NAFCU Compliance Blog

Ding! Ding! Ding! Round One in Effect

Written by JiJi Bahhur, Regulatory Compliance Counsel

In case it slipped your mind, I thought I’d throw it out there that a few requirements from the Consumer Financial Protection Bureau’s (CFPB) mortgage rules – what I like to call Round One – became effective as of June 1, 2013.  Of note are the final TILA Escrow Rule and its recent amendments/clarifications – located at 12 C.F.R. 1026.35(b) – and the final Prohibition on Mandatory Arbitration – located at 12 C.F.R. 1026.36(h).

Escrow Requirements for HPMLs. The final TILA Escrow Rule lengthens from one year to at least five years the required minimum period most creditors must maintain an escrow account for first-lien higher-priced mortgage loans (HPMLs) secured by a consumer’s principal dwelling.  A creditor or servicer must either maintain the escrow account until the underlying debt obligation is terminated, or after the five-year period the consumer requests that the escrow account be cancelled.  If the consumer requests cancellation, the creditor or servicer is only permitted to cancel the escrow account if the loan’s unpaid principal balance is less than 80 percent of the original value of the property securing the underlying debt obligation and the consumer is not currently delinquent or in default on the underlying obligation. The new escrow requirements for HPMLs took effect as of June 1, 2013, and apply to applications received on or after June 1, 2013. 

Arbitration Clauses. The prohibitions on mandatory arbitration for mortgage loans – also effective as of June 1, 2013 – prohibits credit unions from including contractual or agreement terms that require mandatory arbitration or any other non-judicial procedure to resolve disputes arising out of consumer credit transactions secured by a dwelling.  This prohibition also applies to home equity lines of credit (HELOCs) secured by a consumer’s principal dwelling.  Although such a practice was never too prominent in the credit union industry – since Fannie Mae and Freddie Mac already prohibited it – loan agreements should be reviewed to ensure that a mandatory arbitration clause does not exist. 

Financing Credit Insurance. And the last CFPB mortgage requirement I wanted to mention was the prohibition on financing single-premium credit insurance.  I won’t get into details, but just wanted to mention that the original June 1, 2013 effective date has been delayed until January, 2014.  The delay will give the CFPB the ability 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.  We’ll have more on that at a later date. 

In the meantime, credit unions should prepare themselves for Round Two, which includes heftier players such as Ability to Repay and Qualified Mortgages, Regulation Z’s High-Cost Mortgage and Homeownership Counseling Amendments, Regulation X’s Homeownership Counseling Amendments, the Mortgage Servicing rules, Appraisal rules, etc. To see the list of regulations and their effective dates, view NAFCU’s Compliance Calendar, open to all.   

Clarifications to the 2013 Escrows Final Rule

Written By JiJi Bahhur, Regulatory Compliance Counsel

Last week, the Consumer Financial Protection Bureau (CFPB) issued a final rule clarifying and making technical amendments to the 2013 Escrows final rule.  Besides providing additional guidance, the final rule has two primary purposes (we also blogged about this not too long ago when the rule was in proposal stage): 

1. Maintaining Consumer Protections.  The 2013 Escrows Final Rule can be read to cut off the old protections regarding assessments of consumers’ ability to repay and prepayment penalties on certain higher-priced mortgage loans (HPMLs) before the new expanded protections take effect. This would create a six-month period when those consumer protections would not apply. The final rule establishes a temporary provision to ensure existing protections remain in place for HPMLs until the expanded provisions take effect in January 2014. 

2. “Rural” and “Underserved” Definitions.  The 2013 Escrows Final Rule exempts HPMLs made by certain small creditors that operate predominantly in rural or underserved counties from the requirement to create escrow accounts for a minimum of 5 years for HPMLs.  The final rule discussed in this blog clarifies how to determine whether or not a county is considered “rural” or “underserved” for purposes of applying an exemption in the 2013 Escrows Final Rule (and three other provisions of mortgage regulations issued this past January).  The determination is made based on currently applicable Urban Influence Codes or UICs, which are established by the USDA’s Economic Research Service (for“rural”), or based on HMDA data (for “underserved”).

