CFPB Releases Final Rules 

The CFPB has begun to release the final mortgage rules that are required by the Dodd-Frank Wall Street Reform and Consumer Protection Act. As of, Jan. 18, six new final rules have been published.

They are: High-cost Mortgage and Homeownership Counseling Amendments, Escrow Requirements, Ability to Repay and Qualified Mortgage Standards, Mortgage Servicing, Disclosure and Delivery Requirements for Copies of Appraisals, Appraisals for High-priced Mortgage Loans.

High-cost Mortgage and Homeownership Counseling Amendments: The final rules for “high-cost” mortgages amend the Home Ownership and Equity Protection (HOEPA). The rule expands loans currently covered to include most types of mortgage loans secured by a principal dwelling (e.g. purchase-money mortgages, refinances, close-end home equity loans, and open-end credit plans). The regulation requires credit unions offering mortgage loans that exceed certain APR thresholds to disclose terms, costs, and fees associated with high-cost loans early in the process and certify that the members have received homeowner counseling regarding the loan.

In its release, the CFPB also said that the high-cost mortgage regulation will:  ban risky mortgage features like balloon payments and prepayment penalties for qualifying mortgages; prevent charging loan modification and loan payoff fees; set a late-fee cap of 4% of the amount of payment that is past due; and prohibit lenders from rolling closing costs into the loan amount. The High-cost Mortgage and Homeownership Counseling Amendment will take effect on Jan. 10, 2014.

Click here for the issued rules and related materials.

Escrow Requirements: The escrow changes finalized by the CFPB through Regulation Z will require higher-priced mortgage loans to have escrow accounts that must be established and maintained for at least five years.

This rule does have an exemption from the escrow requirement for small creditors that operate predominately in rural or underserved areas. To be eligible for the exemption, a credit union must: make more than half of its first-lien mortgages in rural or underserved areas; have an asset size less than $2 billion; together with its affiliates, have originated 500 or fewer first-lien mortgages during the preceding calendar year; and together with its affiliates, not escrow for any mortgage it or its affiliates currently services, except in limited instances.

Under the rule, eligible credit unions need not establish escrow accounts for mortgages intended at consummation to be held in portfolio, but must establish escrow accounts at consummation for mortgages that are subject to a forward commitment to be purchased by an investor that does not itself qualify for the exemption. The final rule takes effect June 1, 2013.

Click here for the issued rules and related materials.

Ability to Repay and Qualified Mortgage Standards: The CFPB made additional amendments to Regulation Z based on consumer experience during the mortgage crisis, when many loans were made without regard to a borrower’s ability to repay.

The final rule describes certain minimum requirements to make ability-to-repay determinations, but does not dictate that credit unions follow particular underwriting models. However, at a minimum, creditors generally must consider eight underwriting factors, including: current or reasonably expected income or assets; current employment status; monthly payment on the loan; monthly payments on any other loans; monthly payments for mortgage-related obligations; current debt obligations, alimony, and child support; monthly debt-to-income ratio or residual income; and credit history.

Credit unions should use reasonably reliable third-party records to verify the information they use to evaluate the factors. The rule establishes certain safe harbors and rebuttable presumptions to shield lenders from liability with regard to “qualified mortgages.” The rule sets forth the long-awaited definition for “qualified mortgage” and also includes a proposal to expand the concept to provide increased protections to nonprofit and portfolio lenders (i.e. credit unions and community institutions); more details will follow from MCUL & Affiliates soon. Additionally the rule limits prepayment penalties and requires credit unions to retain evidence of compliance for three years after a covered loan is consummated. This rule will be effective Jan. 10, 2014.

Click here for the issued rules and related materials.

