Nutter Bank Report: April 2021

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  1. CFPB Takes Steps to Avoid a Possible Wave of Home Mortgage Loan Foreclosures
  2. CFPB Issues Interim Final Rule to Support CDC Moratorium on Evictions
  3. FEMA Announces Changes to National Flood Insurance Program Pricing
  4. Proposed Rule Would Establish Mandatory Terms for Tax Allocation Agreements
  5. Other Developments: Paycheck Protection Program and Qualified Mortgages

1. CFPB Takes Steps to Avoid a Possible Wave of Home Mortgage Loan Foreclosures

The CFPB has issued guidance to mortgage servicers, including banks that service mortgage loans for third-party noteholders, that the CFPB expects servicers to dedicate sufficient resources and staff to reduce avoidable foreclosures in coming months. According to the guidance issued on April 1, Compliance Bulletin 2021-02, the CFPB believes consumer home mortgage borrowers needing loss mitigation assistance as the COVID-19 foreclosure moratoriums and forbearances end will face heightened risks of foreclosure. The CFPB’s guidance urges mortgage servicers to dedicate resources and staff to ensure that they can effectively manage borrower requests for assistance, promote loss mitigation, and reduce avoidable foreclosures and foreclosure-related costs. According to the guidance, the CFPB intends to consider a mortgage servicer’s overall effectiveness at helping consumers manage loss mitigation in exercising its discretion to enforce federal consumer financial laws, including the Real Estate Settlement Procedures Act (RESPA). The CFPB also joined the federal banking agencies, the NCUA, and the Conference of State Bank Supervisors to issue a related Joint Statement on Supervisory and Enforcement Practices Regarding the Mortgage Servicing Rules in Response to the COVID-19 Emergency and the CARES Act, which describes the agencies’ flexible supervisory and enforcement approach regarding certain consumer communications required by the mortgage servicing rules as mortgage borrowers face hardships related to the COVID-19 emergency. Among other things, the joint statement issued on April 3 reminds servicers that federal mortgage servicing rules currently include an exception from certain loss mitigation procedural requirements for short-term loss-mitigation options, even where a borrower’s loss-mitigation application is incomplete. Click here for a copy of the CFPB’s guidance to mortgage servicers, and click here for a copy of the joint statement on supervisory and enforcement practices.

Nutter Notes: Separately, the CFPB has proposed amendments to Regulation X, which implements RESPA, to help prevent avoidable foreclosures as the COVID-19 related federal emergency foreclosure protections expire. According to the CFPB, there were more than 2.1 million mortgage borrowers in forbearance programs who were more than 90 days behind on their mortgage payments as of January 2021. The CFPB is concerned that this high volume of borrowers exiting forbearance within a short period of time could strain mortgage servicer capacity and result in delays or errors in processing loss mitigation requests. The proposed amendments released on April 5 would establish a temporary COVID-19 emergency pre-foreclosure review period that would generally prohibit mortgage servicers from starting foreclosure proceedings until after December 31, 2021. The pre-foreclosure review period is meant to give borrowers and servicers more time to work together to find ways to avoid foreclosure. The proposed amendments also 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 proposed amendments would impose temporary changes to certain required mortgage servicer communications that are meant to ensure that borrowers receive key information about their loss mitigation options at the appropriate time. Public comments on the proposed amendments to Regulation X are due by May 10, 2021. Click here for a copy of the proposed amendments.

2. CFPB Issues Interim Final Rule to Support CDC Moratorium on Evictions

The CFPB has issued an interim final rule to amend Regulation F, which implements the Fair Debt Collection Practices Act (FDCPA), in support of the moratorium on evictions ordered by the Centers for Disease Control and Prevention (CDC) under the Public Health Service Act. The CFPB’s interim final rule released on April 19 requires debt collectors to provide written notice to tenants of their rights under the CDC’s eviction moratorium and prohibits a debt collector from falsely representing or implying to a consumer that the consumer is not eligible for temporary protection from eviction under the moratorium. The interim final rule includes sample disclosures that a debt collector may use to comply with the notice requirement. The CFPB also warned that debt collectors who evict tenants who may have rights under the CDC’s eviction moratorium without providing notice of the moratorium or who misrepresent tenants’ rights under the moratorium can be prosecuted by federal agencies and state attorneys general for violations of the Fair Debt Collection Practices Act (FDCPA) and are also subject to private lawsuits by tenants. The CDC’s eviction moratorium originally was set to expire on December 31, 2020, and has been extended until June 30, 2021. Click here for a copy of the interim final rule.