The CFPB has also published a final list (see box to the right of screen for download options) of rural and underserved counties for 2013.  For purposes of applying the exemption in the 2013 Escrows Final Rule, creditors may rely on this list as a safe harbor to determine whether a county is “rural” or “underserved” for loans made from June 1, 2013, through December 31, 2013.

The Three Primary Changes Made by the Final TILA Escrow Rule

Written By JiJi Bahhur, Regulatory Compliance Counsel

As Steve mentioned in Monday’s blog, the CFPB issued a Small Entity Compliance Guide for the Amendments to the Escrow Requirement for Higher-Priced Mortgage Loans.  The purpose of this Guide is to provide the requirements of the Escrow final rule in plain English.  The Guide does a pretty good job laying out what credit unions need to know and do to be compliant with the final rule by June 1, 2013. 

The Small Entity Compliance Guide is broken out into eight main sections:

1. Introduction
2. What is the TILA Escrow Rule
3. What are the important changes in the TILA Escrow Rule compared with existing regulations?
4. What are the exemptions to the TILA Escrow Rule?
5. What definitions do I need?
6. What else do I need to know?
7. Practical implications and compliance considerations
8. Other resources

It’s surprisingly a very easy read, especially because each main section is broken down into smaller compartments (sub-sections) and the index is on-point to what each sub-section contains.  As an example, let’s take a look at section 3 (see above).  The sub-section under section 3 is “What are the three primary changes made by this rule?”  And under that, simplified and in plain English, you find the three primary changes:

“These are the three primary changes this rule makes compared with existing regulations:

1. It lengthens to at least five years the required minimum period most creditors must maintain an escrow account for first-lien higher-priced mortgage loans secured by a consumer’s principal dwelling. You must maintain the escrow account until one of the following occurs: 1) the underlying debt obligation is terminated or 2) after the five-year period, the consumer requests that the escrow account be canceled. However, if you are canceling the escrow account at the consumer’s request, the loan’s unpaid principal balance must be less than 80 percent of the original value of the property securing the underlying debt obligation, and the consumer must not be currently delinquent or in default on the underlying obligation.

2. It clarifies that you do not have to escrow insurance payments for homeowners in common interest communities where the governing body is required to purchase master insurance policies.

3. It exempts from the escrow requirement loans made by certain small creditors that operate predominantly in rural or underserved counties, as long as they are not subject to forward commitments for sale to nonexempt creditors.” 

I have to say, if you haven’t read the final rule, or if you are just struggling with some of the language in the final rule, you definitely want to take a look at this. 

Don't forget to visit NAFCU's Mortgage Rules webpage - a one-stop shop for resources on all of the new mortgage regulations.  Among other related items, you can find NAFCU's article, featured in February's Compliance Monitor, on Escrow Requirements on HPMLs, which includes a detailed run-down of the small creditor exemption (NAFCU log-in required). 

***

There are a lot of new rules – the escrow rule being one – that may apply to your credit union so it is important to have a plan of attack.  Don’t let the effective dates creep up on you . . . time will fly!  Speaking of time flying, Kyse and Ava turned 8 months old this past weekend. 

CFPB Issues Escrow Guide; Proposes Changes to Ability-to-Repay & Servicing Requirements

Written by Steve Van Beek

Escrow Guide. On Friday, the CFPB issued a Small Entity Compliance Guide for the Amendments to the Escrow Requirement for Higher-Priced Mortgage Loans. As you work through the escrow changes - effective June 1, 2013 - be sure to review the Small Entity Guide as it is the CFPB's effort to explain the changes in plain English.

***

Proposed Clarifications. Also on Friday, the CFPB announced they were proposing clarifications to the ability to repay/qualified mortgage requirements as well as the mortgage servicing requirements. This proposal is in addition to the escrow proposal issued the week prior.

