The GSEs require all subservicers to follow GSE guidelines when servicing loans. When utilizing a subservicer, the master servicer should have an oversight policy in place to ensure compliance. The policy should establish the master servicer’s servicing Quality Control (“QC”) Program and include, at a minimum:
- Procedures demonstrating how the master servicer verifies that the subservicer is actually following its own procedures;
- An explanation of how the master servicer implements quality control audits and when and how often such audits will be performed;
- A method to track subservicer servicing errors and deficiencies, as well as any remediation plans; and
- As a best practice, an annual onsite visit that permits the master servicer to sit with key subservicing staff to understand the staff’s day-to-day process and reconcile it against the subservicer’s written policies and procedures.
Subservicer deficiencies may range from warnings to heavy fines up to and including loss of the ability to service loans, therefore, it is important to ensure proper subservicer oversight and monitoring.
It’s not difficult to develop and understand best practices for maintaining IT server security, but physical maintenance is equally important for several reasons:
1. Proper on-going maintenance of equipment helps ensure continued operations, which is imperative in today’s digitally-driven work environment.
2. In the event of an outage or equipment failure, the repair process is not hampered by a disorganized server room.
3. Commitment to organization and order in even the smallest of details reflects well on an organization, especially in the event of an audit.
One recommendation is to develop a color-coding system to organize server wires and use racks with cable management “teeth” or ties to bundle wires and prevent damage. Other best practices include building a checklist during server configuration to ensure that people-based controls are executed when needed. By color-coding wires, technicians will easily be able to distinguish between production server, vital network equipment and workstation wires and quickly identify and correct any issues.
Yes. Fannie Mae’s guidelines for POAs in a purchase transaction now require a written record or a recorded Internet session demonstrating a meeting with the borrower to explain the Closing Disclosure after the borrower receives it.
Fannie Mae’s Lender Letter, LL-2021-03, issued February 10, 2021 indicates:
- Unless a recorded Internet session is required, a Power of Attorney may only be used in a purchase transaction with a note date on or after Apr. 7, 2020, if, after the Closing Disclosure or other closing statement, as applicable, has been delivered to the borrower before closing, an employee of the lender or settlement agent explains the terms of the loan to the borrower(s) to confirm that each borrower understands them. This discussion must take place in person, telephonically, or using a video conference system, and must be “memorialized” by an acknowledgment by the borrowers of his or her understanding of the terms of the loan. The acknowledgment may be in writing or in a recording of the telephonic or video discussion.
Fannie Mae also indicates the following:
- The purpose of the Borrower Acknowledgement provision is to confirm verbally after receiving the Closing Disclosure that the borrower understands both the key features of the loan and that the attorney-in-fact has the ability to contractually bind the borrower to the transaction, including the purchase of a home, on the same basis as if they had signed themselves;
- Key features of the loan would include such things as principal amount, interest rate and adjustment provisions (if applicable), first payment date, loan term, and initial loan payment (P&I and PITIA); and
- The conversation reflecting the Acknowledgment by the borrower(s) must be documented either in a written record created by the lender or settlement agent or in a recording capturing the conversation with the borrower. If documented in writing, there is no expectation that the borrower sign the memorialization. In either case, the lender must retain the acknowledgement in the loan file and make it available to us on request.
Fannie Mae’s Selling Guide, chapter B8-5-05, outlines all of the requirements for use of a POA.
Yes, in January 2021, FinCEN, in collaboration with the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the National Credit Union Administration, and the Office of the Comptroller of the Currency, published answers to the following seven (7) frequently asked questions (“FAQs”) regarding SARs and other AML considerations:
- Can a financial institution maintain an account or customer relationship for which it has received a written “keep open” request from law enforcement, even though the financial institution has identified suspicious or potentially illicit activity?
- Should a financial institution file a SAR solely on the basis of receiving a grand jury subpoena or other law enforcement inquiries?
- Is a financial institution required to terminate a customer relationship following the filing of a SAR or multiple SARs?
- Is a financial institution required to file a SAR based solely on negative news?
- If there are multiple negative news alerts based on the same event, is a financial institution expected to independently investigate each of those alerts?
- Do financial institutions need to repeat information in the SAR narrative that has already been included in other SAR data fields?
No, information provided in other sections of a SAR does not need to be repeated in the narrative unless necessary to provide a clear and complete description of the suspicious activity.
- Should financial institutions file additional SARs on the same suspicious activity to accommodate narratives that are longer than the SAR narrative character limits?
Yes, a financial institution may decide to maintain an account based on a written “keep open” request from a law enforcement agency, however, it is not obligated to do so.
