FRIDAY3pt AUGUST stroke, 100% 13, 2021 size f VOL.or top 186of newspaper No. 155 = 8.9931 inches AMERICANBANKER.COM Follow us on Twitter @AmerBanker Capital One employees 5 returning to office will have to be vaccinated CRE comeback? The announcement came a day after Demand for commercial real estate loans has stabilized Citigroup said it would mandate vaccines for over2.5pt the stroke last = 6.75year inches, according to a survey that asked many of its workers. Capital One also said it bankers about trends of the three previous months is delaying its office reopening. Page 5 Upgrade valued at $3.3 billion See story on page 2 6 after new funding Upgrade, a lending startup that counts Moderately stronger About the same former LendingClub executive Renaud 2pt stroke = 5.75 inches Laplanche as a co-founder, raised $105 Moderately weaker Substantially weaker million in a funding round that values the 90% company at more than $3.3 billion. Page 6 80% 81.2% 70% CFPB servicing rule aims to 60%1.5pt stroke = 4.6667 inches 7 stave off another foreclosure 50% crisis 40% 42.9% The agency developed measures taking 30% 35.7% effect Aug. 31 that, among other things, will 20% allow lenders to prioritize foreclosures of 18.8% 10%1pt stroke = 3 inches 14.3% the most impaired loans and then focus on 0% 7.1% modifying salvageable ones. Page 6 July 2020 July 2021 Source: Federal Reserve Memphis credit union to nearly 8 double in size with deal for rival bank The combination of Orion Federal Credit dailybriefing Why Citi is connecting some Union and Financial Federal Bank is 3 borrowers with small banks — the seventh credit union-bank merger for free announced this year. Page 8 Banks detect hints of CRE It may seem odd that Citigroup has created 1 recovery an online lending platform that matches Fannie Mae to include rent Small increases in commercial real estate small businesses with minority-run and 9 payments in underwriting loan volumes, particularly at midsize other banks for no financial benefit. Yet The expanded credit access in its automated banks, may be indicators that the sector company executives and observers say it mortgage decisioning goes into effect in mid has weathered the worst of the pandemic. makes sense. Page 3 September. Page 8 Construction loan originations, which tend to fall sharply during a recession, are leading Amazon takes page from Ginnie Mae’s the way. (See chart above.) Page 2 4 Walmart’s playbook to fight 10 misconceptions about credit Visa’s fees unions and mortgages Investment firm sues TD The e-commerce giant is adding a surcharge Despite clear evidence to the contrary, the 2 Bank for ‘ineptitude’ in fraud for Visa credit card payments in Singapore. mortgage insurer continues to insist that response It’s a tactic reminiscent of the time its big- credit unions have the same risk profile as Moore Capital Holdings alleges that TD box rival outright banned the card brand in nonbank lenders. It’s now threatening to showed a “total and systemic failure” to Thunder Bay, Ontario, in a bid to lower its exclude nearly a quarter of credit unions respond to a cyber scam that cost the costs. Page 4 from being qualified issuers of the securities company more than $275,000. Page 3 it backs. Page 9 FRIDAY AUGUST 13, 2021 AMERICANBANKER.COM PAGE 2

by 42% from the first quarter. preliminary second-quarter data. Smaller CRE “While the overall outlook for commercial banks that have historically had relatively real estate continued to improve, we remain large concentrations in the sector have been focused on the areas most impacted by the slower to bounce back, he said. Banks detect pandemic,” Wells Chief Financial Officer “In a certain sense it’s a bullish indicator Mike Santomassimo said during a July 14 call because the mid-to-large-sized banks can get hints of CRE with analysts. more aggressive and have an impact on the Zions Bancorp. in Salt Lake City is market overall, but having said that, when continuing to exercise caution, growing its you total up the thousands of banks under recovery commercial real estate book by just 0.4% $10 billion, it’s a little bit surprising that they from the previous three months and 1% from haven’t picked up yet,” Anderson said. By Jon Prior one year ago. But the bank’s construction A recent survey of bankers by IntraFi August 11, 2021 loan portfolio increased by 5.4% during the Network shed light on smaller banks’ Bankers aren’t yet calling it a comeback, second quarter alone. squeamishness about the broader real estate but the industry is welcoming some positive In an example of how the $87.2 billion- market, which could help explain why they recent signals in commercial real estate asset bank is picking its spots, Zions CEO are exhibiting more caution in commercial lending, which has been hit particularly hard Harris Simmons told analysts last month that real estate lending than their larger peers. by the COVID-19 pandemic. he expects owner-occupied commercial real Commercial real estate loans are used to On Tuesday, the Mortgage Bankers estate “to see some decent growth.” finance the construction of new homes, but Association said that it expects about $578 ServisFirst Bancshares in Birmingham, at banks with less than $1 billion of assets, billion of commercial and multifamily real Alabama, reported a 17.3% quarter-over- about half of the executives surveyed in July estate-backed loans to close in 2021, which quarter increase in construction loans to saw the U.S. housing market as a serious risk. would be a 31% increase from last year, and more than $782 million. That growth was Still, there are signs that construction approaching the $601 billion originated in among the bright spots in the $13.2 billion- lending is leading the way toward a broader 2019. asset bank’s commercial real estate business. rebound in CRE lending, as builders scramble And last month, in a survey conducted “We have a number of projects underway to address a housing shortage, according to by the