In this lender letter, Fannie Mae confirms conforming loan limits values that will apply to conventional loans to be acquired by us in 2023.

The New Jersey Department of Banking and Insurance issued a bulletin addressing its annual review regarding the definition of a “high-cost home loan” under the Home Ownership Security Act of 2002, increasing the maximum principal amount of a loan that may be considered under this definition to $556,429.97 and is effective for all completed applications subject to the Act received on or after January 1, 2023.

The new loan limits for FHA Title II Forward and HECM mortgages will take effect for case numbers assigned after January 1, 2023

The “California Privacy Rights Act of 2020,” amends the 2018 California Consumer Privacy Act.

Expanded Initial Notification Obligations. The ballot initiative expands the disclosures required in privacy notices “at or before the point of collection.” Businesses which “control the collection” of consumer information must (a) identify whether collected information may be sold or shared, (b) identify the categories of sensitive personal information collected, and (c) identify retention periods or, “if that is not possible, the criteria used to determine such period.” The initiative clarifies that “third parties” who do not directly collect information from individuals may provide notice via a conspicuous website notice. (See Draft California Privacy Rights Act of 2020 (“CPRA”) § 1798.100.)

Limited Retention. The current law does not expressly address data retention. The ballot initiative amends this approach and expressly limits a business’s ability to retain personal information as “necessary and proportionate” to achieve the purposes of collection or processing, or for other disclosed purposes compatible with the context of collection. (See CPRA § 1798.100.)

Express Information Security Requirements. The initiative clarifies that businesses must “implement reasonable security procedures and practices” to “protect the personal information from unauthorized or illegal access, destruction, use, modification, or disclosure.” (See CPRA § 1798.100.)

Contracting Obligations. The ballot initiative requires that businesses “shall enter into an agreement” with specific terms with third parties, service providers, or contractors to whom personal information is sold or disclosed. The contract must specify that the personal information is provided for limited purposes and additionally obligate the third party, service provider or contractor to:

• comply with the law and provide privacy protections as required under the law;
• provide the business the right to take “reasonable and appropriate steps to help ensure” information use consistent with the business’s legal obligations;
• notify the business if it cannot comply with the title;
• provide the business with the right to “take reasonable and appropriate steps to stop and remediate unauthorized use of personal information.”

These required terms are likely to prove contentious between commercially sophisticated parties. (See CPRA § 1798.100.)

Other Service Provider Obligations. Consistent with the contractual obligations imposed on service providers, service providers and contractors are independently obligated under the proposed law to assist businesses in response to a consumer’s exercise of his or her right of access and correction (further discussed below).

Expanded Data Deletion Obligations Through Supply Chain. The initiative provides that service providers and contractors must (unless a relevant exception applies) delete personal information in response to a verified consumer request and the direction of the business. In turn, such service providers and contractors must pass the request onward to their own service providers, contractors and third parties. This approach thus aims to expand deletion obligation throughout the supply chain. (CPRA, § 1798.105.)

Consent Standards. Consent is an important concept within the current California Consumer Privacy Act, impacting the sale of children’s information, use of personal information for research purposes, and the offer of financial incentives for the use personal information. The initiative clarifies the meaning of “consent” as a “clear affirmative action” which “signifies agreement.” Consent may not be obtained through a general “terms of use” that contains information unrelated to the use of personal information. Consent may also not be obtained via the use of “dark patterns,” meaning a “user interface designed or manipulated with the substantial effect of subverting or impairing user autonomy, decision-making, or choice.” (CPRA, § 1798.140.)

New Right of Correction. The ballot initiative provides consumers with a new right to request correction of inaccurate personal information maintained by a business. Businesses must provide notice of this right and use “commercially reasonable efforts” to correct inaccurate information in response to a consumer request. (CPRA, § 1798.106.)