The announcement includes this language from the CFPB:

"These proposals are part of our commitment to facilitate implementation of the rules issued in January under the Dodd-Frank Act. We at the Bureau believe that we have a responsibility not just to write a rule, but to see that it is implemented effectively."

These proposals have a very short comment period - so be sure to weigh in on the issues causing your CU headaches. The escrow proposal has a 15 day comment period (comments due May 3, 2013) and the latest proposal indicates there will be a 30 day comment period.

We'll have more on the ability-to-repay/QM and servicing proposal, but for now - here are the main areas that will be clarified:

• Debt-to-income ratio

• Contract variances and the temporary QM provision

• Purchase, guarantee or insurability status and the temporary QM

• No field preemption under Regulation X

• Small servicer exemption

For additional information, see the announcement and the language of the proposed text. 

2013 HMDA Getting it Right Guide; New NAFCU Calendar; Reg Alert on Escrow Proposal

Written by Steve Van Beek

2013 HMDA Guide. Yesterday, the Federal Financial Institution Examination Council (FFIEC) issued the 2013 HMDA Getting it Right! guide. According to the main page:

"The 2013 edition reflects the transfer of authority over Regulation C from the Federal Reserve Board to the Consumer Financial Protection Bureau. Appendix D, comment 1003.2 (Financial Institution)-2 is updated with the asset-size threshold exemption applicable to collection of 2013 data. There are also minor changes to the general text of the Guide, including updates to Sources of Geographic Information and Submitting the LAR."

You can find the full PDF of the 2013 Guide here.  

***

Long Time Coming. Now, you may be wondering when the last version of the Guide was issued?  2010.  The 2011 version would have been the lame duck one when the Federal Reserve still had authority for Regulation C (HMDA). However, there was no guide issued. On July 21, 2011, the CFPB took over Regulation C and they failed to release a guide in 2012.  Fortunately, in year two, the CFPB found the time to update the Guide and provide guidance to HMDA-reporting institutions.

***

Garbage In, Garbage Out? The CFPB is a self-described "data-driven" agency. If you doubt it, take a read through this Bloomberg.com story: U.S. Amasses Data on 10 Million Consumers as Banks Object. To me, if you want to be data-driven - the best first step is to make sure your regulatory requirements are clear and understandable so that the data you collect (whether it be consumer complaints, HMDA data, or anything else) is as reliable as possible. But, that's just me.  

***

NAFCU Calendar.  NAFCU has a new calendar on our website that features:

• Compliance Deadlines;

• Important Regulatory Dates;

• Education & Conferences;

• CU Research Survey Deadlines; and

• Other Important Dates.

The calendar allows you to navigate month-by-month, click to find more information and add dates to your own calendar. For example, the "more information" link on the June 1st Escrow Changes Deadline includes this information:

CFPB Compliance Deadline: Escrow Requirement

Description:

Amended escrow requirements for higher-priced mortgage loans. Added a new small creditor exemption for credit unions that meet a four-part test.

Regulatory Text: 12 CFR 1026.35

NAFCU Compliance Blog: Mortgage Reform - Escrows

NAFCU Resources: www.nafcu.org/mortgagerules/#escrow

Download the latest full Compliance Calendar, including proposed regulations, past deadlines and more.

Date:Jun 01, 2013    

Add to Calendar                                             Back to Calendar

***

NAFCU Members. The Mortgage Rules webpage includes NAFCU's Regulatory Alert on the CFPB's recent proposed rule. The proposal was published in the Federal Register yesterday and only provided 15-days for comments (comments to NAFCU on the Regulatory Alert are due on Wednesday, April 24).  

CFPB Issues Proposed Clarification on the 2013 Escrows Final Rule

Written by JiJi Bahhur, Regulatory Compliance Counsel

This past Friday, the CFPB issued its first clarifications/guidance to the mortgage rules it finalized this past January.  Specifically, the CFPB issued a proposed rule which will clarify and make technical amendments to the 2013 Escrows Final Rule. 