Federal Reserve, no banks reported where we expect substantial draws, and of Anderson. weaker demand for commercial real estate course, we do expect line utilization just to “That’s interesting especially because loans, while around 18% said that demand improve from inflationary effects of higher in typical cycles, construction lending was moderately stronger over the previous prices for steel, lumber and many other, you really falls hard and then recovers, so this three months. know, raw materials,” ServisFirst CEO Tom time around it didn’t dip a whole lot, it just “Things have rebounded a little quicker, Broughton said during a July 19 call with slowed down and has been picking up again,” even though we are all a little worried about analysts. Anderson said. the delta variant,” said Brian Stoffers, global The bulk of the recent pickup in No analyst or industry expert dared a president of debt and structured finance at commercial real estate lending appears to guess about when the CRE market might the commercial real estate firm CBRE. be happening at banks with between $10 look more normal, especially as the delta Last year, the pandemic-induced recession billion and $100 billion in assets, said Matt variant continues its charge in much of the sparked fears of a steep decline in commercial Anderson, managing director at Trepp, citing country. But for now, many in the industry real estate lending, particularly in the office, retail and hotel sectors. In July 2020, more than half of banks Established 1836 One State Street Plaza, 27th floor, New York, NY 10004 surveyed by the Fed reported that demand Phone 212-803-8200 AmericanBanker.com for commercial real estate loans was either 3pt stroke, 100% size for top of newspaper = 8.9931 inches moderately or substantially weaker than Editor in Chief Alan Kline 571.403.3846 Copy Editor Neil Cassidy 212.803.8440 three months earlier. The more upbeat 2.5pt stroke = 6.75 inches findings a year later are a sign that the Managing Editor Dean Anason 770.621.9935 Reporters/Producers situation has stabilized, even if loan demand 2pt stroke = 5.75 inches has not fully recovered to where it was before Executive Editor Bonnie McGeer 212.803.8430 Laura Alix 860.836.5431, Kate Berry 562.434.5432 the pandemic. Miriam Cross 571.403.3834 1.5ptWashington stroke = 4.6667 inches Bureau Chief Joe Adler 571.403.3832 During second-quarter earnings calls, Jim Dobbs 605.310.7780 executives from banks of all sizes offered 1ptExecutive stroke = 3 inches Editor, Technology reasons for at least a bit of optimism. For Penny Crosman 212.803.8673 John Heltman 571.403.3847, Allissa Kline 716.243.2679 instance, JPMorgan Chase reported a small Hannah Lang 571.403.3855 uptick in loans for multifamily building. Community Banking Editor Paul Davis 336.852.9496 John Reosti 571.403.3864, Gary Siegel 212.803.1560 Wells Fargo reported easing pressures on Contributing Editor Daniel Wolfe 212.803.8397 existing credit exposures, with nonaccruing Kevin Wack 626.486.2341 loans tied to the office building sector falling

For up to date and complete coverage go to AmericanBanker.com FRIDAY AUGUST 13, 2021 AMERICANBANKER.COM PAGE 3 are accentuating the positive. branch, where an assistant manager was “The momentum is certainly building, and unavailable, and another employee told him SMALL BUSINESS LENDING we’re seeing a strong look into the second that he would immediately report the issue half,” Stoffers said. internally, the complaint states. Minutes after that phone call, Moore Why Citi is received a third alert about a $91,450 wire FRAUD PREVENTION transaction, and the TD assistant branch connecting manager was still unavailable to address the issue, according to the complaint, which Investment states that the investment management firm some has yet to recover any of the wired funds. firm sues “It is clear that TD Bank is systemically borrowers incapable of protecting its customers from the known, foreseeable and extraordinarily TD Bank for prevalent risks that businesses face in the age with small of cyber-crime,” the lawsuit states. ‘ineptitude’ Moore Capital also alleges that after the banks — for fraud occurred, TD provided company officials little information, refused to connect in fraud them with fraud investigators and failed to free respond to follow-up messages. response The investment management firm decided By Miriam Cross to undertake its own investigation, working August 11, 2021 By Polo Rocha with the FBI, police and three major banks Citigroup, which has been investing August 11, 2021 that initially received the fraudulent money, millions of dollars in minority depository An investment management firm that according to the complaint. institutions, is taking things one step further lost more than $275,000 to fraud is suing TD As a result of that investigation, the — it’s going to send them business prospects, Bank for what it characterizes as the bank’s victimized company learned that almost all too. complete lack of preparedness for a common of the funds were en route to Silvergate Bank The company on Wednesday began testing type of scam. in La Jolla, California, which has carved out a an online lending platform called “Bridge Moore Capital Holdings alleges that the niche in cryptocurrency services. The money built by Citi” that it described as a “meeting case illustrates TD’s “total and systemic was headed to a Silvergate account that was place” where small and midsize businesses failure to respond” to schemes in which associated with the cryptocurrency exchange seeking loans can connect with 18 banking criminals use fake email addresses to steal Gemini Trust, the lawsuit says. institutions — primarily minority-run banks money from business customers. When Moore Capital informed TD Bank and community development financial A TD spokesperson said Wednesday that of its findings, the response from a TD institutions — seeking access to technology the bank does not comment on litigation. representative