Apr. 20: Update on move away from LIBOR; state lending law changes from ND, WY, UT

Happy 420 day! (And “Happy Surprise Drug Test Day” tomorrow!) More and more people in more and more states understand what that signifies. And there is gradual pressure to change the Federal view of marijuana use. But until that changes, Federal entities (like Fannie & Freddie) and nationally-chartered banks, will continue to not count income, and finances, from cannabis-related activities. Eventually in the future yes, but for now, no.

Also in the future is the gradual elimination of LIBOR, a concern with loan servicers and anyone with any contracts tied to that index. (Yes, it is an acronym so capital letters are used, but the use of small letters has increased.) To refresh your memory, Libor, the reference rate for more than $350 trillion of assets globally, is being phased out after a series of manipulation scandals that led to banks being fined billions of dollars. The United States, Britain and other key markets have until the end of 2021 to replace the Libor money market rate, despite the global financial industry being slow to embrace the change, as the transition to the Secured Overnight Financing Rate (SOFR) is not seen as a pressing issue.

The London Interbank Offered Rate’s days are numbered, and bankers have heard that SOFR will replace LIBOR as a benchmark in 2021. But what is involved in this transition? To learn more about the impact and how your bank can plan for it, download PCBB’s white paper, “Moving from LIBOR to SOFR: Smoothing the Transition for your Financial Institution“.

Regulators and industry groups are developing a market protocol to govern the shift of derivatives contracts linked to Libor to fallback benchmarks after Libor is discontinued. Dan Fichtler, the Director of Housing Finance Policy with the Mortgage Bankers Association, observes, “SOFR tends to run below LIBOR, so borrowers would see their rates decrease as a result of the shift, assuming no change in margin (which is itself a subject of intense scrutiny right now). There are many, many conversations and analyses, both legal and financial, taking place to determine how the transition would work. Much of that work is being undertaken by the Alternative Reference Rates Committee, which is the public-private group being organized by the Fed. I’d certainly recommend the ARRC website, which has lots of useful information.

Federal Reserve Governor Randal Quarles, who was joined in Washington by regulators from Britain as part of the spring meetings of the International Monetary Fund and World Bank, said the U.S. financial industry must accelerate efforts to move away from the scandal-plagued Libor reference interest rate, adding the Fed is scrutinizing banks’ transition plans. Quarles warned that major new markets such as SOFR “do not arise overnight” and can take decades to develop, needing the backing of the private sector.

Any hopes for more transition time were quashed by Britain’s Financial Conduct Authority, deeming requiring banks to support a “fragile” Libor beyond 2021 inappropriate. The FCA could not rule out that some “legacy” products might still refer to Libor after 2021, but new products should not. The FCA and Bank of England are making senior bank officials personally responsible for timely transition from Libor to the BoE’s Sonia overnight rate, including the transition away from Libor as part of their regular monitoring of large firms.

Sonia, SOFR, regardless, lenders need to be proactive and identify LIBOR exposure. Dan F. reports, “(We are) spending quite a bit of time on the transition away from LIBOR. On the residential policy side, MBA has a working group on the mortgage-related elements of the transition – this group is our main venue for all of our policy work on the issue. Aside from educating members, our main goal is to serve as a forum for establishing best practices and/or standardization for the industry. This will include discussions around criteria for choosing new benchmarks for future production, operational issues related to servicing legacy loans tied to LIBOR, new consumer and other disclosures, and changes to fallback language in contracts.

“Our expectation is that the GSEs will be spending more time in 2019 determining: 1) what they will accept in terms of future production; and 2) what benchmark(s) they will use for servicers of legacy loans tied to LIBOR. We hope to work with them on issues like potential changes in the note language and the developments of timelines and implementation instructions (a la the Single Security Playbook, for example).

My guess is that we can look for Freddie and Fannie to create an ARM program tied, probably, to SOFR some time in the next year or so.

State law changes

North Dakota has enacted House Bill No. 1110 relating to the adoption of the Revised Uniform Law on Notarial Acts. This section has been updated to include requirements concerning remote notarial acts utilizing communication technology. The amendments specify the requirements that must be met for a notary to perform a remote notarial act.  In part, the notary must be able to identify the individual either by personal knowledge, credible witness attestation, or utilization of at least two different types of identify proofing. Additionally, the notarial certificate must include the language: “This notarial act involved the use of communication technology.” A notary must also notify the secretary of state that he or she will be performing notarial acts remotely and identify the technology he or she intends to use prior to his or her first notarial act. A notary is also required to keep a journal including a chronical of all notarial acts performed remotely. The journal must be retained for 10 years after the last notarial act.

Wyoming has enacted House Bill 292 amending foreclosure sale and right of redemption provisions. The Act clarifies the definition of “agricultural real estate” with respect to the right of redemption used in Section 1-18-103.  Agricultural real estate is defined as: [A]ny single parcel of land in excess of eighty (80) acres lying outside the exterior boundaries of any incorporated city, town or recorded subdivision or any property that is used substantially for agricultural purposes, which, if combined with other agricultural purposes, equals eighty (80) acres or more in aggregate. Additionally, House Bill 292 amends Section 1-18-111, sale on foreclosure of mortgage, to allow a limited right of entry to a purchaser in order to ensure the property does not significantly deteriorate during the redemption period.   A limited right of entry is defined as “entrance into the premises which is not occupied by a legal inhabitant.”

The State of Utah amended its provisions under its Notaries Public Reform Act that include establishing requirements for the process by which a remote notary may perform a remote notarization, requiring a remote notary to maintain an electronic journal, and amending the fees a notary may charge for performing a notarization. The bill takes effect on November 1, 2019. Language includes that “a notary” includes a “remote notary” and defines remote notarization as “a notarial act performed by a remote notary for an individual who is not in the physical presence of the remote notary at the time the remote notary performs the notarial act.”

