HOEPA Homeownership Counseling Rule – Final Interpretive Rule Issued November 8, 2013

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HOEPA Homeownership Counseling Rule
Final Interpretive Rule Issued November 8, 2013

The CFPB issued this final rule to implement the Dodd-Frank Wall Street Reform and Consumer Protection Act’s amendments to the Truth in Lending Act (TILA) and the Real Estate Settlement Procedures Act (RESPA). The final rule amends Regulation Z (TILA) 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 (RESPA) by imposing certain other requirements related to homeownership counseling, including a requirement that consumers receive information about homeownership counseling providers.

Counseling Requirement for Non-High-Cost Mortgages

Within three business days after a lender, mortgage broker, or dealer receives an application or information sufficient to complete an application, the lender must provide the applicant with a clear and conspicuous written list of homeownership counseling organizations that provide relevant counseling services in the loan applicant’s location. The list is to be provided along with a home buying booklet prepared by the CFPB (similar to the booklet previously distributed by HUD). The list may be combined and provided with other Regulation Z mortgage disclosures. The list may be provided by mail or electronically, subject to the e-SIGN requirements.

The lender is not required to provide the list if, before the end of the three-business-day period, the lender denies the application or the loan applicant withdraws the application. For a HELOC, the list may be provided with the timing and delivery requirements in Regulation Z, 12 CFR 1026.40(b).

If there is more than one lender, only one list needs to be provided. If there is more than one applicant, only one list needs to be provided with the applicant with primary liability of the loan.

Lender Requirements for Counseling First-time Homebuyers on Negative Amortization

Lenders may not extend credit to a first-time borrower in connection with a closed-end transaction secured by a dwelling that may result in negative amortization unless the creditor receives documentation that the consumer has obtained homeownership counseling from a counseling organization or counselor certified or approved by HUD. The lender may not steer a consumer to a particular counselor.

The counseling required must include information regarding the risks and consequences of negative amortization. Examples of documentation indicating that the requisite counseling has been provided include a certificate of counseling letter, or email from a HUD-certified or approved counselor.

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July 2013 – Compliance Newsletter

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Colorado: HB 1307 Modification of Requirements of Legal Descriptions on Real Estate Docs. The state of Colorado modified provisions regarding the preparation of instruments affecting real estate and the legal description of the property. Effective 8/7/13, despite the CO Supreme Court ruling regarding IN RE RIVERA, 2012 CO 43 (referred to as SENDER V.CYGAN), the Colorado Supreme Court held that a recorded Deed of Trust that completely omits a legal description is defective, and does not provide constructive notice to a subsequent purchaser of another person’s security interest in said property. Through HB 1307, the CO General Assembly clarifies that notwithstanding the holdings of the aforementioned CSC case, a recorded document that omits a legal description is not, by itself and without regard to the totality of the circumstances, determinative of whether the document is valid against any person obtaining rights in real property, or is merely valid or invalid.

Texas:  TX Supreme Court Affirms Lower Court Decision on Commissions Interpretation of Interest. The TX SC found that a narrower definition of “interest” is required, as necessary for the inclusion of certain Lender fees that the Commissions had, prior to June 21, 2013, permitted to be excluded from the constitutional 3% Equity Fee cap as “interest.”   The Court held that “‘interest’ as used in that provision means the amount determined by multiplying the loan principal by the interest rate.” As a result, points charged at the inception of a loan, even if to lower the interest rate, are “fees” to be aggregated with other fees in calculating the 3% cap.  This includes, but is not limited to, discount points which were previously excluded by the interpretive regulation as examples of fees that constituted “interest.”

California:  DOC and DFI Merge to Form the Department of Business Oversight.  Effective July 1, 2013, the Department of Corporations (DOC) and the Department of Financial Institutions (DFI) will merge to form the Department of Business Oversight (Department). The reorganization is part of Governor Brown’s plan to increase the efficiency and cost effectiveness of state government.

FEDERAL AGENCIES

FNMA and FHLMC To Purchase Only QM Loans.  On 5/6/13, the FHFA announced that FNMA and FHLMC must limit their future mortgage acquisitions to loans that meet the requirements for Qualified Mortgages (QM), that also includes loans that meet the Special (SQM) or Temporary Qualified Mortgage (TQM) requirements, and loans that are exempt from the “ability-to-repay” requirements.

After the ATR/QM rule takes effect on January 10, 2014, Fannie Mae and Freddie Mac will no longer purchase a loan subject to the ability-to-repay requirements if the loan (i) is not fully amortizing, (ii) has a term of longer than 30 years, or (iii) includes points and fees in excess of 3% of the total loan amount, or such other limits for low balance loans as set forth in the rule. Effectively, this means FNMA and FHLMC will not purchase interest-only loans, loans with 40-year terms, or those with points and fees exceeding the thresholds established by the rule. This FHFA directive, together with the individual announcements made by Fannie Mae Lender Letter LL-2013-05 and Freddie Mac Industry Letter 5/6/13, confirm that the GSEs will continue to purchase loans that meet the underwriting and delivery eligibility requirements stated in their respective selling guides, including those that are processed through their automated underwriting systems.

CIRC. 26-13-12: Principal Reduction Alternative (PRA) for VA Loans. Circular 26-13-12 was published on 6/27/13, and clarifies the ability of servicers and loan holders to utilize principal reductions in connection with the modification of VA-guaranteed home loans.