included a request for the that lets them reach customers outside their The lawsuit, filed Tuesday in federal court, investment management firm to pass along local markets. stems from events that unfolded in April. the name of a contact at the $12 billion-asset Some regional and midsize banks are A Moore Capital employee, victimized Silvergate, prompting a frustrated email from participating, too, to help handle slightly by a multi-vector fraud scheme, logged into Moore declaring that TD “has completely larger loans. what he thought was TD’s platform and then dropped the ball.” Citi says it won’t benefit financially nor answered a phone call from what appeared to While Moore Capital worked with the FBI will it receive Community Reinvestment Act be TD Bank, prompting a second employee to and other banks to recover the funds, “TD credit for this project, which was born out of enter his credentials at the bank, according to Bank’s inexplicable ineptitude, delay and its D10X internal incubation program. There the complaint. lack of preparedness or a plan had already are no fees for lenders or borrowers during The firm’s principal, Zachary Moore, later doomed that effort,” the lawsuit says. the pilot phase. received two email alerts stating that two A Silvergate spokesperson said the That has led many — including the bankers transactions of more than $90,000 had been company has a policy not to publicly discuss invited to participate — to ask: What does Citi initiated, according to the complaint. individual banking relationships. Gemini gain from its efforts? Moore called TD Bank, as he was directed Trust did not respond to a request for “We get that question a lot from all the to do in alerts he received from the bank, to comment. banks we’ve spoken with,” said Rohit Mathur, report the fraudulent activity. But he was a senior vice president at Citi who helped routed to a general automated answering develop Bridge. system rather than the fraud department, Mathur says that Citi sees this venture as an according to the lawsuit. investment in smaller companies that need He instead decided to call a local TD more capital and want options in finding a

For up to date and complete coverage go to AmericanBanker.com FRIDAY AUGUST 13, 2021 AMERICANBANKER.COM PAGE 4 bank; to bolster its partnerships with minority One change that resulted from the example, the Citi Rotation Program embeds depository institutions and other banks that pandemic: Businesses that weighed in during a Citi executive in Black-owned banks to help are not considered its competitors; and to development asked for space to describe the with operations and business development. promote innovation. impact of COVID on their financial results. One of them is Unity National Bank of Citi’s rationale makes sense, observers said. Eighteen banks concentrated in the Houston, which is also participating in the “Banks are trying to understand what South and Rockies are part of the pilot, from pilot. Citi has also committed to investing they don’t know in fintech,” said Christopher minority institutions such as Citizens Trust more than $50 million in minority depository Marinac, director of research at Janney Bank in Atlanta and Optus Bank in Columbia, institutions as part of a larger initiative to Montgomery Scott. “I think every bank South Carolina, to larger regional players such close the racial wealth gap. realizes we need to think smarter and be as First Horizon Bank in Memphis and First “By investing in MDIs, Citi is doing its more agile. Citi is trying to do this in a low- National Bank of Omaha. part to promote and encourage the growth risk way where it can try to have some of the The goal was to offer a range of options; for of financial institutions that are critical to innovation rub off on its team.” example, the community banks and CDFIs the strength and vitality of underrepresented It’s also part of a series of efforts by banks, will focus on smaller loan requests, while communities,” said Harold Butler, head of begun after the racial equity protests of 2020, larger banks can fulfill the $9 million to $10 minority depository institution engagement to invest in Black-run banks and funds that million credits. at Citi. aim to foster development of businesses in “We heard from borrowers that their underserved communities. preferences vary,” said Thompson. “If it is “It’s a great way for Citi to check off what is a $1 million loan and a couple of banks are INTERCHANGE FEES probably a big item on everybody’s ESG road interested, some prefer a smaller community map — democratization of access to capital bank while others prefer a larger regional for small and medium-sized businesses,” bank.” Amazon takes said David O’Connell, a senior analyst on Mechanics and Farmers Bank in Charlotte, the commercial banking and payments North Carolina, came on board after Citi, page from practice team at Aite-Novarica, referring to which has an equity position in the bank, the environmental, social and governance pitched the idea. M&F lends to companies in practices being adopted by large companies. North Carolina that generally produce gross Walmart’s Businesses in search of a loan of up to $10 revenue of $500,000 to $5 million. million will complete a request for proposal “We still predominantly have a manual playbook to on the Bridge website, supplying details such process for our small and medium-sized as how much they are seeking, why they businesses in terms of collecting the financials, need the loan as well as basic financials such meeting with the customer and asking them fight Visa’s as three years of net income. Participating questions,” said James Sills, president and banks will review the RFPs and respond with CEO of the $358 million-asset M&F. It made fees nonbinding pricing and terms, after which strides during the pandemic, such as letting borrowers can compare their options. customers upload documents into a secure By John Adams Both sides can track the loan