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MBA Advocacy Update

O’Connor, Steve; Killmer, Bill--Sept. 30, 2013
This week, two financial undertakings will be at the forefront of national attention: the continued push by the Senate and House with separate stop-gap funding bills to keep the federal government operating; and FHA’s expected receipt of an estimated $1.7 billion cash infusion from the Treasury Department to shore up its reserves.

With the fiscal year coming to an end on Monday, the biggest sticking point on the federal government's funding remains the new health care law, which is scheduled to take effect October 1 and which House Republicans hope to delay. MBA will advise its members on the effects of a government shutdown on the mortgage industry in the event Congress is not able to resolve the current impasse.

HUD Releases Proposed Rule on Qualified Mortgage
Late Friday, HUD released a proposed rule containing its own definition of a qualified mortgage (
http://www.gpo.gov/fdsys/pkg/FR-2013-09-30/pdf/2013-23472.pdf).

The Dodd-Frank Act contained a requirement that the lender must make a reasonable and good faith determination that a borrower had the ability to repay their loan as well as a provision for a qualified mortgage that is presumed to meet that requirement. The Consumer Financial Protection Bureau promulgated the general Ability to Repay/Qualified Mortgage rule and FHA was among the government agencies required under the Act to define its own QM rule.
 
In the proposal, HUD will define all FHA-insured single family mortgages to be qualified mortgages, with the exception of reverse mortgages insured under HUD’s Home Equity Conversion Mortgage program.
 
• The HUD QM adopts the distinctions between loans that have a safe harbor of compliance with the ability to repay requirement and those that receive a rebuttable presumption of compliance. HUD proposes to change the safe harbor and rebuttable presumption dividing line from the CFPB rule, granting a safe harbor to FHA loans where the Annual Percentage Rate relative to the Average Prime Offer Rate is less than 1.15 percent plus the amount of the annual mortgage insurance premium.  Loans above that threshold would receive the rebuttable presumption of compliance. In the CFPB rule, loans received the safe harbor if the APR was not 1.5 percent over APOR. Loans with an APR that exceeded APOR by 1.5 percent were rebuttable presumption QMs.

• The HUD QM adopts the CFPB points and fees cap of three percent for mortgages over $100,000 and the same structure of different caps for lower loan amounts.
 
The HUD proposed rule changes the requirements for a borrower to rebut the presumption.  The CFPB rule requires that a borrower prove that they had insufficient residual income to meet their mortgage obligations. HUD would require “that despite meeting the ‘rebuttable presumption qualified mortgage’ requirements, the mortgagee did not make a reasonable and good-faith determination of the mortgagor’s repayment ability at the time of consummation, as applicable to the type of mortgage, when underwriting the mortgage in accordance with HUD requirements, or that the points and fees limit was exceeded.”
 
FHA also proposed to classify as safe harbor QMs the loans it insures or guarantees under Title I (home improvement loans), Section 184 (Indian housing loans) and Section 184A (Native Hawaiian housing loans). With regard to FHA streamlined refinances, the proposal would require FHA streamlined refinances to comply with the proposed HUD QM rule. In the case of streamlined refinances however, HUD adopts a rebuttable presumption of compliance that “only be rebutted by showing that the lender did not meet the applicable HUD requirements for originating streamlined refinances, including the points and fees limit.” 
 
MBA will analyze the rule in greater detail and will release a detailed summary in the near future. Comments will be due 30 days after publication in the Federal Register.

Fed, CFPB Release Results of the 2012 HMDA Data
The Federal Reserve Board has released its annual analysis of the 2012 Home Mortgage Disclosure Act data (
http://www.federalreserve.gov/Pubs/Bulletin/2013/pdf/2012_HMDA.pdf). In addition to the regular report, the Fed for the first time matched a 5 percent sample of the HMDA data to credit report data and compared results for loans originated in 2006--at the height of the boom--and in post-boom 2010.

