Summer-Fall 2020 Federal Highlights

CFPB Updates HMDA FAQs on Multiple Data Points

The Consumer Financial Protection Bureau (“CFPB”) updated its Frequently Asked Questions on the Home Mortgage Disclosure Act (“HMDA”) to add two items regarding multiple data points.

The first FAQ confirms the credit score, debt-to-income ratio (“DTI”), and combined loan-to-value ratio (“CLTV”) data must be reported if they were a factor relied on in making the credit decision, even if not the dispositive factor. This is true regardless of whether the application is approved or denied.

The second FAQ confirms income and property value data must be reported when the factors were relied on in making the credit decision, even though not the dispositive factor. This relied-on standard applies similarly as it applies above to credit score, DTI and CLTV.

These FAQs were updated on July 28, 2020.

CFPB Issues Interpretive Rule on TRID Rule and Regulation Z Rescission Rules

On April 28, 2020, the Consumer Financial Protection Bureau (“Bureau”) issued an Interpretive Rule on the application of certain provisions in the TILA-RESPA Integrated Disclosure Rule (“TRID”) and Regulation Z’s right of rescission rules (“Rescission Rules”) related to the COVID-19 pandemic.

Bona Fide Personal Financial Emergency

The Bureau clarified that the COVID-19 pandemic may constitute a “bona fide personal financial emergency,” which allows a consumer to voluntarily waive or modify certain waiting periods.

Under the TRID Rule, a creditor must deliver or place in the mail the Loan Estimate no later than seven (7) business days before consummation and the consumer must receive the Closing Disclosure no later than three (3) business days before consummation. The consumer may modify or waive this waiting period if he or she “has a bona fide personal financial emergency that necessitates consummating the credit transaction before the end of the waiting period.”

Under the Rescission Rules, a consumer is provided with the right to rescind certain credit obligations at least three (3) business days from consummation, and a creditor must provide consumers with a disclosure that informs them of this right. The consumer may waive this waiting period if the consumer has a “bona fide personal financial emergency that must be met before the end of the rescission period.”

The Bureau clarified that if (1) the consumer determines the extension of credit is needed to meet a bona fide personal financial emergency, (2) the consumer’s statement identifies the need is due to the COVID-19 pandemic, and (3) the emergency necessitates consummating the credit transaction before the end of the above waiting periods, then a bona fide personal financial emergency exists that permits the consumer to waive the waiting periods.

While this provides a creditor some flexibility, we think it is prudent to ensure a consumer’s waiver request is due to an actual personal financial emergency caused by the COVID-19 pandemic.

Changed Circumstance

The Bureau also clarified that for purposes of determining good faith, a creditor may use a revised estimate of settlement charges if the COVID-19 pandemic affects the estimate of the settlement charge.

Under the TRID Rule, creditors may use revised estimates of costs when determining good faith in a limited number of situations, including if there are “changed circumstances” that affect the settlement charges. A “changed circumstance” includes “an extraordinary event beyond the control of any interested party,” such as “war or natural disaster.” The Bureau concluded that, like war or natural disaster, the economic disruptions and shortages during the COVID-19 pandemic may affect the ability to provide accurate estimates of certain settlement charges beyond the control of any interested party and is a changed circumstance. Therefore, if the settlement charge is affected by the COVID-19 pandemic, a creditor may use a revised estimate of the settlement charge for purposes of determining good faith.

Revised Dollar Amount and Thresholds Under Federal High-Cost and Qualified Mortgage Provisions

The Consumer Financial Protection Bureau (“CFPB”) issued a final rule amending the high-cost mortgage thresholds and the qualified mortgage thresholds in Regulation Z. The amendments are effective January 1, 2021.

HOEPA/High-Cost Mortgage Threshold

Under Regulation Z, certain loans with points and fees exceeding specified thresholds are considered “high-cost mortgages.” The thresholds are (1) five percent (5%) if the loan amount is $22,052 or more; and (2) the lesser of eight percent (8%) or $1,103 if the loan amount is less than $22,052. The $22,052 and $1,103 figures are adjusted annually on January 1st based on changes in the consumer price index.

