New Final Rules from the Consumer Financial Protection Bureau
In the past three weeks the Consumer Financial Protection Bureau (CFPB) have issued eight new, final rules, most having effective dates in 2014, there are a few requirements with a 2013 effective date. This special edition of the Compliance Newsletter provides a brief summary of each. The list is expansive, with wide ranging impacts:
1) CFPB Procedural Rule on Publishing Final Rules and Authority
2) HMDA (Regulation C) – Increase in Asset-Size Institutional Exemption Threshold
3) TILA (Regulation Z) – Ability to Repay and Qualified Mortgage Standards
4) TILA (Regulation Z) – Escrow Requirements
5) TILA (Regulation Z) and RESPA (Regulation X) – High-Cost Mortgage and Homeownership Counseling Amendments
6) TILA (Regulation Z) – Appraisals for Higher-Risk Mortgages
7) TILA (Regulation Z) Loan Originator Compensation Requirements
8) RESPA (Regulation X) and TILA (Regulation Z) 2013 Mortgage Servicing Final Rules
9) ECOA (Regulation B) – Disclosure and Delivery Requirements for Copies of Appraisals and Other Written Valuations
Number 1: CFPB Procedural Rule on Publishing Final Rules and Authority
The CFPB has adopted a procedural rule that affirms its commitment to using modern technology to facilitate the Bureau’s performance of its functions, through the manner in which the Bureau regularly posts final rules on its Web site. The CFPB will post a final rule on its Website and on the same day submit the document to the Office of the Federal Register for publishing. After a period of time that depends on the length of the document and other factors, the Office of the Federal Register will then make the document available for public inspection and then publish it in the Federal Register. The Bureau does not believe that delaying issuance until the rule is published in the Federal Register is necessary or in the public interest. Accordingly, this rule provides that when a final rule, including interim final rules, are posted on the Bureau’s Web site before it is published in the Federal Register, the posting on the Web site shall constitute the official issuance of the rule, effective on December 28, 2012.
The CFPB issued a final rule adjusting the asset-size exemption threshold for banks, savings associations, and credit unions under Regulation C, which implements the Home Mortgage Disclosure Act (HMDA). Based on the adjustments announced on 12/28/12, the asset-size exemption for banks, savings associations, and credit unions will increase to $42 million. HMDA and Regulation C require most mortgage lenders located in metropolitan areas to collect and report data about applications for, and originations and purchases of, home loans and refinance transactions, which the CFPB reviews to identify potential discriminatory lending patterns and to evaluate, if and to the extent of which, financial institutions are serving the housing needs of their respective communities. Effective immediately, banks, savings associations, and credit unions with assets of $42 million or less as of December 31, 2012, are exempt from collecting HMDA data in 2013. As a result, these institutions with assets of $42 million or less as of December 31, 2012, are exempt from collecting HMDA data in 2013. PLEASE NOTE: This exemption from collecting data in 2013 does not affect an exempt institution’s responsibility to report the data that it was previously required to collect in 2012.
This final rule amends Regulation Z by implementing sections 1411 and 1412 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act), which generally require creditors to make a reasonable, good faith determination of a consumer’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 final rule also implements section 1414 of the Dodd-Frank Act, which limits prepayment penalties. Finally, the final rule requires creditors to retain evidence of compliance with the rule for three years after a covered loan is consummated.
This rule is effective January 10, 2014.
This final rule amends the current Regulation Z requirement that creditors establish escrow accounts for higher-priced mortgage loans secured by a first lien on a principal dwelling, by lengthening 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. The primary exemption applies to 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.
This rule is effective June 1, 2013.
This final rule amends Regulation Z 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 by extending to purchase money, Home Equity Lines (Closed-end), and Home Equity Loans (Open-end) and Home Equity Lines of Credit (Open-end), while exempting Reverse Mortgages, Construction Loans (initial construction of a dwelling), loans originated and financed by Housing Finance Agencies, and loans originated through the United States Department of Agriculture’s (USDA) Rural Housing Service section 502 Direct Loan Program. This amendment also imposes additional restrictions on mortgages that are covered by HOEPA, including a pre-loan counseling requirement and certain other requirements related to homeownership counseling, including a requirement that consumers receive information about homeownership counseling providers.
