Texas Updates Regulations Impacting Mortgage Originations and Mortgage Servicing

The Texas Department of Savings and Mortgage Lending (“Department”) issued updated rules relating to mortgage companies, loan originators, mortgage bankers, and mortgage servicers.  The revisions are aimed at modernizing and updating the rules by adding and replacing language for clarity, removing unnecessary or duplicative provisions, and updating terminology. 

Mortgage Loan Originators, Mortgage Companies, and Mortgage Bankers

Reorganization

Regulations issued by the Department are located in Title 7 of the Texas Administrative Code. The final rule renumbers several chapters while adding an entirely new one.  Chapter 55 was created for rules impacting residential mortgage loan originators, which were previously combined with rules governing mortgage bankers.  Additionally, the mortgage banker rules have been relocated from Chapter 81 to Chapter 57 while the mortgage company rules have been relocated from Chapter 80 to Chapter 56.

Disclosures

• The Mortgage Company Disclosure and Mortgage Banker Disclosure have been revised to simplify the disclosures and improve readability as well as update the rule number pursuant to the chapter reorganization and renumbering.

• The Conditional Pre-Qualification and Conditional Approval Letters have been updated to require the signature of the individual residential mortgage loan originator as well as update the rule number cited.  These forms are not required but if they are provided to an applicant, the published form must be used.

• A readability requirement has been added, requiring all notices to be provided in one of the specified fonts and be at least 12-point size.

Reportable Incidents

Mortgage companies and mortgage bankers must now report certain information to the Department when they experience an event that presents a material risk, financial or otherwise, to the company’s operations or its customers.  These “reportable incidents” may be classified as either a security event resulting from unauthorized access to an information system or customer information, or a catastrophic event, which is anything other than a security event that is unforeseen and results in extraordinary levels of damage or disruption to operations.

Following the occurrence of a reportable event, the company must report the event to the Department within 30 days and submit a root cause analysis within 120 days.

Trigger Leads

The Department also addressed leads purchased from credit bureaus which identify consumers whose credit was pulled in conjunction with a credit application, also known as “trigger leads.”  The rule specifies that it is considered a fraudulent, misleading, or deceptive practice to use trigger leads in a misleading or deceptive manner by, among other things, failing to indicate in the initial communication with the consumer:

• that the entity sending the communication is not affiliated with the creditor to which the consumer made the credit application;

• the originator’s name and the mortgage company or mortgage banker the originator is representing;

• how the originator or the sponsoring mortgage company or mortgage banker obtained the consumer’s contact information; and

• that the purpose of the communication is to solicit new business.

The rules also updated provisions for mortgage companies, mortgage bankers, and loan originators related to licensing, record-keeping, supervision, and enforcement.

Mortgage Servicers

Reorganization

The Department reorganized rules relating to servicing by moving the Residential Mortgage Loan Servicer Rules from Chapter 79 of Title 7 of the Texas Administrative Code to Chapter 58, a vacant chapter.

Disclosures

The Mortgage Servicer Disclosure, which previously had to be provided on all correspondence sent to the borrower, is now required on only the first notice sent to the borrower notifying the borrower that they will be the new servicer for their loan.

A readability requirement has been added, requiring all notices to be provided in one of the specified fonts and be at least 12-point size.

Reportable Incident

Mortgage servicers, like mortgage companies and mortgage bankers, must also report certain information to the Department when they experience an event that presents a material risk, financial or otherwise, to the mortgage servicer’s operations or its customers.  An event may be either a security event, resulting from unauthorized access to an information system or customer information, or a catastrophic event, which is anything other than a security event that is unforeseen and results in extraordinary levels of damage or disruption to operations.

Following the occurrence of a reportable event, the mortgage servicer must report the event to the Department within 30 days and submit a root cause analysis within 120 days.

The rules also updated provisions for servicers related to registration, supervision, and enforcement.

To read the final rules in their entirety, please visit TX Dept. of Savings and Mortgage Lending Final Rules.

Reversal of “Chevron Deference” Doctrine Gives Rise to Regulatory Uncertainty

The Supreme Court’s recent decision in Loper Bright Enterprises v. Raimondo (June 28, 2024) overturning the 40-year-old doctrine of administrative deference established in Chevron v. National Resources Defense Council (1984) will have a significant impact on the degree of latitude federal agencies enjoy when interpreting the federal statutes they are charged with administering. Under the so-called Chevron Doctrine, courts afforded federal agencies great deference when evaluating an agency’s interpretation of ambiguous statutes as long as the agency interpretation was reasonable.