process in portal and holding conversations over Zoom. August 11, 2021 real time. Once borrowers select a bank, they But, “every business customer wants to do it Amazon is justifying plans for a surcharge and their lender continue the conversation off faster,” Sills said. “They want decisions to be on Visa credit cards in Singapore by pointing Bridge. faster.” to the costs it pays for handling those The process is meant to be efficient. Bridge also can let M&F cast a wider net transactions. It’s a tactic similar to what Businesses do not upload any documents in North Carolina than a small institution other retailers have used to pressure the card while filling out their RFP, which the creators with six commercial lenders normally could. network over payment costs. estimate will take 15 to 45 minutes. Banks M&F will be limiting its search to companies Amazon on Tuesday sent an email to can filter by location or size of the loan when in the state and to loan amounts up to $4 customers in Singapore saying it would poring through requests to pinpoint better million to any one borrower at first; it will also charge 0.5% for Visa credit card purchases matches. prefer applicants that report profits over the starting Sept. 15. Amazon did not provide an The idea for Bridge predated the pandemic, previous three years. executive for an interview, but an Amazon even if the reliance on digital technology to “We have been lending to all types of spokesperson said the cost of accepting card form relationships in small-business banking business owners throughout our history, payments is an obstacle to providing the “best during the pandemic accelerated the need. but we do predominantly lend to African prices” for consumers. Amazon also contends “We saw this as something that would happen Americans,” Sills said. “Given the wealth gap the payment costs, including interchange and eventually,” said Harte Thompson, a senior and history of our institution, this allows us other fees, should be decreasing over time vice president at Citi who also helped develop to lend beyond the five markets where we are given technology advancements. Bridge. “COVID pushed us to move a lot faster, located.” Amazon’s battle with Visa recalls a similar with people more willing to move to digital Citi has collaborated with minority — and arguably more extreme — move by ways of connecting.” depository institutions in other ways. For Walmart in 2016. Citing costs, Walmart banned

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Visa credit cards in Thunder Bay, Ontario, Despite the risk of angering consumers, COVID-19 vaccinations for all employees followed by threats to ban Visa credit cards Amazon’s considerable size could help the who plan to return to work in offices. throughout Canada. Consumers complained e-commerce company if its battle with Visa In a shift away from plans announced about the ban, and Visa and Walmart reached extends beyond Singapore. six weeks ago, the McLean, Virginia-based a deal after about six months, with neither side “Amazon’s size and loyal following may company will now require workers to be disclosing the details of the agreement. help to insulate it from the potential customer fully vaccinated before they come back Amazon acknowledged its move would relationship consequences of this move,” to the office, CEO Richard Fairbank told be inconvenient for consumers, but added it McKee said. employees Wednesday in a memo. All anticipated a less “card-centric” future given Amazon has its own mobile payments contractors, vendors and other visitors at the rapidly changing payments landscape system, called Amazon Pay, which processes Capital One campuses and offices will also around the world, a likely reference to payments from consumers’ Amazon accounts. have to be fully vaccinated, Fairbank said. alternative payment methods such as those Amazon is also reportedly fielding bids for its Employees who are unvaccinated will Amazon is itself developing. co-brand credit card business, which uses be allowed to continue working remotely The e-commerce firm told consumers to JPMorgan Chase as the issuer and Visa as through at least the first quarter of 2022, use other credit cards or debit cards to avoid the card network. And Amazon has offered Fairbank said. But, he added, the company the surcharge. Singapore is the first market for marketing incentives that are less tied to card has not made a decision about its long-term the surcharge, but Amazon categorized the usage in favor of encouraging enrollment policy on vaccination requirements, and it cost of card payments as a global issue. in Amazon Prime, which is at odds with is possible that vaccines will be required for By signaling out Visa and Singapore, traditional card-focused incentives. everyone, excluding those with medical and Amazon is limiting its surcharge coverage Card networks set interchange fees, which religious objections. while sending a public message. Amazon merchant acquiring banks pay to card issuing Capital One is also pushing back its is the third-largest e-commerce company banks — but merchants bear the actual office reopening date from Sept. 7 to Nov. in Singapore, trailing Shopee and Lazada, expense. Visa and Mastercard raised fees 2, according to the memo. The $425 billion- according to Statista. By contrast, Amazon earlier in 2021, following a delay of about a year asset company still expects to operate a controls about 40% of the U.S. e-commerce due to the pandemic. Visa also made what it hybrid work environment in which offices market, according to eMarketer, compared called small adjustments in its fee structure to will be fully open Tuesdays, Wednesdays with 7% for Walmart and 4% for eBay. accommodate the growth of online payments. and Thursdays, while Mondays and Fridays Amazon likely is aiming to negotiate a “Amazon is taking out its disagreement will be remote work days, Fairbank said. better overall deal with Visa. over network card fees on its