Consider this Executive Order an invitation to federal regulators to start reviewing a large chunk of the post-crisis mortgage rulebook. Framed as an effort to improve access to affordable mortgage credit, particularly through community banks and other “smaller banks,” the Order argues that Dodd-Frank-era statutes, regulations, and supervisory practices have made mortgage origination and servicing too costly, pushed activity out of the banking system, and reduced credit availability for some otherwise creditworthy borrowers, including rural and low- to moderate-income households (“community banks,” are defined generally as institutions with fewer than $30 billion in assets, while “smaller banks” as those with fewer than $100 billion).
As with all of this President’s EOs, keeping in mind that this Order does not (and cannot) itself rewrite Regulation Z, Regulation X, Regulation C, TRID, HMDA, appraisal rules, or bank capital standards – but, instead, repeatedly directs agencies to “consider, as appropriate and consistent with applicable law,” proposing changes, revising guidance, or developing new policies. So, like the other Orders of its ilk, it may not change the rules, but it does provide the deregulatory roadmap for CFPB, FHFA, the banking agencies, HUD, VA, USD (and others).
Let’s start with the centerpiece of the Order, mortgage origination reform. The EO tells the CFPB to “consider” amending Regulation Z to tailor ATR and QM requirements for smaller banks, including possibly creating a broader QM safe harbor for portfolio loans, and to revisit TILA, RESPA, and TRID requirements more generally for those institutions. It also specifically tees up replacing TRID timing rules with a “materiality-based standard,” (one that “preserves consumer clarity and reduces closing delays”) exempting small-mortgage loans from QM points-and-fees caps or adjusting those caps and removing what the Order characterizes as unnecessarily burdensome ATR/QM elements. Shifting toward a “materiality-based” framework certainly seems like a logical regulatory move, but redrawing timing rules isn’t as easy as it sounds, practically speaking, and brings with it several hard-to-answer questions, such as “what actually counts as material,” “when did the borrower truly receive effective notice,” and, relatedly, “who bears the risk when proof of delivery or receipt is uncertain?”.
On Regulation X, the Order pushes the CFPB to modernize rescission through digital processes, streamline Regulation X requirements for rate-and-term refinancing, and even exempt rate-and-term refinancing (including cash-out refinancing) from rescission rights. That latter proposal is especially notable, as it signals an effort not just to simplify process, but to narrow a longstanding borrower protection in at least some refinancing contexts, while also reflecting a broader push toward digital mortgage modernization in an area where technical defects can trigger disproportionately significant consequences.
While still on mortgage lending, the Order goes after supervision and instructs the CFPB, Federal Reserve, FDIC, OCC, and NCUA to consider revising supervisory guidance so that mortgage lending is evaluated more on the effectiveness of a lender’s underwriting and ATR-related policies, and less on technical or process compliance. It also pushes a correction-first approach for good-faith technical errors, reserving enforcement for borrower harm or repeated misconduct. As you may be able to already tell, that’s a theme that shows up throughout the Order – an overall move away from paperwork defects and toward what the Administration views as “material” borrower risk.
HMDA’s up next. The CFPB is directed to consider raising the asset threshold for HMDA reporting exemptions for smaller banks, excluding inquiries from HMDA’s scope, and reducing privacy and operational burdens associated with data collection and disclosure, including the cost and complexity of software and training. It likely comes as no shock to anyone that the Order treats HMDA less as a disclosure and fair-lending infrastructure issue, and more as a reporting burden – one that should be pared back for smaller banks.
Moving to the “balance-sheet side” of things, the Order pushes for capital and liquidity realignment. The banking agencies and FHFA are directed to consider tailoring risk weights for portfolio mortgages, mortgage servicing rights, and warehouse lines of credit to the (you guessed it) “material credit risk” of those exposures. It also pushes for operational changes between the Federal Reserve and the Federal Home Loan Banks, including modernized collateral valuation and transfer systems, faster collateral boarding through standardized data and digital documents, expanded access to longer-dated FHLB advances tied to residential mortgage assets, and targeted liquidity programs for entry-level housing, owner-occupied purchase loans, and small residential builders. FHFA must also deliver, within 120 days, a report on national housing finance market efficiency and needed regulatory or legislative changes.
On “Construction and Housing Supply,” the Order tells the banking agencies and CFPB to consider revising supervisory guidance so that one- to four-family residential development and construction lending is excluded from commercial real estate concentration guidance, while also making sure supervisory expectations support responsible construction lending by community banks.
Appraisal modernization is the next area of focus, where the Order instructs agencies to consider expanding the use of alternative valuation models, desktop and hybrid appraisals, and AI valuation tools; simplifying appraiser qualification requirements; reducing appraisal requirements for low-risk transactions like low-LTV refinances and small-balance loans and setting clear timelines. HUD and VA are separately directed to consider aligning FHA and VA appraisal standards where risk is comparable, clarifying which inspection issues truly require pre-closing repairs, and expanding post-closing repair flexibility.
Keeping with the digitalization theme, the USDA, HUD, VA, and FHFA are told to consider eliminating unnecessary wet-signature requirements, standardizing acceptance of electronic signatures, e-notes, and remote online notarization, and promoting digital mortgage standards. The Order also seeks servicing changes by aligning supervisory expectations to support portfolio mortgage servicing as a core community banking function, extending cure-first treatment to good-faith servicing errors, simplifying loss mitigation requirements, and considering exemptions from complex servicing rules for smaller banks.
Finally, the Order takes a very explicit position on enforcement philosophy. The banking agencies and CFPB are instructed to consider policies discouraging civil money penalties for consumer-financial-law violations unless the conduct is willful, knowing, or reckless; giving weight to good corporate conduct and remediation of technical errors; and allowing institutions a reasonable chance to self-identify and correct problems. Relatedly, the EO calls on agencies to consider eliminating duplicative or unnecessary licensing or registration requirements for mortgage loan officers at smaller banks.
Now, importantly, whether any of that actually happens will depend on what the agencies do next. Again, every substantive provision in the Order is framed as something agencies “shall consider” – but early industry indications are that the agencies may be taking action on this sooner rather than later (see, for instance, HUD’s enthusiastic press release).
Written by:
Brett Goodnack, JD, CAMS
Compliance Advisor