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.   

CFPB Releases Exam Procedures for Mortgage Rules; Remittance Transfer Resources

Written by Michael Coleman, Regulatory Compliance Counsel

Yesterday, the Consumer Financial Protection Bureau (CFPB) released updated exam procedures for some of the recent mortgage rules issued by the CFPB. Specifically, the CFPB updated the exam procedures for the Truth in Lending Act (TILA) and the Equal Credit Opportunity Act (ECOA). The updated TILA exam procedures incorporate the requirements of the recent mortgage rules on escrow accounts and loan originator compensation and qualification. The updated ECOA exam procedures incorporate the requirements of the Regulation B final rule on appraisals. 

What about the ability-to-repay and mortgage servicing final rules? The CFPB issued a press release on the updated exam procedures, indicating that "within the next several months, the CFPB will publish its first round of exam procedures for the Ability-to-Repay and mortgage servicing rules."

The updated exam procedures will eventually be incorporated into the CFPB's Supervision and Examination Manual, but for the time being you can find the TILA and ECOA exam procedures on the CFPB's website here. 

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Remittance Transfer Rule - Putting it All Together. The remittances rulemaking process has had numerous ups and downs and it can be very hard to just find and analyze the complete final rule. Well, the good folks at BankersOnline have compiled the regulatory text and commentary from the various final rules as they will eventually appear in the CFR on their "alphabet soup" page for Regulation E (scroll down to Subpart B for the remittance transfer sections). Here are the links to the individual sections of the remittance transfer rule as listed by BankersOnline:

12 CFR 1005.30 Remittance transfer definitions.

12 CFR 1005.31 Disclosures.

12 CFR 1005.32 Estimates.

12 CFR 1005.33 Procedures for resolving errors.

12 CFR 1005.34 Procedures for cancellation and refund of remittance transfers.

12 CFR 1005.35 Acts of agents.

12 CFR 1005.36 Transfers scheduled before the date of transfer.

Note that the official commentary associated with each individual section is listed directly below the regulatory text. Pretty neat. Keep in mind that these links are not to the Electronic Code of Federal Regulations, but still, hopefully this will help you avoid a couple compliance related headaches! 

CFPB YouTube Videos on the Mortgage Rules; Small Entity Compliance Guides; NAFCU Resources

Written by Bernadette Clair, Regulatory Compliance Counsel

Last week, the CFPB posted seven video presentations on the new mortgage rules.  The purpose of these videos is to provide a plain language overview of the rules.  We thought it might be handy to have the links to these videos, along with links to the CFPB’s Small Entity Guides in one place.

CFPB videos:

• Overview of the 2013 New Mortgage Rules

• Ability-to-Repay and Qualified Mortgage Rule

• 2013HOEPA Rule

• ECOA Valuations and TILA Higher-Priced Mortgage Loan Appraisal Rules

• Loan Originator Compensation Rule

• Mortgage Servicing Rules

• TILA Escrow Rule

CFPB Small Entity Compliance Guides:

• Ability-to-Repay and Qualified Mortgage Rule

• 2013 HOEPA Rule

• ECOA Valuations Rule

• TILA Higher-Priced Mortgage Loans Appraisal Rule

• TILA Escrow Rule

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NAFCU Mortgage Rules Compliance Resources.  Remember that NAFCU has a webpage to help organize compliance resources related to the CFPB’s new mortgage rules.  The webpage includes links to the individual rules, scope-and-applicability charts, webcasts, compliance blog posts and more.

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.

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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.  

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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.

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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.  

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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

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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. 

CFPB to Begin Issuing Information to Help Credit Unions Comply with Mortgage Rules

Written by Steve Van Beek

Last week I was at a conference with other credit union attorneys and I noted the only parts of the CFPB's Implementation Plan for the new mortgage rules was the press release (sent on February 13th) and one blog post on the preliminary rural and underserved counties list.

Well, the CFPB must have been listening because on Friday afternoon they announced their plans to provide their first substantive guides to the mortgage rules in the upcoming weeks.  Below is from their email:

"In the coming months, we’ll release plain language compliance guides, updates of the official interpretations, examination procedures, and other materials. We’re planning to release the first set of materials next week. 
 
If you’re in the mortgage industry or just want to know what we’re doing to help them get ready, sign up for our regulations-specific email list. The signup form is in the upper-right section of the page. 
 
consumerfinance.gov/Regulations 
 
A good implementation plan reduces confusion and costs for industry. That means less time figuring out what the rules mean and more time designing business practices that serve consumers and follow the rules. That’s a market that works better for everyone."

I'd encourage you to sign-up for the announcements and set aside time to review the materials the CFPB provides. 