Nutter Notes: Separately, the CFPB proposed on April 7 to delay the effective date of two final rules issued under the FDCPA to give affected parties more time to comply due to the ongoing COVID-19 pandemic. One of the final rules amends Regulation F to address certain communications in connection with debt collection, the use of newer communication technologies, and prohibitions on harassment or abuse, false or misleading representations, and unfair practices. The other final rule amends Regulation F to address certain debt collection disclosures and the information that debt collectors must provide consumers at the beginning of collections communications. Both of the final rules, which were approved in late 2020, are scheduled to take effect on November 30, 2021. The CFPB has proposed to extend the effective date of both rules to January 29, 2022. While a bank that is collecting its own debt in its own name is not considered a debt collector under the FDCPA, the federal banking agencies generally expect banks to avoid abusive collection practices and comply with the spirit of the FDCPA. In addition, the federal banking agencies generally expect banks to establish internal controls and on-going monitoring to determine whether third-party debt collectors acting on a bank’s behalf are complying with the FDCPA and Regulation F. Public comments on the proposed delay are due by May 19, 2021. Click here for a copy of the proposed rule.

3. FEMA Announces Changes to National Flood Insurance Program Pricing

The Federal Emergency Management Agency (FEMA) is implementing a new pricing methodology under the National Flood Insurance Program (NFIP) called Risk Rating 2.0. According to FEMA, the Risk Rating 2.0 methodology will leverage industry best practices and new technology to enable FEMA to deliver flood insurance rates that are actuarily sound, equitable, easier to understand, and better reflect a property’s flood risk. The new pricing methodology is also intended to communicate flood risk more clearly so that policyholders can make more informed decisions on the purchase of flood insurance and on flood mitigation actions. The Risk Rating 2.0 methodology incorporates more flood risk variables, including flood frequency, multiple flood types (river overflow, storm surge, coastal erosion, and heavy rainfall), distance to a water source, and property characteristics such as elevation and the cost to rebuild. According to FEMA, the Risk Rating 2.0 methodology will allow for a fairer distribution of flood insurance premiums across all policyholders based on the value of their home and the unique flood risk of their property. FEMA believes that, currently, many homeowners with lower-value homes who are required to carry flood insurance under the NFIP are paying more than they should and flood insurance policyholders with higher-value homes are paying less than they should. Click here to access FEMA’s Risk Rating 2.0 website.

Nutter Notes: FEMA is taking a phased approach to rolling out the new flood insurance rates. In Phase I, new flood insurance policies issued on or after October 1, 2021 will be subject to the Risk Rating 2.0 methodology. Existing policyholders who become eligible on October 1 for renewal will be able to take advantage of immediate decreases in their premiums. In Phase II, all remaining flood insurance policies scheduled to renew on or after April 1, 2022 will be subject to the Risk Rating 2.0 methodology. FEMA plans to simplify the transition to Risk Rating 2.0 by offering premium discounts to eligible policyholders. FEMA said that it will continue to offer premium discounts for pre-Flood Insurance Rate Map subsidized and newly mapped properties. According to FEMA, flood insurance policyholders will continue to be able to transfer their discount to a new owner by assigning their flood insurance policy when their property changes ownership. Discounts to policyholders in communities who participate in the Community Rating System also will continue, according to FEMA. Communities will continue to earn NFIP rate discounts of 5% to 45% based on the Community Rating System classification. Because the Risk Rating 2.0 methodology does not use flood zones to determine flood risk, the discount will be uniformly applied to all policies throughout the participating community, regardless of whether the structure is inside or outside of the Special Flood Hazard Area, according to FEMA.