The Loper decision eliminated the Chevron Doctrine, thereby placing the authority to interpret statutory ambiguities squarely back in the hands of the federal courts. In reversing Chevron, the Court relied on the judicial review standards established in the Administrative Procedures Act, which require courts, not agencies, to decide all relevant questions of law that arise on review of agency actions.

It is not immediately clear what impact the ruling will have on the various federal agencies that regulate the mortgage industry, although most experts believe there will be a surge in challenges to agency actions in general. Additionally, returning all such issues to the federal courts for adjudication and resolution will likely give rise to potentially conflicting interpretations of the same statutory provision in different parts of the country--presenting operational challenges for lenders transacting business in multiple states.

Proponents of the Court’s ruling hope Congress will be forced into using more precise language when enacting legislation which would, in theory, result in fewer ambiguities that would demand interpretations by either agencies or the courts. The reality, however, is that Congress has proven itself incapable of responding quickly and decisively to changing market conditions and business needs. This is one area where agency action has proven more flexible. And, of course, Congress lacks the flexibility of an agency to promulgate and implement a regulation rapidly in response to emerging issues and/or crises.

With the increased potential for conflicts in regulatory interpretations across federal circuits, it becomes even more critical to monitor statutory and regulatory changes nationwide. Lenders should ensure that all their service providers have robust measures in place for tracking legislative, judicial, or agency actions that may impact the products or services they provide.

To read the Supreme Court opinion in its entirety, please visit Loper Bright Enterprises v. Raimondo.

FHA Distinguishes GSEs from Government Institutions

The Federal Housing Administration (FHA) announced in Mortgagee Letter 2024-12 that there will now be a distinction between Government-Sponsored Enterprises (GSEs) and other Government Mortgagees.

Historically, FHA has included the GSEs in its definition of a Government Mortgagee, thereby subjecting the GSEs to the same requirements as all other Government Mortgagees. The GSEs have long contended that because they are not originating loans, they should not be required to comply with FHA requirements related to loan and mortgage origination.

Effective immediately, Government Mortgagees are now categorized into either 1) Governmental Institutions, which include federal, state, and municipal governmental agencies and the Federal Reserve Banks, or 2) Government-Sponsored Enterprises, which include the Federal Home Loan Banks, the Federal Home Loan Mortgage Corporation (Freddie Mac), and the Federal National Mortgage Association (Fannie Mae), allowing FHA to impose separate requirements on each group.

To review the Mortgagee Letter in its entirety, please visit FHA Mortgagee Letter 2024-12.

VA Announces Foreclosure Moratorium as Servicers Implement New Loan Repayment Program

The Department of Veterans Affairs (“VA”) has announced a “targeted foreclosure moratorium” on VA-guaranteed loans to allow servicers time to implement the Veterans Affairs Servicing Purchase (“VASP”) program. The VASP program was designed to provide an option for borrowers who are unable to find relief with existing home retention options due to the rise in interest rates.

VASP allows the VA to purchase defaulted VA loans and then modify any individual loan to a fixed 2.5% interest rate, resulting in a more affordable monthly payment. Servicers must implement a program to identify eligible loans no later than October 1, 2024.

As servicers work to implement the VASP program, the VA “strongly encourages” servicers to cease initiating, continuing, and/or completing foreclosures on VA-guaranteed loans through December 31, 2024, unless one or more of the following exceptions applies:

• The loan is secured by property that is vacant or abandoned;

• The servicer has documented that the borrower does not wish to retain the home or avoid foreclosure;

• The servicer has not received a monthly payment for at least 210 days, and the borrower is not responding to the servicer’s outreach attempts; or

• The servicer has evaluated the borrower for all home retention options and has determined that no home retention option, including VASP, or alternative to foreclosure will work for the borrower.

To read the announcement in its entirety, please visit VA Circular 26-24-12 Loan Repayment Relief for Borrowers.