In addition to some technical corrections to enhance clarity, the proposal includes clarification on how to determine whether a county is considered “rural” or “underserved” for the application of the escrows requirement and three other Dodd-Frank Act regulations that have related provisions.  Specifically, the CFPB is proposing that the determination of “rural” and “underserved” status be based on currently applicable Urban Influence Codes (UICs) established by the United States Department of Agriculture, Economic Research Service (USDA-ERS) (for “rural”) or based on Home Mortgage Disclosure Act (HMDA) data (for “underserved”).  The proposal also provides illustrations to facilitate compliance with the rule. 

Further, the CFPB incorporates a temporary provision to ensure existing protections under Regulation Z –regarding assessments of a consumer’s ability to repay and prepayment penalties – remain in place for HPMLs until the expanded provisions from the Dodd-Frank Act and certain other mortgage regulations issued earlier this year take effect in January, 2014.  As the 2013 Escrows Final Rule currently reads, the existing protections would be cut off 6 months before the new expanded protections take effect.  However, the proposal would restore these protections and expand the scope of the protections to apply to most mortgage transactions, rather than just HPMLs.

The CFPB is welcoming comments on this proposed rule.  The comment period will close 15 days after publication in the Federal Register.  The CFPB contemplates making the temporary provision effective from June 1, 2013, through January 9, 2013, and making all other proposed amendments effective at the same time the 2013
Escrows Final Rule becomes effective – June 1, 2013. 

Research Tips for the New Mortgage Rules; NAFCU Webcast on New Rules

Written by Steve Van Beek

Over the past two months, we've written numerous blog posts on the new mortgage regulations. Included a few posts which contain research tips on how to track and find the new requirements. Below is a consolidated listing of those blog posts so that you have them in one central location:

• February 5th - CFPB Rules in the Federal Register; NAFCU Rule Summaries

• February 11th - Finding the New Requirements in the Electronic Code of Federal Regulations

• February 13th - NAFCU's Scope & Applicability Charts for the New Mortgage Rules

• February 22nd - Finding the New Reg Z & Reg X Requirements in the Electronic Code of Federal Regulations

• March 4th - Research Tip: Tracking Rulemakings in the Federal Register

Hopefully you find the above useful. We're always looking for blog ideas - so just let us know if there is something you'd like to see us cover in a future blog post.  

***

NAFCU Webcast on Mortgage Rules. NAFCU's compliance team will be conducting a webcast tomorrow on a few of the "under the radar" issues from the CFPB's new mortgage rules. We'll discuss:

• Details on homeownership counseling requirements;

• Mortgage loan originator qualifications, certifications and training requirements;

• New appraisal disclosure and delivery requirements;

• The small creditor exemption for the escrow requirement for higher-priced mortgage loans; and

• Other frequently-asked-questions regarding the new rules.

We'll also provide a "look ahead" at what other issues the CFPB is targeting in 2013.  

Registration is still open - Sign Up Today!  Remember, NAFCU's webcasts are available to anyone and everyone.  

CFPB Publishes Preliminary List of Rural and Underserved Counties for Escrow Requirement

Written by Steve Van Beek

Programming Note: NAFCU's compliance team will be in and out of the office next week for NAFCU's Regulatory Compliance School. Fear not, my colleagues from our Government Affairs team will have you covered with guest blog posts - which will give you a glimpse at the world from their point of view (which I think you'll like as it revolves around preventing and reducing regulatory burden).

***

Rural and Underserved Counties List. On Wednesday, the CFPB issued a Letter to Regulated Entities wrote a blog post announcing a preliminary list of rural and underserved counties. This list is important as amended escrow requirement for higher-priced mortgage loans includes an exemption for small creditors that meet a four-part test. The first part of the test is whether the credit union has made - in the preceding year - more than 50% of their first lien mortgages in rural or underserved counties. While the list issued Wednesday is preliminary, it should give your credit union an idea of where you relative to the 50% threshold.