Mortgage Servicing: The new mortgage servicing rules, amending regulations Z and X, become effective on Jan. 10, 2014. They span nine major topics, as follows:

  1. Servicers must provide a periodic statement for each billing cycle containing, among other things, information on payments currently due and previously made, fees imposed, transaction activity, application of past payments, contact information for the servicer and housing counselors, and, where applicable, information regarding delinquencies. These statements must meet the timing, form, and content requirements.
  2. Servicers must provide a notice to members whose mortgage has an adjustable rate with a notice between 210 and 240 days before the first payment due after the rate first adjusts. This notice may contain an estimate of the new rate and new payment.  Servicers also must provide a notice between 60 and 120 days before payment at a new level is due when a rate adjustment causes the payment to change.
  3. Servicers must promptly credit periodic payments from members as of the day of receipt
  4. Servicers are prohibited from charging a member for force-placed insurance coverage unless the servicer has a reasonable basis to believe the member has failed to maintain hazard insurance and has provided required notices. An initial notice must be sent to the member at least 45 days before charging the borrower for force-placed insurance coverage, and a second reminder notice must be sent no earlier than 30 days after the first notice and at least 15 days before charging the member for force-placed insurance coverage.
  5. Servicers will need to meet new requirements in responding to error resolutions and complaints of errors.
  6. As always, the new rule requires a credit union to develop policies, procedures and requirements that meet the new standards of the amended regulation.
  7. Servicers must establish or make good faith efforts to establish live contact with members by the 36th day of their delinquency and promptly inform such members, where appropriate, that loss mitigation options may be available. In addition, a servicer must provide the member a written notice with information about loss mitigation options by the 45th day of the member’s delinquency.
  8. Servicers are required to maintain reasonable policies and procedures with respect to providing delinquent members with access to personnel to assist them with loss mitigation options where applicable.
  9. Finally, servicers are required to follow specified loss mitigation procedures for a mortgage loan secured by a borrower’s principal residence. If a member submits an application for a loss mitigation option, the credit union is generally required to acknowledge the receipt of the application in writing within five days and inform the member whether the application is complete and, if not, what information is needed to complete the application. The credit union is required to exercise reasonable diligence in obtaining documents and information to complete the application.

This rule does include partial exemptions for small servicers that service less than 5,000 mortgage loans, essentially defined as any mortgage loan secured by a first or subordinate lien on residential real property, excluding lines of credit. 

Click here for the issued rules and related materials.

Disclosure and Delivery Requirements for Copies of Appraisals: This rule amends the appraisal provisions of Regulation B, and becomes effective Jan. 18, 2014. It applies to applications for credit secured by a dwelling under a first lien.

It requires credit unions to: notify members of their right to receive a copy of their appraisal within three days of receiving an application; provide a copy of the appraisal and other written valuations promptly upon completion, or three business days before loan closing; and permit the member to waive the timing requirement for providing copies of appraisals (however, applicants who waive the timing requirement must be given the appraisals at or prior to loan closing, and if the transaction is not consummated the appraisal must be given to the member no later than 30 days after the creditor determines the transaction will not be closed). The rule also prohibits a credit union from charging for a copy of the appraisal, but permits the credit union to charge members for the cost of the appraisal or other written valuation.

Click here for the issued rules and related materials.

Appraisals for High-priced Mortgage Loans: The final amendment, issued jointly by CFPB and several other agencies, requires a credit union to obtain a written appraisal from a certified or licensed appraiser, who conducts a physical property visit of the interior of the home, as part of extending any higher-priced mortgage loan (HPML). Similar to the rule amending Regulation B, credit unions must provide a notice of the purpose of the appraisal and a copy of the appraisal to the member. The written notice for both rules may use a unified document. Properties that are purchased and resold within 180 days will require a new, independent appraisal. The rule only applies to closed-end credit transactions, and exempts: reverse mortgages, construction and bridge loans, and new manufactured home loans. The rule takes effect Jan. 18, 2014.

Click here for the issued rules and related materials.

Submissions to Monitor may be emailed. Bryan Laviolette is the editor of Monitor. Contact him by email or call (800) 262-6285, ext. 233. The newsletter of the Michigan Credit Union League is published Monday mornings or Tuesday mornings when Monday is a holiday. There is no Monitor the week after Christmas and the week after the Annual Convention and Exposition. The MCUL reserves the right to edit submissions for clarity and space.
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