Special Right to Limit Use of Sensitive Personal Information. The ballot initiative provides consumers with the right to require a business to limit its use of the consumer’s sensitive personal information as “necessary to perform the service or provide the goods” as “reasonably expected by an average consumer who requests such goods or services,” and for certain limited additional purposes. Businesses must notify consumers of this right, potentially including through a link available on their website home page titled “Limit the Use of My Sensitive Personal Information.” (CPRA, § 1798.121.)

Expanded Definition of Sensitive Personal Information. The ballot initiative defines sensitive personal information to include: social security number, driver’s license, financial account access information, payment information, precise geolocation, racial or ethnic origin, “religious or philosophical beliefs,” union membership, contents of communications (unless the business is the intended recipient), genetic data, biometric data processed for identification purposes, health information, sex life and sexual orientation. (CPRA, § 1798.140.)

Anti-Retaliation Provision for Employees. The initiative expands existing anti-discrimination rights under the law to specifically forbids “retaliating” against an employee, applicant or independent contractor who may exercise their rights under the law. (CPRA, § 1798.125.)

Establishment of California Privacy Protection Agency. The ballot initiative establishes a new California state government agency, the “California Privacy Protection Agency” (CPPA). The CPPA would be empowered to enforce the law and issue rules and regulations, a role it would largely take over from the Attorney General who is the current chief regulator under the current law. (CPRA, § 1798.199.10.)

Tougher Requirements (for Businesses) Regarding Defense of Data Breach Actions. The current law provides a private right of action for certain data breaches. Under the current law, such actions may be pursued only after a consumer has provided the business with 30 days’ notice and an opportunity to cure. The initiative provides, however, that “the implementation and maintenance of reasonable security procedures and practices … following a breach does not constitute a cure with respect to that breach.” This additional language limits the defense that businesses may have to such private actions. (CPRA, § 1798.150.)

Ad Technology Implications. If passed, the initiative promises to have significant impacts on the use of online advertising technology. Key provisions and potential impacts include:

• The initiative proposes an expanded opt-out right which expressly provides consumers the right to opt-out of “sharing” of personal information. “Sharing” is defined as providing information for “cross-context behavioral advertising, whether or not for monetary or other valuable considerations, including transactions between a business and a third party for cross-context behavioral advertising for the benefit of a business in which no money is exchanged.” This definition seems aimed at restricting the ability of online advertising networks to receive and use consumer personal information where a consumer has provided an opt-out. (CPRA, § 1798.120.)
• The initiative modifies the definition of “business purpose” to restrict the marketing uses of personal information by service providers and contractors (acting under a “business purpose”). Such “business purposes” now expressly exclude cross-contextual behavioral advertising and combining certain information received from different sources when a consumer has expressed an opt-out preference. This provision may restrict the ability of advertising networks to position themselves as “service providers” under the law. (CPRA, § 1798.140.)

California Senate Bill 1311 (the Military and Veteran Consumer Protection Act of 2022) was signed into law on September 27, 2022, by Governor Gavin Newsom and makes changes to the Military Lending Act's exceptions for loans to purchase personal property including vehicles among other things.

The Federal Reserve, CFPB, and the OCC issued a final rule amending regulations that implement section 129H of TILA raising the special appraisal requirements for higher-priced mortgage loans from $28,500 to $31,000.

The Federal Reserve Board and the CFPB announced the dollar thresholds used to determine whether certain consumer credit and lease transactions in 2023 are exempt from Regulation Z (Truth in Lending) and Regulation M (Consumer Leasing).

Specifically, based on the annual percentage increase in the CPI-W as of June 1, 2022, Regulation Z and Regulation M generally will apply to consumer credit transactions and consumer leases of $66,400 or less in 2023. However, private education loans and loans secured by real property, such as mortgages, are subject to Regulation Z regardless of the amount of the loan.

The Consumer Financial Protection Bureau, the Federal Reserve Board, and the Office of the Comptroller of the Currency announced that the 2023 threshold for exempting loans from special appraisal requirements for higher-priced mortgage loans will increase from $28,500 to $31,000.