It also looks like there will be some technical corrections to the escrow rule and the final rural and underserved counties list will be available at the time those corrections are finalized. Here is from the CFPB's blog post:

"As provided in the rule, the Bureau will publish a list of such counties. The Bureau will be publishing in the near future some proposed minor technical changes to the rule. You can download a preliminary list based on the proposed revisions in CSV, XLS, or PDF format. We expect to finalize that rule before June 1, 2013, and will publish the official list of “rural” and “underserved” counties for 2013 at that time." 

Unfortunately, it doesn't appear the CFPB is looking at pushing back the June 1, 2013 deadline. Given the uncertainty they've created, that would be a great idea. But, we can't even get them to update regulations when Congress explicitly tells them to reduce the burden on credit unions.

***

Additional Resources.  NAFCU members can find additional information on the "small creditor exemption" by checking out our detailed article on the Escrow Rule from our February Compliance Monitor as well as our Scope & Applicability Chart. Both of these resources are located on our special Escrow subsection of our Mortgage Rules webpage. They are also available at the bullets below (NAFCU log-in required).

• Escrow subsection of Mortgage Rules webpage

• February Compliance Monitor:  Escrow Requirements for Higher-priced Mortgage Loans (including a discussion of the small creditor exemption)

• NAFCU's Scope & Applicability Chart for the Escrow Requirements (including the full 4-part test for the small creditor exemption)

• Amended regulatory text of 12 CFR 1026.35 (effective June 1, 2013)

Upcoming NAFCU Webcasts. NAFCU's Mortgage Reform Webcast Series includes the following three webcasts (the March 27th webcast will feature a discussion of the small creditor exemption under the escrow requirement):

• March 27 - Digging Deeper: CFPB's Mortgage Rules with NAFCU's Compliance Team

• April 10 - Which New Requirements Apply to HELOCs? with Steve Van Beek (yeah - it is Friday - I'm going 3rd person!!)

• April 17 - Preparing for New Mortgage Servicing Notices with Suzanne Garwood of Venable, LLP

***

Have a great weekend!  And, if you'll be at School next week in National Harbor, Maryland - be sure to come by and say Hi!

Finding the New Reg Z & Reg X Requirements in the Electronic Code of Federal Regulations

Written by Steve Van Beek

A couple weeks back, we looked at finding the new homeownership counseling disclosure requirements in the Electronic Code of Federal Regulations (e-CFR).  Now that all the final rules have been published, I thought it would be good to link to all the new and amended regulatory texts so that you have a central location for finding the future regulatory language. 

Note:  Below are links to the major changes - but there are tons of other little changes and tweaks to other sections of Regulation Z and Regulation X.  Additionally, some of the link names have the same citations but they go to a different regulatory text.  For example, there are numerous links to "Appendix I" but they all go to different staff commentary.   

Regulation Z (Truth in Lending Act) - 12 CFR 1026

• New Interest-Rate Adjustment Notices - 12 CFR 1026.20

• New Points & Fees Test - Closed-end Credit - 12 CFR 1026.32

• New High-Cost APR Thresholds & Expansion of High-Cost to Open-end Credit - 12 CFR 1026.32

• New Prohibitions & Requirements for High-Cost Mortgages - 12 CFR 1026.34

• Changes to Escrow Requirement for Higher-Priced Mortgage Loans - 12 CFR 1026.35

• New Appraisal Requirements for Higher-Priced Mortgage Loans - 12 CFR 1026.35

• New Negative Amortization Counseling Requirement - 12 CFR 1026.36(k)

• Changes to Prompt Payment Crediting & Payoff Statements - 12 CFR 1026.36(c)

• New Mortgage Loan Originator Compensation, Qualifications, Training, Disclosures & More - 12 CFR 1026.36

• Periodic Statements for Mortgage Loans - 12 CFR 1026.41

• Ability-to-Repay Requirements & Qualified Mortgage Standards - 12 CFR 1026.43

Appendices to Regulation Z

• New Model Forms for Adjustable-Rate Mortgages and Periodic Statements - Appendix H

