July 2013 – Compliance Newsletter

mc_compliance_600x189STATE

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.

About jlevonick

Chief Compliance Officer
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