Winter 2020-2021 Federal Highlights

Presidential Memorandum Regarding Fair Housing Act

On January 26, 2021, President Biden issued a memorandum to the Secretary of Housing and Urban Development directing the Secretary to examine the effects of various fair housing rules, including HUD’s disparate impact standard rule, on HUD’s statutory duty to ensure compliance with the Fair Housing Act. The memorandum also directs the Secretary to take any necessary steps to ensure HUD administers its programs in a manner that affirmatively furthers fair housing, including by preventing practices with an unjustified discriminatory effect.
Fair lending is likely to be a significant priority for the new administration, so now is a good time to focus on fair lending policies, procedures and data to ensure compliance with applicable law.

Dollar Threshold Adjustments in Regulations Z for Determining Exempt Transactions

The Consumer Financial Protection Bureau and the Federal Reserve Board announced final rules amending the official interpretations for Regulation Z (the regulations that implement the Truth in Lending Act) related to the dollar threshold for exempt consumer credit transactions.

An extension of credit that exceeds the applicable threshold amount or has an express written commitment to extend credit in excess of the applicable threshold amount is exempt from the provisions of Regulation Z. This exemption does not apply to: (1) loans secured by real property, or personal property used as the principal dwelling of the consumer; or (2) private education loans.

Effective January 1, 2021, the exemption threshold amount remained at $58,300 as it was
in 2020.

Appraisals for Higher-Priced Mortgage Loans Exemption Threshold Adjustment

The Consumer Financial Protection Bureau, Federal Reserve Board, and Office of the Comptroller of the Currency announced the threshold for exempting loans from special appraisal requirements for higher-priced mortgage loans will remain the same in 2021 as it was in 2020.
Under the Truth in Lending Act, as amended by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, higher-priced mortgage loans must satisfy certain special appraisal requirements, unless exempt. An extension of credit is exempt if equal to or less than the applicable threshold amount as adjusted every year to reflect increases in the Consumer Price Index for Urban Wage Earners and Clerical Workers as of June 1 of the preceding year.

Effective January 1, 2021, the exemption threshold remained at $27,200.

FHFA Announces GSE Conforming Loan Limits for 2021

The Federal Housing Finance Agency (“FHFA”) announced that the maximum confirming loan limit for first mortgages secured by one-unit properties acquired by Fannie Mae and Freddie Mac in 2021 will be $548,250.00, with the exception of several higher-cost areas where higher loan limits will be in effect.

The $548,250.00 amount represents a 7.42% increase from the current $510,400.00 limit that has been in effect since January 1, 2020. The loan limits will also increase in nearly all high-cost counties. Some states incorporate FHFA’s conforming loan limits into their “high-cost home loan” and other laws.

Consumer Financial Protection Bureau Issues Final Rules on ATR/QM Rule

On December 10, 2020, the Consumer Financial Protection Bureau (“Bureau”) issued two final rules related to qualified mortgage (“QM”) loans: The General QM Final Rule and the Seasoned QM Final Rule (“Rules”).

These final Rules amend the definition of a QM and create a new category of QMs.

In addition, the final Rules provide a transition away from the current “GSE Patch.” Temporary GSE QMs are those that are eligible for purchase or guarantee by either the Federal National Mortgage Association or the Federal Home Loan Mortgage Corporation, while operating under the conservatorship or receivership of the Federal Housing Finance Agency (“FHFA”). This category of loans is set to expire on the mandatory compliance date of the final amendments to the General QM loan definition in Regulation Z (July 1, 2021), or when the GSEs cease to operate under the conservatorship of the FHFA, whichever is earlier.

The General QM Final Rule

The General QM Final Rule amends the existing General QM definition by replacing the current 43% debt-to-income ratio limit with a price-based approach, along with other changes.
The Seasoned QM Final Rule

The Seasoned QM Final Rule creates a new category of Seasoned QMs for first-lien, fixed-rate covered transactions that meet certain performance requirements over a 36-month seasoning period, are held in portfolio until the end of the seasoning period, comply with general restrictions on product features and points and fees, and meet certain underwriting requirements.

Both Rules are effective 60 days after publication in the Federal Register. However, the mandatory compliance date is July 1, 2021.

CFPB Adjusts Asset-Size Threshold for Exemption from Escrow Account Requirements for Higher-Priced Mortgage Loans

The Consumer Financial Protection Bureau (“CFPB”) adjusted the asset-size threshold for an exemption from the Truth in Lending Act’s (“TILA’s”) escrow account requirements for higher-priced mortgage loans.

For 2021, the threshold will be $2.230 billion. Therefore, creditors with assets (including assets of certain affiliates) of less than $2.230 as of December 31, 2020 may qualify for an exemption from the escrow account requirements for higher-priced mortgage loans. This threshold will also apply in certain circumstances during a grace period, with respect to transactions with applications received before April 1, 2022. Please note there are other requirements that the creditor must meet to take advantage of the exemption.

This adjustment also affects the “qualified mortgage” rules under Regulation Z. A “small creditor portfolio loan” that meets certain requirements is considered a “qualified mortgage.” One of these requirements is that the creditor must not exceed the asset-size threshold for the exemption from the escrow account requirement for higher-priced mortgage loans. Further, a qualified mortgage generally may only provide for a balloon payment under certain conditions. One of these conditions is that the creditor must not exceed the asset-size threshold.

CFPB Exempts Certain Depository Institutions and Credit Unions from the Requirement to Establish Escrow Accounts for HPMLs

On January 19, 2021, the Consumer Financial Protection Bureau (“CFPB”) issued a final rule amending a provision of Regulation Z relating to higher-priced mortgage loans (“HPMLs”). Under Regulation Z, creditors are generally required to establish escrow accounts for HPMLs. The CFPB’s final rule creates an exemption from this requirement for certain depository institutions and credit unions. Specifically, the final rule provides that an escrow account need not be established by an insured depository institution or insured credit union if:

(A) As of the preceding December 31st, or, if the application for the transaction was received before April 1 of the current calendar year, as of either of the two preceding December 31sts, the insured depository institution or insured credit union had assets of $10,000,000,000 or less, adjusted annually for inflation using the Consumer Price Index for Urban Wage Earners and Clerical Workers, not seasonally adjusted, for each 12-month period ending in November (see comment 35(b)(2)(vi)(A)-1 for the applicable threshold); and
(B) During the preceding calendar year, or, if the application for the transaction was received before April 1 of the current calendar year, during either of the two preceding calendar years, the creditor and its affiliates, as defined in §1026.32(b)(5), together extended no more than 1,000 covered transactions secured by a first lien on a principal dwelling; and
(C) The transaction satisfies the criteria in paragraphs (b)(2)(iii)(A) and (D) of 12 CFR § 1026.35.

Please note that the exemption is not available if, at the time of consummation, the loan is subject to a commitment to be purchased by a person who does not satisfy the exemption.

The final rule will be effective upon its publication in the Federal Register.

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