NAFCU Compliance Blog

Keeping Track of the CFPB's Mortgage Initiatives

Written by Steve Van Beek

The CFPB has been working on mortgage issues in a couple of different areas and I thought it would be a good idea to include links to their information in one location.  Especially as issues seem to disappear on the CFPB's website.  It is truly amazing that a 21st century agency has not included a search bar on either the first or second design of their website.  

I hope the CFPB realizes that institutions cannot instantaneously track and review the hundreds of pages of information the CFPB releases each week.  A search bar would be the first step in increasing transparency.  It really isn't that hard.  The NAFCU Compliance Blog has one.  

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Mortgage Origination.  The CFPB plans to propose these rules this summer with a final rule in place by January 2013.  Below are links to the CFPB's working documents.

• CFPB's Press Release on Mortgage Origination Rules
• The CFPB's 37-Page Outline of Proposals Under Consideration and Alternatives Considered
• Discussion Issues for the CFPB's Small Business Review Panel

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Mortgage Servicing.  Just over a month ago, the CFPB released its game plan for Mortgage Servicing.  For these rules, the CFPB plans to have proposals out this summer and a final rule in place by January 2013 (seeing a trend yet?) 

• CFPB's Press Release on Mortgage Servicing Rules 
• CFPB's Fact Sheet on Mortgage Servicing
• The CFPB's 60-Page Outline of Proposals Under Consideration and Alternatives Considered
• Discussion Issues for the CFPB's Small Business Review Panel
• CFPB's Blog Post on its Prototype Mortgage Periodic Statement

According to the CFPB's press release, the CFPB can provide up to one year of implementation time (January 2014).  However, the CFPB hasn't decided on the implementation period.  Credit unions will want to be very clear in their future comment letters about how long this massive overhaul will take and why even the one-year period might not be enough.  

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TILA/RESPA Disclosures.  The CFPB is also moving forward with their TILA/RESPA mortgage disclosure consolidation.  This was the CFPB's first "Know Before You Owe" campaign.  At this point, it looks like the CFPB is hunkering down with all of their comments with an aim of getting a proposed rule out by July 21, 2012.  

• The CFPB's Blog Post with the Latest Model Forms and the CFPB's Press Release
• The CFPB's 42-Page Outline of Proposals Under Consideration and Alternatives Considered
• Discussion Issues for the CFPB's Small Business Review Panel

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And, this isn't all of it.  The CFPB will be pretty much changing every aspect of mortgage lending within the next couple of years.  For an eye to what else the CFPB is working on, take a look at their Agency Rule List.  

If the outlines are 37; 60 and 42 pages - how long will the actual rulemakings be??  

Keeping a Record of NCUA's Regs; NAFCU's Comment Letter on TILA/RESPA

Written by Steve Van Beek

On Tuesday we blogged about the FTC's rescission of their regulations that transferred to the CFPB.  We also indicated that NCUA was likely to follow soon after and rescind their rules.  We also included this information about making a copy of the current rules:

"Prior to this occurring, it might be a good business practice to make a copy of the soon-to-be rescinded regulations to ensure your credit union has a copy of the regulations in effect in the past in the case of a member complaint, exam issue or lawsuit."

A very helpful comment highlighted that the Government Printing Office (GPO) retains a copy of each year's CFR in PDF or XML format.  Below are the 2011 PDFs of the rules that transferred from the NCUA to the CFPB.   

Main Rules.  These three rules were transferred either completely (Privacy and SAFE Act) or almost completely (Fair Credit Reporting Act).

• Part 716 - Privacy of Consumer Financial Information
• Part 717 - Fair Credit Reporting
• Part 761 - Registration of Residential Mortgage Loan Originators 

There are a few other regulations listed in the CFPB's Federal Register notice on the transferred regulations but they are not major changes and only impact certain situations.  Part 707 - NCUA's Truth in Savings regulation - is also included on the list but rulemaking authority for Part 707 remains with NCUA.

