Top Three Remaining Compliance Issues of 2021

We are a little over a third of the way through 2021 and massive shifts within the mortgage industry have occurred, whether due to the unexpected (COVID-19) or to the long-anticipated (URLA). While First American Docutech cannot address the unexpected for the remainder of this year (as much as we wish), we are keeping a watchful eye on changes expected to occur within the near future. The top three that we have identified are:

  1. New restrictions on Federal National Mortgage Association’s (“FNMA”) and Federal Home Loan Mortgage Corporation’s (“FHLMC”), requiring them to only purchase Qualified Mortgages (“QM”);
  2. FNMA’s and FHLMC’s discontinuance of Constant Maturity Treasury (“CMT”)-index adjustable-rate mortgages (“ARM”);
  3. New State laws requiring the safeguarding of private personal information of consumers.

The following is a “high-level” overview of these changes, with more details to come over the next few months.

QMs Only
Three major parts of the QM requirements promulgated under 12 C.F.R. § 1026.43 were recently amended, one of which is in regards to the expiration of the so-called “GSE QM Patch” under Ibid. § 1026.43(e)(4)(ii)(A)(1). Under this Patch, a loan purchased or guaranteed by either FNMA or FHLMC, while operating under the conservatorship or receivership of the Federal Housing Finance Agency (“FHFA”), along with meeting a couple of conditions, would be considered a QM.

This Patch was always meant to be temporary, since it was created as part of the CFPB’s efforts to provide a transition period after the enactment of the QM rules in 2014, and was originally set to expire on January 10, 2021 (see 78 FR 6408 [2013]). By 2020, however, the CFPB found that loans made under the Patch “continue to represent a large and persistent share of the residential mortgage loan market. A significant number of Temporary GSE QM loans would be affected by the expiration of the Temporary GSE QM loan definition.” (85 FR 67938 [2020]).

Thus, the CFPB issued rules postponing the expiration date of the Patch. Currently, it is set to effectively expire on either October 1, 2022 or when the GSE’s exit conservatorship (whichever occurs first).

While amended Regulation Z does extend the GSE QM Patch for another seventeen months, as a practical matter, the application of the Patch will be severely limited come July 1, 2021. This is due to Section VIII of the amendments to the Preferred Stock Purchase Agreements between the Department of the Treasury and the GSEs (of which the Federal Housing Finance Agency is a party to, as conservator of the GSEs), by adding a new Subsection 5.14(c) to the Agreements which states the following:

“Subject to such exceptions as [FHFA] may prescribed to permit Seller [i.e., FNMA and FHLMC] to acquire Single-Family Mortgage Loans that were eligible for acquisition as of January 14, 2021, Seller agrees to implement on or prior to July 1, 2021 a program reasonably designed to ensure that each Single-Family Mortgage Loan acquired by Seller is:

    1. a qualified mortgage, as defined in 12 CFR § 1026.43(e)(2), (5), (6), (7), or (f);
    2. described in 12 CFR § 1026.43(a)(3);
    3. a Single-Family Mortgage Loan secured by an investment property, subject to Section 5.14(b);
    4. a refinancing with streamlined underwriting in accordance with the eligibility criteria for high loan-to-value refinancings set forth in Seller’s Selling Guide;
    5. a Single-Family Mortgage Loan with temporary flexibilities for underwriting during times of exigent circumstances, as determined in consultation with the Agency; or
    6. a Single-Family Mortgage Loan secured by a [] manufactured housing.”[i]

Essentially, this means that the GSEs are required to purchase, with few exceptions, only loans which are considered QMs under the new amendments to Ibid. § 1026.43(e) & (f) - which took effect this past March. This was re-emphasized by the GSEs in FNMA LL-2021-09 and FHLMC Bulletin 2021-11.

Notably, the amended PSPAs do permit FHFA to make some exceptions and there are some indications in the GSEs’ publications that they are contemplating such exceptions. It’ll be interesting to see how this all plays out over the coming months.

Retirement of CMT-Indexed ARMs
On February 5, 2020 FNMA announced that they were planning, “at some point during 2021”, to cease purchasing ARMs in which the Constant Maturity Treasuries (“CMT”) were used as an index, in favor of their new Secured Overnight Finance Rate (“SOFR”)-indexed ARM programs (see FNMA LL-2020-01).

This past February, FNMA specified that they would only purchase CMT ARMs if the application dates are on or before June 30, 2021 and then, only if:

  • They are purchased as whole loans on or before September 30, 2021; or
  • They are delivered into mortgage-backed securities (“MBS”) pools with issue dates on or before September 1, 2021 (see FNMA LL-2021-05).

FHLMC also followed suit (see FHLMC Bulletins 2020-1 and 2021-4), except that they will no longer purchase CMT-indexed ARMs on and after October 1, 2021 regardless of the application or promissory note dates.

With the previous retirements of LIBOR- and COFI-based ARMs - and now the CMT - the variety of ARMs purchased by the GSEs have greatly been reduced over the past several years.

Consumer Privacy
In 2018, the California Consumer Privacy Act (Cal. Civ. Code §§ 1798.100 et seq.) came into existence, followed by the California Consumer Privacy Act Regulations (Cal. Code Regs. tit. 11, §§ 999.300 et seq.) in 2020. These laws are likely to be viewed in history as landmarks, ushering in a new era of consumer privacy laws, centrally focused on the state-level (so far), which enables consumers to direct (to some extent) how their personal information is handled by businesses.

This year has seen similar acts either adopted or introduced in other State legislatures, such as the Virginia Consumer Data Protection Act (Va. Code Ann. §§ 59.1-571 et seq.) and the proposed New York Privacy Act (NY SB 6701 [2021]). Maine and Nevada have both passed somewhat similar acts (Me. Rev. Stat. Ann. tit. 35-a, § 9301 and Nev. Rev. Stat. Ann. §§ 603a.010 et seq.), albeit the scope of these acts only apply to online business practices, unlike California’s which extend beyond the Worldwide Web.

It is expected that this trend will continue through 2021 and into the next few years. With a rapidly accelerating arms race between hackers and cybersecurity experts occurring, along with businesses retaining, using, and (sometimes) selling personal information, governments small and large are taking more of an interest in ensuring that consumers have some say as to how their information is handled and protected.

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