—as well as specified information about the persons who form or register those reporting companies.
As credit unions are aware, FinCEN issued final rules in 2016, which became effective in 2018, that require financial institutions to collect beneficial ownership information at the time they open new accounts for legal entity customers, including corporations and LLCs.
This particular rulemaking relates to how FinCEN can best implement the reporting requirements of the Corporate Transparency Act as well as FinCEN’s maintenance and disclosure of reported information.
The Corporate Transparency Act also mandates that the final rule on customer due diligence requirements for financial institutions be revised, however, FinCEN notes that this will be the subject of a separate rulemaking.
CFPB Proposed Rulemaking – Regulation X
The Consumer Financial Protection Bureau (CFPB) has issued proposed rulemaking to amend provisions of Regulation X regarding loss mitigation requirements prior to foreclosure. This proposed rule can be found here and comments are due May 10, 2021.
CFPB also prepared a Fast Fact Summary and “unofficial” redline document for the proposed rulemaking which can be found here.
As summarized by CFPB, “The proposed amendments would establish a temporary COVID-19 emergency pre-foreclosure review period until December 31, 2021, for principal residences. In addition, the proposed amendments would temporarily permit mortgage servicers to offer certain loan modifications made available to borrowers experiencing a COVID-19-related hardship based on the evaluation of an incomplete application. The Bureau also proposes certain amendments to the early intervention and reasonable diligence obligations that Regulation X imposes on mortgage servicers.”
Among the proposed amendments noted above, the CFPB seeks to establish a temporary COVID-19 emergency pre-foreclosure review period that would generally prohibit servicers from making the first notice or filing required by applicable law for any judicial or non-judicial foreclosure process until after December 31, 2021.
Currently, 1024.41(f)(1) provides that a servicer shall not make the first notice or filing required by applicable law for any judicial or non-judicial foreclosure process unless: (i) A borrower's mortgage loan obligation is more than 120 days delinquent; (ii) The foreclosure is based on a borrower's violation of a due-on-sale clause; or (iii) The servicer is joining the foreclosure action of a superior or subordinate lienholder.
The proposed rule would amend 1024.41(f)(1)(i) and add a new subsection (3), thus requiring that …(i) A borrower’s mortgage loan obligation is more than 120 days delinquent and paragraph (f)(3) does not apply;… Proposed (f)(3) would provide, “Special COVID-19 Emergency pre-foreclosure review requirements. A servicer shall not rely on paragraph (f)(1)(i) to make the first notice or filing required by applicable law for any judicial or non-judicial foreclosure process until after December 31, 2021.”
It should be noted that per the discussion of the CFPB to this proposed rulemaking, this amendment would not apply to small servicers. “The proposed special pre-foreclosure review requirements would generally apply to the same mortgage loans that are subject to the pre-foreclosure review period in § 1024.41(f)(1). However, unlike the pre-foreclosure review period in § 1024.41(f)(1), the proposed special pre-foreclosure review period would not apply to small servicers. This is because small servicers are exempt from the requirements in § 1024.41, except with respect to § 1024.41(f)(1), and the Bureau is proposing to add the special pre-foreclosure review period to § 1024.41(f)(3) instead of to § 1024.41(f)(1).”
NCUA/FinCEN Request for Information
The National Credit Union Administration (NCUA), along with FinCEN and other federal banking agencies have issued a request for information (RFI) relating to Bank Secrecy Act (BSA) compliance.
The Joint Statement, found here, was included with the NCUA press release but technically it was only issued by the Federal Reserve Board, FDIC, and OCC, “in consultation with” the NCUA. This statement addresses how the risk management principles described in the agencies’ “Supervisory Guidance on Model Risk Management” relate to systems or models used by banks in complying with the requirements of BSA and regulations. This particular interagency statement does not apply to credit unions, however, it is referenced in the RFI which NCUA is a party to.
The RFI, found here, the model risk management guidance found in the above joint statement lays out principles for a “model risk management” in three key areas - (1) model development, implementation, and use; (2) model validation; and (3) governance, policies, and controls. The guidance describes different responsibilities for different parties within a bank, based on their roles, including those building the models, those independently reviewing the models, and those providing a governance framework for model risk management.
The RFI includes several questions for commenters to consider, including a request for, “Specific discussion of any suggested changes to guidance or regulation, including, in as much detail as possible, the nature of the requested change and supporting data or other information on impacts, costs, and benefits.” Also, “Specific identification of any aspects of the agencies’ approach to BSA/AML and OFAC compliance as it relates to MRMG that are working well and those that could be improved, including, in as much detail as possible, supporting data or other information on impacts, costs, and benefits.”