4. Proposed Rule Would Establish Mandatory Terms for Tax Allocation Agreements

The federal banking agencies have proposed a rule that would amend each agency’s safety and soundness regulations to establish requirements for tax allocation agreements between a bank and its parent holding company within a consolidated group. The proposed rule released on April 22 would require each bank that files tax returns as part of a consolidated tax filing group to enter into a tax allocation agreement with its parent holding company and other members of the consolidated group that join in the filing of a consolidated group tax return. The proposed rule would impose a methodology for tax payment obligations among the members of the consolidated group and would address how a bank should be compensated for the use of its tax assets, such as net operating losses and tax credits. The proposed rule would require that tax allocation agreements address the timing and amounts of any payments for taxes due to taxing authorities, acknowledge an agency relationship between banks and their holding companies with respect to tax refunds received, and provide that the bank owns the tax assets that were created from its tax attributes. Public comments on the proposed rule will be due within 60 days the proposed rule is published in the Federal Register, which is expected shortly. Click here for a copy of the proposed rule.

Nutter Notes: According to the agencies, the proposal would promote safety and soundness by preserving depository institutions’ ownership rights in tax refunds and ensuring equitable allocation of tax liabilities among entities in a holding company structure. For example, the proposal would require that a tax allocation agreement state that if a bank’s loss or credit is used to reduce the consolidated group’s overall tax liability, then the bank must reflect the tax benefit of the loss or credit in the current portion of its applicable income taxes in the period the loss is incurred or credit is booked, and the parent company must compensate the bank for the use of its loss or credit at the time that it is used. The proposal would prohibit tax payments by a bank to its affiliates in excess of the current period tax expense or reasonably calculated estimated tax expense of the bank on a separate entity basis, prohibit such a payment by the bank for the settlement of any deferred tax liabilities of the bank, and prohibit such a payment by the bank from occurring earlier than when the bank would have been obligated to pay the taxing authority had it filed as a separate entity. If the agencies were to adopt the proposal as a final rule, the agencies would rescind the interagency policy statement on tax allocation agreements that was issued in 1998 and supplemented in 2014.

5. Other Developments: Paycheck Protection Program and Qualified Mortgages

  • SBA Announces June 1 Deadline for PPP Loan Guaranty Applications

The U.S. Small Business Administration (SBA) issued a procedural notice to lenders on April 8 announcing that at 12:00 a.m. EDT on June 1, the PPP platform will be shut down to new PPP loan guaranty applications from lenders, as required by the PPP Extension Act of 2021. Any PPP loan guaranty applications submitted by lenders through the PPP platform before June 1, 2021 must be processed and must receive an SBA loan number by 11:59 p.m. EDT on June 30. Click here for a copy of the procedural notice.

Nutter Notes: The PPP Extension Act of 2021, signed into law by President Biden on March 30, 2021, extended the SBA’s authority to guarantee First Draw PPP Loans and Second Draw PPP Loans through June 30, 2021. The SBA will have until 12 a.m. EDT on July 1 to process any pending PPP loan guaranty applications.

  • GSEs Required to Only Purchase Loans Satisfying the CFPB’s Revised Qualified Mortgage Rule

Fannie Mae and Freddie Mac (GSEs) issued updated guidance to lenders on April 8 announcing that loans purchased by them after July 1 must satisfy the requirements of the CFPB’s revised General Qualified Mortgage (QM) loan definition that became effective on March 1, 2021, which will end the so-called “GSE-patch.” Click here for a copy of Fannie Mae’s lender letter, and click here for a copy of Freddie Mac’s lender letter.

Nutter Notes: The GSEs were required to end the GSE-Patch by their amended Preferred Stock Purchase Agreements with the U.S. Treasury Department. The GSEs noted that they will not make any determination as to whether a loan complies with the CFPB’s revised General QM rule, which is the seller’s responsibility.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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