ASSOCIATIONS

NMLS Advance Notice Release. On 5/8/13, the Conference of State Bank Supervisors published release notes for a 6/24/13 Nationwide Multistate Licensing System (“NMLS” or the “System”) upgrade which includes, among other changes, an advance filing feature that will permit state licensees to file advance notice of certain business changes electronically through the NMLS. The advance notice filing feature also may be used in connection with a legal name change, office relocation and organizational changes.

Federal Banking Agencies (FRB, CFPB, FHFA, NCUA, & OCC. On 7/9/13, the Federal Reserve Board, Consumer Financial Protection Bureau (CFPB), Federal Deposit Insurance Corporation (FDIC), Federal Housing Finance Agency (FHFA), National Credit Union Association (NCUA), and the Office of the Comptroller of the Currency (OCC) proposed a rule that would create exemptions from certain appraisal requirements for a subset of higher-priced mortgage loans. This proposal relates to a final rule issued by the Agencies on January 18, 2013 (2013 Interagency Appraisals Final Rule or Final Rule), which goes into effect on January 18, 2014. See 78 FR 10368 (Feb. 13, 2013)  . The banking agencies are seeking comments until September 9, 2013.

Dodd-Frank/CFPB

CFPB releases exam procedures for new mortgage rule. On 6/4/13, the CFPB published the first update to its exam procedures for the new mortgage regulations it issued in January 2013. The CFPB is sharing with industry what it will be looking for in its examinations under the new rules by updating the applicable sections of the exam procedure manuals for two laws – the Truth in Lending Act (TILA) and the Equal Credit Opportunity Act (ECOA). These documents are intended for use by CFPB examiners and the financial institutions and mortgage companies subject to the new regulations. They are the first round of updates for what will likely be multiple updates.

The Interim TILA Examination Procedures can be found here.
The Interim ECOA Examination Procedures can be found here.

Once these and other exam procedures have been updated with the new mortgage rule requirements, the CFPB will incorporate all amended sections, including the TILA and ECOA sections, into its general supervision and examination manual.

CFPB Issues Final Rule Regarding Mortgage Rules under RESPA and TILA. The CFPB has issued a final rule amending portions of the final mortgage rules issued in January, 2013. These amendments clarify, correct, and amend provisions relating to state law of RESPA’s servicing provisions; implementation dates for adjustable-rate mortgage servicing; exclusions from requirements on higher-priced mortgage loans; the small servicer exemption from certain servicing rules; the use of government-sponsored enterprise and Federal agency purchase, guarantee or insurance eligibility for determining qualified mortgage status; and the determination of debt and income for purposes of originating qualified mortgages. This final rule is effective January 10, 2014, except for the change to 1026.35(e), which states that certain HPML requirements regarding prepayment penalties and a consumer’s ability to repay the loan do not apply to construction loans, bridge loans, and reverse mortgages, and takes effect immediately.

CFPB Mortgage Rules Readiness Guide. On CFPB published the 2013 Dodd-Frank Mortgage Rules Readiness Guide. The guide is provided to assist lending institutions evaluate whether they are ready for the impending changes in mortgages rules slated to take place between 6/1/13 and 1/11/14.  The guide was designed to help regulated entities with manage compliance obligations by highlighting important issues likely to come up in reviews and to focus the industry and examiners on the aspects of the broader compliance system that may need to be improved in the future.  Some of the topics addressed in the four part guide:

  • Ability to Repay and Qualified Mortgage Standards (Regulation Z)
  • Escrow Requirements under the Truth in Lending Act
  • High Cost Mortgage and Homeownership Counseling
  • Mortgage Services Rules• ECOA Appraisals for Higher Priced Mortgage Loans
  • TILA Appraisals for Higher-Priced Mortgages Loans
  • Loan Originator Compensation Requirements

Tracking to Future Dodd-Frank Requirement Effective Dates:

  1. Qualified Mortgage (QM)/Ability to Repay (ATR) & Concurrent Rule – Effective January 14, 2014 (App. Date)
  2. HOEPA/Counseling – Effective Janaury 10, 2014 (App. Date)
  3. LO Comp Rule (Reg. Z) – Effective January 10, 2013 (App. Date)
    1. Mandatory Arbitration & Credit Life restrictions – Effective June 1, 2013 (App. Date)
    2. Credit Life restrictions – Effective January 10, 2014
  4. Servicing Final Rule (TILA and RESPA) – Effective January 10, 2014
  5. Appraisal Joint Rule (TILA/Reg. Z – HPML) – January 18, 2014
  6. Appraisal Copy Rule (ECOA) – Janaury 18, 2014 (App. Date)
  7. Escrow Rule
    1. (Smaller Creditor Exemption) – Effective June 1, 2013 (App. Date)
    2. (Reg. Z – HPML) – Effective January 18, 2014 (App. Date)
  8. Qualified Residential Mortgage (QRM) – Final Rule expected in the next 60 days.
  9. Know Before You Owe/Integrated Disclosures (TILA/RESPA) – Final Rule Expected in September 2013.
  10. Expanded Finance Charge Definition “All in APR” – Expected to be in KBYO/ID Final Rule, do not be surprised if made effective concurrent with the HOEPA obligation above.
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May 2013 – Compliance Newsletter