MBA will be doing more in-depth reviews of the results and their implications, but the Fed report highlights the following findings that will be relevant in upcoming policy debates on the qualified mortgage, GSE reform and FHA reform:
 
• Government-backed loans (FHA, VA, RHS) accounted for nearly 45 percent of first-lien, owner-occupant home-purchase loans;

• Higher-priced mortgage loans remained subdued at nearly 3 percent of all loans, down from a high of 28 percent in 2006; and

• As in prior years, Black and Hispanic borrowers were more likely to receive HMPLs than were Asian and White borrowers. Additionally, denial rates were significantly higher for Black and Hispanic-white applicants compared with Asian and non-Hispanic white applicants.

Some of the main findings from the analysis of the matched HMDA–credit record data include:
 
• The credit scores of Black and Hispanic-white mortgage borrowers at the time of loan origination tend to be lower--and subsequent delinquency rates higher--compared with Asian and non-Hispanic white borrowers. Delinquency was highly correlated with credit score, local area house price declines, and HPML status, but substantive differences in delinquency rates across racial and ethnic groups remain after accounting for these variables;

• The credit scores of individuals obtaining a mortgage in 2010 were much higher than in 2006; and delinquency rates on 2010 loans were much lower than those on 2006 loans;

• The proportion of conventional home-purchase loans originated in 2010 that became 60 days or more past due within two years of origination was just 0.5 percent, about one-twentieth the rate for the 2006 vintage. The delinquency rate on 2010 FHA home-purchase loans was five percent--about one-third the rate of the 2006 vintage; and

• The fraction of all home purchase borrowers with a back-end DTI ratio above 43 percent (the QM threshold) declined only slightly between 2006 and 2010, from 25 percent to 22 percent. However, loan performance (percentage that became 60 day DQ after two years) for all purchase loans improved dramatically, declining from 10 percent in 2006 to three percent in 2010.

The last item will play an important role in ongoing discussions about the impact of QM on the market, and the need for a more flexible DTI standard in the QM rule, especially after the GSE “patch” expires.

On a related note, the Consumer Financial Protection Bureau has released an online tool (http://www.consumerfinance.gov/hmda/) that allows the public to look at interactive “heat maps” on lending activity (both applications and originations) by MSA and county, loan type, loan purpose and other factors. Additional functionality will be added in the future as part of CFPB’s efforts to make the market more transparent for consumers.

For more information, please contact Mike Fratantoni, (202) 557-2935 mfratantoni@mba.org; or Justin Wiseman, (202) 557-2854 jwiseman@mba.org.

MBA Issues Analysis of CFPB Servicing Rule Amendments
Two weeks ago, the Consumer Financial Protection Bureau issued final rule amendments clarifying various provisions of the Servicing, Ability to Repay/Qualified Mortgage, Loan Originator Compensation and Appraisal rules. Since their release, MBA has completed a summary (
http://mba-pac.informz.net/mba-pac/data/images/summary_servicing_amendments.pdf) of the rule amendments that modify the Servicing provisions to Regulation X, and recently hosted a meeting of its Loan Administration Committee to identify remaining areas of concern.

In its revisions, the CFPB was responsive to many of MBA’s comments (http://mba-pac.informz.net/mba-pac/data/images/mbacfpbresponses2comments.pdf), including narrowing the definition of “first notice or filing,” greatly reducing the scope of the proposed designated address requirements, and extending the definition of short-term forbearance from two to six months. MBA will continue to work with the CFPB to address MBA member issues and concerns in order to ensure effective implementation of the rules.

For more information, please contact John Snook, (202) 557-2861 jsnook@mba.org; or Sara Singhas, (202) 557-2826 ssinghas@mba.org.
 
MBA Submits Comment Letter to FASB on Measuring Financial Liabilities of Consolidated Financing Entity
On September 27, MBA submitted a comment letter (
http://mba-pac.informz.net/mba-pac/data/images/fasbedonmeasuringvieliabilitiesrevisedfinal.pdf) to the Financial Accounting Standards Board on its proposed accounting for financial liabilities of consolidated financing entities. 

By way of background, reporting entities that are deemed to be the Primary Beneficiary of a Variable Interest Entity of a securitization like a mortgage-backed Security are required to include the VIE’s assets and liabilities in their respective consolidated financial statements. Upon initial consolidation, the PB can elect the fair value option to account for the financial assets and financial liabilities of the VIE. 

