NAFCU Compliance Blog

2017 Adjusted Threshold Levels for Regulations Z and C; Updated HMDA Resources

Written by Stephanie Lyon, Regulatory Compliance Counsel

The Consumer Financial Protection Bureau (CFPB) has been updating and adjusting threshold dollar amounts for transactions covered under Regulation Z (which implements the Truth in Lending Act) and Regulation C (which implements the Home Mortgage Disclosure Act) since the middle of last year. As most threshold adjustments became effective as of January 1^st, 2017, we thought it would be helpful to gather this information in a one-stop shop.

Regulation Z

The Dodd-Frank Act and the CARD Act require the Bureau to adjust a variety of thresholds annually for inflation. Below are a few of the most notable adjusted amounts:

Credit Cards

Regulation Z prohibits a card issuer from imposing a fee for violating the terms or other requirements of a credit card account under an open-end (not home-secured) plan unless the fee “represents a reasonable proportion of the total costs” incurred for the violation, or is within the safe harbor provision of 12 C.F.R. section 1026.52(b). If a credit card issuer charges anything up to the safe harbor amount for certain violations, it is considered to be in compliance with Regulation Z.

The safe harbor amounts will remain the same as in 2016:

• $27 for a first late payment; and
• $38 for each subsequent late payment over six months.

Ability-to-Repay/Qualified Mortgage

For dollar amounts related to determining a borrower’s ability to repay a transaction secured by a dwelling, the threshold for what is a qualified mortgage in 2017 will require that total points and fees not to exceed:

• 3 percent of the total loan amount for a loan greater or equal to $102,894;
• $3,087 for a loan amount greater or equal to $61,737 and less than $102,894;
• 5 percent of the total loan amount for a loan greater or equal to $20,579 but less than $61,737;
• $1,029 for a loan amount greater or equal to $12,862 and less than $20,579; and
• 8 percent of the total loan amount for a loan less than $12,862.

Home Ownership and Equity Protection Act (HOEPA) Loans

Regulation Z sets additional requirements for high-cost mortgages. To be considered a high-cost mortgage, the transaction must be secured by the consumer’s principal dwelling and the APR and loan amount have to be over a certain threshold. For 2017, the total loan amount will be increased to $20,579 and the loan’s points and fees must exceed 5% of the total loan amount. See, 12 C.F.R. § 1026.32(a)(ii). Loans below $20,579 will also be high-cost if the points and fees exceed the lesser of 8% of the loan amount or $1,029.

Escrow Requirement

Creditors making higher priced mortgage loans must escrow the borrower’s property taxes and insurance unless the credit union meets certain exceptions. Credit unions with an asset size of less than $2.069 billion (increased from $2.052 billion in 2016) that extend a covered loan for a property that is located in rural or underserved areas and meet other requirements are exempt from establishing escrow accounts. See, 12 C.F.R. § 1026.35(b).

Special Appraisal Requirements

Higher-priced mortgage loans are considered to be higher risk and hence require that the credit union obtain a written appraisal based on a physical visit to the home’s interior.12 C.F.R. § 1026.35(c)(3)(i). The rule contains a few exceptions for the appraisal requirement including for transactions of less than an amount adjusted annually, which will remain the same as last year, $25,500.

For more information on Regulation Z’s 2017 adjusted thresholds, see the CFPB’s rule in the Federal Register or their press release.

Regulation C

HMDA Asset Size Reporting Exemption

HMDA exempts small credit unions from reporting HMDA data for the following year, using a multi-prong test that includes an asset threshold. There is no change from last year’s asset size exemption. So in 2017, credit unions with assets at or below $44 million as of December 31, 2016 will continue to be exempt from collecting and reporting HMDA data in 2017. See, 12 C.F.R. § 1003.2 (Financial Institution)(2).

Updated Resources

Also, I wanted to highlight that additional Resources for HMDA Filers were posted by the CFPB to their webpage and the FFIEC’s page. Among the additions are:

• The release of the 2017 Loan/Application Register (LAR) Formatting Tool
• Modifications to the Technology Preview, Filing Instructions Guide for data collected in or after 2018, and Frequently Asked Questions (FAQs).

The CFPB has an additional HMDA implementation page full of easy to digest coverage charts like the 2017 HMDA institutional coverage chart , which looks something like this:

ICYMI – NCUA MLA and Other Webinars; NCUA Regulatory Alert; CFPB Spring Rulemaking Agenda and TILA Annotated Model TRID Disclosures

Written by Brandy Bruyere, Director of Regulatory Compliance

Much of NAFCU’s staff was in Nashville last week for our Annual Conference, for those who were able to join us, thanks! It was a great week. Once in a while, we like to wrap up a few things just in case you missed it.

NCUA MLA Webinar. NCUA’s Office of Consumer Protection is holding a webinar on the Military Lending Act on Wednesday, June 29 at 2 PM Eastern. You can register for the webinar here. If you have questions (I know many of you have asked great questions, such as the MLA’s impact on statutory liens), you may submit them in advance to [email protected], using the subject line “MLA Regulatory Amendments.”

Other NCUA Webinars. It’s a busy month for NCUA in terms of webinars, here are a few others that may be of interest. This includes webinars on accounting for small CUs, webinar on growing your CU, and a CDFI webinar:

• Wednesday, June 22, at 2PM Eastern –NCUA Office of Small Credit Union Initiatives Webinar on Internal Controls and Accounting – you can register for this webinar here
• Thursday, June 22, at 2PM Eastern – NCUA Webinar on Community Development Financial Institutions Certification – you can register here
• Archive Available Soon (held on June 8) – NCUA Webinar on Growing Your Credit Union

NCUA Regulatory Alert on Small Creditors and Rural/underserved Areas. The CFPB recently implemented statutory changes relating to certain exemptions in Regulation Z for small creditors. On May 24, NCUA issued Regulatory Alert 16-RA-05 that includes a chart and summary of these changes.

CFPB Spring Rulemaking Agenda. On May 19, the CFPB issued its spring rulemaking agenda. While the rulemaking agendas often underestimate the timeline for proposals and rules, highlights include:

• Final Rule Estimates – Mortgage servicing (July 2016), prepaid products (July 2016), Regulation P (possible incorporation of statutory changes to annual privacy notices, August 2016), and Regulation CC (December 2016 although this is may be more of a placeholder than actual estimated action date)
• Proposed Rule Estimates – TRID amendments (July 2016), payday lending (proposed June 2)
• Prerule Stage – Debt collection, overdraft, Regulation B and business lending

TRID Model Disclosures with Statutory Annotations. Many found the model Loan Estimate and Closing Disclosure with regulatory annotations helpful, so the CFPB released versions with citations to Chapter 2 of the Truth in Lending Act. The Loan Estimate is here, and the Closing Disclosure is here.

Buddies. It’s been a while since I posted a Lemmy/Nolan update. Now that Nolan is a full-fledged toddler (21 months already!), we’re working with him on learning Lemmy’s boundaries – and learning that some food is really just for Lemmy. They get a long pretty well though. 

 

CFPB Issues Regulation Z Annual Threshold Adjustments; Fed Adopts Same-Day ACH Processing; A Penny for Your Thoughts

Written by Victoria Daka, Regulatory Compliance Counsel

The CFPB is required to annually adjust certain threshold amounts within various provisions of Regulation Z based on inflation. While it’s not the most exciting task, it has to be done. That said, on September 21, 2015, the bureau published a final rule implementing a few of these adjustments under the CARD Act, HOEPA, TILA, and the Dodd-Frank Act. The rule modifies the credit card penalty fee safe harbor, the HOEPA total loan amount and fee trigger thresholds, and the loan amounts for specific points and fees limits under Regulation Z’s qualified mortgage rule. These amounts are adjusted, where appropriate, based on the annual percentage change reflected in the Consumer Price Index in effect on June 1, 2015. The following will outline the adjustments of several provisions in Regulation Z, effective January 1, 2016. However, the minimum interest charge disclosure thresholds will remain unchanged in 2016.

Card Act                                                                                                                                                                              Under section 1026.52(b), fees on credit card accounts must generally be based on costs, but the rule contains safe harbor amounts that are considered compliant. The new safe harbor for a member’s first late payment will be $27 and $37 for subsequent late payments within the same six month period. Credit unions should note that while the first late payment fee remains unchanged, subsequent payments within the six month period decreased by $1 dollar to $37.

HOEPA                                                                                                                                                                       Under section 1026.32(a), for purposes of determining the total loan amount threshold that determines whether a transaction is a high cost mortgage when the points and fees are either 5 percent or 8 percentis $20,350. This is an decrease from the current $20,391 figure. Additionally, for purposes of determining whether a consumer credit transaction that is secured by a consumer's principal dwelling and is not otherwise exempt is covered by § 1026.32 a loan is covered if the points and fees exceed $1,017 or 8 percent of the total loan amount, whichever is lower. This is a decrease from the current $1,020 figure.

