The OCC, Federal Reserve, CFPB, FDIC, FHFA, and NCUA recently issued notice of a Final Rule establishing new appraisal requirements for “higher-priced mortgage loans” (HPMLs). The Final Rule is being implemented under the Federal Truth in Lending Act and was required under Dodd-Frank. We discussed an earlier proposed version of the rule last November. Whether a consumer mortgage loan is an HPML generally depends on if the interest rate exceeds 1.5% or 2.5% over prime (depending on principal amount) for a first-lien residential mortgage, or 3.5% over prime for a subordinate-lien residential mortgages. There are a number of significant exclusions from requirements under the Final Rule, for example, for property located in “rural counties” and for property acquired from servicemembers.
Entries in Consumer Lending (10)
The OCC, Federal Reserve, CFPB, FDIC, FHFA, and NCUA recently issued a joint notice of a proposed rule implementing new appraisal requirements for “higher-risk mortgages.” These requirements would apply under the Federal Truth in Lending Act and were imposed by Dodd-Frank. “Higher-risk” mortgages are defined to include first-lien residential mortgages that exceed an interest rate threshold of 1.5% or 2.5% greater than the average prime offer rate for a comparable transaction (depending on principal amount), and subordinate-lien residential mortgages with an interest rate in excess of 3.5% of the average prime offer rate. There are a number of exclusions from the definition of “higher-risk mortgage” in the proposed rule.
On October 18, 2012, the Office of the Comptroller of the Currency (OCC) issued stress testing guidance for national banks and federal savings associations with total assets of $10 billion or less (community banks). Stress testing is essentially the process of analyzing and determining the possible effects that events (such as a sudden economic downturn) might have on a bank, its loan portfolio, and its earnings and capital. Dodd-Frank required that banks with assets greater than $10 billion engage in comprehensive stress testing at least annually pursuant to regulatory guidance issued earlier this year. The Guidance makes clear that the OCC expects community banks to follow suit, although under somewhat less rigorous standards.
On October 12, 2012, the Maine Bureau of Financial Institutions issued notice that it has proposed a complete repeal and replacement of Regulation 28: Loans to One Borrower Limitations. Regulation 28 establishes certain lending limits for Maine-chartered financial institutions. The purpose of the new Regulation is to establish guidelines for determining credit exposure from derivative transactions in connection with loans. Derivative transactions can include swaps, loans, options and other financial agreements, and are an important tool in managing the risks underlying financial transactions. Beginning in January of 2013, the Dodd-Frank Act will prohibit state-charted financial institutions from engaging in derivative transactions unless state law requires them to identify and manage credit risks associated with derivative transactions. The proposed Regulation 28 implements various methods for financial institutions to use in considering these risks, adopting a number of methodologies used in the OCC’s new interim final rule for national banks.
The Bureau anticipates that it may amend the proposed Regulation 28 before it becomes final, to incorporate future amendments to the OCC’s rule. The deadline for public comment on the new regulation is November 19, 2012.
The Consumer Financial Protection Bureau (“CFPB”) recently announced the official launch of its nonbank supervision program. Under Dodd-Frank, a “nonbank” is “a company that offers or provides consumer financial products or services but does not have a bank, thrift, or credit union charter.” This regulatory oversight is intended to “level the playing field” for industry participants. The program is expected to launch in two phases. Initially, the CFPB will examine nonbanks in the mortgage, payday lending, and private education lending industries. In a second stage, the CFPB will also examine “larger participants” in other consumer financial markets, such as debt collection, consumer reporting, auto financing, and money services. The CFPB is in the process of preparing an initial rule regarding the definition of “larger participant,” a term that was not defined in Dodd-Frank.