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STATE

Colorado: HB 1307 Modification of Requirements of Legal Descriptions on Real Estate Docs. The state of Colorado modified provisions regarding the preparation of instruments affecting real estate and the legal description of the property. Effective 8/7/13, despite the CO Supreme Court ruling regarding IN RE RIVERA, 2012 CO 43 (referred to as SENDER V.CYGAN), the Colorado Supreme Court held that a recorded Deed of Trust that completely omits a legal description is defective, and does not provide constructive notice to a subsequent purchaser of another person’s security interest in said property. Through HB 1307, the CO General Assembly clarifies that notwithstanding the holdings of the aforementioned CSC case, a recorded document that omits a legal description is not, by itself and without regard to the totality of the circumstances, determinative of whether the document is valid against any person obtaining rights in real property, or is merely valid or invalid.

Maryland:  New Law Removes Lien Priority Refinance Barrier.  On 5/2/13, Maryland enacted SB 199, that permits a mortgagor to refinance the full balance of a loan secured by a first mortgage or deed of trust without the permission of the holder of a junior lien if (i) the principal amount secured by the junior lien does not exceed $150,000, and (ii) the principal amount secured by the refinance mortgage does not exceed the unpaid outstanding principal balance of the first mortgage or deed of trust plus closing costs up to $5,000. Upon recordation, this bill permits the new refinance mortgage the same lien priority as the replaced first mortgage or deed of trust. Prior to SB 199, and the effective date of 10/1/13, when a first mortgage is refinanced, the holder of an existing junior mortgage is asked to agree to subordinate so that the first loan holder preserves priority, and the second lienholder can block the homeowner’s ability to refinance the first mortgage.

FEDERAL AGENCIES

FNMA and FHLMC To Purchase Only QM Loans.  On 5/6/13, the FHFA announced that FNMA and FHLMC must limit their future mortgage acquisitions to loans that meet the requirements for Qualified Mortgages (QM), that also includes loans that meet the Special (SQM) or Temporary Qualified Mortgage (TQM) requirements, and loans that are exempt from the “ability-to-repay” requirements.

After the ATR/QM rule takes effect on January 10, 2014, Fannie Mae and Freddie Mac will no longer purchase a loan subject to the ability-to-repay requirements if the loan (i) is not fully amortizing, (ii) has a term of longer than 30 years, or (iii) includes points and fees in excess of 3% of the total loan amount, or such other limits for low balance loans as set forth in the rule. Effectively, this means FNMA and FHLMC will not purchase interest-only loans, loans with 40-year terms, or those with points and fees exceeding the thresholds established by the rule. This FHFA directive, together with the individual announcements made by Fannie Mae Lender Letter LL-2013-05 and Freddie Mac Industry Letter 5/6/13, confirm that the GSEs will continue to purchase loans that meet the underwriting and delivery eligibility requirements stated in their respective selling guides, including those that are processed through their automated underwriting systems.

ASSOCIATIONS

NMLS Advance Notice Release. On 5/8/13, the Conference of State Bank Supervisors published release notes for a 6/24/13 Nationwide Multistate Licensing System (“NMLS” or the “System”) upgrade which includes, among other changes, an advance filing feature that will permit state licensees to file advance notice of certain business changes electronically through the NMLS. Presently, state licensees must submit advance notices in hard copy paper format outside the System. This upgrade should ease the burden on state licensed entities to provide advance notice and, where applicable, secure prior approval of, changes in officers, directors and direct or indirect shareholders. The advance notice filing feature also may be used in connection with a legal name change, office relocation and organizational changes. Not only will this help to facilitate the notification process, but the advance filing feature should significantly enhance the method by which state regulatory agencies can process and approve these changes. This is welcome news to the industry after the release of the upgrade was postponed earlier this year.

Although this change will allow for filings regarding transactions that have a future effective date to be made and processed through the NMLS, the new process will add a layer of complexity to certain transactions where state law only requires that notice be submitted, as the System will require that state regulators check-off a box to approve or accept the change. Administrators of the NMLS have indicated that they are willing to consider a change in the System to distinguish filings requiring approval from those that require mere notice, but those changes cannot be implemented before the “roll-out” of this new feature.

Dodd-Frank/CFPB

Delay of Effective Date:  LO Comp Requirements under the TILA (Regulation Z) Final Rule Prohibition on Financing Credit Insurance Premiums.  The CFPB issued a final rule delaying the June 1, 2013, effective date of a prohibition on creditors financing credit insurance premiums in connection with certain consumer credit transactions secured by a dwelling. The prohibition was adopted in the LO Comp Requirements under the Truth in Lending Act (Regulation Z) Final Rule, issued on January 20, 2013. The CFPB is delaying the effective date until 1/10/14, to permit the Bureau to clarify, before the provision takes effect, its applicability to transactions other than those in which a lump-sum premium is added to the loan amount at closing.  The effective date was scheduled to be June 1, 2013, and is now delayed until January 10, 2014.

CFPB Bulletin 2013-05: SAFE Act Uniform State Test – State-Licensed Mortgage Loan Originators

The CFPB has issued guidance in response to questions about whether states may use the Uniform State Test (UST) developed by the Nationwide Mortgage Licensing System and Registry (NMLSR) as part of a qualified written test under the Secure and Fair Enforcement for Mortgage Licensing Act of 2008 (SAFE Act). 

