MBA Advocacy Update

Steve O'Connor; Bill Killmer

July 09, 2018

Congress was in recess last week, but returns this week, with the Senate likely to begin its collective reaction to President Trump's next Supreme Court nominee.

Also last week, HUD clarified that Section 309 of the recently enacted regulatory relief statute (S.2155/Public Law 115-174) does not affect the guaranty on existing Ginnie Mae mortgage-backed securities; but unfortunately did not address the "orphaned" VA loan issue. And MBA sent a letter urging the Bureau of Consumer Financial Protection (Consumer Financial Protection Bureau) to revise the Loan Originator Compensation Rule.

VA Refinance Update: Ginnie Mae Clarifies Guaranty on Existing MBS; "Orphaned" Loans Remain Problem
On July 3, HUD issued an interpretive rule further clarifying that the guaranty on existing Ginnie Mae mortgage-backed securities is unaffected by the new financial regulatory relief law signed in late May. This rule also confirms that Multiclass Securities can be guaranteed by Ginnie Mae, even if the VA refinances underlying the existing MBS do not meet the new seasoning requirements. In effect, this rule makes clear that re-securitizations of existing Ginnie Mae MBS are not disrupted in any way by the new law, and corresponds to a bulletin released by Ginnie Mae shortly after the legislation was signed.

However, the rule also reinforces the opinion of HUD's legal counsel that "any VA refinanced mortgage loan that does not meet the seasoning requirements contained in...the Act is ineligible to serve as collateral for Ginnie Mae MBS." As such, the VA-guaranteed loans that were deemed ineligible for Ginnie Mae pooling remain "orphaned" and cannot be securitized.

MBA will provide comments in response to the rule that apply much of the logic used in the determination regarding Multiclass Securities to argue that a similar interpretation should be granted for the affected loans. Separately, MBA will continue its efforts to pursue a legislative fix to the problem, as well as further aid in development of a more robust secondary market for these loans.

For more information, please contact Dan Fichtler at (202) 557-2780

MBA Urges Bureau to Revise LO Comp Rule to Better Serve Consumers, Lenders
Recently, MBA responded to the Bureau of Consumer Financial Protection/Consumer Financial Protection Bureau's Request for Information on its adopted regulations and new rulemaking authorities, submitting a detailed comment letter applauding Acting Director Mick Mulvaney's efforts to end the Bureau's past practice of "regulation by enforcement" while urging the Bureau to re-examine its regulations and issue new interpretations that establish clear standards for complying with consumer protection laws.

The MBA letter makes it clear that the most pressing rule needing attention to address both consumer and industry harm is the LO Comp Rule, which broadly prohibits compensation-based on loans terms or proxies for terms while providing a short list of expressly permissible compensation factors. MBA urged the Bureau to provide the industry with common-sense exemptions and clearer guidance so that lenders can compete based on their ability to provide consumers with the best rates and customers service, rather than differing interpretations of an overly complex rule.

The letter also provides several specific recommendations regarding potential modifications to the Bureau's adopted regulations, prioritizing revisions and clarifications to the Ability-to-Repay/Qualified Mortgage Rule's Appendix Q and the expansion of the ability to cure minor errors under the TILA-RESPA Integrated Disclosure Rule. Additionally, the letter comments on UDAAPs, mortgage servicing rules and standards related to limited English proficiency consumers. The letter is part of the series of MBA responses to more than a dozen Bureau Requests for Information.

For more information please contact Justin Wiseman at (202) 557-2854; or Blake Chavis at (202) 557-2930

MBA Calls for Clearer BCFP Guidance Procedures, End to Regulation by Enforcement
Last week MBA submitted comments on the Bureau of Consumer Financial Protection/Consumer Financial Protection Bureau's Request for Information on Bureau Guidance and Implementation Support. Changing the Bureau's approach to guidance is a key part of ending "regulation by enforcement."

This practice of regulation by enforcement was both unfair and an ineffective means of communicating the Bureau's interpretations of the laws and regulations it enforces. MBA appreciates the Bureau's plan to abandon this approach and urges the Bureau to employ guidance to articulate paths to compliance. The letter offers fundamental guidance principles as well as several other suggestions to assist the Bureau in fulfilling its mandate by providing regulated entities with certainty as to their legal and regulatory requirements. In addition, the letter reiterated MBA's support for a broad reexamination of Bureau practices as detailed in CFPB 2.0: Advancing Consumer Protection (

For more information please contact Justin Wiseman at (202) 557-2854; or Blake Chavis at (202) 557-2930

VA Ends Policy Permitting PACE Liens on VA Loans
The Department of Veterans Affairs ended its policy permitting VA-guaranteed financing on properties with a pre-existing Property Assessed Clean Energy Loan (PACE) obligation. The policy was originally announced in Circular 26-16-18 on July 19, 2016 and was similar to a HUD announcement for FHA loans at the same time.

At that time, MBA advocated strongly against these decisions by both Departments because PACE loans are not subject to appropriate, standardized consumer protections, and they also upend traditional lien priority. Last year, with the arrival of the new administration, MBA urged both VA and FHA to reconsider their PACE policy. The original VA Circular included a sunset date of July 1, 2018, and VA has informed MBA it will not extend its PACE policy.

HUD previously announced on December 7, 2017 that it would reverse its prior PACE guidance. MBA advocacy also resulted in enactment of a provision (Section 307 of S. 2155) requiring the Consumer Financial Protection Bureau/Bureau of Consumer Financial Protections to issue regulations to apply ability to repay standards to PACE loans. Taken together, these actions should better protect consumers, lenders and taxpayers from the deleterious effects of PACE lending.

For more information, please contact Dan Fichtler (202) 557-2870; or William Kooper (202) 557-2737

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