TILA                                                                                                                                                                                    Under section 1026.43(e)(3), for purposes of determining whether a covered transaction is a qualified mortgage, a covered transaction is qualified when: the transaction's total points and fees do not exceed 3 percent of the total loan amount for a loan amount greater than or equal to $101,749; $3,052 for a loan amount greater than or equal to $61,050 but less than $101,749;  5 percent of the total loan amount for loans greater than or equal to $20,350 but less than $61,050; $1,017 for a loan amount greater than or equal to $12,719 but less than $20,350, and 8 percent of the total loan amount for loans less than $12,719. Credit unions should note that these are all increases from the current figures.

The CFPB’s final rule can be found here.

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Fed Adopts Same-Day ACH Processing                                                                                                                         

On September 23, 2015, the Federal Reserve Board approved the NACHA mandatory same-day automated clearinghouse processing rules adopted in May. Same day transactions will begin to phase in starting September 2016. The new rule “requires receiving depository financial institutions (RDFIs) to participate in the service and originating depository financial institutions (ODFIs) to pay a fee to RDFIs for each same-day ACH forward transaction,”

The Board's Federal Register notice can be viewed here. For more information on NACHA’s same-day ACH, check out this blog post.

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A Penny for Your Thoughts

Back when I was new to compliance, I wish there had been a “compliance officer 101” type of resource. There are so many regulations that compliance officers need to be aware of, including -- TILA/RESPA Integrated Disclosures, Regulation B, Regulation CC, Regulation D, Regulation DD, Regulation E, Regulation J, Regulation P, Regulation V, Regulation X, Regulation Z, and UDAAP -- just to name a few. Oh yea, and then there is the E-SIGN Act, too! You can’t forget about those electronic disclosures.  With all of these regulations, how do they all work in tandem? And then there are policies, which ones require board approval?

Whether you’re new to compliance and share my rookie-days sentiments, or are a seasoned compliance officer, we’re working on a new electronic resource to help you navigate your way through the regulatory-compliance land of credit unions.

My question to you – what did you use when you were brand new to compliance? Or are you still looking for that perfect resource to help you with your day-to-day compliance needs?

CFPB Finalizes Changes to Small Creditor, Rural or Underserved Areas Definitions

Written by Brandy Bruyere, Director of Regulatory Compliance

On Monday, the CFPB finalized amendments to its definition of small creditors and rural or underserved areas under Regulation Z. The final rule goes into effect on January 1, 2016 and while the rule may provide some credit unions with regulatory relief, there are some concerns relating to the rule’s treatment of affiliate assets (i.e. CUSOs). Here is a high-level overview of the rule.

Small Creditors. First, keep in mind that there are three provisions in Regulation Z which contain exemptions for small creditors:

1. the higher-priced mortgage loan (HPML) escrow requirement which contains an exemption for small creditors. This rule also houses the definition of “small creditor;” and
2. the high-cost mortgage rule, which exempts small creditors from a prohibition against balloon payment features on these kinds of loans;
3. the ability to repay/qualified mortgage (ATR/QM) rule which permits small creditors to make certain portfolio and balloon payment QMs.

Currently, under section 1026.35(b), to qualify for “small creditor” status, a credit union must meet a four-part test. The final rule amends the first three parts, here is a summary of the amended test:

1. Total Annual Mortgage Originations: A credit union and its affiliates that “regularly extended” first lien mortgage loans (CUSOs, for example) must have originated 2,000 or fewer first lien mortgage loans in the preceding calendar year. However, portfolio loans will now be excluded (increased from 500 first lien mortgage loans with no exclusion for portfolio loans);
2. Asset Size Threshold: The credit union and its “affiliates that regularly extended” first lien mortgage loans must have a combined asset size that is less than $2.060 billion (note this figure adjusts annually) at the end of the preceding calendar year (the existing rule does not include affiliates’ assets in this calculation);
3. Predominately in Rural or Underserved Areas: In the preceding year (or preceding two years for applications received before April 1) must have originated more than 50 percent of its first lien mortgages in counties that are determined to be "rural" or "underserved." This is not technically changing, but the definition of “rural or underserved” will be more granular, as discussed below;
4. Do Not Currently Escrow for Mortgage Loans: Even if a credit union meets these three requirements, the credit union (or its CUSO) will not qualify for the HPML escrow rule's small creditor exemption where the credit union regularly establishes escrow accounts for its mortgage loans (this provision is not changing).

While the CFPB acknowledged concerns relating to CUSOs with regard to the asset size threshold calculation, the bureau declined to adopt any carve out that acknowledges that credit unions and CUSOs are distinct from the kinds of affiliate and subsidiary relationships that other kinds of financial institutions utilize. Here’s an excerpt from page 34 of the rule’s Preamble:

“While credit unions in their comments expressed concern about the impact of the proposal on credit unions affiliated with CUSOs, under the proposal only the assets of affiliates that regularly extended covered transactions are counted toward the creditor’s asset limit. As adopted under the Bureau’s final rule, therefore, only the assets of CUSOs that meet the definition of affiliate in Regulation Z (meeting the “control” test under the Bank Holding Company Act) and that regularly extend covered transactions during the applicable period will be counted toward the asset limit. The Bureau is not excluding CUSOs from possible treatment as affiliates because it remains concerned that a credit union could, under the current asset limit calculation, enter into a relationship with a CUSO or CUSOs to create a large entity that would be eligible for the special provisions and exemptions accorded small creditor status. The Bureau also notes that § 1026.32(b)(5) and its definition of “affiliate” references the Bank Holding Company Act only for the purposes of how control is determined under that Act, which is applicable to the determination of affiliate under Regulation Z regardless of the applicability of the Act to credit unions.”

To which I thought:

Rural or Underserved Areas. For a credit union to be deemed a small creditor, in the preceding calendar year, the credit union must have originated more than 50 percent of its first lien mortgages in counties that are determined to be "rural" or "underserved." The final rule, among other things, amends the rural definition by substituting the word "area" for "counties" in the current rule. This change would include all census blocks in order to account for additional communities that are rural by Census standards. To put this into perspective, there are only about 3,000 counties in the US, but 11 million different census blocks that are designated as either “urban” or “rural.” The final rule takes a more granular approach than the existing standard.  It is also worth noting that the final rule changes the current three year look back period used to determine whether the rural and underserved test is met to a one year look back.

Again, this is a high-level summary, there are more nuances to these changes that are worth reviewing in full. For more details on this final rule, NAFCU will provide members with a Final Regulation summarizing the changes in the next couple of weeks.

CFPB Adjusts CARD Act, HOEPA, and TILA Thresholds for Inflation

Written by Brandy Bruyere, Regulatory Compliance Counsel

The CFPB is required to annually adjust certain threshold amounts within various rules based on inflation. Last week, the bureau published a final rule implementing a few of these adjustments under the CARD Act, HOEPA and TILA. The rule modifies the credit card penalty fee safe harbor, the HOEPA total loan amount and fee trigger thresholds, and the loan amounts for specific points and fees limits under Regulation Z’s qualified mortgage rule.

CARD Act Penalty Fees Safe Harbor. Under Section 1026.52(b) of Regulation Z, fees on credit card accounts must generally be based on costs, but the rule contains safe harbor amounts that are considered compliant. Effective January 1, 2015, the safe harbor penalty fees will increase by one dollar. The new safe harbor for a member’s first late payment will be $27 and $38 for subsequent late payments within the same six month period.

HOEPA Annual Threshold and Fee Trigger Adjustments. Under Section 1026.32, whether a mortgage is considered high-cost depends on the annual percentage rate, with different thresholds for different loan amounts. Effective January 1, 2015, a loan that is $20,391 or above will be a high-cost mortgage if the loan’s points and fees exceed 5% of the total loan amount. A loan will also be high-cost if its points and fees exceed the lesser of 8% of the loan amount or $1,020 for loans for less than $20,391. Here is an excerpt from the final rule:

 

“Effective January 1, 2015, for purposes of determining the total loan amount threshold that determines whether a transaction is a high cost mortgage when the points and fees are either 5 percent or 8 percent is $20,391. Comment 32(a)(1)(ii)-3, which lists the adjustments for each year, is amended to reflect the new dollar threshold amount for 2015.

Effective January 1, 2015, for purposes of determining whether a consumer credit transaction that is secured by a consumer’s principal dwelling and is not otherwise exempt is covered by § 1026.32 (based on the total points and fees payable by the consumer at consummation), a loan is covered if the points and fees exceed $1,020 or 8 percent of the total loan amount, whichever is lower. Comment 32(a)(1)(ii)-1, which lists the adjustments for each year, is amended to reflect the new dollar threshold amount for 2015.”

Ability to Repay and Qualified Mortgage (QM) Annual Threshold Adjustments. Finally, the bureau’s rule also changes the loan amounts subject to the various points and fees limits to meet the requirements of a QM. Here is the excerpt from the rule:

“Effective January 1, 2015, for purposes of determining whether a covered transaction is a qualified mortgage, a covered transaction is not a qualified mortgage unless the transaction’s total points and fees do not exceed 3 percent of the total loan amount for a loan amount greater than or equal to $101,953; $3,059 for a loan amount greater than or equal to $61,172 but less than $101,953; 5 percent of the total loan amount for loans greater than or equal to $20,391 but less than $61,172 ; $1,020 for a loan amount greater than or equal to $12,744 but less than $20,391 , and 8 percent of the total loan amount for loans less than $12,744. Comment 43(e)(3)(ii)-1, which lists the adjustments for each year, is amended to reflect the new dollar threshold amounts for 2015.” (Emphasis added.)