Effective January 1, 2021, the $21,980 figure is adjusted to $22,052 and the $1,099 figure is adjusted to $1,103.

Ability to Repay/Qualified Mortgage Threshold

Regulation Z also provides that a loan is a “qualified mortgage” if, among other requirements, the total points and fees do not exceed certain thresholds. The points and fees thresholds for the “qualified mortgage” rule are also subject to annual adjustment based on inflation.

Effective January 1, 2021, a transaction is not a qualified mortgage unless the total points and fees do not exceed:

• 3% of the total loan amount for a loan amount greater than or equal to $110,260;
• $3,308 for a loan amount greater than or equal to $66,156, but less than $110,260;
• 5% of the total loan amount for a loan greater than or equal to $22,052, but less than $66,156;
• $1,103 for a loan amount greater than or equal to $13,783, but less than $22,052; and
• 8% of the total loan amount for a loan amount less than $13,783.

HUD Issues Final Rule on FHA Disparate Impact Standards

On September 24, 2020, the Department of Housing and Urban Development issued a final rule on the Fair Housing Act’s Disparate Impact Standard. The final rule reflects Supreme Court’s 2015 decision in Texas Department of Housing and Community Affairs v. Inclusive Communities Project.

The final rule sets forth that liability may be established based on a specific policy’s or practice’s discriminatory effect, even if the specific policy or practice was not motivated by a discriminatory intent. To allege a specific, identifiable policy or practice has a discriminatory effect, a plaintiff must sufficiency show facts to support the following elements:

(1) That the challenged policy or practice is arbitrary, artificial, and unnecessary to achieve a valid interest or legitimate objective such as a practical business, profit, policy consideration, or requirement of law;
(2) That the challenged policy or practice has a disproportionately adverse effect on members of a protected class;
(3) That there is a robust causal link between the challenged policy or practice and the adverse effect on members of the protected class, meaning that the specific policy or practice is the direct cause of the discriminatory effect;
(4) That the alleged disparity caused by the policy or practice is significant; and
(5) That there is a direct relation between the injury asserted and the injurious conduct alleged.

A plaintiff must prove elements (2) – (5) above by a preponderance of the evidence to establish its prima facie case. The burden then shifts to the defendant to prove the challenged policy or practice is not arbitrary, artificial, and unnecessary by producing evidence that shows the challenged policy or practice advances a valid interest. If the defendant is successful, the burden then shifts back to the plaintiff to prove by a preponderance of the evidence either that the defendant’s interest is not valid or that a less discriminatory policy or practice exists that would serve the defendant’s interest in an equally effective manner and does not impose materially greater costs on the defendant.

Finally, the defendant has defenses available at both the pleading stage and after the pleading stage. At the pleading stage, the defendant may establish the plaintiff failed to support an element of its claim by showing the policy or practice was reasonably necessary to comply with a third-party requirement (for example, compliance with a federal, state, or local law). After the pleading stage, the defendant may establish the plaintiff failed to meet its burden of proof by showing any of the following:

(1) “the policy or practice is intended to predict an occurrence of an outcome, the prediction represents a valid interest, and the outcome predicated by the policy or practice does not or would not have a disparate impact on protected classes compared to similarly situated individuals not party of the protected class. This is not an adequate defense… if the plaintiff demonstrates that an alternative, less discriminatory policy or practice would result in the same outcome of the policy or practice without imposing materially greater costs on, or creating material burdens for the defendant;”
(2) that the plaintiff failed to establish a policy or practice has a discriminatory effect; or
(3) the defendant’s policy or practice is reasonably necessary to comply with a third-party requirement (for example, compliance with a federal, state, or local law).

The final rule was effective October 26, 2020.

CFPB Issues Final Rule Extending the GSE Patch

On October 20, 2020, the Consumer Financial Protection Bureau (“CFPB”) issued a final rule amending the Ability-to-Repay/Qualified Mortgage (“QM”) Rule, to extend the Government Sponsored Enterprise (“GSE”) Patch. Originally scheduled to expire on January 10, 2021, the GSE Patch is extended until the mandatory compliance date of the final rule amending the General QM loan definition. The QM status of loans made by a creditor or applications received for a loan prior to the expiration of the GSE Patch will not be affected.

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