Note:  Prior years of regulations can be found by using this GPO starting page.  Hat tip to Kennyb.      

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TILA/RESPA Disclosure Combination.  On Monday, NAFCU submitted a comment letter to the CFPB on their plans to combine the TILA and RESPA disclosures.  The comment letter is 7 pages long and highlights areas of concerns as the CFPB continues along their Dodd-Frank mandate.  

Remember:  The CFPB has to have an official proposal out for the TILA/RESPA combined disclosures by July 21, 2012.  Their Know Before You Own project was not an official proposed rule and was not part of the Administrative Procedures Act.   

Consumer Compliance Outlook: Common Compliance Violations

Written by Steve Van Beek

Hope everyone had a great weekend - below is a great resource that might be useful.

Consumer Compliance Outlook.  The Philadelphia Federal Reserve publishes a Quarterly Consumer Compliance Outlook that is usually a valuable resource.  This month's material is especially useful as they walk through common compliance issues seen during examinations.  The PDF of the 1st Quarter 2012 Issue is here and includes: 

• Fair Lending Webinar Questions and Answers
• View from the Field: Commonly Cited Compliance Violations in 2011
• Risk-Based Pricing Notice Requirements: Questions and Answers
• News from Washington: Regulatory Updates
• On the Docket: Recent Federal Court Opinions
• Compliance Alert
• Index of Articles
• Calendar of Events

The Commonly Cited Compliance Violations include:

• Regulation B's requirement for joint intent for joint credit (spousal signatures);
• Regulation B's adverse action notices (lacking content and specificity);
• RESPA's Tolerance Cures;
• Reg C/HMDA Rate Spread, Loan Purpose Definitions and Type of Action Taken; and
• Reg Z Account Opening Disclosures for Open-end Credit. 

We'll look at some of these violations in more detail later this week.  

For now, I'm just glad the Philadelphia Federal Reserve has continued this publication even though authority for the consumer regulations passed to the CFPB.  In the future, I'm hoping the CFPB (and NCUA) realize how useful an informal publication like the Consumer Compliance Outlook can be in highlighting common issues and explaining the requirements to increase compliance among financial institutions.  

Finding the CFPB's Regulations

Written by Steve Van Beek

Dodd-Frank transferred authority for the "enumerated consumer laws" to the CFPB on July 21, 2011.  In late December, the CFPB officially republished the regulations that implemented these "enumerated consumer laws" in its own section of the Electronic Code of Federal Regulations.

For credit unions, this means we need to use the CFPB's regulations for our research and our citations.  For example, the correct citation for Regulation Z is now 12 C.F.R. 1026 and not 12 C.F.R. 226.  

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Why does this matter?  When the CFPB issues changes to these regulations - such as the remittances final rule - these regulations will only update the CFPB's Regulation E.  The prior version of Regulation E - under the Federal Reserve - will not be updated.  In order to research the latest and most accurate information, look to and cite the CFPB's regulations.  Note:  The remittances final rule can be found in Subpart B to Regulation E.    

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CFPB Regulations.  Below are links to the CFPB's regulations with the updated citations.  This should be the starting point for your research.  

• 12 C.F.R. 1002 - Regulation B:  Equal Credit Opportunity Act
• 12 C.F.R. 1003 - Regulation C:  Home Mortgage Disclosure Act
• 12 C.F.R. 1005 - Regulation E:  Electronic Funds Transfers
• 12 C.F.R. 1006 - Regulation F:  Fair Debt Collection Practices Act
• 12 C.F.R. 1007 - Regulation G:  SAFE Act Mortgage Licensing - Federal System
• 12 C.F.R. 1016 - Regulation P:  Privacy of Consumer Financial Information
• 12 C.F.R. 1022 - Regulation V:  Fair Credit Reporting Act
• 12 C.F.R. 1024 - Regulation X (RESPA):  Real Estate Settlement Procedures Act
• 12 C.F.R. 1026 - Regulation Z - Truth in Lending Act

Above is not a complete list, but they are the ones with the biggest impact on credit unions.  The full listing of the CFPB's regulations is in Section 1000-1099 of Title 12 of the Electronic Code of Federal Regulations.

