Top Story Lending Related

The Federal Reserve Board has reported that First Citizens Bank of Butte, Butte, Montana, has entered into a formal agreement with the Federal Reserve Bank of Minneapolis and the Montana Division of Banking and Financial Institutions, to address deficiencies identified in the most recent examination of the bank conducted by the Division and the Reserve Bank relating to the bank's risk management and compliance with applicable federal laws, rules, and regulations relating to BSA/AML compliance.

The U.S. Department of Housing and Urban Development (HUD), through the Federal Housing Administration (FHA), has announced it has extended its foreclosure moratorium for borrowers with FHA-insured mortgages in Maui County, HI, through January 1, 2025. FHA took this action due to the extent of the devastation from the wildfires, the reduced capacity for borrowers to access needed resources, and the unique challenges associated with the geographic location of Maui. The extension will provide affected borrowers more time to obtain federal, state, and local assistance, to work with a HUD-certified housing counselor, and/or to rebuild without the added burden of dealing with foreclosure actions. FHA’s foreclosure moratorium for Maui County has been in place for eight months and was set to expire on May 6, 2024.

With this extension, FHA is instructing mortgage servicers that they must not initiate new, or continue with existing, foreclosure actions on FHA-insured single family forward mortgages and Home Equity Conversion Mortgages for properties located in Maui County.

The Federal Reserve Board has released the results of its April 2024 Senior Loan Officer Opinion Survey on Bank Lending Practices, which addressed changes in the standards and terms on, and demand for, bank loans to businesses and households over the past three months, which generally correspond to the first quarter of 2024.

Regarding loans to businesses, survey respondents reported, on balance, tighter standards and weaker demand for commercial and industrial (C&I) loans to firms of all sizes over the first quarter. Meanwhile, banks reported tighter standards and weaker demand for all commercial real estate (CRE) loan categories.

Banks also responded to a set of special questions about changes in lending policies and demand for CRE loans over the past year. For all CRE loan categories, banks reported having tightened all queried lending policies, including the spread of loan rates over the cost of funds, maximum loan sizes, loan-to-value ratios, debt service coverage ratios, and interest-only payment periods.

For loans to households, banks reported that lending standards tightened across some categories of residential real estate (RRE) loans while remaining unchanged for others on balance. Meanwhile, demand weakened for all RRE loan categories. In addition, banks reported tighter standards and weaker demand for home equity lines of credit (HELOCs). Moreover, for credit card, auto, and other consumer loans, standards reportedly tightened and demand weakened.

While banks, on balance, reported having tightened lending standards further for most loan categories in the first quarter, lower net shares of banks reported tightening lending standards than in the fourth quarter of last year across most loan categories.

The FDIC, Federal Housing Finance Agency, NCUA, and OCC have issued a Joint Press Release announcing that the FDIC, the OCC, and the FHFA have adopted a Notice of Proposed Rulemaking (NPR) to address incentive-based compensation arrangements, as required under section 956 of the Dodd-Frank Act (section 956). The NCUA is expected to take action on the NPR in the near future. The U.S. Securities and Exchange Commission (SEC) has included a rulemaking to implement section 956 on its rulemaking agenda. This NPR is intended to advance stakeholder engagement needed to develop a final incentive-based compensation rule.

The NPR re-proposes the regulatory text previously proposed in June 2016, and seeks public comment in the preamble on certain alternatives and questions.

Section 956 requires the appropriate Federal regulators—the FDIC, the Board of Governors of the Federal Reserve System (FRB), the OCC, the NCUA, the FHFA, and the SEC—to jointly prescribe regulations or guidelines with respect to incentive-based compensation practices at certain financial institutions that have $1 billion or more in assets. Once the NPR is adopted by all six agencies, it will be published in the Federal Register with a comment period of 60 days following publication. Until then, each agency acting on the NPR will make it available on their respective website, and will accept comments. If any of the six regulators specified by section 956 fails to join in the rulemaking, the rulemaking will not go forward.

