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Latest News: Compliance

CFPB Issues 6 Final Mortgage Lending Regulation

Thursday, January 31, 2013   (0 Comments)
Posted by: Susan Dyer
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 In January, the Consumer Financial Protection Bureau (CFPB) issued six final mortgage rules addressing requirements under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act).

The final regulations issued include:
1. Ability to Repay
2. High Cost Mortgages and Homeownership Counseling Rules
3. Escrow Requirements Rules
4. Mortgage Servicing Rules
5. Appraisals for Higher-Priced Mortgage Loans and Appraisals under Reg B
6. Loan Originator Compensation

Here is a summary of the six rules:

Ability to Repay
This final rule generally requires mortgage lenders to make a reasonable, good faith determination of a borrower’s ability to repay any consumer credit transaction secured by a dwelling (excluding an open-end credit plan, timeshare plan, reverse mortgage, or temporary loan) and establishes certain protections from liability under this requirement for "qualified mortgages.” 

The rule establishes eight (8) underwriting requirements and certain prohibitions for underwriting of mortgage loans and the steps needed to be taken by a lender to make a "qualified mortgage.” A "qualified mortgage” generally affords a lender greater liability protection from claims that mortgage loans do not meet the ability to repay requirements.

Loans with the following features will not be eligible for qualified mortgage status: negative amortization loans, interest only payments, some types of balloon payments, or loan terms that exceed 30 years.

No-doc loans and loans with points and fees that exceed three percent of the loan amount also will not qualify. 

The compliance date is Jan. 10, 2014.

High Cost Mortgages and Homeownership Counseling Rules
This final rule amends Regulation Z (Truth in Lending) by expanding the types of mortgage loans that are subject to the protections of the Home Ownership and Equity Protections Act of 1994 (HOEPA), revising and expanding the tests for coverage under HOEPA, and imposing additional restrictions on mortgages that are covered by HOEPA, including a pre-loan counseling requirement. The final rule also amends Regulation Z and Regulation X (Real Estate Settlement Procedures Act) by imposing certain other requirements related to homeownership counseling, including a requirement that consumers receive information about homeownership counseling providers. 

The compliance date is Jan. 10, 2014.

Escrow Requirements Rules
This final rule implements statutory changes made by Dodd-Frank that lengthen the time for which a mandatory escrow account established for a higher-priced mortgage loan must be maintained. The rule also exempts certain transactions from the statute’s escrow requirement, including mortgage transactions extended by creditors that operate predominantly in rural or underserved areas, originate a limited number of first-lien covered transactions, have assets below a certain threshold, and do not maintain escrow accounts on mortgage obligations they currently service. 

The compliance date is June 1, 2013. 

Mortgage Servicing Rules
These rules, implementing statutory provisions of Dodd-Frank, deal with both Regulation Z (Truth in Lending Act) and Regulation X (Real Estate Settlement Procedures Act), and set forth new requirements for servicers of mortgage loans. 

The rules:

  • address servicers’ obligations to correct errors asserted by mortgage loan borrowers and to provide certain information requested by such borrowers;
  • provide protections to such borrowers in connection with force-placed insurance;
  • provide information about mortgage loss mitigation options to delinquent borrowers;
  • establish policies and procedures for providing delinquent borrowers with continuity of contact with servicer personnel capable of performing certain functions;
  • evaluate borrowers' applications for available loss mitigation options;
  • modify and streamline some existing servicing-related provisions of Regulation X, such as provisions relating to mortgage servicers’ obligation to provide disclosures to borrowers in connection with transfers of mortgage servicing, and mortgage servicers’ obligation to manage escrow accounts, including restrictions on purchasing force-placed insurance for certain borrowers with escrow accounts and requirements to return amounts in an escrow account to a borrower upon payment in full of a mortgage loan;
  • provide guidance on notices required by Regulation Z regarding interest rate adjustments and requirements to respond to borrower inquiries on payoff balances.

The compliance date is Jan. 10, 2014.

Appraisals for Higher-Priced Mortgage Loans & Appraisals under Regulation B

These rules, implementing statutory provisions of Dodd-Frank, require creditors making "higher-risk” loans or, under the Reg B rule, loans secured by a first lien on a dwelling, to obtain appraisals meeting certain standards, notify applicants of the use of the appraisal, and provide applicants a copy of the written appraisal. 

The mandatory compliance date is Jan. 18, 2014.

Loan Originator Compensation
This rule:

  • clarifies existing requirements for loan officer compensation;
  • implements additional requirements imposed by the Dodd-Frank Act concerning proper qualification and registration or licensing for loan originators;
  • implements restrictions on mandatory arbitration and the financing of certain credit insurance premiums;
  • provides additional guidance and clarification under the existing regulation's provisions restricting loan originator compensation practices. 

The compliance dates are June 1, 1013, for the prohibition on arbitration and certain credit insurance premium provisions and Jan. 10, 2014, for the remaining provisions. 

What is the Impact on Credit Unions
The rules impact credit unions with closed-end mortgage programs (with a few exceptions for open-end mortgage programs).

1. The High Cost Mortgages and Counseling, Escrow and Appraisal rules generally apply to loans subject to HOEPA or to higher cost mortgages, depending on the rule.

2. The Ability to Repay rule applies to almost all closed-end mortgage loans, with some exceptions for smaller institutions that keep loans in portfolio.

3. The Servicing Rules generally apply to closed-end mortgage transactions but some provisions (e.g. prompt crediting of payments and requests for payoff amounts) apply to both closed-end and open-end mortgage loans.

4. The Loan Originator Compensation rules apply to "residential mortgage transactions” (generally; first lien, purchase money transactions.) money transactions.) 

For questions please contact Jerel Wright at 1-800-362-2076, ext. 3102