CFPB Investigating Junk Fees in Mortgage Transactions

Today, the Consumer Financial Protection Bureau (“CFPB”) launched a public inquiry into what it referred to as “junk fees” associated with mortgage closings. A CFPB analysis indicates the median total loan costs have risen 36% from 2021 to 2023 and cites the steep rise in closing costs as one more factor making homeownership more difficult for an increasing number of borrowers. The CFPB’s “Request for Information” is asking for input from the public, including borrowers, lenders and other interested stakeholders, as to how closing costs may be inflated and constraining the mortgage lending market.

“Junk fees and excessive closing costs can drain down payments and push up monthly mortgage costs,” said CFPB Director Rohit Chopra in today’s announcement. “The CFPB is looking for ways to reduce anticompetitive fees that harm both homebuyers and lenders.”

The announcement makes it clear that while lenders are charging some of these fees, lenders are also impacted by increasing costs that are out of their control such as credit scores, credit reports, and employment verifications. Lenders are forced to pass these costs on to borrowers or reduce their profit margin to absorb the increased costs.

The CFPB is specifically requesting information on the following:

• Which fees are subject to competition

• How fees are set and who profits from them

• How fees are changing and how they affect consumers

Comments must be received on or before August 2, 2024. For information on the Request for Information and how to submit comments, please visit CFPB Request for Information Regarding Fees Imposed in Residential Mortgage Transactions.

FHA Announces New Cybersecurity Incident Reporting Requirements

The Federal Housing Administration (“FHA”) has issued new requirements, effective immediately, for reporting a potential or actual cybersecurity incident. In a circular published today, FHA announced that mortgagees must notify the Department of Housing and Urban Development (“HUD”) of any “Significant Cybersecurity Incident” within 12 hours of detection via the FHA Resource Center at answers@hud.gov and HUD’s Security Operations Center at cirt@hud.gov. The new requirement is part of HUD’s “commitment to the security and integrity of all its systems and technology supporting FHA operations.” Following notification of a cybersecurity incident, HUD representatives will contact mortgagee to determine the appropriate mitigation steps based on the nature of the incident. To read the Mortgagee Letter, please visit Mortgagee Letter 2024-10.

FHA Increases Maximum Allowable Assumption Fee

In the latest update to its Single Family Housing Policy Handbook 4000.1, the Federal Housing Authority (“FHA”) has increased the maximum allowable charge for processing the assumption of an existing FHA-insured mortgage from $900 to $1800. The maximum allowable charge has been the same since 2016. In making this change, FHA indicated the increase is an effort to “compensate mortgagees for costs of processing assumptions at a rate that is appropriate for today’s market.”

The allowable charge increase is effective August 19, 2024. For a copy of the latest FHA Single Family Housing Policy Handbook, please visit FHA Single Family Housing Policy Handbook.

Fannie Mae Publishes Fair Servicing Best Practices Guide

Fannie Mae recently released a Fair Servicing Best Practices guide (the "Guide") to “promote servicer awareness of fair servicing best practices.” The Guide identifies compliance with fair lending and housing laws and other applicable consumer protection laws as only one component of fair servicing, stressing that fair servicing practices must be integrated into all aspects of a servicing organization in order to identify disparities and effectively mitigate risks.

The Guide includes insights gathered from servicers and consumer advocacy groups on the best available methods to provide servicing that is consistent and fair to all borrowers. These methods are grouped into categories such as training, risk/compliance, policies and procedures, monitoring/testing, governance, remediation, and consumer support, and limited English proficiency.

For a more in-depth look at the Guide and its key takeaways, please read "Focusing on Fairness: A Look at Fannie Mae's Fair Servicing Best Practices" written by Lynn Woosley, Managing Director with Asurity Advisors and our resident expert on fair lending and servicing. To read the guide in its entirety, please visit Fair Servicing Best Practices.

Illinois Legislation Prohibits Misleading Marketing Aimed at Borrowers

As of January 1, 2024, mortgage companies soliciting consumers in Illinois will need to ensure their marketing materials do not run afoul of the state’s new law designed to protect consumers from being misled.

The new law provides that any marketing materials from a mortgage company with no connection to the consumer’s existing mortgage company must comply with certain requirements intended to avoid misleading recipients of any such materials. As a result, any solicitation must clearly identify the name of the soliciting mortgage company and may not include language implying a response is required. The name of the consumer’s current mortgage company may not be used in any way to suggest the solicitation is from that company. Further, any such solicitations must be accompanied by language communicating that the solicitation is not from, or affiliated with, the consumer’s actual mortgage company.