Section 1505(d) of the SAFE Act requires that state-licensed mortgage loan originators pass a “qualified written test” and this qualified written test must be developed by the NMLSR.  To be a qualified written test under the SAFE Act, the test developed by NMLSR must include questions covering all the required areas, including State laws and regulations. This requirement may be met through the use of a compliant UST, or a separate test for each State covering the particular laws and regulations of that State, and a National Test Component developed by the NMLSR. Presenting test questions through a UST rather than a separate State test component would not preclude the test from being a qualified test under the SAFE Act, so long as all the requirements for a qualified test are satisfied and as a result a State may use a UST if it adequately tests required laws and regulations. 

CFPB Enforcement Action: RESPA Section 8 Claim Affiliated Business Affidavit – Homebuilder

The CFPB has announced the settlement of an enforcement action, through a published consent order, in which the CFPB determined that two affiliated business arrangements violated Section 8 of RESPA.  The arrangements involved two separate mortgage origination companies created by a Texas homebuilder that owned one company with a bank and the second company together with a mortgage company. The CFPB has charged that the homebuilder received unlawful referral fees for mortgage loans, through the unlawful affiliated business arrangements.  According to the CFPB’s consent order, the referral fees in the affiliated business arrangements with the bank were passed back to the homebuilder through profit distributions and such distributions were not entitled to the affiliated business arrangements “safe harbor” because the affiliated business arrangement was deemed a sham, as described in HUD’s Statement of Policy 1996-2.

Ability-to-Repay and Qualified Mortgage (ATR/QM) Concurrent Finale Rule

On 5/29/13 the CFPB finalized the ATR/QM Rule, via a Concurrent Rule, to facilitate access to credit by creating specific exemptions and modifications to the CFPB’s Ability-to-Repay (ATR) rule for small creditors, community development lenders, and housing stabilization programs. The amendments also revised rules on how to calculate loan origination compensation for certain purposes.

Exempt certain nonprofit creditors: The final rule exempts from Ability-to-Repay rules certain nonprofit and community-based lenders that work to help low- and moderate-income consumers obtain affordable housing. Among other conditions, the exemptions generally apply to designated categories of community development lenders and to nonprofits that make no more than 200 loans per year and lend only to low- and moderate-income consumers. Similarly, mortgage loans made by or through a housing finance agency or through certain homeownership stabilization and foreclosure prevention programs are exempted from the Ability-to-Repay rules.

Facilitate lending by certain small creditors: This amendment makes several adjustments to the Ability-to-Repay rule in order to facilitate lending by small creditors, including community banks and credit unions that have less than $2 billion in assets and each year make 500 or fewer first-lien mortgages, as defined in the rule. First, the rule generally extends Qualified Mortgage status to certain loans that these creditors hold in their own portfolios even if the consumers’ debt-to-income ratio exceeds 43 percent. Second, the final rule provides a two-year transition period during which small lenders can make balloon loans under certain conditions and those loans will meet the definition of Qualified Mortgages. The Bureau expects to continue to study issues concerning access to credit and balloon lending by small creditors. Third, the final rule allows small creditors to charge a higher annual percentage rate for certain first-lien Qualified Mortgages while maintaining a safe harbor for the Ability-to-Repay requirements.

Establish how to calculate loan origination compensation: The Dodd-Frank Act mandates that Qualified Mortgages have limited points and fees, and that compensation paid to loan originators, such as loan officers and brokers, is included in points and fees.  This cap ensures that lenders offering Qualified Mortgages do not charge excessive points and fees. Today’s amendment provides certain exceptions to this Dodd-Frank requirement that loan originator compensation be included in the total permissible points and fees for both Qualified Mortgages and high-cost loans. Under the revised rule, the compensation paid by a mortgage broker to a loan originator employee or paid by a lender to a loan originator employee does not count towards the points and fees threshold. This amendment does not change the January 2013 final rule under which compensation paid by a creditor to a mortgage broker must be included in points and fees, in addition to any origination charges paid by a consumer to a creditor.

The amendments will take effect with the Ability-to-Repay rule on January 10, 2014.

CFPB Sets Framework to Better Coordinate with State Regulators

On 5/21/13 the CFPB and the Conference of State Bank Supervisors (CSBS), acting on behalf of state financial regulatory authorities, announced a framework, dated 5/7/13 which establishes a process for coordination on supervision and enforcement matters. This framework will apply in situations where the CFPB and state regulators share concurrent supervisory jurisdiction based on a memorandum of understanding (MOU) signed by CFPB and CSBS in January 2011 and a corresponding 2012 Statement of Intent issued by the CFPB.

This MOU provides that state regulators and the CFPB will consult on standards, procedures, and practices used to conduct examinations of providers of consumer financial products and services to ensure that they are complying with federal consumer financial law. NOTE:  The framework applies to all non-depository institutions and those depository institutions with over $10 billion in assets.