customers,” Capital One’s pivot shows how quickly “If Amazon’s decision to surcharge said Grotta. “So rather than convincing its the pandemic is changing plans set only represented a general disgruntlement with customers that Amazon’s payment solutions weeks ago. Driven by the surge in COVID-19 card fees, Amazon would have included the offer better value, they take the stick approach cases stemming from the highly contagious other card brands, too,” said Sarah Grotta, and penalize their customers for their payment delta variant, some of the nation’s largest director of the Debit and Alternative Products choice.” companies, including Microsoft, Google and Advisory Service at Mercator Advisory Group. Tyson Foods, have set vaccine requirements Hilton, for example, recently announced for employees in hopes of curtailing both surcharges in the U.S. for all credit cards. “I CORONAVIRUS infections and business disruptions. can’t wait to get back on the road and see if “From the beginning of this pandemic, Hilton will take my check as payment,” Grotta Capital One has prioritized the health said. Capital One and safety of our associates and our It’s not unusual for merchants to battle credit communities. It’s why we moved early card companies over payment costs. The card employees and quickly to remote work. And it’s why brands have been in and out of court for years we have been careful and cautious about with retailers over fees. What’s less common reopening,” Fairbank wrote in the memo. is merchants adding their own fees on top of returning to “Unfortunately, we have watched the delta card fees as a forcing mechanism, a harder variant tear a hole through the steady course negotiation tactic that threatens consumer office will of improvement in COVID-19 outcomes that relationships. Credit card surcharging is legal we had been experiencing.” in most markets, though it’s generally not The vaccine mandate at Capital One popular with merchants, given the extra costs have to be comes one day after Citigroup said it will to consumers. require vaccinations for all employees “Amazon’s move feels like a form of vaccinated working at the company’s New York City brinkmanship, but it’s a dangerous game to headquarters, as well as at offices in Chicago, play,” said Jordan McKee, an analyst with 451 By Allissa Kline Boston, Philadelphia and Washington, Research. “Introducing friction at checkout August 11, 2021 D.C. Employees in those five locations are can jeopardize conversions and customer Capital One Financial is joining a growing expected to work in the office at least two lifetime value.” list of U.S. companies that will mandate days a week.

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In a LinkedIn post, Citi Head of Human also broadened its product lineup in recent Resources Sara Wechter said the new VENTURE FUNDING years, adding rewards checking accounts and vaccination policy, which goes into effect a Bitcoin rewards card. on Sept. 13, is an effort to “ensure a safe “I think that the success of Upgrade Card workplace” in light of “the increased number Upgrade is really behind a lot of the growth and then of employees returning to these buildings frankly, the environment has been quite and the delta variant in the U.S.” valued at $3.3 good,” Laplanche said. Citi workers in other markets are not required to return to the office at this time, Wechter said. billion after FORECLOSURES Other big banks are encouraging employees to get vaccinated, but they have new funding not publicly announced mandates to date. CFPB JPMorgan Chase last week reinstated mask- By Bloomberg News wearing rules for vaccinated employees August 11, 2021 servicing rule after previously saying that such rules would Upgrade, a lending startup that counts only apply to unvaccinated workers. former LendingClub executive Renaud At Bank of America, the majority of Laplanche as a co-founder, raised $105 aims to stave vaccinated employees are being brought million in a funding round that values the back to the office after Labor Day, but company at more than $3.3 billion. off another there are no current plans for unvaccinated The round was led by Koch Disruptive workers to return. Technologies, the investment arm of Koch Wells Fargo’s plan to return workers to Industries, Upgrade said in a statement foreclosure offices is being delayed from September Wednesday. The startup is profitable, to October as a result of the rising number according to Laplanche, meaning that there crisis of COVID-19 cases. Wells has said that wasn’t an urgency in raising the new round. employees do not have to be vaccinated Laplanche helped create Upgrade about By Kate Berry against COVID-19 to return to the office, five years ago and turned it into a business that August 11, 2021 but they also cannot use their unvaccinated has extended more than $7 billion in credit The impending termination of status to keep working at home. and expects to do that same amount this year government aid for struggling homeowners At Capital One, vaccinated employees alone. Upgrade focuses on mainstream U.S. is expected to spark a flood of foreclosures will be encouraged to come back to the consumers, instead of the younger or lower- as early as next month, but the mortgage office, but will not be required to do so, at income customers pursued by other fintech industry hopes a recent Consumer Financial least during the company’s initial reopening startups, according to Laplanche. Protection Bureau rule will help limit the phase, Fairbank said. “They are really everyday Americans who damage. He expressed disappointment over are not underbanked in any way,” Laplanche Federally sponsored forbearance having to readjust the company’s strategy said in an interview. “They are fully served by plans begin expiring in September after a once again. BofA, Wells or Citi but we believe we can give temporary foreclosure moratorium ended “All of us have missed our friends and them more value and a better