Remember, none of these changes go into effect until January 1, 2015 but it is good to make a note of it now.

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NAFCU's 2014 Credit Union Compliance GPS is still available. This comprehensive, electronic resource translates complex regulatory language into plain English. The latest edition includes improved user-friendly search functions, including more hyperlinks and bookmarks and much more. You can purchase a copy for your credit union here!

 

2014 HMDA Reporting Threshold; CARD Act and HOEPA Annual Adjustments; Asset-Threshold for HPML Escrow Exemption; Early Bird Savings for NAFCU’s Regulatory Compliance School

Written by Bernadette Clair, Senior Regulatory Compliance Counsel

2014 HMDA Asset Threshold. The CFPB has issued a final rule, effective January 1, 2014, adjusting the asset-size exemption threshold for banks, savings associations, and credit unions under Regulation C, which implements the Home Mortgage Disclosure Act (HMDA).

For 2014, the exemption threshold is $43 million (up from $42 million). Banks, savings associations, and credit unions with assets of $43 million or less as of December 31, 2013, are exempt from collecting data in 2014. Note that an institution’s exemption from collecting data in 2014 does not affect its responsibility to report the data it was required to collect in 2013. The CFPB’s press release is available here.

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CARD Act Penalty Fees Safe Harbor. The CFPB also issued a final rule amending the safe harbor threshold amounts for credit card penalty fees in Regulation Z, section 1026.52(b)(1)(ii)(A) and (B).

Effective January 1, 2014, the adjusted dollar amount for the penalty fees safe harbor is $26. The safe harbor for each subsequent violation within the following six months is $37.

HOEPA Annual Threshold Adjustment. In the same final rule, the CFPB adjusted the statutory fee trigger for HOPEA loans to $632, effective January 1, 2014. Keep in mind that this adjustment applies to loans consummated on or after January 1, 2014, and will apply until the revised HOEPA fee trigger adopted in the CFPB’s 2013 HOEPA final rule takes effect on January 10, 2014. This issue is discussed in the preamble to the final rule:

“The fee trigger being adjusted in this Federal Register notice pursuant to TILA section 103(bb) is used in determining whether a loan is covered by § 1026.32. Such loans have generally been known as “HOEPA loans.” On January 10, 2013, the Bureau issued a final rule pursuant to, inter alia, section 1431 of the Dodd-Frank Act, which revised the statutory fee trigger for HOEPA loans. 78 FR 6856 (Jan. 31, 2013) (2013 HOEPA Final Rule). The amendments adopted in the 2013 HOEPA Final Rule, including the revised fee trigger, apply to loans for which the creditor received an application on or after January 10, 2014. Id. at 6939. The Bureau is mindful of the need to coordinate implementation of this final rule with the effective date of the January 10th final rule adopting revisions to the HOEPA fee trigger. Accordingly, the adjustment to the fee trigger that is being published today will become effective on January 1, 2014, will apply to loans consummated on or after January 1, 2014, and will apply until the revised HOEPA fee trigger takes effect. Pursuant to section 1431 of the Dodd Frank Act and § 1026.32(a)(1)(ii) as amended by the 2013 HOEPA Final Rule, implementation of the 2013 HOEPA Final Rule will change the HOEPA fee trigger to $1,000, which will be adjusted annually thereafter in accordance with § 1026.32(a)(1)(ii) as amended by the 2013 HOEPA Final Rule. Id. at 6968.” (My emphasis)

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Asset-Threshold for HPML Escrow Exemption.  And the last threshold of mention today: the CFPB issued a final rule effective January 1, 2014 that implements an automatic adjustment to the asset-size exemption for the TILA Higher-Priced Mortgage Loans (HPMLs) escrow account regulation. The rule requires that credit unions maintain an escrow account to cover the costs of property taxes and insurance for HPMLs for a minimum of five years. There is an exemption for certain credit unions that meet the following requirements:

• Operate in a predominantly rural or underserved area;
• The credit union retains its mortgage obligations in portfolio;
• Originated less than 500 first-lien HPMLs during the preceding calendar year; and
• Do not exceed the asset-size threshold set by the CFPB

This final rule will determine which entities qualify for this exemption for 2014. The CFPB is increasing the asset-size threshold by 1.4%, from $2 billion to $2.028 billion. Credit unions that originated fewer than 500 first-lien HMPLs and whose assets were $2.028 billion or below as of December 31, 2013 will be exempt from the TILA escrow requirement for HPMLs. The CFPB’s press release is available here.

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Early Bird Savings for NAFCU’s Regulatory Compliance School. Ready to tackle the new year and get control over compliance issues? Register by January 10 for our Regulatory Compliance School and you’ll save $200 off the registration by using code “HOLIDAY”.  Need a little more time? Register by January 17 and you’ll still save $100 with early bird savings.

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 Issues Guides on HPML Appraisals, ECOA Valuations, and HOEPA Rule

Written by Bernadette Clair, Regulatory Compliance Counsel

Last week, the CFPB issued Small Entity Compliance Guides for the TILA Higher-Priced Mortgage Loans Appraisal Rule (HPML Appraisal Rule), Equal Credit Opportunity Act (ECOA) Valuations Rule, and 2013 Home Ownership and Equity Protection Act (HOEPA) Rule.

Today I want to highlight an excerpt from Section 3 of the HPML Appraisal Rule Guide which discusses when the disclosure requirements of the HPML Appraisal Rule and ECOA Valuations Rule overlap and provides guidance on how to comply with the disclosure and timing requirements when both rules apply to a transaction.  From the guide:

“III. How do the Appraisals for Higher-Price Mortgage Loans Rule and the Equal Opportunity Credit Act Valuations Rule overlap?

For first-lien HPMLs that are covered by the HPML Appraisal Rule, the disclosure requirements overlap with the ECOA Valuations Rule. The ECOA Valuations Rule implements Dodd-Frank Act amendments to ECOA, which require you to provide consumer disclosures and free copies of appraisals and other written valuations.

You can use the disclosure under the ECOA Valuations Rule to satisfy the requirements of this rule. The ECOA guide and the ECOA Valuations Rule are online at http://www.consumerfinance.gov/regulations/disclosure-and-delivery-requirements-for-copies-of-appraisals-and-other-written-valuations-under-the-equal-credit-opportunity-act-regulation-b/.

The ECOA Valuations Rule imposes a different deadline structure for providing copies of appraisals to consumers. Under the ECOA Valuations Rule, the copies of appraisals must be provided “promptly upon completion” or three business days before closing, whichever is earlier.

As a result, if the appraisal is completed early in the application process, then the “promptly upon completion” deadline will come first, since it will be earlier than the three-business-days-before-closing deadline under this rule.

In addition, the applicant can waive the deadline under the ECOA Valuations Rule and elect to receive the copies at closing, whereas the applicant cannot waive the three-business-days-before-closing deadline under the HPML Appraisal Rule. 

If the transaction is subject to both rules, then comply with the earlier deadline. The HPML Appraisal Rule deadline will be earlier if the applicant provides a waiver under the ECOA Valuations Rule.

For example, if an applicant waives the deadline under the ECOA Valuations Rule, you will still need to comply with the three-business-day-before-closing requirement in this rule.

If the applicant does not waive the three-business-days-before-closing deadline, generally the ECOA Valuations Rule “promptly upon completion” deadline will be earlier.

 

IV. What text do I use in my disclosure to consumers?

Use this text in your disclosure to consumers:

“We may order an appraisal to determine the property’s value and charge you for this appraisal. We will give you a copy of any appraisal, even if your loan does not close. You can pay for an additional appraisal for your own use at your own cost.”

For a first-lien transaction, you can also add the word “promptly” to the disclosure, telling the consumers you will “promptly” give them the copy. Then you will have the same disclosure used to comply with the ECOA Valuation Rule. (Regulation B, 12 CFR 1002.14(a)(2))”

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NAFCU Members: Check out this month’s Compliance Monitor (available for download here) which features an in-depth discussion of these disclosure and timing requirements in the article entitled New Appraisal Disclosure Requirements: Regulation B and Higher-Priced Mortgage Loans (NAFCU login required).

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.      

***

Mortgage Headache Areas; Upcoming Mortgage Reform Webcasts

Written by Steve Van Beek

Yesterday was NAFCU's first webcast as part of our Mortgage Reform Webcast Series.  I provided an overview of the seven new mortgage regulations - focusing specifically on the scope & applicability of the new requirements.  

