Treasury Issues Recommendations to Modernize the Community Reinvestment Act.  On April 3, the U.S. Department of the Treasury released a report containing its recommendations for modernizing the Community Reinvestment Act (CRA). Treasury’s stated objective in developing the recommendations, which were issued to the Office of the Comptroller of the Currency (OCC), the Board of Governors of the Federal Reserve System (Federal Reserve Board) and the Federal Deposit Insurance Corporation (FDIC), is to “better align CRA activity with the needs of the communities that banks serve, while being conducted in a manner consistent with a bank’s safety and soundness.” Treasury’s recommendations include:

• Updating the definitions of geographic assessment areas to reflect the changing nature of banking arising from changing technology, customer behavior, and other factors;
• Increasing clarity and flexibility of CRA examinations to increase transparency and effectiveness of CRA rating determinations;  
• Improving the examination process to increase timeliness of evaluations and increasing accountability for banks’ planning of their CRA activity; and
• Incorporating performance incentives to better serve the CRA’s intended purpose of encouraging banks to meet the credit and deposit needs of their communities. Treasury’s recommendations will incentivize bankers to do more for low- and moderate-income communities, especially in cases where the bank has underperformed in prior assessment periods.

While consumer advocates feared that Treasury’s recommendations would serve to weaken the CRA, early reviews of the report from both consumer advocates and industry representatives have been largely positive. The OCC, the Federal Reserve Board, and the FDIC are expected to begin the hard work of modernizing and updating their CRA regulations soon and there are sure to be political and policy disagreements throughout the process. However, Treasury’s report appears to be the first step toward a bipartisan financial regulatory reform that would benefit banks and consumers alike.

Regulatory Developments

FinCEN Publishes FAQs on Beneficial Ownership Rule

On April 3, the Financial Crimes Enforcement Network published frequently asked questions (FAQs) regarding the Customer Due Diligence Requirements for Financial Institutions rule, published on May 11, 2016, as amended on September 29, 2017 (the Rule), including the Rule’s requirement for banks to identify and verify legal entities’ “beneficial owners” when accounts are opened. The Rule’s mandatory compliance date is May 11, 2018. The FAQs supplement FAQs issued in 2016 and respond to questions that have been raised by the industry since the Rule was adopted. The federal banking agencies are expected to update their examination procedures in response to the FAQs in the near future.

FHFA Announces June 2019 Implementation of the New Uniform Mortgage-Backed Security

On March 28, the Federal Housing Finance Agency (FHFA) announced that, on June 3, 2019, Fannie Mae and Freddie Mac (GSEs) will begin to issue a new, common security, the Uniform Mortgage-Backed Security (UMBS), in place of their current offerings of TBA-eligible mortgage-backed securities. The UMBS will be issued through the GSEs’ joint venture, Common Securitization Solutions (CSS), using the Common Securitization Platform. FHFA is providing certainty on the timing of the transition to UMBS to enable market participants to make the preparations necessary to ensure a smooth transition. Since November 2016, Freddie Mac has been using CSS operations for data acceptance, issuance support, and bond administration activities related to current single-class, fixed-rate, mortgage-backed securities. Upon the launch of UMBS, Fannie Mae will also use CSS for these functions, and the operational capabilities of CSS will be expanded to include the administration of multi-class securities and commingled enterprise UMBS and the production of UMBS disclosures.

Federal Reserve Bank of New York Launches Possible LIBOR Replacement 

On April 3, the Federal Reserve Bank of New York, in cooperation with the U.S. Office of Financial Research, began publishing three reference rates based on overnight repurchase agreement (repo) transactions collateralized by Treasury securities. These rates are the Secured Overnight Financing Rate (SOFR), the Broad General Collateral Rate (BGCR), and the Tri-Party General Collateral Rate (TGCR). The SOFR was identified by the Alternative Reference Rates Committee in June 2017 as its recommended alternative to U.S. dollar LIBOR for use in certain new U.S. dollar derivatives and other financial contracts.