No, but a financial institution should determine whether SAR filing is necessary based on its assessment of all information available and applicable regulatory requirements.
No, a financial institution has authority to decide whether to maintain or close a customer relationship as a result of suspicious activity based on the information it has available, its assessment of money laundering or other illicit financial activity risks, and its established policies and procedures.
No, but a financial institution may review media reports and other news references to assist in its performance of customer due diligence and to evaluate transactions or activity it considers unusual or possibly suspicious.
No, but a financial institution may consider whether additional alerts contain new or different information that warrant further investigation.
No, filers must provide a clear, complete, and concise description of the suspicious activity. Filers may include additional, relevant information as an attachment to the SAR if necessary, or note that it is available as supporting documentation.
Please refer to the FAQ document for more detailed answers.
Yes, the mandatory effective date for the new URLA is March 1, 2021, but mortgage brokers/lenders have been permitted to use it since January 1, 2021. Fannie Mae and Freddie Mac redesigned the URLA with the goal of assisting both consumers and lenders by making it easier to understand and capture relevant loan application information. Some of the key differences with the new URLA include a larger font, which makes it easier to read and enter information, as well as additional contact information and other requests from applicants. Further, the new URLA incorporates the collection of Demographic Information so that it is in line with current HMDA data collection and reporting requirements. This eliminates the need for a separate Demographic Information Addendum.
It is important to note that as part of the new URLA, if there are multiple borrowers for a loan, each additional borrower must complete an URLA – Additional Borrower Form. Below is guidance on to use the URLA and URLA – Additional Borrower Form:
• Two Borrowers with joint financial information:
• Complete the URLA plus the URLA – Additional Borrower Form, but report assets, liabilities & real estate for additional Borrower on the URLA;
• Complete a separate URLA for each Borrower and report joint assets, liabilities, and real estate on only one URLA (you do not need to duplicate them on more than one URLA);
• In cases where borrowers are not collaborating when completing the loan application, joint assets, liabilities, and real estate may be duplicated.
• Two Borrowers with separate financial information:
• Complete the URLA plus the URLA – Additional Borrower Form and report the assets, liabilities, and real estate for the additional Borrower on the URLA;
• Complete a separate URLA for each Borrower.
• Three or more Borrowers:
• Use any combination of the URLA and URLA – Additional Borrower Form in accordance with the above examples.
There are two separate and distinct amendments to the Regulation Z ability to repay (“ATR”) / qualified mortgage (“QM”) requirements. Both rules become effective for applications taken on or after March 1, 2021, but the new General QM requirements need not be used by creditors until applications received on or after July 1, 2021. The current “Temporary Patch QM” will expire on the mandatory effective date of the new General QM requirements (applications received on or after July 1, 2021). Thus, between March 1, 2021 and July 1, 2021, creditors may use either the current Temporary Patch QM or the new General QM requirements as further detailed below.
1. Revised General Qualified Mortgage Requirements
- Eliminates the requirement that a borrower’s debt-to-income (“DTI”) ratio cannot exceed 43% and eliminates Appendix Q.
- Replaces the eliminated DTI requirement with new pricing requirements:
- For first lien loans, a loan would still be a Safe Harbor QM (despite the borrower’s DTI ratio) if the APR is less than 1.5 percentage points above the APOR at the time the interest rate is set.
- For second lien loans, a loan would still be a Safe Harbor QM (despite the borrower’s DTI ratio) if the APR is less than 3.5 percentage points above the APOR at the time the interest rate is set.
- For first lien loans, a loan will still be a Rebuttable Presumption QM (despite the borrower’s DTI ratio) if the APR is less than 2.25 percentage points above the APOR at the time the interest rate is set.
- A first lien loan with a APR exceeding the APOR by 2.25 percentage points or more cannot meet the definition of a General QM (with the exception of a loan with a small loan amount which has higher caps as set forth below).
- Provides higher pricing thresholds for loans with smaller loan amounts, for certain manufactured housing loans and for subordinate-lien transactions.
- For adjustable rate mortgages, creditors are required to calculate the APR based on the highest rate of interest that can apply during the five (5) years after the first payment date. This differs from the APR calculation currently used for disclosure purposes.
- Effectively loans which exceed a certain APR will not fit within the QM requirements.
- All other current requirements remain unchanged (no risky loan features, terms do not exceed 30 years, 3% max points and fees, verify ATR with income, assets, debts, DTI and liabilities, etc.).