experience.” July 31. Many analysts believe foreclosures colleagues and my hope was that all of us Laplanche ran LendingClub before will soon be inevitable for hundreds could experience a fall reopening together. resigning in 2016 and accepting a three- of thousands of borrowers who were I had been encouraged by high vaccination year ban from the securities industry to delinquent as soon as the pandemic began rates among our associates and hoped that, resolve allegations that a unit he oversaw last year. combined with on-site protocols, we could had misstated investors returns. Now, he But a CFPB rule taking effect Aug. 31 is ensure a safe September reopening without is looking to challenge consumer banks by designed to help servicers handle the flood a vaccine requirement,” Fairbank wrote. offering more affordable options, helped by of defaults and modification requests. A “However, the highly-contagious delta a lower cost of capital and lower operating key provision enables lenders to process variant has put a damper on our aspirations.” expenses due to having no branch network quick foreclosures for loans beyond repair, and more modern technology. so they can focus on working with other He said the firm isn’t ready to go public borrowers and thereby mitigate cumulative quite yet, but expects the company to be foreclosures from COVID-19. closer within the next 18 months. “The servicers have been staffing up, The company’s main product, the Upgrade cross-training people and are ready to Card, turns every balance into a fixed-rate handle borrowers as they come out of installment plan, similar to the buy now/pay forbearance,” said Rick Sharga, an executive later” models, also known as BNPL, that have vice president at RealtyTrac. come into favor in recent years. Upgrade has The CFPB rule was issued in June and

For up to date and complete coverage go to AmericanBanker.com FRIDAY AUGUST 13, 2021 AMERICANBANKER.COM PAGE 7 expires in October 2022. It creates pandemic to go into foreclosure or are more likely to as delinquent. safeguards that a servicer must meet before sell their homes. One critical change under the CFPB’s filing a foreclosure, allows streamlined MBA data shows that loans in forbearance rule is that it permits servicers to offer modification options for borrowers affected have gradually declined from last year’s a streamlined loan modification to a by COVID-19, and requires servicers to highs, but they still remain well above borrower even if the homeowner has not erase delinquencies in certain cases when a prepandemic lows. completed an application to restructure borrowers accepts a modification. The percentage of loans in forbearance the loan. Unfinished applications were a But the CFPB is allowing some foreclosures remains the highest for mortgages held major stumbling block for servicers trying to to resume immediately to prevent housing on bank portfolios or backed by private- complete loan workouts in the last financial market disruptions. Experts say this will label mortgage securities. That was 7.37% crisis. allow servicers to be more thoughtful about on Aug. 1, according to the MBA. Among In addition, even though the earliest loans in the next tiers — where perhaps a loans backed by the Federal Housing forbearance plans from the pandemic end borrower is behind on payments but could Administration and other government next month, borrowers still have until the benefit from a modification — and stagger agencies, 4.18% were in forbearance, end of September to enter new plans and future foreclosures. followed by 3.63% for independent mortgage those will last through September 2022. “Where the CFPB rules come into play is banks and 1.74% for loans backed by Fannie But servicers are facing a much that servicers now have certain additional Mae and Freddie Mac. higher workload around the bend as requirements before they can execute The spread of the Delta variant and the unprecedented level of government a foreclosure, but they did offer several whether certain sectors of the economy assistance responding to the pandemic carve-outs and the biggest of those is if rebound will also affect borrowers’ ability begins to wind down. There are also state your loan was in foreclosure prior to the to exit forbearance without going into foreclosure timelines that make compliance moratorium being declared, the servicer foreclosure. tricky for servicers. may immediately resume the foreclosure “The real risk is you have regional effects Sharga predicts there will be three proceeding,” Sharga said. due to the strain of COVID,” said Pete Carroll, separate foreclosure waves: in September of But it’s still an open question whether a public policy executive at CoreLogic and a this year, early 2022 and mid-2022. government efforts to reduce pandemic- former CFPB assistant director of mortgage “I think servicers are staffed and related foreclosures will work. markets. ready to handle people as they come “The CFPB’s servicing rules will prevent But many experts think fears of a full- out of forbearance,” said Sharga. “I think a large number of foreclosures,” said Nick scale foreclosure crisis are overblown largely the combination of how successful the Agnello, a partner at the law firm Burr & because of the dramatic turnaround in the [forbearance] program is and the new CFPB Forman in Fort Lauderdale. “It’s going to be housing market. Interest rates are at all-time rules will give distressed borrowers another a tall task to implement and it’s going to be lows, so many borrowers can refinance. six months to kind of work out whatever their a lot of work for the servicers but they are Home prices have skyrocketed in the past situations might be and keep foreclosures certainly doing their best to comply.” year with fewer than 5% of homeowners down.” The CFPB issued the rule to create a more underwater on their mortgage. More than nine million borrowers have orderly exit from forbearance plans with In addition, over 70% of