Updated FNMA/FHLMC Uniform Instruments
On July 7, FNMA and FHLMC announced an updated library of uniform instruments—security instruments, notes, riders and addenda, and special purpose documents---used for loans delivered to Fannie Mae and Freddie Mac. Lenders may begin using these updated forms immediately (July 2021) but are required to use them for loans with note dates on or after January 1, 2023. The updated July 2021 uniform instruments cannot be used in combination with any earlier versions. For example, a security instrument with a July 2021 footer must be used with a note that also has a July 2021 footer.
PPDocs is in the process of updating our library of FNMA/FHLMC uniform instruments to make the updated instruments available to our clients. Although we cannot presently provide the specific date when PPDocs will switch from the current uniform instruments to the new uniform instruments, we are diligently working on updating our instruments and expect to complete the project well in advance of the January 1, 2023, deadline. We will send a notice to clients as soon as we determine the transition date.
We are additionally monitoring secondary market bulletins for any announcement that an individual investor will set an earlier mandatory deadline for use of the new uniform instruments. As of the date of this communication, we have not yet seen any such announcements. If you see such an announcement, we would greatly appreciate it if you would share the announcement with us.
PPDocs Information Security Infrastructure
We at PPDocs take information security very seriously. While no individual or business is immune to an attack by a skilled and determined bad actor, we have carefully and thoughtfully implemented the robust information technology/information security/incident response/disaster recovery policies, procedures, and processes our security experts have recommended. Here are a few of the precautions we have taken:
• PPDocs production systems are hosted in a cloud-based multi-region active-active architecture.
• All PPDocs systems are cloned in the PPDocs failover region, which is completely separate and disconnected from the primary region.
• Our cloud-based computing provider is subject to regular SOC 2 auditing and PPDocs is covered by its SOC 2 audit report.
• PPDocs performs hourly backups of all production systems and data, which means if there is an interruption to our system, we can switch to the fallover region and restore services with all data within 2 hours.
• Software and operating systems are fully patched, and updates are downloaded automatically.
• PPDocs’ systems are protected by a firewall that monitors and protects all on-premises locations.
• Internal systems require two-factor identification to access user accounts.
• PPDocs uses technology that scans any URL received by email before it can be clicked by a PPDocs user.
• Direct downloads of any kind are prohibited.
• PPDocs systems are regularly audited to ensure compliance with the adopted policies.
• PPDocs staff undergo periodic information security and consumer privacy training.
• Periodic reminders and instructions are sent to PPDocs staff regarding ransomware, phishing, and other malicious attacks.
We also closely monitor potential cybersecurity threats and are constantly ready to adjust and invest as needed to ensure our system is as secure as possible. And we regularly purge data we’ve received so that in the unlikely event of a breach, the non-public personal information of our clients’ customers won’t be exposed. We want you to feel safe using PPDocs!
CFPB Issues Interpretative Rule on 2021 Juneteenth Holiday
Because the Juneteenth National Independence Day Act was signed into law two days before the newly created holiday on June 19, 2021, the mortgage industry was unsure of how to treat June 19 for purposes of regulatory compliance, particularly for Regulation Z disclosure and rescission purposes. On August 5, the CFPB released an interpretive rule to assist the mortgage industry in determining whether June 19, 2021, was a federal holiday or a business day for purposes of compliance with certain time-sensitive borrower protections.
• For rescission of closed-end mortgages and TRID, whether June 19, 2021, counted as a business day or federal holiday depends on when the relevant time period began. If the relevant time period began:
• On or before June 17, 2021, then June 19 was a business day.
After June 17, 2021, then June 19 was a federal holiday.
Additionally, the interpretive rule explains that creditors were not prohibited from providing longer time periods than required, so if a time period began on or prior to, June 17, 2021, creditors could have considered June 19, 2021, a federal holiday. Friday, June 18, the day of federal observance for the 2021 Juneteenth holiday, was considered a business day because when a federal holiday falls on a Saturday, the day of federal observance is considered a business day for these time-sensitive consumer protections.
CRA, Fair Housing Act, ECOA: OCC Contact Information for Certain Notices and Posters
On August 5, 2021, the OCC Bulletin 2021-35 informed national banks, federal savings associations, and federal branches and agencies of foreign banking organizations (collectively, banks) of the appropriate names and addresses for notices required by the Community Reinvestment Act (CRA) and Equal Credit Opportunity Act, and for posters under the Fair Housing Act. Banks should make the appropriate changes to their notices and posters, if necessary, within 90 days of this bulletin’s date of issuance.