- The rule details the manner in which lenders should consider and verify the income, assets, debts, DTI ratio, residual income and liabilities of applicants. The new General QM rule provides flexibility to creditors to take into account additional factors that are relevant in determining a consumer’s ability to repay.
- The rule includes a list of specific verification standards that creditors may use to meet the revised General QM definition’s verify requirement. If a creditor satisfies the verification standards in the then current Freddie, Fannie, FHA, VA and the USDA manuals, the creditor has a safe harbor for compliance with the verification requirement in the revised General QM definition. A creditor need only comply with requirements in the manuals for creditors to verify income, assets, debt obligations, alimony and child support using specified reasonably reliable third party documents or to include or exclude particular inflows, property, and obligations as income, assets, debt obligations, alimony, and child support.
2. New Seasoned Qualified Mortgage (only for loan applications taken on or after March 1, 2021)
- Permits a loan to acquire QM status and receive Safe Harbor status following its origination if it meets with the precise requirements (among the following):
- Loan must be held in portfolio or transferred only once in the 36-month period following the first payment date (“Seasoning Period”).
- Loan may NOT be securitized during the Seasoning Period.
- Loan can be a higher priced mortgage loan (“HPML”).
- Loan may not be a HOEPA high-cost loan.
- Loan may not be down 30 more than twice and may not be down 60 at all during the Seasoning Period.
- Loan must be a fixed rate first lien loan.
- In connection with the loan, lenders must consider the income, assets, debts, DTI, residual income and liabilities of applicants, including using the underwriting guidelines of Freddie, Fannie, FHA, VA and the USDA for verification standards (see above).
- All other current requirements remain unchanged (no risky loan features, terms do not exceed 30 years, 3% max points and fees).
- The Seasoned QM Rule contains a provision whereby the Seasoning Period is effectively suspended due to a financial hardship caused by a disaster or pandemic, such as COVID-19. There needs to be a presidentially declared emergency, major disaster or pandemic. Many other requirements apply to this exception.
- Permits a loan to acquire QM status and receive Safe Harbor status following its origination if it meets with the precise requirements (among the following):
Please note on January 20, 2021, President Biden’s Chief of Staff issued a memorandum to the heads of executive departments and agencies setting forth terms related to a regulatory freeze. The regulatory freeze requires Acting Director of the CFPB to consider whether to postpone the effective dates of the above rules until March 22, 2021 in order to engage in a review of any questions of fact, law, and policy raised by the rules.
Yes. A lender must comply with Freddie Mac’s updated Power of Attorney (“POA”) requirements when using a POA to close a mortgage with an application date on or after January 4, 2021. Per Freddie Mac’s new guidelines, a POA may only be used when:
- There is an emergency event (i.e., a medical emergency or natural disaster) preventing the borrower from executing the requisite documents in person, by electronic signature or through other alternative electronic means (i.e., remote online notarization, eClosing); or
- Applicable law requires the lender to accept use of a POA.
Under no circumstances may a POA be used merely for the convenience of the parties. Further, evidence of the emergency qualifying the use of a POA must be included in the mortgage file whenever a POA is used. If the acceptance of a POA is required by law, the lender must include a written statement that explains the circumstances in the mortgage file and deliver a copy of the statement to the Document Custodian with the POA.
The person acting as Attorney-in-Fact must:
- Have a familial or fiduciary relationship with the borrower;
- Be an individual employed by the title insurer underwriting the title insurance product insuring the mortgage; or
- Be an individual employed or engaged contractually by the title agency issuing the title insurance product for the mortgage and closing the transaction, but only if the title insurer has issued a closing protection letter relating to the transaction (or has similar contractual indemnity to the lender and it’s assignees) for such policy issuing agent.
Neither the seller of the property in a purchase transaction, nor the lender’s employee is eligible to be an attorney-in-fact under a POA. The borrower may execute the POA using an electronic signature. The POA must be executed by the borrower prior to its use by an attorney-in-fact.
After the lender delivers the finalized Closing Disclosure to the borrower but prior to closing, an employee of the lender or settlement agent must explain and discuss the terms of the mortgage and use of the POA with the borrower to confirm that the borrower understands them. This discussion must take place in person, telephonically, or using a video conference system and must be memorialized in an acknowledgment by the borrower of his or her understanding of the terms of the mortgage. The acknowledgment (i) may be in writing or in a recording of the telephonic or video discussion, (ii) must be retained in the mortgage file, and (iii) must be made available to Freddie Mac upon request. If the discussion occurs using a telephonic or video system, a transcript of the recording or the borrower’s written acknowledgment of the content of the discussion may substitute for a copy of the recording itself in the mortgage file.