The legislation, which went into effect on January 1, 2024, may be viewed in its entirety by visiting Illinois House Bill 2094.

Texas Authorizes Remote Ink Signed Notarizations

Since 2018, the state of Texas has permitted remote online notarizations. With the passage of Senate Bill 1780, effective January 1, 2024, remote “ink-signed” notarization will now be recognized under Texas law. A remote ink-signed notarization occurs when the notary observes an individual executing a physical document through audio-visual technology. The notarial certificate must indicate that the signature was a tangible symbol (rather than an electronic signature as in the case of remote online notarization). Once the document is signed, the individual must send the document to the notary to attach his or her seal.

As in all cases, the notary is required to confirm the identity of the person signing the document.

To review the bill in its entirety, please visit Texas Senate Bill 1780.

Illinois Allows Loan Originators to Work Remotely

Beginning January 1st, loan originators in Illinois will be permitted to work from a remote location provided certain customer interaction and information security requirements are met. Previously, loan originators were only able to conduct business in locations licensed as a branch office. While many states issued temporary executive orders permitting remote work during the pandemic out of health and safety concerns, several states have since updated their laws in keeping with the move towards the increased use of remote work environments.

The Illinois bill may be viewed in its entirety by visiting Illinois House Bill 2325.

California Becomes Latest State to Permit RON

California has joined 44 other states and the District of Columbia in passing laws to permit remote online notarization (“RON”). Notaries in California will not be able to perform such notarizations until January 1, 2030, however, in order to give the Secretary of State time to adopt regulations and establish the technology necessary to implement the RON laws.

With the passing of the California law, only four remaining states still prohibit RON: Alabama, Georgia, Mississippi and South Carolina. While Connecticut has enacted RON legislation, the Connecticut law specifically excludes real estate finance transactions from the types of transactions which may be executed by remote online notarization.

Maine Adds Annual PMI Cancellation Notice Requirement

Effective September 20, 2023, supervised lenders and servicers of residential mortgages will be required to provide borrowers with an annual disclosure document informing them of their right to cancel or to terminate private mortgage insurance, in accordance with the provisions of the federal Homeowners Protection Act of 1998. The notice also must include the address and telephone number the borrower should use to contact the lender or servicer to determine whether cancellation of private mortgage insurance is available.

To read Maine Senate Bill 449 in its entirety, please visit http://www.mainelegislature.org/legis/bills/getPDF.asp?paper=SP0449&item=3&snum=131.

North Dakota Revises Licensing for Lenders; Adds Licensing Requirement for Servicers

North Dakota has revised its licensing laws to change the license type required for residential mortgage lenders and has added a licensing requirement for residential mortgage servicers.

Residential mortgage lenders will no longer be licensed under the North Dakota Money Brokers Act but will instead be required to hold a Residential Mortgage Lender License. The new law also added a limitation on late charges for loans of $50,000 or less.

In addition, North Dakota created a licensing requirement for mortgage loan servicers. Until recently, North Dakota was one of only a handful of states that did not require residential mortgage loan servicers to obtain a license. The law will require not only servicers and subservicers to be licensed, but also holders of mortgage servicing rights as well as mortgage servicing rights investors.

The Department of Financial Institutions will issue and regulate both Residential Mortgage Lender Licenses and Residential Mortgage Servicer Licenses. Residential mortgage lenders with an active North Dakota Money Broker license will have until December 31, 2023 to transition to the new Residential Mortgage Lender license in NMLS while servicers were required to be licensed beginning August 1, 2023.

To read the residential mortgage lender licensing bill in its entirety, please visit ND Senate Bill 2090.

To read the residential mortgage lender servicing bill in its entirety, please visit ND House Bill 1068.

North Carolina Delays Effective Date for Remote Electronic Notarization Act

The effective date of the North Carolina Remote Electronic Notarization Act (“RENA”) has been delayed one year until July 1, 2024 to allow the Secretary of State additional time to promulgate

rules implementing the act. RENA also authorized the immediate use of emergency video notarization until the effective date of the permanent legislation. With the effective date of RENA postponed, the provisions allowing emergency video notarization have been extended and a statement indicating that the notarial certificate was executed according to the emergency video notarization requirements contained in G.S. 10B-25 will continue to be required.