• Higher-Priced Mortgage Loan Appraisal Safe Harbor Review - Appendix N

• Illustrative Written Source Documents for HPML Appraisal Rules - Appendix O

• Standards for Determining Monthly Debt and Income - Appendix Q

Official Staff Commentary to Regulation Z - Appendix I

• New Staff Commentary for Points & Fees Test; Ability-to-Repay Requirements & Qualified Mortgage Standards - Appendix I

• New Staff Commentary for High-Cost Mortgages; Negative Amortization Counseling Requirement - Appendix I

• New Staff Commentary for Appraisals on Higher-Priced Mortgage Loans - Appendix I

• New Staff Commentary for ARM notices; Payment Crediting & Payoff Statements; and Periodic Statements - Appendix I

• New Staff Commentary for Mortgage Loan Originator Requirements (all of them) - Appendix I

Regulation X (Real Estate Settlements Procedures Act) - 12 CFR 1024

• Changes to Escrow Accounts - 12 CFR 1024.17

• New Homeownership Counseling Disclosure - 12 CFR 1024.20

New Subpart C to 12 CFR 1024

The CFPB reorganized Regulation X - including a new Subpart C with Mortgage Servicing Requirements.  Sections 1024.30 through 1024.41 can all be found at this link.  Below are the new sections under Subpart C:

Subpart C—Mortgage Servicing

1024.30   Scope.

1024.31   Definitions.

1024.32   General disclosure requirements.

1024.33   Mortgage servicing transfers.

1024.34   Timely escrow payments and treatment of escrow account balances.

1024.35   Error resolution procedures.

1024.36   Requests for information.

1024.37   Force-placed insurance.

1024.38   General servicing policies, procedures, and requirements.

1024.39   Early intervention requirements for certain borrowers.

1024.40   Continuity of contact.

1024.41   Loss mitigation procedures.

The language of those new sections is available here.

Appendices to Regulation X

• New Model Language for Force-placed Insurance Notices - Appendix MS-3

• New Model Language for Early Intervention; Loss Mitigation; and Housing Counselor Notices - Appendix MS-4

• Official Bureau Interpretations to Reg X - Supplement I (link goes to Federal Register)

***

Wow - that is a lot of links and a long blog post.  I know I've been running down some rabbit holes in my research and I'm sure some blog readers have as well.  Hopefully this blog post helps organize the confusion.  A bit.  Have a great weekend!

NAFCU's Regulatory Compliance School Just Got Better - Regulatory Update Day

Written by Steve Van Beek

We've heard you!  For the past couple of years, we've received the following feedback about NAFCU's Regulatory Compliance School (paraphrased, of course):

"School is great and provided a solid foundation for understanding the regulatory requirements credit unions face on a daily basis.  BUT, the rules are changing so fast that it would be great to receive updates on what has just changed and what is changing next."

With this in mind, we've created Regulatory Update Day at NAFCU's 2013 Regulatory Compliance School (March 18-23 in National Harbor, Maryland).  

Regulatory Update Day (Thursday, March 21st) will provide:

• A clear understanding of what changes NCUA has in store for 2013 – including their Exam Focus

• An overview of the scope and applicability of the CFPB’s seven new mortgage regulations*

• A detailed look at the CFPB’s Qualified Mortgage/Ability-to-Repay requirements*

• Answers to Frequently Asked Questions on the mortgage rules from NAFCU’s compliance team*

• Insight from credit union attorneys and practitioners on how best to set up your implementation strategy

You can find more information on Regulatory Update Day here.  The three sessions with the "*" are sessions that are also part of NAFCU's Mortgage Reform Webcast Series.

The other 4 days of Compliance School will remain the same as will the opportunity to take the NAFCU Certified Compliance Officer (NCCO) exams.  Good luck!  

***

And, all attendees at NAFCU's 2013 Regulatory Compliance School will receive NAFCU's 2013 GPS (coming soon!) as well as NAFCU's Scope & Applicability Charts.

Remember:  You do not need to be a NAFCU member credit union to attend NAFCU's conferences or webcasts.  In fact, you don't even need to work at a credit union.  Each School usually features a handful of consultants, vendors and other credit union "peeps" who support credit unions - in one way or another - on a daily basis.      

***