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A couple of other items to keep in mind:

• Truth in Savings.  Credit Unions need to follow Part 707 for Truth in Savings rather than Regulation DD.  This blog post has more information.
• Federal Reserve.  The Federal Reserve lost authority for quite a few regulations.  However, they retain control over regulations that were not deemed to be "consumer" regulations.  This blog post has additional information on which regulations stayed with the Federal Reserve.  

CFPB's Latest on Closing Disclosures

Written by Steve Van Beek

Yesterday, the CFPB blogged on its latest efforts to combine the RESPA and TILA closing documents.  The CFPB is soliciting additional feedback from consumers and those in the mortgage industry on their latest set of two disclosure options.  

From the blog post:

"We’re giving a close-up to closing costs this month by trying to figure out which of two different designs communicates both the closing costs and transaction details clearly. One is similar to the existing HUD-1 settlement statement that consumers now receive when they close a mortgage loan. The other is based on our prototype for the disclosure you get when you first apply.

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Now we also want to keep working hard to make things clearer for consumers, so we are testing an entirely new design for disclosing closing cost details. We’re curious to see if something different may work even better. This new design provides the same information as the other prototype, but it uses a format for the closing costs that is based on our application disclosure prototype. It has sections that correspond to the application disclosure and a little more plain language. We’re wondering if this design will make the disclosure even clearer and easier for consumers. Also, what improvements could we make to both designs?"

Similar to past "Know Before You Owe" stages, the CFPB has both forms available for review and comment.  You can provide your feedback by going to CFPB's website and switching to the "Industry Tool."   

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The two prototypes for this round are available below:

• Settlement Disclosure - Mimosa Bank

• Settlement Disclosure - Sassafras Bank

It looks like this round of testing will be open through Wednesday, December 21st - so provide your comments now.  

Know Before You Owe - Round 3; Servicemember Information

Written by Steve Van Beek

Yesterday, the CFPB announced Round 3 to its Know Before You Owe project to combine the Reg Z and RESPA disclosures.  There is both a consumer option and industry option available here.  

This round of feedback is open until Monday, August 8th at 7 p.m. (Eastern) - so be sure to provide your feedback by that time.   

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The CFPB has included additional information for servicemembers on its website.  The Office of Servicemember Affairs has also put together a resources page for servicemembers.  The resources page includes the following subsections:

• Emergency assistance for servicemembers
• Service-specific personal financial management services
• Military spouses
• Legal assistance
• Information for wounded, ill, or injured warriors
• Money management and saving
• Information for surviving spouses
• Avoiding scams
• Other information
• The DoD Career Decision Toolkit

It might be a good idea to check out some of the resources on this page as there is a good chance that some of your members will have these same resources made available to them.  For example, this brochure from the Department of Justice does a good job highlighting some the legal protections for servicemembers.

RESPA/TILA Combined; Liar Liar

Posted by Sarah Loats

Know Before You Owe. Yesterday, the CFPB released two prototype forms it developed to consolidate the disclosures required under RESPA and TILA. The agency is calling it the Know Before You Owe project. The Dodd-Frank Act directed the CFPB to take on this task, and these two forms are the agency's initial attempts at streamlining the disclosures. NAFCU was able to attend a meeting with the CFPB and other industry reps on Tuesday to view the forms before they were released yesterday. Evaluation and revision is expected to go through this fall.  Below is a snippet from the press release.

“Buying a home is one of the biggest financial decisions most Americans will ever make. The Know Before You Owe project is about giving consumers upfront, easy-to-understand information that helps them compare different mortgage offers and find the one that’s best for them,” said Elizabeth Warren, Assistant to the President and Special Advisor to the Secretary of the Treasury on the CFPB.  “The current forms can be complicated and difficult for consumers to use.  They are also redundant and can be costly for lenders to fill out.  With a clear, simple form, consumers will be in a better position to answer two basic questions: Can I afford this mortgage and can I get a better deal somewhere else?”

