Question

Many politicians are of the belief that the current regulations/disclosure requirements in the mortgage/real estate industry are inadequate and there has been and is currently much pending legislation in progress. Identify some of the recent or pending legislation and give your opinion after reviewing it

Answer 1

The real estate finance business has been steering through continuous change for a full decade. The 2008 housing meltdown precipitated a set of policy changes that sparked legal, procedural and structural transformations throughout the market. Even commercial real estate lending, largely immune from heavy regulatory scrutiny, is being affected. As we look towards the coming year, we see continued movement and even more reforms. The various developments from 2018 presage dynamic evolution in 2019, with numerous elements that will affect industry for years to come. To ring in the new year, ABA policy staff have identified the top 10 issues that we expect to be in play for banks in 2019.

Ability-to-repay. The Ability-to-Repay/Qualified Mortgage rules have imposed novel and significant restrictions on residential loan underwriting, business models and risk considerations. Palpable difficulties remain in the new regulatory scheme. We predict substantial movements on the ATR regulatory scheme in 2019, starting with a thorough review of the regulations by the Consumer Financial Protection Bureau, and followed by earnest proposals to improve them. There will likely be much focus on facilitating banks’ abilities to reach more segments of their communities, and finding ways to replace the lapsing “GSE QM” provision, the safe harbor that sustains huge swaths of residential lending activity in mortgages markets. Expect intense multisector and multidisciplinary discussions aimed at ensuring that ATR/QM succeeds in its objectives of ensuring consumer access to credit on terms that are fair and reflective of their ability to repay. The outlines of a proposed rule—if not an actual proposed rule—are certain in 2019.

HMDA reforms. 2018 saw a significant transformation to the Home Mortgage Disclosure Act landscape. Massively expanded reporting requirements have imposed major costs and daunting risks on covered institutions. The CFPB will publicly release the new HMDA data fields in the first half of 2019, which will force banks to focus on their fair lending exposure. In addition, the bureau has announced that it will reopen rulemaking in May 2019, focusing on what data should be released to the public and other comprehensive assessments of the rule. Expect very strong reactions on all sides of the debate surrounding HMDA data reporting requirements and access to that data. Congressional attention is certain. The future of HMDA will be much shaped, and perhaps fully defined, in 2019.

Fair lending. With Democratic leadership in the House of Representatives, we anticipate hearings on affordable housing, fair lending and redlining in the coming months. This will place fair lending issues in the congressional spotlight. Beyond that, regulators are revisiting disparate impact standards, and this will be a major and significant topic for 2019. The reassessments are based in large part on a 2015 Supreme Court ruling that recalibrated the application of disparate impact laws and guidelines under the Fair Housing Act. The Department of Housing and Urban Development will likely issue proposed amendments to the Fair Housing Act regulations before the summer of 2019. In addition, other agencies—most significantly the Department of the Treasury and CFPB—have called attention to the need to reexamine whether a disparate impact test applies under the Equal Credit Opportunity Act. We expect meaningful movement in the coming months, and we foresee keen congressional attention on these issues in 2019.

Appraisal thresholds. Regulators have proposed raising banks’ threshold for requiring appraisals in residential real estate transactions from $250,000 to $400,000. This latest regulatory move follows on a series of other appraisal reforms enacted over the past 36 months, including a threshold increase for CRE transactions finalized in April 2018. Banks should expect additional policy discussions on property valuations and alternative methods in 2019 and beyond.