I also provided some insight on "Headache Areas" and included this list at the end of the presentation:

• Determining Exemption Applicability

• New Notices – Content-Rich and Strict Timelines

• Error Resolution & Information Request Procedures

• Loan Originator Compensation Determinations

• Implementing So Many Changes At One Time

And, there will be many additional headaches as credit unions work toward implementing the new requirements.  Even self-induced ones.  

There is some hope on the horizon as the CFPB issued their best press release of their history which highlights their Implementation Plan for New Mortgage Rules.  The CFPB's plan indicates they are listening to NAFCU and credit union concerns regarding the overwhelming burden of reading, understanding, interpreting and implementing numerous requirements simultaneously.  Of course, we'll have more information on the CFPB's plan in future blog posts.

***

Upcoming Mortgage Reform Webcasts.  As I mentioned, yesterday's webcast was the first of our series and registration for the next three is now open.

• CFPB's Ability to Repay and Qualified Mortgage Requirements - March 6, 2013 - 2:00 p.m. to 3:30 p.m.

On March 6, Andy Keeney from Kaufman & Canoles will be examining the details of the CFPB's Ability-to-Repay Requirements and Qualified Mortgage Standards.  Andy will walk through the new underwriting guidelines - including the debt-to-income requirements - and explain how these rules will impact credit union mortgage lending.  And, importantly, the steps your credit union needs to take to comply by January 10, 2014.  

• Digging Deeper: CFPB's Mortgage Rules - March 27, 2013 - 2:00 p.m. to 3:30 p.m.

I'll be joined by my colleagues JiJi Bahhur, Bernadette Clair and Mike Coleman as we explore details of the CFPB's new mortgage requirements.  We'll provide answers to Frequently-Asked-Questions that our team has fielded from NAFCU member credit unions.  And, we'll take a look ahead at what other areas the CFPB is likely to address in 2013.  

• Which New Requirements Apply to HELOCs? - April 10, 2013 - 2:00 p.m. to 3:30 p.m.

I'll provide a detailed look at which requirements apply to home equity lines of credit and - just as importantly - which do not apply so that your credit union can best position your implementation strategy.  If your credit union makes HELOCs, this is one you'll want to attend as the new requirements are sprinkled throughout the CFPB's 3507 pages!

***

Programming Note:  NAFCU's offices will be closing early tomorrow and will be closed on Monday for the Federal holiday.  We'll have a blog post tomorrow and then start back up again on Tuesday.   

NAFCU's Scope & Applicability Charts for the New Mortgage Rules; NAFCU Calls for CU Reg Relief

Written by Steve Van Beek

The CFPB's 3507 pages of new mortgage regulations has everyone wondering where to start and how to best handle the new requirements.  One of the best first steps is to determine which requirements apply to which types of mortgage loans.  To help with this, NAFCU has put together the following Scope & Applicability Charts:

• Regulation Z (TILA) Mortgage Servicing Requirements

• Regulation X (RESPA) Mortgage Servicing Requirements

• Loan Originator Compensation, Qualifications, Training and Disclosure Requirements

• Regulation B Appraisal Requirements

• Appraisal Disclosure Requirement for Higher-Priced Mortgage Loans

• Appraisal Requirements for Higher-Priced Mortgage Loans

• New Escrow Requirements for Higher-Priced Mortgage Loans

• New Requirements for High-Cost Mortgage Loans

• New Homeownership Counseling Disclosure Requirement

• Ability-to-Repay Requirements and Qualified Mortgage Standards 

Now, you might be wondering how you gain access to those charts.  There are Five Ways:

• NAFCU members have access directly via NAFCU's CFPB Mortgage Rules webpage.

• Registrants for today's webcast on The CFPB's Final Mortgage Regulations (registration is still open) will be able to download the charts during the webcast.

• Attendees at NAFCU's Regulatory Compliance School will hear a similar presentation to today's webcast and will receive access to the charts at School in March (of course, NAFCU members can access the charts here).

• Purchasers of NAFCU's Credit Union Compliance GPS will receive access in mid-March when the 2013 GPS is available.

• Non-NAFCU member registrants of NAFCU's Regulatory Compliance Seminar will receive access in the next week.  If you sign-up for Seminar after today, we'll get the charts to you within a week of your registration.   

A Note on Sharing of Charts.  We put a ton of time and effort into researching and creating these charts.  And, we've made the accessible - in one way or another - to any credit union or organization that is interested.  Please do not share these outside of your credit union.  Of course, if you have any questions - just shoot me an email.  

Hope to see you on today's Mortgage Rules Webcast.

***

NAFCU Calls for Regulatory Relief.  Yesterday morning, NAFCU sent a letter to Senate and House leaders calling for a five-point plan on providing regulatory relief for credit unions through administrative, capital, structural, operational and data security reforms.  You can find the letter here.  For additional details, check out the NAFCU Today.

"All-in APR" Decision Delayed; HELOCs Next?

Written by Steve Van Beek

One of the biggest issues from the CFPB's mortgage proposals was their completely voluntary proposal to amend the definition of "finance charge" under the Truth in Lending Act.  Keep in mind that their proposal was not mandated by the Dodd-Frank Act.  In fact, the plain language of the existing Truth in Lending Act provides a clear definition of "finance charge" (which was not changed by Dodd-Frank).  This definition includes a clear description of which fees and charges are specifically excluded.

With that background, it was very welcome news in the final regulations to see the CFPB delay any decision on the "All-in APR" until the TILA/RESPA Integrated Disclosures are finalized (most likely this fall).  Here is from the CFPB's High-Cost Final Rule:

"The Bureau's 2012 TILA-RESPA Proposal sought comment on whether to finalize the more inclusive finance charge proposal in conjunction with the Title XIV Rulemakings or with the rest of the TILA-RESPA Proposal concerning the integration of mortgage disclosure forms.  Upon additional consideration and review of comments received, the Bureau decided to defer a decision whether to adopt the more inclusive finance charge proposal and any related adjustments to regulatory thresholds until it later finalizes the TILA-RESPA Proposal."

Good news on the delay - but the CFPB didn't provide any hint of which way they were leaning (or where they obtain the authority to override the clear language Congress adopted over 20 years ago). 

***

Consumer Group Comments.  You can bet that credit union and other financial institutions were not the only ones submitting comments on this issue.  Consumer groups have been very active and the final rule indicates they are expanding their calls for an "All-in APR" to open-end home equity lines of credit (HELOCs).  The CFPB's original "All-in APR" proposal was limited to closed-end mortgage loans.  This meant that non-mortgage closed-end loans (i.e., auto loans) and open-end loans - including HELOCs - would not have been impacted.  But, the CFPB has been getting comments on expanding this to HELOCs:

"One consumer group commenter urged the Bureau to make the APR coverage test more consistent between closed- and open-end credit by adopting a more inclusive APR calculation for HELOCs.  The commenter argued that, under the Bureau's proposal, a creditor could impose astronomical closing costs on a HELOC without meeting the APR coverage test, because such charges are not included in the APR calculation for HELOCs.  The commenter expressed concern that the difference in the APR for HELOCs versus closed-end transactions will unduly encourage creditors to steer consumers toward HELOCs, and particularly to HELOCs with excessively high closing costs.

The Bureau acknowledges that Regulation Z requires a different calculation of APR for closed-end transactions (interest rate plus other charges) than for HELOCs (interest rate only) for disclosure purposes.  Using these existing APRs for HOEPA coverage necessarily means that non-interest charges will be reflected in the APR for closed-end, but not for open-end.  The Bureau declines at this time, however, to adopt a different APR for HELOCs........Thus, the Bureau believes that comments concerning the disparity between the APR for closed- and open-end credit transactions are better considered as part of a broader reevaluation of the HELOC provisions of Regulation Z, rather than in the context of this rulemaking to implement section 1431 of the Dodd-Frank Act."

As they say, stay tuned.

CFPB Mortgage Rules in Federal Register; NAFCU Rule Summaries; Upcoming NAFCU Mortgage Webcasts

Written by Steve Van Beek

CFPB's Mortgage Regulations.  The CFPB's mortgage regulations are starting to be published in the Federal Register.  Below are the links to the rules that have been published so far as well as links to rules that are at the Public Inspection Desk (waiting to be published).

Published in Federal Register

• Escrow Requirements for Higher-Priced Mortgage Loans - Regulation Z

• Disclosure and Delivery Requirements for Copies of Appraisals and Other Valuations - Regulation B

• HOEPA/High-Cost Mortgages and Homeownership Counseling Amendments - Regulation Z & Regulation X

• Ability-to-Repay and Qualified Mortgage Standards - Regulation Z

• Concurrent Proposal - Ability-to-Repay and Qualified Mortgage Standards - Regulation Z

• Mortgage Servicing Rules (02/14) - Regulation Z (TILA)

• Mortgage Servicing Rules (02/14)- Regulation X (RESPA)

• Loan Originator Compensation Requirements (02/15) - Regulation Z

• Interagency Final Rule on Appraisals for Higher-Priced Mortgages.

