On June 30, 2021, the Financial Crimes Enforcement Network (FinCEN) issued the first government-wide priorities for anti-money laundering and countering the financing of terrorism (AML/CFT) policy (i.e., the “Priorities”).  These were required as part of the AML Act of 2020; FinCEN now has 180 days to establish regulations regarding these Priorities.

Statements on the AML/CFT Priorities were also issued for banks and non-bank financial institutions to provide guidance on how to approach the Priorities.

This issuance identifies and describes the most significant AML/CFT threats and provides informational resources to help assess and manage risk, tailor AML programs, and prioritize resources.

The Priorities include:

  1. Corruption;
  2. Cybercrime (including cybersecurity and virtual currency considerations);
  3. Domestic and foreign terrorist financing;
  4. Fraud;
  5. Transnational criminal organization activity
  6. Drug trafficking;
  7. Human trafficking and human smuggling, and,
  8. Proliferation financing.  

Covered institutions are not required to make any immediate changes to their risk-based AML programs in response to these Priorities and may wait until FinCEN issues regulations.  That said, you might want to at least start thinking about how you might incorporate these into your AML program.

Stay tuned!  We will address this further in our August edition of Banking on BCC.


Construction Loans & TRID

You may recall that the TRID rules and construction loans didn’t necessarily get off on the right foot with each other.  And, we still see that construction loans seem to be extra challenging for financial institutions. One such challenge is when you have a construction or permanent loan (one closing) where you will not have an escrow account in connection with that initial construction phase, but will set up an escrow account in connection with the permanent financing. 

How do you complete the disclosures on page four of the Closing Disclosure?

Diane explains more about TRID & construction loans in the video.


More Rate Spread Tests!

Along with the “new” general QM definition came new rate spread thresholds.  These differ based on the loan amount (adjusted annually), lien status and whether the loan is secured by a manufactured home.  The good news is that the rate spreads are based on the Average Prime Offer Rate (APOR) like other rate spread tests out there.  The bad news is, it’s difficult to keep all the different threshold tests and what they mean straight.

Say you have a $150,000 first-lien transaction with an APR that exceeds the APOR by 2%.  This loan could qualify as a “new” general QM; however, it would still be both a higher-priced covered transaction and a higher-priced mortgage loan.  And that’s just the start, you’d still need to ensure the points and fees don’t also make it a high-cost mortgage!        

On a loan where the rate can change within the first five years of the first payment due date, there are also special rules for calculating the APR used to determine the rate spread and for determining whether it’s a higher-priced covered transaction.  This APR calculation is different from how you calculate the APR for loan disclosure purposes.

Unfortunately, rate spreads aren’t all you have to worry about when originating loans that qualify under the “new” general QM definition.  Want to learn more? 


Qualified Mortgage (QM) Twists and Turns

The Qualified Mortgage (QM) road has taken several twists and turns the last few months.  To originate loans that qualify under the “new” general QM definition, you need:

  1. underwriting policies and procedures; and,
  2. to ensure file documentation reflects how your policies and procedures were applied in determining a consumer’s ability to repay. 

The biggest challenge may be when it comes to underwriting exceptions. 

Keep in mind, while the “new” general QM definition does not limit you to a specific debt ratio, your underwriting policies and procedures might (and likely do).  Your policies and procedures also likely address the ability to make exceptions, including how and when exceptions can be made. 

The “new” general QM definition provides some flexibility.  However, your file documentation needs to be in line with your policies and procedures, and vice versa. 

It’s easy to get confused, especially when dates keep moving!  If you want to sort through what you need to know, join us on May 26,2021, for a 30 minute flash webinar on “The New General QM”.


Attention Secondary Market Lenders!

If you sell loans on the secondary market, there was a development last week you will want to be aware of.  On April 8, 2021,  Fannie Mae and Freddie Mac announced that they will only purchase loans that comply with the New General QM requirements.  This applies to applications received on or after July 1, 2021.

You may recall that in December 2020, the CFPB finalized the New General QM and the Seasoned QM requirements.  Both were set to take effect on March 1st with a mandatory compliance date of July 1, 2021.  However, in February 2021, it announced plans to make changes to these QMs.  On March 3rd, they issued a proposal to delay the mandatory compliance date for the New General QM to October 1, 2022. 

So, while the CFPB planned to kick the can down the road regarding the New General QM, Fannie and Freddie have other plans.  You will need to get up to speed on the requirements for the New General QM before July 1st.

Do you need more on the Seasoned and General QM changes that were finalized in December 2020?  Be sure to check out our webinar, “The New QM Rules”, which is available now OnDemand.  The “Repayment Ability and Risk Requirements Matrix 5.0” in the Free Lending Tools of our website is a good outline of the requirements as well.