Doug was recently elected Advisory Committee Chairman for the Texas Real Estate Research Center at Texas A&M University. He writes this month to highlight The Center’s monthly survey on real estate industry sentiment and potential causes of the perceived increase in regulatory burdens reported by survey participants.
Each month The Real Estate Research Center at Texas A&M, in conjunction with the Texas Mortgage Bankers Association (“TMBA”), conducts a survey of industry sentiment. All mortgage lenders originating in Texas are encouraged to participate to broaden the accuracy and scope of the survey. To contribute to the survey, contact the TMBA office at firstname.lastname@example.org. The results of the survey are used to inform The Center’s various reports and forecasts, including its recently-released 2024 Texas Real Estate Forecast.
One striking trend identified in the survey is the increasing burden of regulatory requirements. Mortgage lenders are seeing these requirements come in various sources across both federal and state supervisors. Several new regulatory initiatives are outlined below, but our focus is on a new requirement that many may have missed.
FinCEN Now Requires Beneficial Ownership Information for Certain Small Businesses
Beginning January 1, 2024, the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (“FinCEN”) now requires small businesses to comply with the Beneficial Ownership Information (BOI) Reporting Rule by reporting information about the individuals that ultimately own or control the business to the U.S. Government.
A beneficial owner is an individual who either directly or indirectly: (1) exercises substantial control over the reporting company or (2) owns or controls at least 25% of the reporting company’s ownership interests. A reporting company will have to provide the following information for each individual who is a beneficial owner: (i) the individual’s name; (ii) date of birth; (iii) residential address; and (iv) an identifying number from an acceptable identification document such as a passport or U.S. driver’s license.
However, the Rule does offer exemptions to its reporting requirements for 23 types of entities, including insured depository institutions, publicly traded companies, companies employing at least 20 full-time employees, or companies generating annual gross receipts or sales of $5 million or more.
If your company existed before January 1, 2024, it must file its initial beneficial ownership information report by January 1, 2025, unless it qualifies as exempt. The following link provides additional resources for you to determine your company’s specific requirements or exemptions: Beneficial Ownership Information Reporting | FinCEN.gov.
Other Contributors to Increasing Regulatory Burden
In addition to FinCEN’s BOI Reporting Rule, several other actions taken by both federal and state regulators appear to be driving industry perceptions of increasing regulatory burdens:
- Stepped-Up Enforcement and Supervisory Actions, and New Proposed Rules from the CFPB. Under Director Rohit Chopra, the Consumer Finance Protection Bureau (“CFPB”) has noticeably stepped up both enforcement and supervisory actions. Recent press reports, citing an internal CFPB memo, indicate the Bureau plans to hire 50% more enforcement attorneys and support staff, which likely means the number of actions will only increase further in 2024.
Additionally, the CFPB has recently proposed rules that would create two public registries. The first proposed rule would require nonbank lenders to annually register with the CFPB certain terms and conditions in form contracts that seek to waive or limit a consumer’s rights. The CFPB would then publish and maintain a public registry of these terms and conditions. The second proposed rule creates a “repeat offender” registry, with annual reporting requirements by non-bank lenders of certain agency and court orders connected to consumer financial products and services that the entity is subject to. The proposed rule also requires an “attesting executive” statement with respect to covered orders, attesting to the steps taken to oversee the activities subject to the order and whether the executive knows of any violations of, or other instances of noncompliance with, the covered order.
Neither proposed rule has yet been made final, but many within the industry expect both proposals to ultimately be issued in some fashion as final rules, which would impose significant compliance costs on financial institutions.
- Updated Community Reinvestment Act Rules and Fair Lending Scrutiny. On October 25, 2023, the three major depository bank regulators—the FDIC, Federal Reserve, and Office of the Comptroller of the Currency—issued their new interagency final rule regarding The Community Reinvestment Act (“CRA”), totaling 1,500 pages of new and updated requirements. The new rule has been called one of, if not the most, complex consumer financial regulations ever implemented. For depository institutions subject to the new rules, the cost of compliance is likely to be considerable. This action is in addition to increased scrutiny around Fair Lending practices.by multiple regulators, as well as the Department of Justice’s “Combatting Redlining Initiative.”
- Expanded Rules for Use and Safeguarding of Consumer Information. At the state level, many regulators have created or are expanding rules and requirements regarding the storage and use of consumer information. NMLS reporting requirements are expanding, and the scope state examinations continues to expand including a significant increase in oversight on servicing activities.
Regulatory Attempts to Decrease Regulatory Burden
Not every action taken by regulators has led to an increase in regulatory burden, with two notable initiatives by state regulators attempting to reduce the time and costs associated with certain requirements:
- Mortgage Call Report Form Version 6. Regulators are trying to lighten the burden while implementing the latest version of the NMLS Mortgage Call Report Form, which can be accessed at the following link: Mortgage Call Report Form Version 6. Due to the types of changes required, over half the states have committed to providing filing extensions of 30 to 60 additional days for this first filing in 2024. Several other states, while not taking an official public position, intend to work with licensees making a good faith effort to comply.
- Streamlined State Examinations. In a concerted attempt to reduce some of these regulatory burdens, The Texas Department of Savings and Mortgage Lending has conducted several pilot examinations using the NMLS Supervisory Examination System (SES) template and anticipates all exams to be conducted under SES by early 2024. The Department doesn’t plan on broadening the scope of their examinations but is hopeful that using this multi-state template and its standard Information Requests (IR) form will provide consistency for originators also operating in other states.
If you have any questions about this memo, including any general regulatory questions, please reach out to Doug at email@example.com. Please note that our firm is available for all services and issues relating to residential mortgage lending. Our team can be accessed through www.mortgagelaw.com/people.