***

NAFCU Resources.  Yesterday, we mentioned our new mortgage rules webpage.  That page includes tons of resources to help credit unions comply and it will be growing each day.  Included are summaries of the new rules from NAFCU's Regulatory Affairs team, such as:

• Final Regulation:  Ability-to-Repay and Qualified Mortgages
• Regulatory Alert:  Concurrent Proposal for Ability-to-Repay and Qualified Mortgages
• Final Regulation:  Escrow Requirements for Higher-Priced Mortgages
• Compliance Monitor Article:  Escrow Requirements for Higher-Priced Mortgages
• Final Regulation:  HOEPA/High-Cost Mortgage Loans and Homeownership Counseling Amendments
• Final Regulation:  Mortgage Servicing Requirements (Both Reg Z and Reg X)

Note:  The resources linked above are for NAFCU members-only.  However, the new mortgage rules webpage has additional resources that are available to everyone - including webcasts, conference sessions and links to blog post categories.   

***

Upcoming NAFCU Mortgage Webcasts.  The first two webcasts of NAFCU's Mortgage Reform Webcast Series are quickly approaching:

• The CFPB's Final Mortgage Regulations - February 13, 2013 - Special Two-Hour Webcast - 2:00 p.m. to 4:00 p.m.

I'll be providing an overview of the new regulations - including specifically the scope and applicability of each regulation.  I'll also be zeroing-in on the finalized exemptions and how credit unions determine if they qualify for the exemptions.  For a taste of the resources I'll be providing, check out this Scope & Applicability Chart for the Escrow Final Rule. 

• CFPB's Ability to Repay and Qualified Mortgage Requirements - March 6, 2013 - 2:00 p.m. to 3:30 p.m.

On March 6, Andy Keeney from Kaufman & Canoles will be examining the details of the CFPB's Ability-to-Repay and Qualified Mortgage Requirements.  Andy will walk through the new underwriting guidelines - including the debt-to-income requirements - and explain how these rules will impact credit union mortgage lending.  And, importantly, the steps your credit union needs to take to comply by January 10, 2014.  

                     

Effective Dates for New Mortgage Regulations: The CFPB and "Issue Dates"

Written by Steve Van Beek

With all the new regulations, I thought it would be useful to list the effective date of each new regulation along with a link to the corresponding regulation page on the CFPB's website.

• June 1, 2013 - Escrow Requirements for Higher-Priced Mortgage Loans

• June 1, 2013 - Prohibition on Mandatory Arbitration and Financing of Credit Insurance Premiums (from MLO Compensation Regulation)

• January 10, 2014 - Qualified Mortgage and Ability-to-Repay Requirements

• January 10, 2014 - Mortgage Servicing Requirements - Reg Z (TILA) and Reg X (RESPA)

• January 10, 2014 - Loan Originator Compensation and Training, Certification and Identifier Disclosure

• January 10, 2014 - High-Cost/HOEPA Mortgage Loans and Homeownership Counseling Disclosures

• January 18, 2014  - Disclosure and Delivery of Free Copies of Appraisals - Regulation B

• January 18, 2014 - Appraisals for Higher-Priced Mortgage Loans

***

CFPB and "Issue Date."  The CFPB likes to make up its own rules.  Including their recent announcement that their rules are considered "issued" when they are posted on the CFPB's website rather than the normal Administrative Procedure Act timeframe of when the rules are published in the Federal Register.  

Well, as chance would have it, the CFPB's mortgage rules are slated for publication in the Federal Register for the following dates:

• January 22nd for Escrow Final Rule (link goes to actual Federal Register document)

• January 30th for Qualified Mortgage/Ability-to-Repay Final Rule (link goes to Public Inspection Desk)

• January 30th for High-Cost/HOEPA and Homeownership Counseling Disclosures (link goes to Public Inspection Desk)

The other regulations will be in the Federal Register at an even later date.  

Why does this matter?  The CFPB gave 12 months (and sometimes less) from the "issue date" to implement the majority of the new requirements.  Because the CFPB considers the "issue date" as the date of publication on the CFPB's website - rather than publication in the Federal Register - your credit union will have less time to comply with the final rules.  

Summary.  If the CFPB would have followed the normal Administrative Procedures Act process, your credit union would have 12 months - from the date of publication in the Federal Register - to comply.  

Unfortunately, Dodd-Frank gave the CFPB very strict deadlines for issuing their final regulations and the CFPB chose to alter long-standing rulemaking practices instead of using its exemption authority (like it did for other Dodd-Frank requirements) to ease the impact of these regulations.    

Reg B Appraisal Final Out; CFPB Summary of Higher-Risk Appraisals; More on Mortgage Servicing Rules

Written by Steve Van Beek

A couple of additional items before the weekend.  Reminder: NAFCU's offices will be closing early today and will be closed until Tuesday.  

Regulation B Appraisal Finalized.  The CFPB released their final rule for free copies of appraisals under Regulation B.  The press release is here.  There is a consumer summary as well as a detailed summary.    

The special page for the Regulation B final rule is located here.   

Effective Date:  January 18, 2014.  

***

Appraisals for Higher-Risk Mortgages.  As expected, the CFPB issued their own information regarding the interagency final rule on appraisals for higher-risk mortgages.  Their press release is here.  They also released a consumer summary as well as a detailed summary.  Effective Date: January 18, 2014.    

The special page for the Appraisals for Higher-Priced Mortgages* is located here.

*Note: The final rule adopts the term "higher-priced" for these loans to help align the rule with the existing "higher-priced" mortgage loan requirements (including escrows).  

NCUA also issued a press release and a link to the final rule on their website.  

So where will credit unions need to look for this requirement?  NCUA's rule or the CFPB's?

Here is from the final rule:

"The NCUA and FHFA adopt the rules as published in the Bureau’s Regulation Z at 12 CFR 1026.35(a) and (c), by cross-referencing these rules in 12 CFR 722.3 and 12 CFR Part 1222, respectively."

Thus, after the rules are in the Electronic Code of Federal Regulations, credit unions will need to use 12 CFR 1026 - Regulation Z - as NCUA's rule will simply tell them to go find the requirements in 12 CFR 1026.35. 

Just for fun, here is the wonderful legalese that will be located in 12 CFR 722.3(f):

"(f)  Higher-priced mortgage loans.  A credit union may not extend credit to a consumer in the form of a “higher-priced mortgage loan” as defined in 12 CFR 1026.35(a)(1), without meeting the requirements of section 129H of the Truth in Lending Act, 15 U.S.C. 1639h, and its implementing regulations in Regulation Z, 12 CFR 1026.35(c)."

Say that five times fast.  

***

More on Mortgage Servicing.  There has been quite a bit of discussion in the news about the 5000 transaction exemption for mortgage servicing.  Unfortunately, some of it has the potential to cause confusion.  When you are reading news stories or summaries of the mortgage servicing rule, remember that the 5000 transaction exemption does not cover all the new requirements.  For example, the requirements for error resolution and information requests procedures will apply to all credit unions performing mortgage servicing.  And, it looks like the force-placed insurance requirements will apply as well.  

"The Bureau agrees that additional exemptions are appropriate for certain of the rulemakings.  As discussed in more detail below, the Bureau has determined not to implement these additional exemptions to those regulations that principally implement requirements set forth in the Dodd-Frank Act.  These include the requirements in §§ 1024.35 (Error Resolution Procedures), 1024.36 (Information Requests), and 1024.37 (Force-Placed Insurance).  With respect to error resolution procedures and information requests, those provisions build upon the existing Qualified Written Request procedures, which are currently applicable to the servicers discussed above.  Providing an exemption to these requirements would have removed a currently existing consumer protection."  Page 90-91 of the Reg X/RESPA Mortgage Servicing Final Rule.

There could be more.  For now, if a colleague starts celebrating that you are under 5000 transactions and not subject to the mortgage servicing rule - just remind them of these six words that compliance officers know too well: "the devil is in the details."

Note: NAFCU's Mortgage Reform Webcast Series will feature a May 15 webcast on the error resolution and information request requirements.  

What is a Transaction?  We'll have more on this in a future blog post, but the periodic statement requirement covers all closed-end loans secured by a dwelling.  This would include closed-end home equity loans.  Open-end loans (i.e., HELOCs) are excluded.  Again, expect additional information next week on this issue (I have a weekend reading date with the devil to discuss the details).  

***

Final Rule for Mortgage Loan Originator Compensation?  I haven't seen it yet, but it is likely to come out today as well.  

The best place to check is the CFPB's main regulation page.  We'll also post the information on this blog post (yes, the one you are reading) after it is out.  Just click this link and you'll go to the compliance blog itself and will be able to see any updates.

Update at 4:30 p.m. on 01/18/2013.  Cordray's remarks on mortgage loan originator compensation are here.  Our NAFCU Today story is here.  Additional information on the rule - including the full regulatory text - is not expected until Sunday.    

Update at 6:45 a.m. on 01/19/2013.  The CFPB's press release is available as is their summary of the rule.  The full rule will come out Sunday, January 20th.  

Update at 2:00 p.m. on 01/20/2013.  The CFPB's special regulation page for the MLO rule is here.  The full MLO compensation rule is available here (541 pages).