California Senate Bill 633 removes the exception regarding co-signer notices where the persons are married to each other from existing law which requires each creditor who obtains the signature of more than one person on a consumer credit contract to deliver to specified persons prior to those persons becoming obligated on the contract a notice in English and Spanish.

The annual dollar amount adjustments under the Indiana Consumer Credit Code (IUCCC) have been published and the new amounts will go into effect January 1, 2023.

Illinois HB 4270 creates a statutory form for special warranty deeds to standardize the most common form of deed used in commercial real estate practice and is effective January 1, 2023.

Uniform instruments

We have updated all of our uniform legal instruments – security instruments, notes, riders and addenda, and special-purpose documents – used for loans delivered to us. In collaboration with Freddie Mac, we conducted a comprehensive review of the instruments and made improvements to enhance their clarity and usability. This update includes both Fannie Mae/Freddie Mac uniform instruments and Fannie Mae-specific instruments. These new instruments can be found at https://singlefamily.fanniemae.com/fannie-mae-legal-documents. The new instruments have a Jul. 2021 footer date.

Effective: Lenders may begin using these updated forms immediately but will be required to use them for loans with note dates on or after Jan. 1, 2023. The updated Jul. 2021 uniform instruments cannot be used in combination with any earlier versions. For example, a security instrument with a Jul. 2021 footer must be used with a note that also has a Jul. 2021 footer.

Virginia Senate Bill 1392 enacts the Consumer Data Protection Act (CDPA), which in similarity to California's CCPA/CRPA, establishes a framework for controlling and processing consumers’ personal data; effective January 1, 2023.

The Department of Veterans Affairs have revised VA Form 26-1880, Request for a Certificate of Eligibility, and VA Form 26-1817, Request for Determination of Loan Guaranty Eligibility – Unmarried Surviving Spouses, have been revised.

VA Forms 26-1880 and 26-1817 are used by applicants to request a
determination of VA home loan eligibility. VA has updated these forms to include additional fields that may assist VA in determining eligibility, evaluate prior loan usage, and assess the appropriate funding fee percentage. Lenders should continue to submit electronic applications through WebLGY at Loan Guaranty While the form does not necessarily need to be uploaded to WebLGY, the completed form should be retained in the lender’s loan file.

This Guide Bulletin announces updates to employment/income characteristics – Internal Revenue Service (IRS) Form 1099 for services performed by adding specificity for when income reported on IRS Form 1099 for services performed may be treated as non-self-employed income.

The Single Family Housing Guaranteed Loan Program (SFHGLP) is pleased to announce revisions to technical Handbook-1-3555, Chapter 9, Income Analysis, and Chapter 15, Submitting the Application Package. These changes became effective upon the recent issuance of a Procedure Notice (PN). Below are the highlighted revisions:

Chapter 9 – Income Analysis

• Paragraph 9.3 was revised as follows:
  • Clarified that lenders must verify the income of each adult household member for the previous 2 years.
  • Clarified under “full income documentation,” the lender must obtain W-2s or IRS Wage and Income transcripts, in addition to paystubs.
  • Changed the term “streamlined documentation” to “alternative income documentation” to remove confusion with the streamlined and streamlined assist refinance products.
  • Clarified under “self-employed income documentation” that if ownership interest is less than 25%, neither the “Business Owner” or “Self-Employed” options should be selected in GUS.
  • Clarified the Verbal Verification of Employment must be obtained within 10 business days of loan closing and confirmation a self-employment business remains operational must be obtained within 30 days of loan closing.

• Paragraph 9.8 was revised to clarify it is the lender’s responsibility to review gaps in employment and determine if the income is stable and dependable. In addition, this paragraph was revised to clarify a business loss from a closed business may be removed from consideration under the same circumstances that self-employment income from a closed business can be removed from consideration.

