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MBA Advocacy Update Aug. 10, 2020

August 10, 2020

Bill Killmer bkillmer@mba.org; Pete Mills pmills@mba.org

As congressional leaders and the administration remain deadlocked in negotiations on the next potential COVID-19 relief package, MBA’s advocacy on key federal regulatory and state-based actions has continued.

FHFA recently approved an extension until August 31, 2020 of the temporary policy that allows for the purchase of certain single-family mortgages in forbearance. Last Monday, MBA and several other trade organizations sent a joint letter to the FHA urging it to revise treatment of borrowers’ student loan debt to better align with the standards at the GSEs, VA, and USDA. Also last week, MBA shared recommendations with the CFPB regarding the Bureau’s proposed rule to amend Regulation Z to facilitate the transition away from LIBOR.

FHFA Announces Extension of GSEs’ Ability to Purchase Loans in Forbearance
Late last Friday, the Federal Housing Finance Agency (FHFA) announced that it is extending the temporary policy allowing the GSEs to purchase loans for which the borrower has requested – or entered – into forbearance prior to the delivery of the loans to the GSEs. Fannie Mae and Freddie Mac updated their lender letter and bulletin, respectively, to reflect this change. While the extension of this policy provides a secondary market outlet for loans in forbearance, it continues to do so with steep price discounts applied to such loans. The recent announcement also indicated that FHFA will be sharing aggregated data on these loans with the Consumer Financial Protection Bureau (CFPB) to ensure that the loans are complying with ability-to-repay requirements.

  • Why it matters: The need for this temporary policy largely stems from situations in which borrowers request forbearance due to a COVID-19 hardship shortly after closing – and prior to the loan being delivered to one of the GSEs. Lenders are taking a more conservative approach to new originations because of the sharply discounted pricing they receive from the GSEs, as they cannot predict which borrowers will face a hardship and request forbearance after closing.
  • What’s next: MBA will continue to advocate not only for this policy to remain in place as long as pandemic-related forbearance is permitted, but also for FHFA and the GSEs to remove the punitive pricing associated with these loans. MBA also continues to support legislation in both the House and the Senate that would prohibit the GSEs (and the Federal Housing Administration [FHA]) from applying onerous conditions related to pricing, indemnification, or repurchases of these loans.

For more information, contact Dan Fichtler at (202) 557-2780

MBA Leads Coalition Requesting Changes to FHA Student Loan Debt Underwriting Policy
On Monday, MBA and a broad coalition of industry and consumer advocacy organizations submitted a letter to FHA Commissioner Dana Wade requesting revisions to the existing FHA policy for the calculation of borrowers’ student loan debt obligations. Under the current policy, lenders are required to qualify FHA borrowers with students loans that do not fully amortize the debt (such as certain income-based repayment plans) using assumed monthly payments that are typically much larger than their actual monthly payments.

  • Why it matters: This calculation leads to inflated debt-to-income ratios, which prevent some borrowers from qualifying for new credit. The coalition recommended an improved calculation that would more accurately represent the actual student loan debt payments made by potential borrowers. Under this improved framework, more creditworthy borrowers – including many younger or first-time homebuyers – would gain access to FHA financing.
       
  • What’s next: FHA is reviewing the coalition letter and the recommendations contained within. MBA and other members of the coalition will continue to work with FHA to advocate for policy changes that better reflect the actual financial position of borrowers with student loan debt.

For more information, contact Julienne Joseph at (202) 557-2782.

MBA Provides Comments to the CFPB to Guide the LIBOR Transition
On Tuesday, MBA submitted comments to the CFPB on its proposed rule to facilitate the transition of existing consumer products from the London Interbank Offered Rate (LIBOR) to alternative indices. The proposed rule includes details for servicers of certain consumer products, such as adjustable-rate mortgages (ARMs) and home equity lines of credit (HELOCs), to change the index on these products in anticipation of the discontinuation of LIBOR. MBA’s comments support the proposed rule and recommend further enhancements that would increase clarity for servicers as they seek to comply with existing requirements.

  • Why it matters: The expected discontinuation of LIBOR, which could occur by the end of 2021, will require mortgage lenders, servicers, investors, and service providers to take proactive steps to transition to new indices. For servicers of existing, LIBOR-indexed loans, the challenges in doing so are numerous and complex.
  • What’s next: MBA will continue to work with market participants, regulators, and other stakeholders to facilitate a smooth transition away from LIBOR.

For more information, see the MBA LIBOR Transition Resource Pageor contact Dan Fichtler at (202) 557-2780

FFIEC Provides Guidelines for Financial Institutions Working with Borrowers Under Government-Mandated Programs
On Monday, the Federal Financial Institutions Examination Council (FFIEC) issued a statement providing prudent risk management and consumer protection principles for financial institutions to consider while working with borrowers as loans near the end of initial loan accommodation periods applicable during the COVID-19 pandemic. The principles are consistent with Interagency Guidelines Establishing Standards for Safety and Soundness, and are generally applicable to both commercial and retail loan accommodations.