homeowners been in a forbearance plan at one point the goal of staggering foreclosure filings as have more than 20% equity in their homes or another since the pandemic began, much as possible into next year. and housing supply is in such demand that according to research by the Federal Reserve As the end of the moratorium approached most borrowers should have little difficulty Bank of New York. Of those, 85% have exited last month, servicers already began selling at a profit. successfully either by resuming monthly filing initial documentation necessary Still, foreclosures are about to ramp up mortgage payments or opting to sell their to commence foreclosures that could be for the 200,000 to 250,000 borrowers who homes to avoid foreclosure. Those that processed in August. Such filings jumped are seriously delinquent and have not remain in forbearance tend to be lower- 40% in July from a year earlier and are responded to any outreach, said Sharga. income, subprime borrowers with credit expected to increase in the months ahead The CFPB’s rule allows servicers to scores below 620. for borrowers that have run out of options. immediately start the foreclosure process Industry executives are most concerned Roughly 1.7 million borrowers were in for borrowers who were already 120 days about low-income borrowers with FHA forbearance plans as of Aug. 1, according delinquent when the pandemic began in loans that were struggling before the to the Mortgage Bankers Association. The March 2020, and those who are 120 days pandemic hit. CFPB is concerned that servicers could delinquent and have not responded for 90 “You have the dynamic of people exiting become overwhelmed because as many days to outreach from their servicer. forbearance and going into loss mitigation as 900,000 borrowers are expected to exit Under the Coronavirus Aid, Relief, and but they may re-default,” said Carroll. “So forbearance plans between September and Economic Security Act passed by Congress much will depend on how the sectors most the end of the year. last year, borrowers are still counted as devastated by COVID manage to come Industry experts are closely watching seriously delinquent after they have been in b a c k .” the breakdown of loans in forbearance to a forbearance plan for 90 days even though Servicers have far more tools to work with determine which borrowers are more likely they are not reported to the credit bureaus because the CFPB put in place minimum

For up to date and complete coverage go to AmericanBanker.com FRIDAY AUGUST 13, 2021 AMERICANBANKER.COM PAGE 8 loss mitigation and outreach requirements opportunities to our clients, communities, verification technology provider FormFree after the last financial crisis. The CFPB employees and shareholders,” Kent — will identify records of consistent rental has made a number of other changes to Wunderlich, Financial Federal’s CEO, payments over the most recent 12 months its temporary rule to give servicers more said in the release. “This partnership is an to give historically underserved populations flexibility and struggling borrowers who can excellent opportunity to create value for a more inclusive measure of a borrower’s resume payments a shot at staying in their both institutions.” fiscal health. homes. This is the seventh deal this year in which The rental history incorporation can only “The forbearance program has been a credit union is buying a bank, matching weigh positively in a consumer’s credit the most successful government-industry the number of such deals reported in 2020, assessment, said Malloy Evans, executive partnerships ever in the mortgage industry,” according to American Banker tallies. The vice president and head of single-family at Sharga said. record number, 16, was set in 2019. Fannie Mae. If the applicant had any missed Orion hopes to bolster its real-estate payments from the last 12 months, the rent lending arm and to break into commercial consistency doesn’t get factored into the CREDIT UNIONS and industrial lending with the acquisition. approval process since a payment gap could “We believe that the combination of indicate that the renter paid using a credit these two great organizations produces card or cash, he explained in an interview. Memphis undeniable synergies. Orion has a legacy The program doesn’t alter traditional of exceptional consumer banking, while credit scores. Instead, it’s used as a separate credit union Financial Federal has a specialized niche vector for approval in the decisioning in the commercial banking space,” Ashley process, according to Brian Francis, McAdams, Orion’s executive vice president FormFree’s chief technology officer. to nearly and chief financial officer, said in the release. Including rental payments in borrower “Aligning these two organizations will bring assessments doesn’t expand or loosen double in size depth and bench strength to Orion’s already underwriting standards, it only increases well-established commercial real estate access to homeownership by widening the lending team while supporting Orion’s goal pool of potential borrowers, Evans said. with deal for to grow our mortgage product lines and In a sample of recently denied mortgage allow us to expand into commercial and applications from renters, a Fannie Mae rival bank industrial lending.” analysis found 17% would have been Orion is being advised by the law firm approved with its new Desktop Underwriter. By Frank Gargano Honigman. Janney Montgomery Scott “Considering rent will allow more August 11, 2021 served as financial advisor. Baker, Donelson, consumers to demonstrate a responsible Orion Federal Credit Union in Memphis, Bearman, Caldwell & Berkowitz provided payment history and, as a result, decrease Tennessee, is set to expand its market share legal counsel to Financial Federal. their risk assessment as part of the home in its home state by acquiring Financial buying process,” said Mitria Wilson-Spotser, Federal Bank in Memphis. director of housing