PPDocs Attorneys Participate in FIC Conferences Annual Conference
Next month, PPDocs attorneys Matt Filpi and Shannon Phillips Jr. are scheduled presenters at FIC Conferences annual 3-Day Workshop. Click here to learn more or to register for the conference scheduled for August 8, 9, and 10 at the Embassy Suites Riverwalk, San Antonio. Those who enroll in FIC’s Alliance Academy Boot Camp 360—which includes 24 Training Presentations immediately available to your entire staff for one full year—receive one free registration for the 3-Day Workshop. We thank FIC Conferences CEO Kim Lundquist for this opportunity. We hope you join us.
Frequently Asked Question
Question: We have a loan that is supposed to close on Friday, but we did not get the CD out until Wednesday. However, because the real property collateral for the loan is investment property, am I correct that this loan is exempt from TRID, and we do not need to wait 3 business days after providing a CD to close?
Answer: The nature of the property will not impact the required TRID guidelines. If the loan is subject to TRID, then a waiver of the three-business day to closing would have to be justified with a financial emergency on the borrower’s part.
Whether a loan to purchase or refinance investment property is covered under TRID can be a little complex. Using term “investment” to define a business purpose for exemption from Regulation Z and TRID coverage is not cut and dried.
To determine a transaction is for consumer purpose and thus, subject to the TRID, the following should be taken into consideration. The determination of consumer purpose is always based on the purpose of the loan. Characteristics of the underlying property are not relevant to that determination.
The basis for any business purpose exemption from Regulation Z is found below.
1026.3 The following transactions are not subject to this part or, if the exemption is limited to specified provisions of this part, are not subject to those provisions:
(a) Business, commercial, agricultural, or organizational credit.
(1) An extension of credit primarily for a business, commercial or agricultural purpose.
(2) An extension of credit to other than a natural person, including credit to government agencies or instrumentalities.
Starting with (a)(2), if the loan is made to other than an individual (excluding some trusts established for tax purposes), the transaction will always be exempt from Regulation Z.
Regarding (a)(1), the purpose of the transaction must be analyzed. The issue to be aware of, when applying the consumer purpose test found in Regulation Z, is that the use of the word “investment” is not found.
The question becomes whether this investment is a business investment or a personal investment? If you are addressing an acquisition of property, Regulation Z provides the following commentary:
3(a) Business, Commercial, Agricultural, or Organizational Credit
3. Factors. In determining whether credit to finance an acquisition—such as securities, antiques, or art—is primarily for business or commercial purposes (as opposed to a consumer purpose), the following factors should be considered:
i. General. A. The relationship of the borrower's primary occupation to the acquisition. The more closely related, the more likely it is to be business purpose.
B. The degree to which the borrower will personally manage the acquisition. The more personal involvement there is, the more likely it is to be business purpose.
C. The ratio of income from the acquisition to the total income of the borrower. The higher the ratio, the more likely it is to be business purpose.
D. The size of the transaction. The larger the transaction, the more likely it is to be business purpose.
E. The borrower's statement of purpose for the loan.
So, to determine whether someone that is buying investment property is doing it as a consumer or business purpose will be based on the specifics of the individual. Does this individual routinely invest in speculative real estate transactions, are they actively involved in other real estate transactions on an on-going basis, does the individual derive some of their income from these activities, etc. If this is just an individual that is buying one property in the hopes that the later sale will provide income for personal purposes, the ability to classify this as a business purpose transaction becomes difficult. A written statement provided from the borrower of loan purpose that is not consistent with the facts known to the financial institution would not override the applicability of the regulatory requirements.
However, if using the term investment property means buying rental property, then the regulation has the following to say, and the acquisition of non-owner-occupied rental property would be exempt.
3(a) Business, Commercial, Agricultural, or Organizational Credit
4. Non-owner-occupied rental property. Credit extended to acquire, improve, or maintain rental property (regardless of the number of housing units) that is not owner-occupied is deemed to be for business purposes. This includes, for example, the acquisition of a warehouse that will be leased or a single-family house that will be rented to another person to live in. If the owner expects to occupy the property for more than 14 days during the coming year, the property cannot be considered non-owner-occupied and this special rule will not apply. For example, a beach house that the owner will occupy for a month in the coming summer and rent out the rest of the year is owner occupied and is not governed by this special rule. (See comment 3(a)–5, however, for rules relating to owner-occupied rental property.) Without knowing what the funds are to be used for and other characteristics of the borrower, it is difficult to say whether TRID applies.