Compliance Update with Amy K
by Amy Kleinschmit
Chief Compliance Officer
6/26/2020

InfoSight Highlight - New Video Resource added!

A new video has been added as a helpful resource in the Back to Work Best Practices topic in the COVID-19 - Coronavirus channel. It provides some great tips that may assist your credit unions as staff returns to the office. It was provided to us by CU Solutions Group and the Michigan Credit Union League.

Content update - To assist credit unions with upcoming compliance, the Remittance Transfertopic on the ACH/Electronic Payments channel has been updated to include the Final Remittance Transfer Rule changes that take effect on July 21, 2020.

 

NCUA COVID-19 Examiner Guidance

The NCUA, along with other federal regulatory agencies, recently issued Interagency Examiner Guidance for Assessing Safety and Soundness Considering the Effect of the COVID-19 Pandemic on Institutions.

The interagency guidance instructs examiners to consider the unique, evolving, and potentially long-term nature of the issues confronting institutions due to the COVID-19 pandemic and to exercise appropriate flexibility in their supervisory response. There is a lot of information in this Guidance, so be sure to review it in its entirety. However, to highlight a few things the phrases “risk assessment” and “managing risks” seemed to be reoccurring. Such as, “in conducting their supervisory assessment, examiners will consider whether institution management has managed risk appropriately, including taking appropriate actions in response to stresses caused by COVID-19 impacts.” Also, “when assigning the composite and component ratings, examiners will review management’s assessment of risks presented by the pandemic, considering the institution’s size, complexity, and risk profile. When assessing management, examiners will consider management’s effectiveness in responding to the changes in the institution’s business markets and whether the institution has addressed these issues in its longer-term business strategy.”

The guidance further provides that, “examiners should evaluate management’s initial and ongoing assessment of the risk that the pandemic presents to the institution. Examiners should determine whether management’s assessment of credit risk reasonably reflects the institution’s asset quality, given the prevailing economic conditions in its business markets. In addition to determining the effect on asset quality, examiners should assess management’s understanding of the pandemic’s effects on the institution’s earnings prospects and capital adequacy, as well as its effect on funding, liquidity, operations, and sensitivity to market risk. The risks associated with the COVID-19 pandemic, as well as impacts of policy responses, can be challenging to assess in real time. Examiners will assess an institution’s risk identification and reporting processes given the level of information available and stage of local economic recovery.”

 

CFPB COVID-19 IFR

The CFPB has issued an interim final rule (IFR), effective July 1, that makes it clear that servicers do not violate Regulation X by offering certain COVID-19-related loss mitigation options based on an evaluation of limited application information collected from the borrower – provided certain criteria are met. Normally, with certain exceptions, Regulation X would require servicers to collect a complete loss mitigation application before making an offer. This interim final rule can be found here.

As explained in the discussion of this IFR, “Due to the particular needs of mortgage servicers and borrowers during the novel coronavirus disease (COVID-19) pandemic emergency (COVID-19 emergency), the Bureau is amending Regulation X to temporarily permit mortgage servicers to offer certain loss mitigation options without obtaining a complete loss mitigation application. Servicers may offer eligible loss mitigation options to a borrower who has received a payment forbearance program made available to borrowers experiencing a financial hardship due, directly or indirectly, to the COVID-19 emergency, including one offered pursuant to section 4022 of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), or who has had other principal and interest payments that are due and unpaid as a result of a financial hardship due, directly or indirectly, to the COVID-19 emergency.”

 

CFPB – Remittance Transfers

The CFPB has issued an updated Small Entity Compliance Guide regarding its remittance transfers rule. This updated guide can be found here. As a reminder, the CFPB issued a final rule on May 11, 2020 to revise the Remittance Transfer Rule. The effective date of this final rule is July 21, 2020. The term “remittance transfer provider” is defined, in part, to mean any person that provides remittance transfers for a consumer in the normal course of its business. As originally adopted, the normal course of business safe harbor threshold stated that a person is deemed not to be providing remittance transfers for a consumer in the normal course of its business if the person provided 100 or fewer remittance transfers in the previous calendar year and provides 100 or fewer remittance transfers in the current calendar year. The CFPB’s final rule increases the normal course of business safe harbor threshold from 100 transfers annually to 500 transfers annually.