  • Why it matters: Financial institutions are encouraged to work with COVID-19-impacted borrowers who are unable to meet their contractual payment obligations at the end of an initial forbearance period. Institutions are also encouraged to consider prudent options that improve borrowers’ capacity to service debt and facilitate the institutions’ ability to collect on loans. According to FFIEC, imprudent practices will not only adversely affect borrowers, but will also expose the institution to increases in credit, compliance, operational, and other risks, as well as present risks to a financial institution’s capital.
  • What’s next: MBA remains engaged with the federal banking agencies and is working with members as they support businesses and households during the pandemic.

For more information, please contact Fran Mordi at (202) 557-2860

MBA Submits Comments on CFPB’s FDCPA Supplemental Notice of Proposed Rulemaking
On Tuesday, MBA submitted comments to the CFPB regarding its March 2020 supplemental Notice of Proposed Rulemaking (NPR) concerning the Fair Debt Collection Practices Act (FDCPA). The supplemental NPR would make it mandatory for debt collectors to provide certain disclosures informing borrowers that 1) the debt is time-barred and the collector will not sue the consumer for payment; and 2) the scenario in which the debt can be revived. MBA maintained the position voiced in its September 2019 comments, that the use of disclosures would better serve debtors and collectors than the outright prohibition of filing a claim. MBA recommended that the Bureau introduce a general disclosure advancing the CFPB’s goal of notifying borrowers of their rights while mitigating mortgage servicers’ legal liability.

  • Why it matters: Varying state statutes of limitations on the collection of time-barred debt make it difficult to determine when to send a disclosure.

For more information, contact Darnell Peterson at (202) 557-2922 or Lucia Jacangelo at (202) 557-2921

MBA Study Finds Home Equity Lending Growth Hindered by Alternative Products and COVID-19   
Yesterday MBA released its second annual Home Equity Lending Study on lending and servicing of open-ended home equity lines of credit and closed-end home equity loans (HE loans). According to the survey’s findings, home equity loan debt outstanding and borrower utilization rates declined in 2019, and mortgage lenders anticipate originations to fall again this year before increasing modestly in 2021.

  • Why it matters: Marina Walsh, MBA’s Vice President of Industry Analysis, said, “Households in 2019 remained hesitant to tap into the equity in their homes, despite several years of significant home-price appreciation resulting in sizable home equity gains.”
  • Walsh on the outlook for 2020: “The uncertainty from the COVID-19 pandemic will likely influence how originators manage risk, underwriting, and fulfillment in the home equity lending space. This only adds to the pre-existing challenges such as product competition and borrower preferences with unsecured financing and first-mortgage refinancing, rising costs of origination and servicing, and diminished tax benefits.”

For more information or to purchase the report, contact MBA’s Research team or visit www.mba.org/heloc.

MBA Joins Broad Industry Coalition Opposing Problematic California Legislation
This week, MBA signed onto a letter to members of the California Senate Judiciary Committee opposing legislation that would enact sweeping new forbearance standards that conflict and diverge from existing federal standards for residential and multifamily mortgages. The bill, AB 1436, was amended to include many of the problematic provisions of legislation (AB 2501) that a broad industry coalition had previously defeated in June.

  • Why it matters: While AB 1436 includes a safe harbor for residential loans serviced in compliance with the CARES Act and in accordance with GSE and federal agency guidelines, a similar provision for multifamily loans that was a part of AB 2501 was not included in AB 1436. The bill includes other provisions that expand and extend forbearance requirements and provide a consumer private right of action. It also imposes punitive penalties for failing to implement the bill’s numerous unworkable mandates.
  • What’s next: This bill is being fast-tracked for approval ahead of the Legislature’s adjournment at the end of August. It will be considered by California’s Senate Judiciary Committee on Tuesday, August 18, 2020. MBA and the California MBA will again collaborate with industry partners and deploy the Mortgage Action Alliance (MAA) to strongly oppose this legislation.

For more information, contact William Kooper at (202) 557-2737 or Kobie Pruitt at (202) 557-2870

New York Department of Financial Services Provides Guidance on COVID-19-Related Law
Last week the New York Department of Financial Services (NYDFS) issued guidance on the recently enacted state law (S.8243-C and S.8428) that requires mortgage loan servicers to work with borrowers impacted by the COVID-19 pandemic. In a series of frequently asked questions, NYDFS identified areas of the new banking law that required additional clarity pertaining to mortgage payment forbearance assistance provided by servicers.

  • Why it matters: S. 8243-C and S.8428 passed in May and were signed into law in June to address financial hardship related to the COVID-19 pandemic. The FAQs provide guidance on what qualifies as a financial hardship as the result of COVID-19, the repayment options afforded under the law, and the allowable forbearance period.
  • What’s next: MBA will continue to partner with the New York MBA and advocate on behalf of the industry in the state.

For more information, contact Kobie Pruitt at (202) 557-2870

MBA Education Webinars on COVID-19-Related Topics
MBA Education continues to deliver timely single-family and commercial/multifamily programming that covers the spectrum of challenges, obstacles, and solutions pertaining to the ongoing COVID-19 pandemic. Below, please see a list of upcoming and recent webinars – which are complimentary to MBA members:

MBA members can access the full list of COVID-19 webinar recordings by clicking here.

For more information, contact David Upbin at (202) 557-2890.

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