An individual commissioned as a notary or an individual applying to be commissioned as a notary will apply to the Lieutenant Governor for a remote notary certification and the Lieutenant Governor shall certify that individual to perform remote notarizations as a remote notary if he or she meets certain conditions. Remote notarization procedures are created, and states that “a remote notary who receives a remote notary certification may perform a remote notarization if the remote notary is physically located in the state. A remote notary is required to create an audio and video recording of the performance of each remote notarization and store the recording and is required to take reasonable steps consistent with industry standards, to ensure that any non-public data transmitted or stored in connection with a remote notarization performed by him or her is secure from unauthorized interception or disclosure.

A remote notary certification will not be effective until the notary in the remote notary certification files with the lieutenant governor evidence that the notary has obtained $5,000 of bond coverage. A remote notary should ensure that the notarial certificate used for a remote notarization includes a statement that the remote notary performed the notarization remotely.

Section 10 amends the fees and a notary may charge. The maximum fees a notary may charge for notarial acts are: $10 per signature for an acknowledgment, $10 per page certified for a certified copy, $10 per signature for a jurat, $10 per person for an oath or affirmation, $10 for each signature witnessing. The amendment further provides that $25 is the maximum fee a remote notary may charge for an item described above that he or she may perform as part of remote notarization.

A notary journal must be kept and requires a remote notary to keep a secure electronic journal of each remote notarization the notary performs. The information that should be entered in the journal is listed, and states that a remote notary shall include with the journal a copy of the electronic recording of the remote notarization. The remote notary is required to maintain or ensure that a person that the notary designates as a custodian maintains information entered in the journal for a period of five years.

Section 13 provides for inspection of journal and requires a remote notary to ensure that the electronic journal and electronic recording that is maintained by the remote notary is a secure and authentic record of the remote notarizations that the notary performs. The remote notary is also required to maintain a backup electronic journal and electronic recording and must protect the backup electronic journal and electronic recording from unauthorized access or use. A custodian may be designated for the remote notary’s electronic journal and electronic recording and an agreement must be executed by the remote notary with the custodian that requires the custodian to comply with the safety and security requirements with regard to the electronic journal, the information in the electronic journal, and the electronic recording.

Section 14 require a remote notary to keep an electronic seal and electronic signature which may not be used by any other person with the exception of a chosen guardian. The amendment also provides that “the official seal used for an in-person notarization shall be in purple ink while each official seal used for a remote notarization shall be rendered in black.”

The amendment requires a notary who resigns or whose commission expires or is revoked to destroy the notary’s official seal and certificate and if the notary is a remote notary, to destroy any coding, disk, certificate, card, software, or password that enables the remote notary to affix the remote notary’s electronic signature or  electronic seal to a notarial certificate. A former remote notary is required to certify within 10 days after the day on which the notary resigns or the notary’s commission expires or is revoked to the lieutenant governor in writing that the former remote notary has complied with the requirements of destroying any coding, disk, certificate, card or password.

Section 15 provides for obtaining an official seal and states that a person may not provide an official seal to an individual claiming to be a notary unless they present a copy of their notarial commission. The amendment forbids anyone from creating, obtaining or possessing an electronic seal unless the individual is a remote notary.

Utah modified provisions under its Consumer Credit Protection Act effective on May 14, 2019. Section 6 of the amendment modifies the penalty for violating the Act to “no greater than $100,000 in the aggregate for related violations concerning more than one consumer unless the violations concern 10,000 or more consumers who are residents of the state; and 10,000 or more consumers who are residents of other states; or if the person agrees to settle for a greater amount.” The amendment also establishes that an enforcement action filed under the Act shall commence no later than five years after the day on which the alleged violation last occurred.

Section 9 of the amendment permits funds in the Attorney General Litigation Fund to be used for education and outreach on certain matters and any balance in the fund in excess of $4,000,000 at the close of any fiscal year shall be transferred to the General Fund.

(Thank you to P.A. for this one. Let’s call it “un-rated;” I am sure someone will take offense to it. So if easily offended, don’t read.)

A blonde, city girl named Amy marries a Colorado rancher. One morning, on his way out to check on the cows, the rancher says to Amy, “The insemination man is coming over to impregnate one of our cows, so I drove a nail into the 2×4 just above where the cow’s stall is in the barn. Please show him where the cow is when he gets here, OK?”

The rancher leaves for the fields. After a while, the artificial insemination man arrives and knocks on the front door. “I came to inseminate the cow,” he said.

Amy takes him down to the barn. They walk along the row of cows, and when Amy sees the nail, she tells him, “This is the one right here.”

The man, assuming he is dealing with an airhead blonde, asks, “Tell me, lady, ’cause I’m dying to know. How would YOU know that this is the right cow to be bred?”

“That’s simple,” she said. “By the nail that’s over its stall,” she explains very confidently.

Laughing rudely at her, the man says, “And what, pray tell, is the nail for?”

The blonde turns to walk away and says sweetly over her shoulder, “I guess it’s to hang your pants on,” she replied.

Visit www.robchrisman.com for more information on our industry partners, access archived commentaries, or to subscribe to the Daily Mortgage News and Commentary. If you’re interested, visit my periodic blog at the STRATMOR Group web site. The current blog is, “MBS Liquidity: A Real Trooper.” If you have both the time and inclination, make a comment on what I have written, or on other comments so that folks can learn what’s going on out there from the other readers.

Rob

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