Tracking to Future Dodd-Frank Requirement Effective Dates:

1. Qualified Mortgage (QM) / Ability to Repay (ATR) – Effective January 14, 2014 (App. Date)

2. HOEPA / Counseling – Effective Janaury 10, 2014 (App. Date)

3. LO Comp Rule (Reg. Z) -

a. Mandatory Arbitration & Credit Life restrictions – Effective June 1, 2013 (App. Date)

4. Servicing Final Rule (TILA & RESPA) – Effective January 10, 2014

5. Appraisal Joint Rule (TILA Reg. Z – HPML) – January 18, 2014

6. Appraisal Copy Rule (ECOA) – Janaury 18, 2014 (App. Date)

7. Escrow Rule

a. (Smaller Creditor Exemption) – June 1, 2013 (App. Date)

b. (Reg. Z – HPML) – January 18, 2014 (App. Date)

8. Qualified Residential Mortgage (QRM) – Final Rule expected in the next 60 days.

9. Know Before You Owe / Integrated Disclosures (TILA / RESPA) – Final Rule Expected in September 2013.

10. Expanded Finance Charge Definition “All in APR” – Expected to be in KBYO / ID Final Rule, do not be surprised if made effective concurrent with HOEPA obligation above.

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Spring Regulatory Changes – April Compliance Newsletter

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STATE

Connecticut Adopts Electronic Recording Regulations. Sections 7-35ee-1 to 7-35ee-10 specifically permit town clerks to accept electronic recordings for real property, providing for definitions such as Electronic Recording, Electronic Signature, and Electronic Document Delivery System that shall dictate the processes and requirements necessary for the acceptance of electronic real property recordings throughout Connecticut.  Effective 3/27/13.

Colorado Proposed Regulations. Colorado Department of Regulatory Agencies, Division of Real Estate, Mortgage Loan Originators and Mortgage Companies will be affected by proposed rules amending 4 CCR 725-3. The purpose of these proposed rules is to define terms pertaining to the practices of mortgage loan originators and mortgage companies, to clarify advertising requirements of mortgage loan originators and companies, and to clarify the process to dispute information entered into the National Mortgage Licensing System and Registry.

Arkansas Amends Fair Mortgage Lending Act.  SB 871 revises The Fair Mortgage Lending Act, extending the definition of “exempt persons” to operating subsidiaries of State Chartered Banks regulated by the State Bank Department.  Also, it identifies certain prohibited activities by Servicers such as failure to make timely payments from escrow, and identifying the terms of when forced placed insurance can be issued. Effective 7/18/13.

Arkansas Permits Scriveners Affidavit for Error Correction.  SB 1137 details the circumstances of, and contents for, a Scriveners Affidavit in the event a corrections to Instruments affecting Real Property must be made.  Effective 7/18/13.

North Dakota.  SB 2128 revises county recording fees. Effective 8/1/13.

Mississippi SB 2696 was signed by Gov. Phil Bryant on 4/18/13. This revises various fee structures; revises the contents of the mortgage broker and lender applications; requires licensees who are involved in civil actions to notify the NMLS; and requires each licensee to maintain a journal of serviced loans at their principal place of business for all Mississippi residential loans that the licensee owns and/or services. Effective 7/1/13.

Kansas Increases Mortgage Interest Rate Cap. On 4/4/13, Kansas enacted SB 52, which increases the maximum annual interest rate for certain mortgages from 1.5 percentage points to no more than 3.5 percentage points above a specified monthly floating rate set by Freddie Mac.

FEDERAL

FFIEC Updates HMDA Guide. The Federal Financial Institutions Examination Council (FFIEC) published the 2013 Guide to HMDA Reporting on 4/18/13. This updated edition identifies the transfer of HMDA and Regulation C authority to the CFPB, as well as updates the previously announced asset-size threshold exemption adjustments, and also includes minor technical changes.

NCUA Issues Notice of Proposed Rulemaking.  The proposed rule shall impact 12 CFR Part 701, specifically regarding the Federal Credit Union Ownership of Fixed Assets. The Board proposes to: (1) Amend the regulatory text using plain language; (2) add an introductory section to define the scope of the regulation; (3) reorganize the existing definitions; (4) add several new definitions; and (5) clarify the processes for obtaining waivers from NCUA. The proposed amendments do not make any substantive changes to the regulatory requirements. Rather, they clarify the rule and improve its overall organization, structure, and readability.

DEPARTMENT OF VETERANS AFFAIRS (VA) Circular 26-13-5 4/8/13:  LATE REPORTING OF GUARANTY. The purpose of this circular is to remind lenders of their responsibility to enter guaranty requests in the Department of Veterans Affairs (VA) webLGY system within 60 days of loan closing.

HUD Mortgagee Letter 2013-11, 4/11/13.  This Mortgagee Letter amends guidance provided in Mortgagee Letters 2012-23 and 2012-28 for the origination and servicing of FHA-insured loans in Presidentially-Declared Major Disaster Areas (PDMDA). Effective 4/11/13.

HUD Mortgagee Letter 2013-10, 4/10/13.  This Mortgagee Letter explains enhancements to the Lender Insurance program based on a Final Rule published in the Federal Register on January 25, 2012 (See 77 Fed. Reg. 3598 or http://www.gpo.gov/fdsys/pkg/FR-2012-01-25/pdf/2012-1508.pdf).  Effective 4/10/13.

