Regulatory and Legal Changes Affecting the Mortgage Industry
The mortgage industry changed dramatically starting March 2020 with the legislation that placed a moratorium on FHA foreclosures and evictions due to the COVID pandemic. That legislation was amended and extended multiple times into 2022 to help Americans remain in their homes. Today, it is estimated that approximately ninety percent of the loans that were in forbearance are now paying current, typically through a loan modification process.
However, there is still an expectation that loan defaults will increase rapidly as the last of the forbearance plans expire in 2022. With that, there will be increased regulatory scrutiny of practices at U.S mortgage companies. Here are some of the notable regulatory changes we can expect to see in 2022.
Legislation is underway to discuss changes in the credit reporting system. Topics under consideration are the use of alternative data for credit scoring, limits on the ways credit information is used, and changes in the way credit is scored.
Data Access and UDAAP
In 2021, President Biden issued an executive order encouraging the Consumer Finance Protection Bureau (CFPB) to create rules around customer access to financial data and to enforce the Unfair, Deceptive or Abusive Acts and Practices Act (UDAAP). In 2022 we can expect to see the CFPB enact more rules in this category.
Climate Change Compliance
In 2021, Biden also issued an executive order directing federal agencies to integrate climate change risks and repercussions into their scenario analysis. This led Congress to introduce its own bills on climate change. One such bill was the Climate Risk Disclosure Act, which directs the SEC to issue rules for a public company to disclose its climate change risk exposure. A second bill was H.R. 1549 which would require federal banks to take climate risk into consideration in their examinations. A third climate change bill is H.R. 3571, which would require the Federal Reserve to conduct stress tests on large financial institutions to determine their vulnerability to climate change, including any risk to their customers.
Fair Lending and Redlining
One of the most significant topics the new administration focused on was fair lending and redlining in the mortgage industry. Immediately upon taking office, the Biden administration and Consumer Financial Protection Bureau put regulation and enforcement of equity issues and anti-discrimination laws at the forefront of their policy. Examples included the Equal Credit Opportunity Act (ECOA) and the Fair Housing Act (FHA). The CFPB advocated for a return of the “disparate impact theory” to detect and eliminate discriminatory lending practices. As a result, institutions should be prepared for increased scrutiny of their lending practices. In addition, the CFPB has emphasized access and accommodations for customers with limited English proficiency. Such accommodations include marketing in non-English and non-English speaking services, particularly for Spanish speakers. This means that mortgage institutions should assess the communities they serve and adopt formal policies to accommodate limited English speakers to ensure their businesses are meeting the needs of their communities. A third notable clarification from the CFPB was the prohibition against discrimination on the basis of sexual identity or orientation. This includes discrimination based on perceived non-conformity with gender based stereotypes. These rules are expected to be developed and financial institutions should review their policies and procedures to ensure they are up to date.
After a period of quiet due to the pandemic, mortgage institutions should expect an uptick of oversight and regulation in 2022 and beyond, with a number of new changes affecting the mortgage industry. These financial institutions should review their current policies to ensure they are up to date with all of the potential regulatory changes taking effects.
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