Effective Date:  The press release indicates the effective date for the majority of the new requirements will also be January 10, 2014.  However, two provisions - prohibition on mandatory arbitration and the prohibition on financing credit insurance - will be effective June 1, 2013.

Have a great weekend!

CFPB Field Hearing - Atlanta; Mortgage Servicing Final Rule; Appraisals for Higher-Risk Mortgages Final; NAFCU Final Regulation on Qualified Mortgages

Written by Steve Van Beek

CFPB Field Hearing.  Today, we should get a look at the CFPB's next final rules for the mortgage market.  We are expecting the final rules for mortgage servicing (both Reg Z and Reg X), mortgage loan originator compensation (and much more), and possibly the Reg B final rule for appraisal disclosures.  

***Updated at 8:00 a.m.***

Mortgage Servicing Final Rule.  As expected, the mortgage servicing rules will be the main focal point of the CFPB's field hearing today.  The rules should be online later today (when it is, it will be posted here).  

As of 8:15 a.m., there is a short summary and a fact sheet.  

***At 9:30 a.m., the CFPB posted their press release, Director Cordray's speech and a webpage with the final rules (the Reg X/REPSA rule is 753 pages and the Reg Z/TILA rule is 426 pages).*** 

Effective Date:  The summary indicates January 10, 2014 as the effective date (in other words, the CFPB is providing less than 12 months for this rule).  

Small Servicer Exemptions:  I also noticed this paragraph in the fact sheet:

"SMALL SERVICER EXEMPTIONS

Recognizing that small servicers approach servicing quite differently, the CFPB has made certain exemptions to today’s mortgage servicing rules. Servicers that service 5,000 mortgage loans or less and only service mortgage loans that they or an affiliate own or originated are exempt from some of the new rules. These exemptions include many of the procedural rules, including most of the requirements regarding the handling of loss mitigation applications."

We'll have additional details on exactly which mortgages are included in this 5000 in a future blog post.  For now, check how many mortgages you currently service and you'll get a good initial look at how onerous the mortgage servicing rules will be for your CU.  

***  

Appraisals for Higher-Risk Mortgages.  On Tuesday, the FDIC posted an approved version of the joint final rule on appraisals for higher-risk mortgages.  There are additional details in the NAFCU Today.  Both the CFPB and NCUA were joint on this rulemaking, so expect the CFPB to have additional details on this final rule in the near future (most likely a press release and short summary - and, hopefully, a Fact Sheet for compliance officers).  

***

NAFCU Final Regulation on Qualified Mortgages.  NAFCU's Regulatory Affairs team has finished their summary of the Qualified Mortgage/Ability-to-Repay final rule.  NAFCU members can find it here (13-EF-01).  

They are also working on summaries of the escrow final rule, HOEPA/high-cost final rule and the concurrent proposal for the qualified mortgage rule.  When they are available, NAFCU members can find the Final Regulations here and the Regulatory Alert here.  

Reminder: You can find information on the first three final rules in this blog post.  NAFCU also has a Mortgage Reform Webcast Series planned for 2013 and we'll also have a special Regulatory Update day - including sessions on the new moretgage regulations - on the Thursday of Regulatory Compliance School.  P.S. Register for School by January 31st using the promo code NEWYEAR to save $100.  

CFPB Finalizes First Three Mortgage Regulations: Qualified Mortgages; Escrows; & HOEPA

Written by Steve Van Beek

Did you hear that?  No worries, it was just the sound of thousands of dying trees after the CFPB's first three mortgage regulations were finalized.  If you heard a second noise, it was probably your printer dying. 

***

Now, on to the good stuff.  Initially, it is good idea to overview which rules were finalized and which are coming next.

Which Three Regulations?  Yesterday, the CFPB finalized the qualified mortgage rule (AKA the ability-to-repay rule), the escrow rule for higher-priced mortgages, and the HOEPA/High-Cost/Section 32 mortgage rule.  

What is Left?  It is expected that the CFPB will finalize the remaining regulations on January 17th at their field hearing in Atlanta.  Which ones?  Mortgage servicing (both Reg Z and Reg X), mortgage loan originator compensation (and much more - including SAFE Act angles), appraisals for higher-risk mortgages, and Regulation B appraisal disclosure requirements.  Yikes! 

Of course, it is always possible the CFPB waits on one or two of these - especially given that neither the higher-risk appraisals or Reg B appraisals are listed on the CFPB's latest Regulatory Agenda.  But, be prepared for all of these to be coming out soon.  

What about TILA/RESPA Integrated Disclosures?  The new disclosure forms will be finalized later in 2013.  Dodd-Frank mandated that the CFPB propose new regulations by July 21, 2012 but it did not mandate a timeframe for the final regulation.  

***

Qualified Mortgages - Ability-to-Repay.  This is the one that got all the press yesterday.  There was the field hearing, the press release, Cordray's prepared remarks, the blog post, the Fact Sheet, the Summary and.........finally, the final rule (804 pages).  

The CFPB created a special page for each new final rule and you can find the Qualified Mortgage/Ability-to-Repay page here.

This page includes the full final rule and it also takes a page out of this blog's playbook and breaks the new rule down by preamble, regulatory text and official interpretations.  

Effective Date:  The final rule contains an effective date of January 10, 2014.

Concurrent Proposal:  The CFPB also proposed changes to the just finalized regulation.  The proposal can be found here.  Including the preamble, regulatory text and the official interpretations.   

Of course, we'll have more on this final rule and the proposed rule in the future.

***

Escrow Final Rule - Higher-Priced Mortgages.  To much less fanfare, the CFPB also finalized a rule on escrow requirements for higher-priced mortgages (the original proposal was from the Federal Reserve way back in March 2011).  The CFPB released a consumer guide on this rule (where is the compliance officer guide?)  There is also a one-page summary here.

The CFPB's special page for the escrow final rule is here.

The full final rule is here (116 pages).  There are also separate documents with the preamble, regulatory text and the official interpretations.

Effective Date:  This final rule is effective June 1, 2013.     

***

HOEPA/High-Cost Mortgage - Final Rule.  The CFPB also finalized a rule implementing changes to high-cost mortgages.  A consumer guide for this rule is also available.  A three-page summary is here.     

The CFPB's special page for the HOEPA/High-Cost final rule is here.

The full final rule is here (431 pages).  There are also separate documents with the preamble, regulatory text and the official interpretations.

Effective Date:  This final rule is effective January 10, 2014.

Importantly, this final rule did not include a decision on whether to expand the definition of finance charge.  That decision will be made as part of the TILA/RESPA Integrated Disclosure final rules.   

***

Adding It Up.  So, that is 804 + 116 + 431 = 1351 new pages.  And, more to come next week.

And, silly me, I thought I'd be able to finalize the third Game of Thrones book prior to the show starting back up.  

Bonus:  While there are many resources above, I wanted to share my personal favorite.  Have a great weekend!  

CFPB Updates Thresholds; Waiting on HMDA

Written by Steve Van Beek

Recently, the CFPB announced the 2013 threshold levels for HOEPA/Section 32/High-Cost loans as well as exemption levels for both Reg Z and Reg M.  They haven't released the HMDA asset threshold for 2013 yet, but we'll be sure to pass that along when it is published (last year's release was, unfortunately, delayed until February 15th).  

• The HOEPA fee threshold for 2013 will be $625 in fees.  

• The Regulation M (consumer leasing) threshold for 2013 will be $53,000 (up from $51,800 in 2012).

• The Regulation Z threshold for 2013 will also be $53,000 (up from $51,800 in 2012).  

For the Reg Z threshold, a couple of things to keep in mind:

• Private student loans are subject to Reg Z regardless of the loan amount.
• Loans secured by real property (mortgages) are subject to Reg Z regardless of the loan amount.  
• Loans secured by personal property used or expected to be used as the member's principal dwelling are subject to Reg Z regardless of the loan amount.

Additionally, most credit unions provide the Reg Z disclosures for all loans (even a $55,000 closed-end car loan) in order to keep consistent for their loan teams.  

***

HMDA.  Last year's asset threshold was released on February 15th even though the Federal Reserve had historically announced the updated threshold in December of the year prior.  Hopefully the CFPB has learned from its growing pains of the first year and realizes how important it is to be timely with issues as important as the annual HMDA asset threshold.

The Federal Credit Union - Compliance Central; Extended Early-Bird Pricing for Mortgage Webcast

Written by Steve Van Beek

The latest issue of NAFCU's The Federal Credit Union (TFCU) is now available.  Included in each issue is a Compliance Central article that might be useful to pass along to your management team and Board.  We usually try to identify issues that are coming up next and highlight areas of potential concern.  