Recently, the Emerging Issues Task Force identified diversity in practice in the accounting for the difference upon consolidation between the fair value of assets and the fair value of the liabilities of the VIE. As a result the EITF reached a consensus that PBs that elect fair value option must measure the financial liabilities of the VIE by reference to the fair value of the financial assets of the VIE. MBA disagrees with the proposal, pointing out that frequently better market data is available for VIE liabilities traded in the market than the whole loan assets underlying the MBS. 

MBA proposed that FASB use the following principles in the final rule:
 
• Reporting should be structured such that what flows to the consolidated income statement should be limited to changes in the fair value of retained interests in the VIE.

• A reporting entity should measure VIE financial assets by reference to fair value measures of financial liabilities or vice versa depending on which measurement is highest in the fair value hierarchy.
 
For more information or questions, please contact Jim Gross, (202) 557-2860
jgross@mba.org.
 
MBA Hosts Multifamily Briefing and Meetings on Capitol Hill
On Wednesday, more than 30 House and Senate staffers attended an MBA-hosted discussion on multifamily considerations in the housing finance reform debate. 

Rodrigo Lopez, CMB, CEO of Amerisphere, moderated the panel, which consisted of Grace Huebscher of Beech Street Capital, Tom Booher of PNC, Mike McRoberts of Prudential and MBA Vice President of Commercial/Multifamily Jamie Woodwell. They discussed various sources of capital for multifamily deals, how secondary and tertiary markets are served and the role of Fannie Mae, Freddie Mac and FHA in the marketplace. Following the presentation, the group held a series of meetings with policymakers who will play an active role in crafting the multifamily portions of housing finance reform legislation.

For more information, please contact Brad Cheney, (202) 557-2913 bcheney@mba.org; or Meghan Sullivan, (202) 557-2866 msullivan@mba.org.

Interagency Guidance Released on Privacy Laws, Reporting Financial Abuse of Older Adults
Eight agencies have collectively issued guidance to financial institutions, with the intent of clarifying the applicability of privacy provisions of the Gramm-Leach-Bliley Act to the reporting of suspected financial exploitation of older adults. To view this interagency guidance, click
http://mba-pac.informz.net/mba-pac/data/images/201309_cfpb_elder-abuse-guidance.pdf.

HUD Issues Mortgagee Letter Clarifying Recently Announced HECM Policies
HUD has issued Mortgagee Letter 2013-33 (
http://mba-pac.informz.net/mba-pac/data/images/13-33ml.pdf), which clarifies Home Equity Conversion Mortgage policies announced in ML 2013-27 (http://mba-pac.informz.net/mba-pac/data/images/ml13-27.pdf). 

ML 2013-33 defines mandatory obligation; adds additional items which must be included as mandatory obligations for refinance and purchase transactions; lists items which must be included in the first 12-month disbursement limit and initial MIP calculations; clarifies the calculations for principal limit future year increases and life expectancy set-asides; and states how repayments from insurance and condemnation proceeds impact the available principal limit.

These provisions take effect September 30, the same effective date as ML 2013-27. This ML also permits a mortgagee to request an FHA case number with an initial MIP designation of HECM Standard or HECM Saver for certain transactions in progress prior to September 28, 2013.

For more information, please contact Tamara King, (202) 557-2758 tking@mba.org; or Joe Gormley, (202) 557-2870 jgormley@mba.org.

FHFA Launches Campaign to Inform Homeowners about HARP
The Federal Housing Finance Agency recently launched a campaign (
http://www.fhfa.gov/webfiles/25517/HARPCampaign92313.pdf) to inform homeowners about its Home Affordable Refinance Program. The campaign will seek to encourage homeowners who have been making their mortgage payments, but who owe more than their home is worth, to contact mortgage lenders offering HARP refinances to review their refinancing options.

FHFA has launched a new website, www.HARP.gov, in support of its campaign. HARP, which ends in December 2015, requires borrowers to: be current on their loan payments; have an LTV ratio greater than 80 percent; have loans owned or guaranteed by Fannie Mae or Freddie Mac; and the mortgage must have been sold to them on or before May 31, 2009. HARP refinances currently make up a large portion of refinance activity, and this effort may encourage homeowners to participate at a time when the refinance market is otherwise slowing.