USDA AN 4714 (1980-D) Single Family Housing Guaranteed Loan Program Standardized Income, Origination and Closing Templates Lender and Agency Documentation, March 20, 2013.  The purpose of this Administrative Notice (AN) is to provide lenders a standardized method of documenting and submitting supporting documentation to the Agency, when applying for loan note guarantees. The result will improve processing times by promoting efficiency and consistency in delivery of the Single Family Housing Guaranteed Loan Program (SFHGLP) pursuant to 7 CFR 1980, Subpart D (also known as RD Instruction 1980-D). This AN is provided in advance of the May 1, 2013 effective date to allow lenders and stakeholders sufficient time to prepare for its implementation.

Dodd-Frank/CFPB

ATR/QM Small Entity Compliance Guide.  On 4/10/13 the CFPB published the Ability-to-Repay and Qualified Mortgage Rule Small Entity Compliance Guide to assist smaller institutions in understanding the ATR/QM requirements. This Guide is part of a series of plain language educational materials the CFPB will provide to educate the industry on the number of Final Rules recently promulgated.

2013 Escrows Final Rule, Proposed “Technical Amendments”. On 4/12/13 the CFPB proposed “clarifying and technical amendments” to the 2013 Escrows Final Rule that is currently scheduled to take effect on 6/1/13. The modifications would ensure that certain ATR provisions related to HPML remain in effect until the CFPB’s new ATR/QM final rule becomes effective next year. Also, this proposed “Technical Amendment” to the 2013 Escrows Final Rule clarifies the determination method for the bureau’s “rural” and “underserved” designations.

Proposed clarifications of the ATR/QM and Mortgage Servicing Rule.  On 4/19/13 the CFPB published a proposed clarification to issues and questions that arose as a result of the promulgation of the 2013 ATR/QM Final Rule and the 2013 Servicing Final Rule.  Specifically, these amendments attempt to clarify or correct provisions on (1) the relation to State law of Regulation X’s servicing provisions; (2) the small servicer exemption from certain servicing rules; (3) the use of government-sponsored enterprise and Federal agency purchase, guarantee or insurance eligibility for determining qualified mortgage status; and (4) the determination of debt and income for purposes of originating qualified mortgages.

TILA Escrow Rule Small Entity Compliance Guide.  On 4/19/13, the CFPB released the latest in a series of promised compliance guides intended to help smaller institutions comply with the agency’s new mortgage rules. The most recent is the TILA Escrow Rule Small Entity Compliance Guide, addressing the escrow rule set to take effect on 6/1/13. The rule amends existing regulations that require creditors to establish and maintain escrow accounts for at least one year after originating a higher-priced mortgage loan, to require generally that the accounts be maintained for at least five years.

Tracking to Future Dodd-Frank Requirement Effective Dates:

1. Qualified Mortgage (QM) / Ability to Repay (ATR) – Effective January 14, 2014 (App. Date)

2. HOEPA / Counseling – Effective Janaury 10, 2014 (App. Date)

3. LO Comp Rule (Reg. Z) -

a. Mandatory Arbitration & Credit Life restrictions – Effective June 1, 2013 (App. Date)

4. Servicing Final Rule (TILA & RESPA) – Effective January 10, 2014

5. Appraisal Joint Rule (TILA Reg. Z – HPML) – January 18, 2014

6. Appraisal Copy Rule (ECOA) – Janaury 18, 2014 (App. Date)

7. Escrow Rule

a. (Smaller Creditor Exemption) – June 1, 2013 (App. Date)

b. (Reg. Z – HPML) – January 18, 2014 (App. Date)

8. Qualified Residential Mortgage (QRM) – Final Rule expected in the next 60 days.

9. Know Before You Owe / Integrated Disclosures (TILA / RESPA) – Final Rule Expected in September 2013.

10. Expanded Finance Charge Definition “All in APR” – Expected to be in KBYO / ID Final Rule, do not be surprised if made effective concurrent with HOEPA obligation above.

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February 2013 – Compliance Newsletter

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CFPB
CFPB FINAL RULES – Implementation Plan for New Mortgage Rules
The Consumer Financial Protection Bureau (CFPB) announced on 2/13/2013 a plan that focuses on supporting the mortgage industry, and their ability to comply with new consumer protections that go into effect in January 2014. In an effort to support rule implementation and ensure industry is ready for the new borrower protections, the CFPB will:

  • Coordinate with Other Agencies: The CFPB is coordinating with other federal government regulators that also conduct examinations of mortgage companies to ensure all regulators have a shared understanding of the CFPB’s new rules. This will help promote a consistent regulatory experience for industry.
  • Publish Plain-language Guides: The CFPB will publish easy-to-understand summaries of the regulations in both written and video form. The guides, available in the spring, will be particularly helpful to smaller businesses with limited staff for compliance.
  • Publish Updates to the Official Interpretations: Over the next year, the CFPB plans to issue updates of the “official interpretations,” which provide guidance on how to comply with the rules. These updates will allow the CFPB to address important questions raised by industry or consumer groups, or other agencies. Priority for these updates will be given to issues that are important to a large number of providers or consumers, those which critically affect mortgage companies’ implementation decisions. The Bureau expects to issue the first one in the spring and issue additional updates, as needed.
  • Publish Readiness Guides: These guides, available this summer, will help mortgage originators and servicers prepare to comply with the new rules by giving them helpful check-lists, such as suggesting that implementation plans include items like revising policies and procedures and finalizing training plans for staff. More in-depth examination procedures are expected to be published later this year by the Federal Financial Institutions Examination Council. Industry members will be able to use these examination procedures to conduct self-assessments and internal reviews of their readiness and compliance.
  • Educate Consumers: As the January 2014 date approaches, the CFPB will give consumers information about their new protections under these rules through a broad-reaching consumer education campaign. 