On March 30, the Federal Reserve Board, the OCC, and the FDIC (the Agencies) finalized additional technical revisions to streamline the Call Report, which will take effect as of the June 30, 2018, report date. The revisions, which were proposed in November 2017 as part of the Agencies’ ongoing effort to reduce data reporting and other burdens for financial institutions, will remove or consolidate a number of data items and add or raise certain existing reporting thresholds in three versions of the report. The Agencies will conduct a webinar for bankers on April 5, 2018, to discuss the Call Report revisions and other reporting changes.

Fed and OCC Approve Final Rule Raising CRE Appraisal Threshold For Commercial Real Estate Transactions

On April 2, the Federal Reserve Board and the OCC approved a final rule raising the appraisal thresholds for commercial real estate (CRE) transactions from $250,000 to $500,000, an increase from the original proposal which called for the appraisal threshold to be raised to $400,000. The threshold for loans secured by one-to-four family residential properties will remain at $250,000; however, residential construction loans secured by multiple one-to-four family residential properties would be considered CRE transactions. The FDIC board approved the final rule last month, and it will take effect upon publication in the Federal Register.

Federal Reserve Proposes Changes to Appeals Process

On February 27, the Federal Reserve Board issued a proposed policy statement, inviting public comments on potential amendments to its guidelines on an internal appeals process for institutions wishing to appeal an adverse material supervisory determination and to its policy regarding the Ombudsman for the Federal Reserve System. The comment period for these amendments ends April 30. The proposal reduces the levels of appeal from three to two and enhances independent review of a matter by providing that System and Board experts not affiliated with the affected Federal Reserve Bank review the matter at both appeals levels. The amendments also address a timing conflict between the Prompt Corrective Action framework under the Federal Deposit Insurance Act and the Federal Reserve Board’s existing appeals process, and establish a specific standard of review to be used at each appeal level. Additionally, the amendments would allow the Ombudsman to attend hearings or deliberations relating to the appeal as an observer, if requested by the institution or Federal Reserve personnel, and would specify that the Ombudsman is to be the decision-maker with respect to claims of retaliation.

CFPB Issues Request for Information on Its Guidance and Implementation Support

On March 28, the Consumer Financial Protection Bureau (CFPB) issued a request for information (RFI) seeking comments and information regarding the CFPB’s guidance and implementation support. The CFPB is currently reviewing the overall effectiveness and accessibility of its guidance materials and activities, including implementation support. The CFPB is also considering making changes to the formats, processes, and delivery methods for providing this guidance. The CFPB will accept comments after the RFI’s April 2 printing date. Additional RFIs are expected in the coming weeks that will address consumer education and consumer inquiries.

CFPB Updates Small Entity Compliance Guide

On March 29, the CFPB released version 3.1 of the Small Entity Compliance Guide (Guide), which provides a summary of the Real Estate Settlement Procedures Act (Regulation X) and Truth in Lending Act (Regulation Z) Mortgage Servicing Rules in effect as of April 19, 2018. The revised Guide supersedes version 3.0, which was released on October 18, 2017. The Guide has been updated to reflect changes made by the Mortgage Servicing final rule relating to a single-statement exemption for the next periodic statement or coupon book that a servicer would otherwise have to provide to consumers in connection with bankruptcy proceedings. The CFPB also released a mortgage servicing coverage chart.

Enforcement & Litigation

Supreme Court Grants Cert. to Determine Who Decides Arbitrability

On February 26, the Supreme Court granted certiorari in New Prime, Inc. v. Oliviera, 17-340, a First Circuit case arising from the District of Massachusetts. The case is posed to resolve a split among the circuit courts as to who – the court or the arbitrator – decides whether a case should go to arbitration under the Federal Arbitration Act (FAA). The case also raises interesting FAA exception and preemption issues. View the LenderLaw Watch blog post.

This week’s Roundup contributors: Todd Boock, Alex Callen, Bill McCurdy and Elizabeth Organ.