Of course her emphasis is on consumers, but Professor Warren does throw a bone to credit unions and other lenders. Count me as part of the camp that hopes they can improve the process. With that in mind, if you follow this link, you can provide your own feedback (there is a consumer tool and an industry tool). There are two forms right now - the content is identical but the information is presented differently. Credit unions are encouraged to review the forms and provide feedback.

NAFCU members: Please consider providing your feedback to our colleague Dillon Shea. NAFCU will be in contact with the CFPB about these forms and the more feedback we get, the better information we can pass on to the CFPB.

 

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Liar Liar. From the responses we received from yesterday's blog post, it seems many of you aren't fans of my Buckeyes. Well, this one's for you.

P.S. What is part of Jim Tressel's punishment? Compliance School!

Mortgages; Happy Birthday Kate and Briggs!

Posted by Anthony Demangone

A few of us were chatting around the office the other day, and the subject of mortgages came up.  We quickly began shaking our heads.  On one hand, many people are chewing out financial institutions for not making enough loans.  And the government has spent the last few years doing what it can to prop up the U.S. housing market.  All the while, credit unions and other mortgage lenders are getting pounded from every conceivable direction.  Just think about the following.

Regulation Z.  MDIA disclosures were put in place.  Then there was the mortgage loan sale or transfer notice regulation..  In case that wasn't enough, along came a rule on mortgage loan originator compensation.  Those MDIA disclosures?  They were amended. Requirements regarding higher-priced mortgage loans were put in place.  And then new HPML loan requirements for jumbo mortgages were announced.  In that same announcement, the Fed issued a proposal that would amend the first set of HPML requirements. And don't tell me that they tweaked that MDIA disclosure again?  Oh, and the entire system of disclosures for closed end mortgages and HELOCs are in the process of being amended.  The CFPB will pick that process up sometime in the future. 

SAFE Act.  Need I say more? 

RESPA.  The GFE and HUD-1 were completely overhauled.  And the CFPB announced that they want to rework the disclosures as soon as they gain their official powers.

Appraisals.  First, a state Attorney General from New York manages to ink a deal with Fannie and Freddie that practically changed appraisal requirements for the entire country.  Then regulators, including NCUA, issued their interagency appraisal and evaluation guidelines, which completely overhauled just about every aspect of the appraisal process.  And the Fed has issued its appraisal regulation.  All of these requirements have mortgage lenders jumping through hoops - many of which appear to complicate the process without ensuring any benefit to the housing system. 

GSEs.  The future of GSEs are on the line. Congress and the Obama administration are trying to craft solutions to deal with these entities, all the while, leaving a great deal of uncertainty for credit unions that need access to some sort of secondary market for liquidity and interest rate risk management. 

Servicers.  Add to all of this a recent development.  State Attorney Generals crafted an agreement/settlement offer sheet for the largest mortgage lenders in America.  While this on the surface doesn't directly affect credit unions, many of the agreement's requirements may find their way into regulations and guidance documents or become industry servicing standards.  Some of those provisions are quite onerous, such as one that raises the issue of cram downs. 

Dodd-Frank. Provisions in Dodd-Frank will likely increase downpayment requirements for many mortgage loans. 

CFPB.  As noted above, Elizabeth Warren has indicated that one of the CFPB's first priorities will be to overhaul mortgage disclosures.  Combining TILA and RESPA disclosures is not necessarily a bad thing, but given everything we've gone through already, a break might be nice. 

Market Forces.  Oh, lest we forget.  Mortgage values are down, there is talk about a partial elimination of the mortgage interest deduction, and mortgage rates will likely increase in the not too distant future.