Executive Order
President Obama Issues Executive Order on Cybersecurity
President Obama issued an Executive Order (EO) titled “Improving Critical Infrastructure Cybersecurity,” and a related Presidential Policy Directive (PPD) on 2/12/13. The EO creates a process to facilitate sharing of cybersecurity information among private firms in critical infrastructure sectors and the federal government, and tasks the National Institute of Standards and Technology (NIST) with developing standards, methodologies, procedures, and processes that will form a voluntary best practices framework to address cyber risks. The financial services sector has been identified as a critical sector, and the EO and PPD name the Treasury Department as the federal entity responsible for providing institutional knowledge and specialized expertise as well as leading, facilitating or supporting the security and resilience programs and associated activities for critical financial services firms. On February 13, NIST initiated the process to develop the best practices framework by announcing a request for information from critical infrastructure owners and operators, other
members of industry, consumers, solution providers and other stakeholders. NIST is required by the EO to prepare a preliminary framework by October 10, 2013, and a final framework by February 12, 2014.

HUD
FINAL RULE: HUD Releases Disparate Impact Rule
The Department of Housing and Urban Development (HUD) has released the long-anticipated final rule regarding disparate impact under the Fair Housing Act. Through this final rule, HUD memorializes its long-held recognition of discriminatory effects liability under the Act. For purposes of providing a uniform national standard, HUD formalizes the burden-shifting test for determining whether a particular practice has an unjustified discriminatory effect, ultimately leading to liability under the Act. This final rule also amends the current illustrations of discriminatory housing practices found in HUD’s Fair Housing Act regulations prior to this final rule. This final rule is in response to the proposed rule from November 16, 2011.This final rule will be effective 30 days following publication in the Federal Register.

PROPOSED RULE: Streamlining Inspection and Warranty Requirements for Federal Housing Administration (FHA) Single-Family Mortgage Insurance: Removal of the FHA Inspector Roster and of the Ten-Year Protection Plan Requirements for High Loan-to-Value Ratio Mortgages.

This proposed rule (Docket No. FR–5457–P–01) is intended to streamline the inspection and home warranty requirements for FHA single family mortgage insurance. First, HUD proposes to remove the regulations for the FHA Inspector Roster. Second, this proposed rule would also remove the regulations requiring 10-year protection plans in order to qualify for high loan-to-value (LTV), FHA-insured mortgages as a condition of closing for newly constructed single-family homes. The Housing and Economic Recovery Act of 2008 (HERA) removed the statutory requirement for a warranty plan and other special requirements for high LTV mortgages. HUD, however, is retaining the requirement that the Warranty of Completion of Construction (form HUD–92544) be executed by the builder and the buyer of a new construction home, as a condition for FHA mortgage insurance. The comment due date is April 8, 2013.

Credit Unions
NCUA Names New Ombudsman, Elevates Position
On 2/12/13, the NCUA announced that Joy Lee assumed the duties of Ombudsman, effective immediately. The NCUA also detailed that the Ombudsman will now be supervised by the Executive Director’s office and report directly to the Board. Prior to this position, Ms. Lee served as Senior Federal Financial Institutions Examination Council Advisor to the NCUA Chairman, and before that served in several senior staff positions at NCUA since joining the agency as an examiner in 1987.

Reverse Lending
MORTGAGEE LETTER 2013-01 – HECM – Consolidation of Pricing Options and Principal Limit Factors for Fixed Interest Rate Mortgages
For all fixed interest rate case numbers assigned on or after April 1, 2013, the Federal Housing Administration (FHA) Home Equity Conversion Mortgage (HECM) Saver (including the Saver principal limit factors) will be the only fixed rate product with an initial mortgage insurance premium (MIP) option available. The HECM Saver, initial MIP, which is collected at the time of closing, will remain at 0.01 percent (0.01% or 0.0001) of the maximum claim amount. The annual MIP will remain at an amount of 1.25 percent (1.25%) of the outstanding loan balance. PLEASE NOTE: Mortgagors may still use the HECM Standard initial MIP option, but only with adjustable interest rate mortgages.

Fannie Mae
Selling Guide Announcement SEL-2013-02: Lender Incentives for Borrowers and
Private Flood Insurance Policies

Pay Down of Existing Mortgage Balance for Eligible Refinance Transactions: Lenders may provide an incentive to the borrower in the form of a payment to pay off a portion of the mortgage loan being refinanced provided that

  1. the amount of the incentive does not exceed $2,000;
  2. no repayment is required, and;
  3. the payment is reflected on the HUD-1 Settlement Statement as a lender credit.

Cash or Cash-like Incentives for All Transaction Types: The lender may provide the borrower with a cash or cash-like (e.g., a gift card) incentive that is not reflected on the HUD-1 Settlement Statement provided that 1) the amount of the incentive does not exceed $500, and 2) no repayment is required. Effective Date: Lenders may implement these new policies immediately. Lenders that have their own similar incentive policies currently in place may deliver loans with lender incentives that exceed the limits in this Announcement if the applications are dated before May 1, 2013.

