The impact of regulatory compliance changes on the mortgage industry
It’s that time of year, again. Time to look back, but also looking forward with our eye on the future, especially as we head into a new decade. No doubt, the mortgage industry has experienced significant changes in the past decade. In this article, we look back at 2019 to review some of the major federal regulatory compliance changes as well as what we might see in 2020.
2019: Looking Back
As you take a moment to review this list, consider these questions:
- Was there a need to update any risk assessments?
- Did you adjust IT systems, policies, procedures, and processes?
- As necessary, what monitoring and auditing practices were updated?
Now, consider these areas that brought changes to your compliance program in 2019:
- One area that is consistent is annual threshold adjustments. Make sure your policies, procedures, and systems reflect these changes effective January 1, 2020:
- A final rule to Regulation Z increased the threshold amount for the exemption from the special appraisal requirements for HPML’s to $27,200.
- For HOEPA loans:
- The adjusted total loan amount threshold for high-cost mortgages in 2020 will be $21,980.
- The adjusted points-and-fees dollar trigger for high-cost mortgages in 2020 will be $1,099.
- For qualified mortgages, which provide creditors with certain protections from liability under the Ability-to-Repay Rule, the maximum thresholds for total points and fees in 2020 will be 3 percent of the total loan amount for a loan greater than or equal to $109,898; $3,297 for a loan amount greater than or equal to $65,939 but less than $109,898; 5 percent of the total loan amount for a loan greater than or equal to $21,980 but less than $65,939; $1,099 for a loan amount greater than or equal to $13,737 but less than $21,980; and 8 percent of the total loan amount for a loan amount less than $13,737.
- A final rule was issued that adjusted the asset-size threshold for the HPML escrow exemption. Creditors with assets of less than $2.202 billion, which includes assets of certain affiliates, as of December 31, 2019, are exempt, if other requirements of Regulation Z also are met, from establishing escrow accounts for HPMLs in 2020, and in 2021 for loans applied for by April 1, 2021.
- A final rule increased the HMDA asset-size exemption threshold for financial institutions from to $47 million. These institutions with assets of $47 million or less as of December 31, 2019, are exempt from collecting data in 2020.
- FinCEN made inflation adjustments of civil money penalties, as mandated by the Federal Civil Penalties Inflation Adjustment Act of 1990, as amended. The rule adjusts certain penalties within the jurisdiction of FinCEN to the maximum amount required by the Act. A final rule to adjust CRA bank size definitions for 2020:
- Small bank definition: A bank that, as of December 31 of either of the prior two calendar years, had assets of less than $1.305 billion.
- Intermediate small bank definition: A small bank with assets of at least $326 million as of December 31 of both of the prior two calendar years and less than $1.305 billion as of December 31 of either of the prior two calendar years.
- In July 2019, federal regulators issued a final rule that implemented requirements of the Biggert-Waters Flood Insurance Reform Act of 2012. Financial institutions are now allowed to accept certain private flood insurance policies in addition to the acceptance of NFIP policies.
- We recently published an article regarding OFAC’s A Framework for OFAC Compliance Commitments. The intent of OFAC was to provide financial institutions and other entities with OFAC’s perspective on the important elements of a sanctions compliance program.
- Federal regulators issued a final rule with HMDA to extend for two years the current temporary threshold for collecting and reporting data on open-end lines of credit. Information was also clarified regarding partial exemptions from certain HMDA requirements that were added to the EGRRCPA.
- FIRREA was amended to increase the threshold for requiring an appraisal by a state certified or licensed appraiser for residential real estate transactions from $250,000 to $400,000.
- Revisions to the S.A.F.E. Act brought significant changes for mortgage loan originators! The temporary authority rule was final in November 2019. Also, keep in mind how your state follows.
- In July 2019, the CFPB issued an advisory to update its original report regarding elder financial abuse that was published in 2016 where the CFPB listed six categories of best practices financial institutions should follow. This advisory also provided a chart of all state statues regarding the disclosure of financial records in connect with elder financial exploitation. In connection to SAR filings, the CFPB also published a research report, Suspicious Activity Reports on Elder Financial Exploitation: Issues and Trends. The CFPB noted that financial institutions are filing an increased number of SARs on this topic, and many SARs did not indicate that financial institutions are reporting directly to law enforcement or Adult Protective Services. To strengthen prevention and response, the CFPB recommended that robust reporting to Adult Protective Services is necessary to increase the likelihood that individuals being victimized receive proper services.
2020: Moving Forward
If you haven’t done so already, start the process of updating your risk assessments such as your BSA/AML area and overall compliance risk assessments. An important area to camp on is privacy with the California Consumer Privacy Act is effective January 1, 2020. Here are upcoming areas where we may see movement in 2020:
- The CFPB, in November 2019, requested comments on the TRID Rule. The CFPB will be making an assessment, and the CFPB plans to address the TRID Rule’s effectiveness in meeting the purposes and objectives of Title X of the Dodd-Frank Act, the specific goals of the rule, and other relevant factors. Section 1022(d) of the Dodd-Frank Act requires the CFPB to publish a report of its assessment within five years after the effective date of the rule being assessed. Comments are due by January 21, 2020, so now is your time to comment on the feasibility and effectiveness of the assessment plan, recommendations to improve the assessment plan, and recommendations for modifying, expanding, or eliminating the TRID Rule.
- In August 2019, HUD issued a proposed rule that would amend HUD’s interpretation of the FHA’s disparate impact standard to better reflect the Supreme Court’s 2015 ruling in Texas Department of Housing and Community Affairs v. Inclusive Communities Project, Inc., and to provide clarification regarding the application of the standard to state laws governing the business of insurance.
- The CFPB issued in May 2019 a proposed rule that would provide consumers with clear protections against harassment by debt collectors and straightforward options to address or dispute debts. If the proposed rule would be made final, it would set clear limits on the number of calls debt collectors may place to reach consumers on a weekly basis; clarify how collectors may communicate lawfully using newer technologies, such as voicemail, email and text messages; and, require collectors to provide additional information to consumers to help them identify debts and respond to collection attempts. The proposal would amend Regulation F, which implements the FDCPA, to prescribe federal rules governing the activities of FDCPA-covered debt collectors. The proposal focused on debt collection communications and disclosures and also addressed related practices by debt collectors. The CFPB also proposed that FDCPA-covered debt collectors comply with certain additional disclosure-related and record retention requirements. If a final rule is issued, the CFPB proposed that it would become effective one year after it has been published.
- Recently, the FDIC and the OCC issued proposed rules for the purpose of modernizing the CRA. The proposed rules are intended to increase bank activity in low- and moderate-income communities where there is significant need for credit, more responsible lending, greater access to banking services, and improvements to critical infrastructure. The proposals will clarify what qualifies for credit under the CRA, enabling banks and their partners to better implement reinvestment and other activities that can benefit communities. The agencies will also create an additional definition of “assessment areas” tied to where deposits are located, ensuring that banks provide loans and other services to low- and moderate-income persons in those areas. Again, here is a great opportunity to provide your comments while the comment period remains open.
While we can’t forecast with a crystal ball everything that will impact the mortgage industry in 2020, this article will hopefully provide areas of focus. Of course, the challenge is to be flexible and adaptable with change. Just make sure your risk assessments reflect these changes so that internal controls mitigate risks.
Jill Emerson
Jill Emerson, owner of Integrity One Consulting, maintains over 30 years’ experience in the financial services industry, both as a practitioner and as a federal regulator. She enjoys sharing her experiences and expertise through writing.
Jill can be reached at integrityoneconsulting@outlook.com.
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