The proposed rule includes prohibitions intended to make incentive-based compensation arrangements more sensitive to risk. These include a prohibition on incentive-based compensation arrangements that do not include risk adjustment of awards, deferral of payments, and forfeiture and clawback provisions. The prohibitions also emphasize the important role of sound governance and risk management control mechanisms. These prohibitions would help safeguard covered institutions from the types and features of incentive-based compensation arrangements that encourage inappropriate risks. The recordkeeping and disclosure requirements in the proposed regulatory text would assist the appropriate Federal regulator in monitoring and identifying areas of potential concern at covered institutions.

Comments received on this NPR and those previously submitted on the 2016 NPR will further inform efforts to address incentive-based compensation arrangements, as required under section 956.

The CFPB has announced actions taken yesterday against Pennsylvania Higher Education Assistance Agency (PHEAA) and National Collegiate Student Loan Trusts (the Trusts) for multi-year servicing failures. Trusts purchase and securitize student loans, and PHEAA services the loans. The CFPB alleges that the defendants failed to respond to borrowers seeking relief from student loan payments, including during the COVID-19 national emergency. The CFPB yesterday filed proposed stipulated final judgments, which, if entered by the court, would require the Trusts and PHEAA to pay $400,000 and $1.75 million in penalties, respectively, to the CFPB’s victims relief fund. They would also pay nearly $3 million in redress to harmed borrowers.

During the leadup to the financial crisis, there was a boom in subprime-style student lending. Student lenders worked with investment bankers to turn student loans into securities. The National Collegiate Student Loan Trusts were an infamous example of this type of securitization. They are a group of fifteen securitization trusts organized under Delaware law. The Trusts acquire, pool, and securitize student loans, which they then service. As of February 2024, the Trusts collectively held approximately 163,000 private student loans with approximately $907 million in outstanding balances.

Pennsylvania Higher Education Assistance Agency, which is commonly known as American Education Services or AES, is a student loan servicer with its principal office in Harrisburg, Pennsylvania. As of December 2023, PHEAA serviced a portfolio of student loans worth roughly $17.8 billion. It has been the primary servicer for active loans held by the National Collegiate Student Loan Trusts since at least 2006.

This is the CFPB’s second public enforcement action against the National Collegiate Student Loan Trusts. The CFPB earlier filed a lawsuit against this web of investment vehicles alleging, among other things, that the Trusts brought improper debt collection lawsuits for private student loan debt that they could not prove was owed or that was too old to sue over. The Trusts claimed that, as trusts, they were not covered under the Consumer Financial Protection Act. In March 2024, the United States Court of Appeals for the Third Circuit ruled the National Collegiate Student Loan Trusts are covered persons under the Consumer Financial Protection Act. That case remains pending in federal court.

In yesterday's case, the CFPB alleges that the defendants violated the Consumer Financial Protection Act. The CFPB’s complaint alleges that from 2015 until 2021, thousands of borrower requests—often seeking forms of payment relief—went unanswered. These included requests for co-signer release, extension of forbearance or deferment, loan settlement or forgiveness, Servicemember Civil Relief Act benefits, or other forms of payment or interest rate reduction.

The defendants failed to properly respond to borrower requests for years, including during the COVID-19 pandemic. Thousands of borrowers sent requests during the pandemic seeking forbearance on loans held by the National Collegiate Student Loan Trusts. However, many of those requests were mishandled. Specifically, the defendants harmed consumers by:

• Failing to ensure responses to borrower requests
• Failing to provide accurate information to borrowers
• Incorrectly denying forbearance requests

If entered by the court, the orders would require:

• Payment of nearly $3 million in redress to borrowers
• Correct outstanding requests
• Pay fines totaling $2.15 million

RELATED DOCUMENTS:

• The CFPB's Complaint
• Proposed Stipulated Final Judgment and Order as to the National Collegiate Student Loan Trusts
• Proposed Stipulated Final Judgment and Order as to Pennsylvania Higher Education Assistance Agency

The FDIC, OCC and Federal Reserve Board have jointly announced their issuance of a guide to support community banks in managing risks presented by third-party relationships.