So, if you work with mortgages and someone wants to know how "work is going," feel free to send them this post. The pace and amount of change in this area has been practically unmanageable.  There is so much risk and uncertainty, I wonder if some lenders will simply decide to exit the mortgage market altogether.  All of this uncertainty and change also creates another problem - it tends to favor large organizations who can throw oodles of compliance and legal resources at the problem. Smaller shops may eventually leave the market or merge themselves out of existence.  Wasn't there a cry about ending "too big too fail?" 

Oh, and feel free to share this with your Congressman if he or she wants an example of regulatory burdens faced by credit unions. 

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Speaking of the rapid pace of change, Kate and Briggs turned two today. Looking back on these two years, well, the words just escape me. It is hard to describe the effect they've had on my life. 

 

 

This and That...

Posted by Anthony Demangone

The issues runneth over.  Here's a health dose of compliance "stuff" to get your week started.

Who is the Joker?  As Sarah pointed on our Friday, the CFPB unveiled its website and logo.  Did that logo ring a bell?   If it made you think of Batman, you weren't alone.  (The Hill.) My only question is this: if the CFPB is Batman, who is the Joker?  Or Riddler, for that matter? I hope that credit unions and community banks aren't seen as the villains.  You may want to check out its consumer complaint section.  It will route complaints about federal credit unions to NCUA's complaint page.   I bet the launch of this website will increase the number of complaints against federal credit unions.  The CFPB appears intent to get the word out.  If you listen to this narrated video, you might recognize the voice. The voice belongs to Ron Howard. 

Oh, and they even have a blog.

Troubled debt restructuring.  An archived version of NCUA's recent webcast on this topic is now available. 

Fed services. Speaking of webcasts, NAFCU is offering a free webcast (for both NAFCU members and nonmembers) that details the Federal Reserve's services that are available to credit unions. I know a lot of credit unions are rethinking who they do business with in the wake of the corporate credit union crisis.  This webcast should provide useful information for anyone considering the use of the Fed.

TILA and RESPA.  Elizabeth Warren has indicated that the CFPB is already working on a combined mortgage disclosure.   When it comes to this issue, Godspeed, CFPB.  Godspeed. 

Tuesday Grab Bag

Posted by Anthony Demangone

Here are a few items of interest.

Discrimination.  HUD is going to investigate 22 banks and mortgage lenders to see if there is illegal discrimination against minorities related to FHA loans. 

The investigations are in response to 22 complaints the National Community Reinvestment Coalition (NCRC) filed with HUD alleging that the loan activities of the mortgage originators showed that their home lending practices deny FHA- insured loans to African Americans and Latinos with credit scores as high as 640. Federal Housing Administration (FHA) guidelines allow mortgages to borrowers with credit scores above 580, provided the borrowers have down payments equaling 3.5 percent of the loan amount, or above 500, provided the borrowers have down payments equaling 10 percent of the loan amount.

Regulation Z.  The OCC has updated its Regulation Z examination procedures.   These procedures are a great way to gain a solid overview of examiner expectations.  And while the OCC does not regulate credit unions, its views on Regulation Z matters should be useful, as Regulation Z applies evenly to both credit unions and banks.

NCUA Legal Opinion on Gift Card Incentives. Can a credit union use a gift card give-away to boost attendance at its annual meeting?  Yes, but credit unions must be judicious in their use.  At some points, examiners may raise objections on "safety and soundness or corporate waste grounds."  That puts credit unions in a tough position, as this opinion letter doesn't give bright-line guidance or any safe harbors.  When is a gift-card attendance campaign too much? When does it raise a safety and soundness or corporate waste issue? Much like Supreme Court Justice Potter Stewart said about hard-core pornography, I guess that examiners will know it when they see it.  

Privacy.  This blog post provides a nice overview of a recent Commerce Department report on privacy. (Privacy & Security Law Blog.) This isn't a regulatory proposal, so there aren't any changes to our privacy requirements on the horizon (other than the move to the model privacy disclosure).  But privacy is an important issue, and a fluid one.  As technologies and marketing methods evolve, you'll see efforts to amend privacy requirements for American businesses.  This blog post is a nice reminder of that fact.