In this month's issue we've looked at the Upcoming Regulatory Changes to the Mortgage Market.  In the article, I examine the CFPB's mortgage servicing proposals as well as their high-cost/HOEPA proposal.  Again, these are meant as higher-level overviews of the regulatory environment.  If you'll indulge me, I'll quote myself:

"Dodd-Frank and More

Many of the CFPB’s proposed changes are mandated by the Dodd-Frank Act. For example, Dodd-Frank requires the CFPB to amend the thresholds for determining whether a mortgage loan is high-cost or not. However, the CFPB is also proposing numerous additional requirements that are not mandated by Dodd-Frank.  In the majority of cases, the CFPB is proposing that all mortgage servicers or lenders comply with these additional requirements. NAFCU has urged the CFPB to focus solely on the changes required by Dodd-Frank and conduct additional due diligence — including reviewing whether exemptions are appropriate for credit unions — before finalizing any non-Dodd-Frank requirements on credit unions."

The article goes on to provide an overview of the mortgage servicing and high-cost/HOEPA proposal - including an analysis of the potential change to the definition of "finance charge" and how this would impact credit unions:

"For example, the CFPB is required to amend the annual percentage rate (APR) threshold for determining high-cost loan status. While this change seems innocuous, the CFPB has also proposed amending the definition of “finance charge,” which would have a direct impact on the high-cost APR threshold test. If the CFPB finalizes its proposed changes to the definition of finance charge, the APR on credit union mortgage loans would drastically increase and could result in numerous loans being classified as high cost. 

The CFPB has proposed softening the impact of its proposed action by creating a new metric — the transaction coverage rate (TCR) — that credit unions would need to calculate to determine whether or not a particular mortgage loan is high cost. The CFPB claims this additional metric would decrease the compliance burden on credit unions. However, the opposite is more likely as credit unions would need to calculate the new APR for disclosure purposes and the new TCR for determining whether a loan is considered high cost. To make things more confusing, the new APR would only apply to closed-end mortgages. Credit unions would still need to use the “old APR” for all other loans, such as closed-end auto loans. Thus, contrary to the CFPB’s claims, it’s clear the ongoing regulatory burden from the proposed three calculations would be an increase from the one calculation under the current regulations."

You can find the full article here.  The full issue of the TFCU is here.  Or, via PDF if you prefer.  

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Extended Early-Bird Pricing.  We've extended the deadline for registering for our November 7th webcast (next Wednesday!) on the CFPB's Latest Mortgage Proposals.  

Register today (November 2nd) to Save $100!    

Have a great weekend!

NAFCU’s Mortgage Comment Letters; November 7 Webcast on CFPB’s Latest Mortgage Proposals

Written by Shari R. Pogach, Regulatory Paralegal

The CFPB rolled out its various mortgage proposals at such a fast and furious clip that many of the comment deadlines for its proposals were on the same day.  So how is this making life easier for folks?  I feel like we all have an answer for this but are too polite to say it out loud.  Today we thought we’d highlight NAFCU’s comment letters in response to some of the proposals:

September 7, 2012:  High-Cost/HOEPA Proposal;

September 21, 2012:  Definition of Finance Charge;

October 9, 2012:  Mortgage Servicing Proposals;

October 15, 2012:  Higher-Risk Appraisal Proposal;

October 15, 2012:  Regulation B Appraisal Proposal; and

October 16, 2012:  Mortgage Loan Originator Proposal.

These comment letters can be a great way to get a summary of the proposed changes and help identify future headaches for your credit union if the rules are adopted as proposed.  

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NAFCU Webcast. Join NAFCU’s Regulatory Compliance team by watching the November 7, 2012, webcast on the CFPB’s latest mortgage proposals.  Part II: The CFPB's Latest Mortgage Proposals and the Impact on Your Credit Union.  The compliance team will highlight and discuss the mortgage loan originator proposal, the higher-risk appraisal proposal and the Regulation B appraisal proposal.  Save $100 if you sign up by October 31.   Note, NAFCU’s webcasts are open to all credit unions, regardless of membership or charter type!

NAFCU's Comment Letter on the Proposed Change to the Definition of Finance Charge

Written by Steve Van Beek

Yesterday, we highlighted the various comment deadlines for the CFPB's mortgage proposals - including the extended deadline, now November 6, 2012, to comment on the CFPB's proposed change to the definition of finance charge.  

Today, I wanted to highlight NAFCU's comment letter on this issue - which has already been sent to the CFPB.  This comment letter is in addition to the joint comment letter sent on September 10th asking the CFPB to drop the APR proposal.      

Opening Comments.  Here is the part of the introduction from our comment:

"NAFCU respectfully requests that the Bureau reconsider this proposal.  Given the host of regulatory changes required by the Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act), the Bureau should not use its authority to require still more changes for credit unions.  The cost of this proposal will be extraordinary.  Those costs, not just in terms of money, but also in terms of time, are particularly difficult for lenders to bear as the industry struggles to comply with all of the Dodd-Frank Act.  At the same time, the benefits are modest given that the proposal will, at best, only marginally improve a disclosure that consumers do not use.  Further, the proposal would completely disregard the statutory scheme, and require a broad interpretation of the Bureau’s authority under the Truth in Lending Act (TILA).  Finally, the changes will be particularly problematic in light of all of the other consumer protection laws that are tied to the finance charge."

Focus on Dodd-Frank Mandates.  The letter asks the CFPB to focus on their Dodd-Frank mandates and not compound those burdens by adding new regulatory changes not required by law.

"NAFCU believes that the CFPB’s resources should be directed towards finalizing regulatory changes that are required by the Dodd-Frank Act.  Proposing dramatic new changes to the regulatory framework that are not required by Dodd-Frank only exacerbates the already heavy burden being borne by credit unions and other small lenders.  The CFPB is currently working on promulgating at least eight different rules that will have a dramatic impact on the mortgage market.......Given the enormous challenges presented by the Dodd-Frank Act and the tremendous strain lenders will be under to comprehend the rules, update systems and processes, train staff, and ultimately comply, the CFPB should reconsider this proposal.  There is no pressing need to make changes to the finance charge calculation and consequently, NAFCU does not support such changes at this time.  Our position on this issue is part of a broader policy that the CFPB should not, at this time, add to the regulatory burden for mortgage lenders by promulgating rules that are outside the scope of the requirements of the Dodd-Frank Act."

Cost-Benefit Analysis.  The letter goes on to argue that the benefits of the proposed change are negligible while the costs are very, very real.  

"As the Bureau discusses in the proposed rule, the Federal Reserve Board (the Board) conducted consumer testing on the APR which revealed that the figure is not widely used by consumers and is, generally poorly understood..........Given that consumers still do not understand the APR and still confuse it with the interest rate, forty years after it was introduced, the value of the proposal is somewhat speculative.   The costs, however, associated with reconfiguring systems to calculate the newly defined finance charge, updating processes and training staff will be considerable."

Easier to Calculate?  The CFPB's proposal posits that the proposed changes would reduce costs for lenders - including credit unions - because the APR determination would be easier to calculate.  NAFCU disagrees.  

"First and foremost, while the APR calculation is imperfect, lenders have existing procedures and processes in place to ensure the figure is accurately disclosed.  Even if the Bureau’s proposed changes to the finance charge make it easier to calculate in the long term, those benefits must still be weighed against the substantial, initial set-up costs required to implement changes........Currently, lenders must calculate one APR for closed-end and open-end loans.  Under the proposals advanced by the Bureau, lenders would be required to calculate an APR for closed-end [mortgage] loans for disclosure purposes and a transaction coverage rate (TCR) for closed-end [mortgage] loans for coverage purposes......Replacing one rate for disclosure and coverage purpose, with two rates that are calculated differently hardly simplifies the mortgage lending process."

The Plain Language of the Truth in Lending Act.  NAFCU also questions whether the CFPB has the authority to change the definition of finance charge when the plain language of the Truth in Lending Act clearly articulates which fees should be finance charges and which should be excluded.

"The Bureau has noted the need to make broad use of its “exception authority” to implement the proposed changes in this rulemaking.  The proposal would discard the current statutory list of inclusions and exclusions in the finance charge.........Section 105(a) of TILA and § 1405(b) of Dodd-Frank are broadly written and provide the Bureau considerable authority to modify certain requirements as it sees fit.  However, Congress did not give the Bureau power to modify or change relevant, and unambiguous, sections of TILA.  Furthermore, the Supreme Court states that “[i]f the intent of Congress is clear, that is the end of the matter; for the court, as well as the agency, must give effect to the unambiguously expressed intent of Congress.”  Chevron, U.S.A., Inc. v. NRDC, Inc., 467 U.S. 837, 842-43 (1984).  Here, the intent of Congress is clear: Congress specifically created a statutory list of inclusions and exclusions in the term “finance charge.”  Thus, NAFCU questions whether the Bureau has the authority to amend the statutory list."

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NAFCU's Comment Letters.  You can find the full September 21st letter here.  The prior joint letter is here.  

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Credit Union Comment Letters.  While NAFCU is certainly making these arguments for credit unions - it is still vitally important that individual credit unions make their voices heard on this issue.  You don't need to detail each issue in a comment letter - just explain the details of what your credit union would need to do to adjust your existing systems, train staff, set up new audit procedures, explain the issue to your members, etc.  I have a feeling the CFPB is vastly underestimating the compliance burden of this change.  Vastly.  