• Attachment 9-A was revised as follows:
  • Revised “Automobile Allowance” and “Expense Allowance” guidance to allow the full expense allowance to be included as repayment income and the full debt counted in DTI, as well as updated the required history to two years.
  • Clarified that “Boarder Income” refers to rental income received from an individual renting space inside the dwelling, making the property income producing and therefore ineligible.
  • Revised “Bonus” and “Overtime” income to clarify the one year history must be in the same or similar line of work.
  • Revised the “Child Support” and “Separate Maintenance/Alimony” guidelines to simplify the guidance and clarify that income that meets the minimum history, but the payment amounts are not consistent, must use an average consistent with the payor’s current ability/willingness to pay for repayment income.
  • Clarified that employer-provided fringe benefits that are reported as taxable income may be included in repayment income.
  • Simplified the guidance on considering mileage deductions, referring to IRS guidance when a mileage deduction is claimed on income tax returns.
  • Removed the requirement to obtain a copy of the IRS W-4 document when using a Mortgage Credit Certificate as income.
  • Revised “Secondary Employment” guidance to clarify that the applicant must have a one year history of working the primary and secondary jobs concurrently to be considered for repayment income.
  • Revised “Section 8 Housing Vouchers” to permit Section 8 vouchers to be treated as a reduction of the PITI when the benefit is paid directly to the servicer, rather than solely an addition to repayment income. Subsequently, provided clarification that a manual file submission is required in this instance and clarified that when lenders use the benefit as a reduction of the PITI, they must maintain documentation in their permanent loan file to support the benefit is paid directly to the servicer.
  • Revised the “Unreimbursed Employee or Business Expenses” guidance to reflect instances where the IRS continues to allow these deductions.
  • Added categories providing guidance on Guardianship/Conservatorship Income, Individual Retirement Account (IRA) Distributions, and Variable Income.
  • Revised guidance for sourcing deposits in depository accounts. Clarified that all recurring deposits, as well as individual non-recurring deposits greater than $1,000, need to be reviewed to confirm the deposits are not from undisclosed income sources.
  • Clarified that gift funds applied as earnest money should not be entered on the “Loan and Property Information” GUS application page.
  • Added a category providing guidance on “Lump Sum Additions.”
  • Clarified in the “Retirement” section that funds borrowed against retirement accounts (e.g. 401(k), IRA, etc.) are eligible for funds to close, but are not considered in reserves.

• Attachment 9-E was revised to reflect a two year required history for “Capital Gain or Loss” to be consistent with the guidance in Attachment 9-A.

Chapter 15 – Submitting the Application Package

• Attachment 15-A was revised as follows:
  • Removed the requirement to submit evidence of qualified alien requirements on page 1 of the checklist, as it is not required to be submitted to the Agency on GUS Accept files.
  • Changed the term “streamlined documentation” to “alternative income documentation” on page 2 of the checklist, to remove confusion with the streamlined and streamlined assist refinance products.
  • Clarified a Verification of Rent is required for manually underwritten loans with credit scores less than 680.

The purpose of this circular is to advise stakeholders that VA Form 26-1820, Report and Certification of Loan Disbursement, has been revised and that VA 26-1802a, HUD/VA Addendum to the Uniform Residential Loan Application, has been discontinued.

In the circular, the Department of Veterans Affairs (VA) announces updates to VA Form 26-6393, VA Loan Analysis.

The Veterans Administration (VA) announced enhanced oversight procedures that will better enable them to identify discriminatory bias in home loan appraisals and act against participants who illegally discriminate based on race, color, national origin, religion, sex (including gender identity and sexual orientation), age, familial status, or disability.

On January 19, 2023, VA released a Servicer Newsflash that includes information on multiple event reporting, "invalid sale results" event and redeemed properties as well as information on the transition to ServiceNow.

In the mortgagee letter, FHA provides instructions on the FHA-specific modifications for use with an updated Government-Sponsored Enterprises (GSE) security instrument or note.

Fannie Mae has released its High LTV Refinance Option FAQ and has announced that they are temporarily pausing the acquisition of high LTV refinance loans because of the low volume and impact of the Revised QM Rule.