May 2013 – Compliance Newsletter



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.


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.


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.


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.

About jlevonick

Chief Compliance Officer
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