Third-party relationships present varied risks that community banks are expected to appropriately identify, assess, monitor, and control to ensure that their activities are performed in a safe and sound manner and in compliance with applicable laws and regulations. These laws and regulations include, but are not limited to, those designed to protect consumers and those addressing financial crimes.

The guide offers potential considerations, resources, and examples through each stage of the third-party relationship and may be a helpful resource for community banks. While the guide illustrates the principles discussed in the third-party risk management guidance issued by the agencies in June 2023, it is not a substitute for that guidance.

• Third-Party Risk Managment: A Guide for Community Banks
• OCC Bulletin 2024-11
• FIL-20-2024

The FDIC has released its May 2024 list of banks examined for CRA compliance. Of the 56 banks listed, one headquartered in Salt Lake City, Utah, that "focuses its lending efforts on financing tiny homes" and "did not lend in its assessment area" received a "Substantial Noncompliance" rating. Another bank, headquartered in Rhinebeck, New York, received a "Needs to Improve" rating. Fifty-two of the banks earned "Satisfactory" ratings.

We congratulate First Bank of the Lake, Osage Beach, Missouri, and Union Bank, Morrisville, Vermont, for receiving evaluation ratings of "Outstanding."

The Federal Housing Finance Agency has issued its annual report on single-family guarantee fees charged by Fannie Mae and Freddie Mac (the Enterprises). Guarantee fees are intended to cover the expected credit losses, administrative costs, and cost of capital that the Enterprises incur when they acquire single-family loans from lenders. The report analyzes loans acquired by the Enterprises in 2022 by product type, risk class, and lender delivery volume, including a comparison to similar data from loans acquired in 2021.

Significant findings in the report indicate:

• For all loan products combined, the average single-family guarantee fee increased by 4 basis points to 61 basis points in 2022. The upfront portion of the guarantee fee, which is based on credit risk attributes (e.g., loan purpose, loan-to-value ratio, credit score), increased by 3 basis points to 17 basis points, on average, in 2022. The increase in upfront fees was driven by a shift from a predominantly refinance market to a predominantly purchase market.​
• The average guarantee fee in 2022 on 30-year fixed-rate loans rose by 3 basis points to 63 basis points, while the average guarantee fee on 15-year fixed-rate loans was unchanged at 42 basis points.

The Office of the Comptroller of the Currency (OCC) yesterday released a list of CRA performance evaluations that became public in April. The list contains only national banks, federal savings associations, and insured federal branches of foreign banks that have received ratings. The possible ratings are outstanding, satisfactory, needs to improve, and substantial noncompliance.

Of the 13 evaluations made public in April, one located in Los Angeles, California, is rated needs to improve, 11 are rated satisfactory, and one is rated outstanding. We congratulate MidFirst Bank, Oklahoma City, Oklahoma, on its outstanding CRA rating.

Yesterday, SBA Administrator Isabel Casilla Guzman announced a new rule that will remove restrictions on SBA loan programs that currently prevent many returning citizens, including those on parole and probation, from being eligible for SBA-backed loans to start or grow a business. As part of this rule change, the SBA will also remove questions on criminal history from its applications. Individuals who are currently incarcerated and those who have previously defrauded the government will remain ineligible.

In addition to removing restrictions on loan programs for the returning citizen population – including the nearly 4 million Americans on parole or probation – the final rule will also standardize most criminal history eligibility rules across SBA loan programs, which collectively provide more than $40 billion in capital annually to small businesses. The rule change will have no negative impact on the loan repayment process, and the SBA will continue to diligently perform fraud checks on all loan applications in accordance with its Risk Mitigation Framework. Lenders will also continue to evaluate individual loan applications for approval. In that context, lenders can evaluate criminal history on an individualized basis—as part of the full review of a loan application and consistent with federal, state, and local law. Lenders can deny loans based on evidence of an unacceptable credit risk.

No link to the new rule was provided with the press release.