Top Story Lending Related

The FDIC has issued two Financial Institution Letters to help financial institutions and facilitate recovery in areas affected by tornadoes and other severe weather.

• FIL-23-2024: Guidance in areas of Nebraska affected by severe storms, straight-line winds, and tornadoes
• FIL-22-2024: Guidance in areas of Ohio affected by tornadoes

The Department of the Treasury on Friday reported that the Financial Stability Oversight Council had released its Report on Nonbank Mortgage Servicing. The report documents the growth of the nonbank mortgage servicing sector and the critical roles that nonbank mortgage servicers play in the mortgage market. It identifies certain key vulnerabilities that can impair servicers’ ability to carry out these critical functions and describes how these vulnerabilities could amplify shocks to the mortgage market and pose risks to financial stability. The report includes the Council’s recommendations to enhance the resilience of the nonbank mortgage servicing sector, drawing on existing authorities of state and federal regulators and also encouraging Congress to act to address the identified risks. The report was drafted by Council member agencies in coordination with the Government National Mortgage Association (Ginnie Mae).

State regulators and federal agencies have taken steps in recent years to mitigate the risks posed by the rising share of mortgages serviced by NMCs, but the combination of various state requirements and limited federal authorities to impose additional requirements do not adequately and holistically address the risks described in the Council’s report. Stress in the sector could harm mortgage borrowers and, more broadly, disrupt the provision of financial services and impair the ability of the financial system to support economic activity. The Council made several recommendations to address the risks posed by nonbank mortgage servicers identified in the report.

• Statement of Acting Comptroller of the Currency Michael J. Hsu
• Statement of CFPB Director Rohit Chopra
• Remarks by Secretary of the Treasury Janet L. Yellen
• Statement of FHFA Director Sandra L. Thompson

The CFPB has announced its release of a new Issue Spotlight report, "Credit Card Rewards" finding consumers encounter numerous frustrations with credit card rewards programs.

The report indicates that consumer complaints include that rewards are often devalued or denied even after program terms are met and that credit card companies focus marketing efforts on rewards, like cash back and travel, instead of on low interest rates and fees. Consumers who carry revolving balances complain they often pay far more in interest and fees than they get back on rewards and credit card companies often use rewards programs as a “bait and switch” by burying terms in vague language or fine print and changing the value of rewards after people sign up and earn them. New problems have been created by the growth of co-brand credit cards and rewards programs where consumers can transfer miles or points to merchants.

The Federal Reserve Board has reported its release of a summary of the exploratory pilot Climate Scenario Analysis (CSA) exercise that it conducted with six of the nation's largest banks.

The summary describes how these banks are using climate scenario analysis to explore the resiliency of their business models to climate-related financial risks. Participating banks took a wide range of approaches in this exercise to consider the possible implications of different physical and transition risk scenarios. The exercise highlighted data gaps and modeling challenges that arise when estimating the financial impacts of highly complex and uncertain risks over various time horizons.

The banks that participated in the exercise were Bank of America, Citigroup, Goldman Sachs, JPMorgan Chase, Morgan Stanley, and Wells Fargo.

The exercise was exploratory in nature and does not have capital consequences. Drawing on lessons learned from the exercise, the Board will continue to engage with participating banks regarding their capacity to measure and manage climate-related financial risks.

The CFPB has announced that 118,101 consumers who were deceived by LendUp Loans LLC will receive checks in the mail in the next few days.

LendUp Loans, headquartered in Oakland, California, offered single-payment and installment loans to consumers online and marketed itself as an alternative to payday lenders. A central component of LendUp’s marketing and brand identity was the “LendUp Ladder.” The company told consumers that by repaying loans on time and taking free courses through its website, consumers would move up the “LendUp Ladder” and receive lower interest rates on future loans and access to larger loan amounts. Tens of thousands of customers climbed the “LendUp Ladder” and still failed to qualify for larger loan amounts and continued to be offered similar or higher interest rates compared to previous loans.

The checks were scheduled to be sent through Epiq Systems yesterday. The total distribution amount is $39,833,748.87 and the money will come from the CFPB’s victims relief fund.

Our monthly check of the Federal Reserve Board's archive of Community Reinvestment Act evaluations shows that the Reserve Banks issued 15 evaluations in April 2024. Twelve of those evaluations were rated "Satisfactory." We congratulate Cedar Rapids Bank and Trust Company, Cedar Rapids, Iowa; Manufacturers and Traders Trust Company, Buffalo, New York; and Opportunity Bank of Montana, Helena, Montana, on their CRA evaluations, which were rated "Outstanding."

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.