This rule is effective January 10, 2014.
This final rule amends Regulation Z, as a joint effort between the CFPB, FRB, FDIC, FHFA, NCUA, and OCC. The revisions to Regulation Z implement a new provision requiring appraisals for “higher-risk mortgages”, specifically, mortgages with an annual percentage rate that exceeds the average prime offer rate (APOR) by a specified percentage, the final rule requires creditors to obtain an appraisal or appraisals meeting certain specified standards, provide applicants with a notification regarding the use of the appraisals, and give applicants a copy of the written appraisals used.
This rule is effecive January 18, 2014.
This final rule amends Regulation Z to implement requirements and restrictions concerning loan originator compensation; qualifications of, and registration or licensing of loan originators; compliance procedures for depository institutions; mandatory arbitration; and the financing of single-premium credit insurance. The final rule revises or provides additional commentary on restrictions on loan originator compensation, including application of these restrictions to prohibitions on dual compensation and compensation based on a term of a transaction or a proxy for a term of a transaction, and to recordkeeping requirements. The final rule also establishes tests for when loan originators can be compensated through certain profits-based compensation arrangements.
The amendments to the mandatory arbitration agreements [§ 1026.36(h)] and financing of certain single-premium credit insurance products [§ 1026.36(i)] are effective on June 1, 2013. All other provisions of the rule are effective on January 10, 2014.
Number 8: RESPA (Regulation X) and TILA (Regulation Z) 2013 Mortgage Servicing Final Rules
The Regulation X final rule creates obligations on a servicer to:
1) correct errors asserted by mortgage loan borrowers;
2) provide protections to such borrowers in connection with force-placed insurance;
3) servicers’ obligations provide certain information requested by such borrowers;
4) establish reasonable policies and procedures to achieve certain delineated objectives;
5) educate delinquent borrowers about mortgage loss mitigation options;
6) establish policies and procedures for providing delinquent borrowers with continuity of contact with servicer personnel capable of performing certain functions; and,
7) evaluate borrowers’ applications for available loss mitigation options.
The Regulation Z final rule addresses:
1) initial rate adjustment notices for adjustable-rate mortgages;
2) periodic statements for residential mortgage loans;
3) prompt crediting of mortgage payments;
4) responses to requests for payoff amounts; and,
5) the scope, timing, content, and format of disclosures to consumers regarding the interest rate adjustments of their variable-rate transactions
This final rule amends § 1002.14 of Regulation B to provide for the following in connection with applications for credit to be secured by a first lien on a dwelling:
a) Require creditors to notify applicants within three business days of receiving an application of their right to receive a copy of appraisals developed.
b) Require creditors to provide applicants a copy of each appraisal and other written valuation promptly upon its completion or three business days before consummation (for closed-end credit) or account opening (for open-end credit), whichever is earlier.
c) Permit applicants to waive the timing requirement for providing these copies. However, applicants who waive the timing requirement must be given a copy of all appraisals and other written valuations at or prior to consummation or account opening, or, if the transaction is not consummated or the account is not opened, no later than 30 days after the creditor determines the transaction will not be consummated or the account will not be opened.
d) Prohibit creditors from charging for the copy of appraisals and other written valuations, but permit creditors to charge applicants reasonable fees for the cost of the appraisals or other written valuations unless applicable law provides otherwise.
This final rule becomes effective on January 18, 2014 and applies to mortgage transactions to be secured by a first lien on a dwelling for which the creditor receives an application on or after January 18, 2014.
Compliance has never been more critical than in today’s dynamic lending environment. This blog’s pledge is to keep you informed, and to engineer compliant solutions.