policy for the Consumer The $1 billion-asset credit union MORTGAGE UNDERWRITING Federation of America. announced Wednesday that it has agreed Fannie’s new underwriting aligns with to buy the $774 million-asset Financial the Biden administration’s initiatives on Federal. The price of the cash deal was not Fannie Mae to increasing the rate of homeownership and disclosed. the enforcement of fair housing rules. The “Orion’s board of directors is extremely include rent Fannie Mae program could give millions of excited to announce this partnership currently non-mortgage-eligible consumers between two uniquely positioned Memphis- a chance to qualify for a loan, according to based financial institutions,” Andre Fowlkes, payments in FormFree Founder and CEO Brent Chandler. the chairman of Orion’s board, said in a “A large demographic of black and brown news release. “This transaction positions underwriting people have been left behind, who make Orion to be a fierce competitor in the consistent rent payments but have been southeastern region in both the commercial By Paul Centopani overlooked because of their credit scores and consumer banking spaces. The August 11, 2021 and lack of credit history,” Chandler said partnership is a win for employees and the Fannie Mae will factor rental payment in an interview. “This is the culmination business community, and will position us to history into its mortgage decisioning starting of a long journey with respect to how we deliver on even greater community outreach on Sept. 18, the government-sponsored reach more people who are truly capable of activities throughout the City of Memphis.” enterprise announced Wednesday. paying a mortgage and really comes down to “I am enthusiastic about the opportunity The GSE’s automated Desktoplooking at all data to help borrowers achieve we have to partner with Orion in a Underwriter — originally developed homeownership.” transaction that we believe offers significant in 2016 in partnership with the asset

For up to date and complete coverage go to AmericanBanker.com FRIDAY AUGUST 13, 2021 AMERICANBANKER.COM PAGE 9

regulator for concentration risk management BANKTHINK at credit unions, it is simply not reasonable to say these entities have similar risk profiles. Ginnie Mae has also asserted that “Unlike Ginnie Mae’s their bank counterparts, nonbanks are less stringently regulated and are subject to lower misconcep- capital and liquidity requirements.” This is clearly not accurate regarding credit unions. Credit unions are subject to extensive capital, tions about liquidity and risk management standards, regular reporting requirements, and frequent credit unions examination by the National Credit Union Administration and — depending on charter and asset size — state examiners and the and mortgag- Consumer Financial Protection Bureau as well. es Whereas true nonbank mortgage lenders have limited access to funding sources, which By Elizabeth LaBerge are likely to contract during a liquidity crisis, August 11, 2021 credit unions have broader and more stable In July, Ginnie Mae issued a request for access to liquidity. Currently, credit unions input proposing to establish additional, risk- have ample liquidity in the form of member based eligibility requirements for issuers of deposits: The credit union system’s net worth securities backed by single-family mortgages. is $195.3 billion. Credit unions also hold The RFI perpetuates Ginnie Mae’s strange cash and equivalent assets with maturities of treatment of credit unions as nonbank three months or less totaling $297.9 billion. mortgage lenders even though credit unions Additionally, credit unions have the option are insured depository institutions regularly to join the Central Liquidity Facility, the examined by a prudential regulator for safety Federal Reserve System and Federal Home and soundness. Loan banks to access further liquidity when If this policy is finalized without alteration, needed. Access to liquidity for credit unions an estimated 24% of credit unions will be and nonbank mortgage lenders are simply excluded as qualified issuers. This is a terrible not comparable, and therefore neither is result for Ginnie Mae, credit unions and most their liquidity risk. importantly American homebuyers. The NCUA has already done the Ginnie indicates that the purpose of work of establishing appropriate capital the RFI is to address the risks posed by the requirements for credit unions based on “unique business profile of independent their risk to the National Credit Union Share mortgage banks,” but it is difficult to Insurance Fund. This creates a ready-made reconcile that stated purpose with Ginnie’s classification system to hold credit unions treatment of credit unions. For example, accountable to. Ginnie Mae is concerned that underwriting While the differences between credit by nonbanks is less conservative than unions and nonbank mortgage lenders banks, and therefore could pose more risk are clear, Ginnie Mae has met these to Ginnie. However, credit union mortgage discrepancies with a shrug. This RFI only loans have long shown to be high in quality adds further insult to injury. It is past time for and low in risk compared to both banks and Ginnie to recognize the significantly different nonbank mortgage lenders. Credit unions risks posed by credit unions and nonbank and nonbank mortgage lenders simply don’t mortgage lenders and start treating them have comparable risk profiles. accordingly. Additionally, nonbank mortgage lenders’ assets are much less diversified. While Elizabeth LaBerge is senior director of the former are prone to concentration in advocacy and counsel for the Credit Union mortgage servicing rights, credit union National Association. q assets often include auto loans, commercial loans, credit card loans and more. Given the © 2021 Arizent and American Banker. supervisory expectations by the prudential All rights reserved.

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