For more information, please contact John Snook, (202) 557-2861 jsnook@mba.org.
 
Senate Banking Committee Holds hearing on TRIA
On Wednesday, the Senate Banking Committee held a hearing on reauthorization of the Terrorism Risk Insurance Act, which is set to expire at the end of 2014. The hearing examined the current state of the terrorism risk insurance market and the committee heard from representatives of Marsh & McLennan Cos., the Wharton School and the Insurance Information Institute

During the hearing, witnesses expressed the importance of reauthorization, and emphasized that the private market does not have the appetite to insure beyond a certain capacity for terrorism risk without TRIA because terrorism risk remains immeasurable. The program has previously been extended twice, most recently in 2007. Several bills have been introduced in the house to provide a five- or 10-year extension of TRIA; legislation has not yet been introduced in the Senate. Given the crowded congressional calendar, we do not anticipate TRIA legislation to be considered before the beginning of next year. 

For more information, please contact Brad Cheney, (202) 557-2913 bcheney@mba.org; or Meghan Sullivan, (202) 557-2866 msullivan@mba.org.

Other Updates in Brief:
New York’s Department of Financial Services has proposed lender-placed insurance regulations (
http://www.dfs.ny.gov/insurance/r_prop/rp202t.pdf) that would restrict LPI policies in the state, impose new notice requirements and significantly limit the relationships between servicers and insurers. The regulations will take effect 30 days after publication in the State Register. A DFS press release highlighting the new requirements and restrictions is available at http://www.dfs.ny.gov/about/press2013/pr1309191.htm.

For more information, please contact John Snook, (202) 557-2861 jsnook@mba.org; or Scott Nowak, (202) 557-2811 snowak@mba.org.

The Department of Veterans Affairs has confirmed (http://www.benefits.va.gov/homeloans/documents/circulars/26_13_13.pdf) that electronic signatures are now acceptable for its VA Loan Program, provided that the lender complies with the Federal Electronic Signatures in Global and National Commerce Act. It is important to note that lenders are not required to use electronic signatures in the course of closing VA home loans.

For more information, please contact Tamara King, (202) 557-2758 tking@mba.org; or Joe Gormley, (202) 557-2870 jgormley@mba.org.

Five State Regulators Set to Implement Uniform State Test Next Tuesday, October 1: http://mba-pac.informz.net/mba-pac/data/images/ustmap10-1-13.pdf.

Expert Speakers to Address MBA State & Local Workshop
This year, MBA’s State & Local Workshop takes place October 25-26 in Washington, D.C., prior to the MBA 100th Annual Convention & Expo (
http://events.mortgagebankers.org/StateAndLocal2013/default.html).

With state and local mortgage banking associations facing numerous challenges and opportunities--from leading advocacy charges in their states to creating valuable local connections--their successes are critical for their member firms to stay competitive in the ever-changing marketplace. Recognizing the need for invaluable guidance, the Workshop’s featured speakers will use the nation’s Capital’s collection of experts specializing in advocacy, membership, regulatory compliance and more.

The current list of speakers is emblematic of this goal, as panelists include Tim Doyle, senior vice president with the Conference of State Banking Supervisors; and Dan Smith, assistant director of Office of Financial Institutions and Business Liaison with the Consumer Financial Protection Bureau, who together will speak to new examination and enforcement paradigm emerging among the CFPB and state regulators.

Also featured will be Sheree Anne Kelly, vice president of the Public Affairs Council and executive director of the Foundation for Public Affairs; and Jennifer Baker, director of ASAE Business Services Inc., who will discuss association management best practices on issues ranging from enhancing member engagement, increasing member retention and earning non-dues revenue. To join in these essential discussions for state and local leaders, please register http://events.mortgagebankers.org/StateAndLocal2013/register

For more information, please contact William Kooper, (202) 557-2737 wkooper@mba.org; or Scott Nowak, (202) 557-2811 snowak@mba.org.