Fannie & Freddie Letters
Fannie Mae recently issued Lender Letter (LL-2021-09) which can be found here and Freddie Mac issued a similar letter (Bulletin 2021-13) found here, which requires that acquired loans meet the revised General Qualified Mortgage (QM) loan definition in the CFPB’s rule that became effective March 1, 2021 (Revised QM Rule). The letter notes that they will no longer acquire loans that are GSE Patch loans that do not meet the Revised QM Rule unless they fall include specific dates detailed in the letters.
The Fannie Mae letter also adds that they are continuing to assess the impact of the Revised QM Rule and PSPA on their policies and operations. Anticipate additional changes in eligibility and underwriting requirements in the following areas: The documentation and verification requirements for loans originated under the high LTV refinance option will be updated in light of the Revised QM Rule; The calculation of the qualifying payment amount and annual percentage rate (APR) for ARMs with an initial fixed-rate period of five years or less will be updated to require consideration of the maximum rate that may apply in the first five years of the loan; and all covered loans will be required to comply with the APR to average prime offer rate (APOR) spreads as required by the Revised QM Rule.
REMINDER:
As you may recall, at the end of 2020, the CFPB issued a final rule to amend the General QM definition. The final rule, along with additional compliance resources, that amends the General QM category can be found here and was effective March 1, however, the mandatory compliance date is July 1, 2021.
As discussed in the final rule, the CFPB amended the General QM loan definition “because retaining the existing 43 percent DTI limit would reduce the size of the QM market and likely would lead to a significant reduction in access to responsible, affordable credit when the Temporary GSE QM definition expires.”
The final rule amends Regulation Z to remove the current 43 percent DTI limit and provides that a loan would meet the General QM loan definition only if the APR exceeds APOR for a comparable transaction by less than 2.25 percentage points as of the date the interest rate is set. The final rule provides higher thresholds for loans with smaller loan amounts, certain manufactured housing loans, and for subordinate-lien transactions. For instance, with regard to a first-lien covered transaction secured by a manufactured home with a loan amount less than $110,260 (indexed for inflation), the threshold is 6.5 or more percentage points.
The final rule also removes Appendix Q. However, the rule will still require the consideration of the consumer’s current or reasonably expected income or assets other than the value of the dwelling (including any real property attached to the dwelling) that secures the loan, debt obligations, alimony, child support, and monthly debt-to-income ratio or residual income. The final rule requires verification of consumer’s current or reasonably expected income or assets other than the value of the dwelling (including any real property attached to the dwelling) that secures the loan using third-party records that provide reasonably reliable evidence of the consumer’s income or assets, in accordance with the provisions of the regulation. It also requires verification of consumer’s current debt obligations, alimony, and child support using reasonably reliable third-party records in accordance with the regulation.
The General QM definition will retain all the existing product requirements and points/fees restrictions.
Last year the CFPB also issued a final rule to extend the sunset date of the Temporary GSE Qualified Mortgage (QM) loan definition. Originally set to expire January 21, 2021, this final rule provides that the temporary GSE QM loan definition will be available only for covered transactions for which the creditor receives the consumer’s application before the mandatory compliance date of final amendments to the General QM loan definition in Regulation Z – which as noted above is July 1, 2021. This final rule can be found here.
To create even more confusion on this topic though – earlier this year the CFPB issued a proposed rule to delay the mandatory compliance date of the General QM loan definition recent final rule. This proposed rule can be found here and comments were due April 5 and as of the writing of this article it has not been finalized yet.
Their March 2021 proposal, the CFPB sought to delay the mandatory compliance date of the General QM Final Rule until October 1, 2022. If this proposal is finalized, for covered transactions for which creditors receive an application on or after March 1, 2021 and before October 1, 2022, creditors would have the option of complying with either the revised General QM loan definition or the General QM loan definition in effect prior to March 1, 2021. Under the proposal, the revised regulations would apply to covered transactions for which creditors receive an application on or after October 1, 2022.
This proposed delay, if finalized, of the mandatory compliance date would also impact the Temporary GSE QM loan definition. The Temporary GSE QM loan definition would expire upon the earlier of October 1, 2022 or the date the applicable GSE exits Federal conservatorship (rather than on the current mandatory compliance date of July 1, 2021 or the date the applicable GSE exits Federal conservatorship). HOWEVER, circling back to the Letters Fannie and Freddie issued discussed at the beginning of this article, it appears they will be obligated to only accept loans meeting the Revised QM rule definition – even if the CFPB extends the mandatory compliance date.
This proposal did not make other changes to the General QM loan definition, however, as discussed in the summary of the proposed rule, the CFPB “plans to evaluate the General QM Final Rule’s amendments to the General QM loan definition and will consider at a later date whether to initiate another rulemaking to reconsider other aspects of the General QM Final Rule.”
As always, feel free to contact Amy Kleinschmit at akleinschmit@dakcu.org with any compliance related questions.