| Of Interest

What Happened?

On March 13, President Trump issued an Executive Order titled “Promoting Access to Mortgage Credit,” addressing factors that may have negatively impacted the ability of community banks and other smaller financial institutions to participate in mortgage lending and servicing.

In order to expand access to mortgage credit, the Executive Order directs the Consumer Financial Protection Bureau (“CFPB”) and other financial regulators (the Board of Governors of the Federal Reserve System, the National Credit Union Administration, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency (collectively, the “Regulators”)) to take action to reduce regulatory burdens, modernize reporting requirements, and utilize digital mortgage processes, among other actions.

Why Does it Matter?

The Executive Order includes broad directives to the Regulators to update regulations and processes that impact the mortgage markets, including:

Changes to Origination Regulations: The Executive Order directs the CFPB to consider regulatory changes including tailoring Regulation Z requirements as applicable to smaller banks (including ATR and QM, TILA, RESPA, and TILA-RESPA Integrated Disclosure (TRID) rules), updating TRID timing rules, modifying or exempting small mortgage loans from caps on QM points and fees, and amending rescission rights.

HMDA Modernization: The Executive Order requires the CFPB to consider proposing amendments to Regulation C to increase the asset threshold for exemption from HMDA data collection and reporting requirements for smaller banks, exclude inquiries from the scope of HMDA, and reduce burdens related to disclosures.

Alignment of Capital and Liquidity Standards: The Executive Order directs the Regulators to consider: (a) updating capital regulations and collateral valuation and transfer systems between the Federal Reserve and Federal Home Loan Banks; (b) expanding access to longer‑dated FHLB advances tied to residential mortgage assets; (c) creating targeted FHLB liquidity programs for entry‑level housing, owner‑occupied purchase loans, and small residential builders; and (d) modernizing collateral boarding and valuation processes.

Construction and Housing Supply: The Executive Order directs the Regulators to consider revising supervisory guidance to: (a) exclude one-to four-family residential development and construction lending from commercial real estate concentration guidance; and (b) ensure that supervisory expectations support responsible construction lending by community banks.

Appraisal Modernization: The Executive Order directs the Regulators to consider certain changes to appraisal processes, including with respect to valuations performed in connection with FHA-insured and VA-guaranteed loans and with respect to the use of alternative valuations (AVMs, desktop and hybrid appraisals, and artificial intelligence valuation tools).

Digital Mortgage Modernization: The Executive Order requires the Regulators to consider certain changes to facilitate digital mortgages, namely eliminating unnecessary wet signature requirements, standardizing acceptance of electronic signatures, e-notes, and remote online notarization, and promoting digital mortgage standards.

Servicing and Supervisory Certainty: The Executive Order directs the Regulators to consider supervisory changes relating to mortgage loan servicing, including: (a) aligning supervisory expectations to support portfolio mortgage servicing as a core community banking function; (b) extending cure‑first standards to good‑faith servicing errors; (c) simplifying loss mitigation requirements; (d) issuing a proposed rule providing exemptions from complex mortgage services for smaller banks; and (e) ensuring that supervisory evaluations of performing, prudently underwritten portfolio loans do not focus on technical defects or rely on evolving supervisory interpretations.

Duplicative or Unnecessary Licensing Requirements: The Executive Order requires the Regulators to consider eliminating duplicative or unnecessary requirements regarding licensing or registration (i.e., MLO licensing) for mortgage loan officers of any smaller bank.

What Do You Need to Do?

While the Executive Order does not directly impose obligations on mortgage lenders and servicers, it has the potential to significantly impact the mortgage market by changing the rules of the game, particularly for community banks and smaller banks. Industry participants appear open to the possibility of reform – for example, Mortgage Bankers Association President and CEO Bob Broeksmit issued a statement applauding the focus on “addressing costly mortgage regulations that have increased costs and limited access to credit,” and supporting efforts to address other structural factors (including valuations and construction regulations) impacting access to housing.

We will continue to monitor the Regulators’ activities to implement the directives of the Executive Order, particularly as the 21st Century ROAD to Housing Act (which includes provisions on some of the same topics) advances in Congress; we encourage mortgage market participants to do the same.

The latest edition of the Consumer Finance State Roundup highlights recently enacted measures of potential interest from two states:

New Jersey

Effective immediately upon approval by Governor Phil Murphy on January 12, Assembly Bill 4841 amends the Law Against Discrimination to prohibit discrimination based upon “source of lawful income used for rental or mortgage payments,” among other bases. The measure – which focuses principally on discriminatory practices relating to the sale, rental, lease, assignment, or sublease of real property – defines “source of lawful income” as any source of income lawfully obtained or any source of rental or mortgage payment lawfully obtained including, but not limited to, any federal, State, or local public assistance or housing assistance voucher or funds, including Section 8 housing choice vouchers, temporary rental assistance programs or State rental assistance programs; rental assistance funds provided by a nonprofit organization; federal, State, or local benefits, including disability benefits and veterans’ benefits; court-ordered payments, including, but not limited to, child support, alimony, or damages; and any form of lawful currency tendered, without regard to whether the currency is tendered in the form of cash, check, money order, or other lawful means.

New York

Effective March 19, Senate Bill 1353-B adds a new article to the New York General Business Law to address actions involving coerced debt (meaning “debt incurred as a result of economic abuse, including but not limited to, by means of fraud, duress, intimidation, threat, force, coercion, manipulation, or undue influence, the non-consensual use of the debtor’s personal information”). The measure: (a) prohibits all collection activities on a coerced debt once a creditor is notified that a debt may be considered coerced; (b) requires a creditor to review the debtor’s claim of coerced debt using the information in the notification within 30 days of receiving the notification; and (c) after completion of the review, required a creditor to inform the debtor within five days regarding whether it intends to continue collection activities. Further, the measure provides that a debt being coerced is also an affirmative defense in any action by a creditor to collect the debt.

Effective June 3, Assembly Bill 1820-A adds Section 327-a to the New York Real Property Law, requiring the removal of any covenants, conditions, or restrictions on recorded instruments that discriminate against any protected classes (except lawful restrictions arising under state and federal law) before a transfer of the property may be recorded. Specifically, the new section requires that a seller of real property must: (a) have the unlawful restriction removed; (b) provide the purchaser or title insurance applicant with a copy of the modified document prior to or at the closing of title; and (c) record the modified document. The measure further imposes obligations on condominium, cooperative, and homeowners association leadership with respect to the deletion of amendment of any covenants or restrictions that so discriminate, as well as on any holder of an ownership interest in real property subject to an unlawfully restrictive covenant.