 

ATR-QM Proposed Changes

The CFPB has issued two proposed rule changes. First, the CFPB is  proposing to extend the  Temporary GSE QM loan definition, currently set to expire January 10, 2021, to ensure “that responsible, affordable mortgage credit remains available to consumers who may be affected if the Temporary GSE QM loan definition expires before the amendments to the General QM loan definition take effect.” This proposed rule can be found here and comments must be submitted within 30 days.

The second proposed rule change relates to the general QM definition. Currently, this general QM definition requires, among other things, that the DTI not exceed 43%. This proposed rule can found here and comments must be received in 60 days. An unofficial redline and summary of the changes can be found here.

As explained by the CFPB in the discussion of the proposed rule, “The Bureau is issuing this proposal to amend the General QM loan definition because it is concerned that retaining the existing General QM loan definition with the 43 percent DTI limit after the Temporary GSE QM loan definition expires would significantly reduce the size of QM and could significantly reduce access to responsible, affordable credit.  The Bureau is proposing a price-based General QM loan definition to replace the DTI-based approach because it preliminarily concludes that a loan’s price, as measured by comparing a loan’s APR to APOR for a comparable transaction, is a strong indicator of a consumer’s ability to repay and is a more holistic and flexible measure of a consumer’s ability to repay than DTI alone.”

General QM loans have either a conclusive presumption of compliance or rebuttable presumption of compliance based on whether or not it is a higher priced covered transaction. The CFPB is proposing to create a special rule for purposes of determining whether certain types of General QM loans under § 1026.43(e)(2) are higher-priced covered transactions. This special rule would apply to loans for which the interest rate may or will change within the first five years after the date on which the first regular periodic payment will be due. Specifically, the proposed rule would add, “For purposes of a qualified mortgage under paragraph (e)(2) of this section, for a loan for which the interest rate may or will change within the first five years after the date on which the first regular periodic payment will be due, the creditor must determine the annual percentage rate for purposes of this paragraph (b)(4) by treating the maximum interest rate that may apply during that five-year period as the interest rate for the full term of the loan.”

With regard to Ability to Repay requirements, § 1026.43(c)(4), requires that a creditor must verify the amounts of income or assets that the creditor relies on under § 1026.43(c)(2)(i) to determine a consumer’s ability to repay a covered transaction using third party records that provide reasonably reliable evidence of the consumer’s income or assets. The proposed rule would add commentary that would clarify that a creditor does not meet the requirements of § 1026.43(c)(4) if it observes an inflow of funds into the consumer’s account without confirming that the funds are income. 

The General QM definition would retain the ATR-QM Rule’s existing product-feature and underwriting requirements and limits on points and fees.  

Under the price-based method for the general QM, the proposed rule would require that the APR does not exceed the average prime offer rate for a comparable transaction as of the date the interest rate is set by the amounts specified in the regulation which will be adjusted for inflation. Similar to the compliance presumption noted above, for purposes 1026.43(e)(2)(vi), the creditor must determine the annual percentage rate for a loan for which the interest rate may or will change within the first five years after the date on which the first regular periodic payment will be due by treating the maximum interest rate that may apply during that five-year period as the interest rate for the full term of the loan. The proposed thresholds are: (A) For a first-lien covered transaction with a loan amount greater than or equal to $109,898 (indexed for inflation), 2 or more percentage points;  (B) For a first-lien covered transaction with a loan amount greater than or equal to $65,939 (indexed for inflation) but less than $109,898 (indexed for inflation), 3.5 or more percentage points; (C) For a first-lien covered transaction with a loan amount less than $65,939 (indexed for inflation), 6.5 or more percentage points; (D) For a subordinate-lien covered transaction with a loan amount greater than or equal to $65,939 (indexed for inflation), 3.5 or more percentage points;  (E) For a subordinate-lien covered transaction with a loan amount less than $65,939 (indexed for inflation), 6.5 or more percentage points. 

That’s all for today folks! If you have any questions please do not hesitate to contact me, Amy Kleinschmit, at akleinschmit@cuad.coop.

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