Private Flood Insurance Policies: The Biggert-Waters Flood Insurance Reform Act of 2012 not only extended the National Flood Insurance Program’s (NFIP) authority through September 30, 2017, but also requires that Fannie Mae accept flood insurance from private providers as an alternative to NFIP policies. The terms and amount of coverage provided under a private policy must be at least equal to that provided under an NFIP policy and the private insurer must meet Fannie Mae’s rating requirements for insurance underwriters (described in B7-3-01, Hazard Insurance Policy Requirements). Fannie Mae will accept deliveries of mortgage loans with acceptable private flood insurance coverage effective immediately.

States
Virginia BFI Adopts New Rules
The Virginia Bureau of Financial Institutions has adopted rules (amending 10 VAC 5-160), effective 1/28/13, clarifying the definition of Licensee, specifically providing an exemption of loan processor or underwriter as not being a mortgage broker subject to licensure. The rule also, among other changes, broadens the definition of refinancing to now include loan modifications.

 

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Big Change to FHA MIP Structure and More

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Compliance Bulletin

Big Change to FHA MIP Structure and More
By Rhonda Hammond 

FHA recently released their 2012 Annual Report to Congress and it was not good. As a result of bad loans made in the last several years, the Mutual Mortgage Insurance (MMI) fund capital reserve ratio is currently negative. Among other changes, in an effort to rebuild the MMI fund and protect FHA’s financial health, the FHA has announced significant changes to its MIP structure as outlined in Mortgage Letter 13-04. Please note that FHA has announced a free conference call for Friday, February 8. All of these changes will be addressed during the call. The details are noted below.

MIP increase beginning April 1, 2013

For case numbers assigned on or after April 1, 2013, annual mortgage insurance premiums paid on most FHA insured loans will increase by an additional 0.10 basis points (0.1% of the loan amount). The increase applies to all loan terms, including 15-year fixed-rate FHA loans.

FHA Mortgage Insurance will continue for the life of the loan starting June 3, 2013

For case numbers assigned on or after June 3, 2013, there will no longer be exemptions from the annual MIP for loans with terms of 15 years or less and Loan to Value (LTV) ratios of less than or equal to 78% at origination. Currently FHA mortgage insurance is eliminated after a loan is paid down to 78% of the original balance. This change was made in 2001. Now HUD requires all FHA mortgage insurance to continue for the life of the loan. FHA insures 100% of the remaining balance, so if a homeowner defaults on their mortgage after the MIP has been removed, FHA is still insuring the loan. Analyses conducted by FHA’s Office of Risk Management projects lost revenue by about $10 billion in the 2010-2012 time period as a result of the current policy.

Manual Underwriting required for certain FHA borrowers starting April 1, 2013

As announced in Mortgagee Letter 13-05, for case numbers assigned on or after April 1, 2013, FHA will require manual underwriting for all transactions where the borrower has a decision credit score below 620 and the debt-to-income ratio exceeds 43.00%. HUD expects that by the effective date of this Mortgagee Letter HUD’s Technology Open to Approved Lenders (TOTAL) scorecard will be issuing scoring recommendations of Refer for loans where the borrower has a decision credit score below 620 and the debt-to-income ratio exceeds 43.00%. However, if the loan receives a scoring recommendation of Accept from HUD’s TOTAL scorecard, the loan must be manually downgraded to a Refer scoring recommendation.

FHA raising down payment on loans above $625,500

HUD has announced a proposed increased down payment requirement for mortgages for FHA insured loans over $625,500, with certain exemptions. The minimum down payment for these mortgages will increase from 3.5 to 5 percent. This change, coupled with the statutory maximum premiums charged for these loans, will help protect FHA and further facilitate its efforts to encourage higher levels of private market participation in the housing finance market. Comments are due March 8, 2013. To review the register, please click here: Federal Register 02062013.

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Compliance Bulletin: HECM Fixed Rate Standard Discontinued April 1, 2013

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Compliance Bulletin

HECM Fixed Rate Standard Discontinued April 1, 2013

The Federal Housing Administration (FHA) today announced changes to its Home Equity Conversion Mortgage reverse mortgage program in an effort to limit risk to the agency’s finances. Among the changes comes the consolidation of its Standard Fixed-Rate Home Equity Conversion Mortgage (HECM) and Saver Fixed Rate HECM pricing options.

To help sustain the HECM program as a viable financial resource for aging homeowners and to strengthen the Mutual Mortgage Insurance Fund, the HECM Saver will be the only initial MIP option available to mortgagors who seek the predictability of a fixed interest rate mortgage and lower upfront closing costs.

The change will be effective for case numbers assigned on or after April 1, 2013.  All fixed interest rate loans that are assigned an FHA case number on or before March 31, 2013, may be processed as either a HECM Standard or an HECM Saver. Any fixed interest rate HECM Standard loan must close on or before July 1, 2013. HECM Standard will still be available after April 1, but borrowers will be limited to an adjustable interest rate.

The initial and ongoing insurance premium structures for HECM Saver will remain unchanged. To ensure compliance, FHA Mortgagees may not order a case number until the borrower has completed counseling, nor can they order forward mortgage case numbers and then request a mortgage insurance certificate correction to have FHA change the case number to an HECM case number. FHA will not honor these types of requests.

View Mortgagee Letter 2013-01.

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