For information regarding the process for emergency video notarization and updates on rulemaking, please visit the North Carolina Secretary of State’s website at NC Secretary of State Notary Information.

Maine Requires Mortgage Holders to Notify Homeowner’s Insurance Company of Sale or Transfer of Mortgage

Maine will soon require a creditor, assignee or servicer that holds or controls consumer funds in an escrow account for the payment of insurance premiums to notify the insurer providing homeowner’s insurance coverage if the mortgage is sold or transferred. A creditor, assignee or servicer may satisfy this requirement by providing the insurer with a copy of the notice of the sale or transfer of the mortgage that was sent to the consumer. This requirement goes into effect on June 29, 2023.

To read the bill in its entirety, please visit ME H.P. 358/L.D. 553.

FHA Seeks Industry Input on New Partial Claim Program

The Federal Housing Administration (“FHA”) has announced a proposal to create a new loss mitigation option to assist struggling borrowers that are delinquent on their mortgage payments. The Payment Supplemental Partial Claim would allow mortgagees to use available partial claim funds to bring borrowers current and temporarily reduce the principal amount of the borrower’s monthly mortgage payments for 3-5 years. Mortgagees would be required to evaluate eligible borrowers for the Payment Supplement PC loss mitigation option when the COVID-19 Recovery Modification option will not be sufficient to reach a target payment reduction.

FHA is looking for feedback by June 30, 2023 and will consider industry input before publishing a final mortgagee letter.

To read the proposed mortgagee letter, please visit FHA Payment Supplement Partial Claim Proposal.

FHFA Announces Rescission of DTI-Based Fees

The Federal Housing Finance Agency (“FHFA”) announced yesterday that it was rescinding its controversial plan to implement loan level pricing adjustments (“LLPA”) for borrowers with debt-toincome ratios of 40% or higher.

While the FHFA initially indicated the changes were designed to make home buying more affordable for first time and low-income borrowers, the proposal was met with strong opposition from consumer groups as well as the mortgage industry.

Bob Broeksmit, Mortgage Bankers Association President and CEO, issued the following statement:

We have strongly opposed FHFA's planned debt-to-income loan level pricing adjustment since it was announced in January and have led advocacy efforts calling for its removal. The proposed fee was unworkable for lenders and would have confused borrowers and undermined the customer experience. We are pleased that FHFA engaged with industry stakeholders, recognized the negative impacts of the fee, and decided to rescind its implementation.

The changes were originally set to become effective May 1, 2023, but were delayed until August 1, 2023, before yesterday’s decision to rescind the new pricing scheme in its entirety.

To read the FHFA Announcement, please visit FHFA Announces Rescission of Upfront Fees Based on DTI.

FHA Extends COVID-19 Forbearance Through May

The Federal Housing Administration (“FHA”) announced recently that they will extend the deadline for COVID-19 related forbearance requests through May 31, 2023. The COVID-19 forbearance option had been set to expire at the end of the COVID-19 National Emergency. FHA announced in Mortgagee Letter 2023-08 that with the COVID-19 National Emergency set to expire early, extending the forbearance option through May would allow borrowers who need assistance additional time to request such relief and allow servicers time to offer and process any such requests.

To review the Mortgagee Letter in its entirety, please visit Mortgagee Letter (ML) 2023-08.

Massachusetts and Delaware Become Latest States to Permit Remote Online Notarization

With the passage of new laws in Massachusetts and Delaware, all but five states, as well as the District of Columbia, now have permanent laws in place permitting remote online notarization (“RON”).

To facilitate the continued execution of documents requiring notarization during the COVID-19 pandemic, most states issued temporary orders allowing RON. Many of these states subsequently adopted permanent RON laws.

Five states, California, Connecticut, Georgia, Mississippi, and South Carolina, have no permanent laws in place. Temporary orders authorizing the use of RON during the COVID-19 pandemic expired in Connecticut, Georgia, and Mississippi. California explicitly prohibits RON. South Carolina has been completely silent on the subject.

The Massachusetts law, which goes into effect on January 1, 2024, can be found at MA House Bill 58.

The Delaware law, which goes into effect on August 1, 2023, can be found at DE Senate Bill 262.