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Back in early 2013 (just before the rules were finalized) the CFPB reached out to NAFCU for input on their Implementation Plan for the Mortgage Rules. While I was hopeful at the time, as the days passed by I became more convinced the CFPB missed a huge opportunity by waiting so long to begin communicating with compliance officers on the new rules.

Below are the suggestions I sent to the CFPB back in January:  

• "Applicability.  It is very important to credit unions that the CFPB be specific regarding which new requirements apply to which types of mortgage products.  Credit unions usually think in terms of the mortgage products they offer and not which regulation might apply.  The more the CFPB can do to make distinctions in their communications (and in the actual regulation and commentary), the less burden credit unions will face.  Some of the distinctions that would allow credit unions to know if the regulations apply to their product are included below. 
  • Open-End Credit versus Closed-End Credit
  • First lien versus Subordinate lien
  • Principal dwelling versus Any dwelling
  • Real-estate secured versus secured by personal property (which might be a dwelling – e.g., manufactured homes, mobile homes)

• Fact Sheet for Compliance Officers.  In the CFPB’s prior releases, there have been Fact Sheets for consumers and Fact Sheets for the press.  It would be very helpful if the CFPB released a Fact Sheet for compliance officers. 

• Ask CFPB & Prior Q&As.  Compliance officers should have an avenue to ask questions about the applicability and requirements of the new regulations.  The CFPB would then be able to post these questions and answers on their website to provide guidance to other compliance officers.  Very similar to the process the CFPB already uses to provide information to consumers. 

• One-Page Document with Compliance Dates.  It would be very helpful if the CFPB created and released a one (or two) page document that contains the compliance dates for all the new requirements.

• Webinars and Small Entity Guides.  These are very helpful to credit unions.  However, in order to have the greatest impact – they need to be released in a timely manner and clearly explain the applicability of the new rules.

• Citations.  Whenever possible, the CFPB should use citations when discussing new requirements so that credit unions can conduct further research and analyze the underlying regulatory text, any staff commentary and the preamble to the new regulatory requirement. 

• Annotated Model Forms.  The CFPB’s proposed model forms for the TILA-RESPA Integrated Disclosures included annotated model forms which allowed users to click on various sections of the model form and see the underlying citation and a link to the proposed rule.  Including this feature with the final rules would be extremely beneficial to credit unions – especially as they work with third-party forms providers.  The annotated model forms will allow credit unions to show their vendors the underlying regulatory requirement and why the particular language or formatting is required. 

• Break Up Topics/Changes Into Manageable Sections.  One of the aspects that NAFCU has found most effective in explaining large changes to regulations (such as from the Credit CARD Act or prior RESPA reform) has been to break up the new requirements in manageable pieces.  For example, the mortgage servicing sections could be clearly broken up in the following sections: (1) adjustable-rate notices; (2) periodic statements; (3) error resolution procedures; (4) information requests); etc.  This allows credit unions, who have very limited compliance staffs, to focus on certain changes initially and move on after implementing those changes rather than trying to comprehend the entire regulation at once."   

We'll have to wait and see how they do overall, but they certainly didn't make educating compliance officers a focus of their new rules. Instead, they worked the media angle and touted the past abuses by certain mortgage lenders and servicers while simply dumping the new rules and forcing everyone to wade through the 3507 pages.

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And, I must include your Moment of Zen (or at least mine) for today. Go Blue!

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.  

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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).

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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.

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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

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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!

The Federal Credit Union Magazine; Upcoming NAFCU Webcasts

Written by Steve Van Beek

The March-April edition of NAFCU's The Federal Credit Union magazine is now available.  I thought you'd enjoy the following articles:

• Rules, Rules and More Rules: How the CFPB is Impacting CUs

• The Vital Life of the CU Director

• NAFCU Expands Regulatory Team

• NAFCU's Legislative Priorities

• Management, Gen Y Style - including these five great tips:

1. Hire those who know more than you.
2. Work thoroughly and slowly.
3. Mentor and be mentored.
4. The art of woo.
5. Think of others first.

• Learning from Noncompliance

• What Bankers Worry About

As you can see, there is a little bit for everyone - be sure to pass along to others at your credit union that might be interested.  

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Upcoming NAFCU Webcasts.  We have a full slate coming up.  Remember - NAFCU's conferences and webcasts are open to anyone and everyone (NAFCU members receive preferred pricing). 

• An Inside Guide to CU Board of Directors - March 13

• BSA Compliance Update: Citations, Investigations and Criminal Activity - March 19

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

• Which New Requirements Apply to HELOCs?  - April 10

• Preparing for New Mortgage Servicing Notices - April 17

• A Look Inside NCUA's National Supervision Policy Manual - May 1

I'm biased - but that is a great slate of upcoming webcasts.  If you're thinking - I want them all - we got you covered.  You can still purchase NAFCU's Unlimited Webcast Subscription - including access to the six webcasts we've already held in 2013.