Tracking the Comment Deadlines for the CFPB's Mortgage Proposals

Written by Steve Van Beek

With all the various mortgage proposals from the CFPB, it can be quite hard to track the proposals - including the comment deadlines.  We've highlighted the actual Federal Register notices in a past blog post (now updated with the Mortgage Servicing proposals), but we also wanted to highlight the comment deadlines for you as it is extremely important that credit unions make their voices heard to the CFPB about the magnitude of these proposed changes and, more specifically, the costs and operational changes that the proposals would require.  

Comment Deadlines.  Below are the comment deadlines for submitting comments to the CFPB.  

• September 7, 2012:  High-Cost/HOEPA Proposal

• October 9, 2012:  Mortgage Servicing Proposals

• October 15, 2012:  Mortgage Loan Originator Proposal

• October 15, 2012:  Higher-Risk Appraisal Proposal

• October 15, 2012:  Regulation B Appraisal Proposal

• November 6, 2012:  TILA/RESPA Integrated Disclosure Proposal

• November 6, 2012:  Proposed Change to Definition of Finance Charge 

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NAFCU Regulatory Alerts.  NAFCU's regulatory affairs team has produced Regulatory Alerts for NAFCU members on each of these proposals.  You can view the Regulatory Alerts by clicking here (or download the PDFs directly from the links below):

• 12-EA-20: CFPB: Mortgage Disclosures (TILA/RESPA Integrated Disclosures)

• 12-EA-19: CFPB: Mortgage Disclosures (Finance Charge)

• 12-EA-21: CFPB: Proposed Rule to Amend HOEPA Regulations

• 12-EA-24: CFPB: Mortgage Servicing

• 12-EA-28: CFPB: MLO Compensation

• 12-EA-27: CFPB: Appraisals for Higher-Risk Mortgages

• 12-EA-26: CFPB: Free Access to Appraisals

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NAFCU Webcasts.  In addition to the alerts above, we are also explaining the proposed rules in webcasts.  Below are two that may be of interest:

• Inside the CFPB's Mortgage Proposals - On-Demand Webcast - Special 3-hour webcast which highlights the Mortgage Servicing proposals, the High-Cost/HOEPA proposal as well as the TILA/RESPA Integrated Disclosure proposal (including a thorough discussion of how the proposed change to the definition of "finance charge" will impact your credit union).

• The CFPB's Latest Mortgage Proposals - November 7, 2012 - NAFCU's compliance team will highlight the impacts from the mortgage loan originator proposal, the higher-risk appraisal proposal and the Regulation B appraisal proposal.  Sign up by October 31st and Save $100.

We'll also be discussing the TILA/RESPA Integrated Disclosures and the Mortgage Servicing Disclosures at our 2012 Regulatory Compliance Seminar in Seattle.  Remember, NAFCU's webcasts and conferences are open to everyone - regardless of NAFCU membership.    

Upcoming Webinars and Webcasts; NAFCU's October Compliance Monitor

Written by Steve Van Beek

Webinars and Webcasts.  There are quite a few free webinars to keep on your radar:

• October 4 at 3:00 p.m. EDT - Town Hall with Chairman Matz - Registration is Still Open

• October 16 at 2:30 p.m. EDT - New Requirements for Remittance Transfer Providers - Sign-Up by sending an email to [email protected] by October 9.  If you have a question you'd like answered during the webinar - send it to [email protected] by October 5.  

• October 17 at 2:00 p.m. EDT - Fair Lending Hot Topics by the Philadelphia Federal Reserve's Consumer Compliance Outlook

• Archived:  Servicemember Financial Protection (Compliance with the SCRA) - Slides are here.

NAFCU also has a couple of upcoming webcasts that might be of interest:

• October 10 - BSA/OFAC for Directors and Supervisory Committee  - Keep in mind that you can watch the archived webcast for up to one year - making this perfect for a future Board meeting or training event.  Sign up by October 3 and Save $100.  

• October 24 - Social Media and Website Compliance - This webcast will also be viewed live by all Regulatory Compliance Seminar attendees.  Sign up by October 17 and Save $100.  

• November 7 - CFPB's Latest Mortgage Proposals - NAFCU's Compliance team will overview the mortgage loan originator proposal, interagency higher-risk appraisal proposal and the Regulation B appraisal proposal.  Sign up by October 31 and Save $100.    

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NAFCU's October Compliance Monitor.  NAFCU Members: Our October Compliance Monitor is now available for download.  This issue includes lengthy articles on the "high-cost" mortgage proposal (including a discussion of the potential change to the definition of "finance charge") and the CFPB's mortgage servicing proposals.  We've also attached a six-page chart which helps organize the 20 new notices included in the mortgage servicing proposals.  Happy reading!

Tracking the CFPB's Mortgage Proposals - Federal Register

Written by Steve Van Beek

With the various mortgage proposals from the CFPB, I thought a good Friday blog post would be one that linked to the various proposals in the Federal Register so that credit unions had the proposed rules in one place.

Initially, here is a link to the CFPB's section of the Federal Register.  Below are links to the CFPB's mortgage proposals.

• High-Cost Mortgages and Housing Counseling Amendments Note: The comment period for the finance charge portion has been extended until November 6th.  
• Equal Credit Opportunity Act (Regulation B) - Appraisals
• Integrated Mortgage Disclosures under TILA/RESPA Note:  The comment period for the finance charge portion was also extended until November 6th.
• Appraisals for Higher-Priced Mortgage Loans
• Loan Originator Compensation (Regulation Z)

Update (10/01): The Mortgage Servicing proposals can be found here (Reg Z) and here (Reg X).  It doesn't appear that the Mortgage Servicing proposed rules have been published in the Federal Register yet (the comment period ends October 7th for those proposals).  Those proposals can be found here:  Reg Z and Reg X.  Our August 23rd blog post also has a recap of our mortgage servicing blog posts to date.

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NAFCU Seminar.  We'll be discussing both of the Mortgage Servicing proposals as well as the TILA/RESPA Integrated Mortgage Disclosures in breakout sessions in Seattle (October 23-26th).  We'll also be discussing the other proposals in our CFPB Update sessions.  

On-Demand Webcast.  If you missed the 3-hour marathon webcast on Wednesday, you can still purchase the on-demand version in order to get a detailed update of the CFPB's proposals on mortgage servicing and high-cost mortgages (including the impact on HELOCs).  I also provided an overview of the proposed Integrated Disclosures.

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Football Season.  I'll admit we've been a little slow on the football talk lately.  With that being said:  Go Blue!

Have a great weekend!

CFPB Extends Comment Period for Proposed Change to Finance Charge Definition

Written by Steve Van Beek

On Friday afternoon, the CFPB extended the comment period for the proposed change to the finance charge definition.  Initially, the comment period was scheduled to close on Friday, September 7th.  The extension will now allow public comments until November 6, 2012.  

The proposed change was part of the TILA/RESPA proposal and would also impact the HOEPA proposed rule (as the move to an all-in APR would impact the number of mortgage loans covered by HOEPA).  The CFPB's notice includes formal extensions for both the TILA/RESPA proposal and the HOEPA proposal.  

Of note, the extension to November 6th aligns the finance charge comment period with the rest of the TILA/RESPA proposed rule - where comments are due for the full proposal by November 6th.  However, the HOEPA proposal - except for the finance charge proposed change - will still have a comment deadline of Friday, September 7th.  From the notice:

"The comment period for whether and how to account for the implications of a more inclusive finance charge on the scope of HOEPA coverage, see proposed § 1026.32(a)(l)(i) and (b)(1)(i), is extended to November 6, 2012.  The comment period for all other proposed amendments in that notice, which ends on September 7, 2012, is unchanged."

NAFCU Regulatory Alerts.  NAFCU members can view our Regulatory Alerts on the TILA/RESPA proposal (which includes a separate Alert for the finance charge change), the HOEPA proposal and mortgage servicing proposed rules.

***

NAFCU Webcast on Mortgage Proposals.  Don't forget, I'll be doing a special 3-hour webcast tomorrow on the CFPB's mortgage proposals.  The presentation will focus heavily on the CFPB's mortgage servicing proposals (both the TILA and RESPA proposed changes) as well as the HOEPA changes.  I'll also overview the TILA/RESPA rule - including a detailed discussion of the proposed change to the finance charge and how this change could impact credit unions (especially with relation to bringing more loans under the HOEPA protections).  

Additionally, I've done my best to highlight future headache areas.  I'm sure there will be plenty of additional issues that will arise but I've tried to organize the webcast to put these topics "on your radar."  Remember, the CFPB must finalize the mortgage servicing proposals and the HOEPA proposal by January 21, 2013. 

CFPB Releases Semiannual Regulatory Agenda - Spring 2012; Seminar in Seattle

Written by Steve Van Beek

CFPB Regulatory Agenda.  Yesterday, the CFPB posted its Semiannual Regulatory Agenda - for spring 2012.  The previous Semiannual Regulatory Agenda was released in February 2012.  The latest release follows the same format and includes a listing of regulations in the various rulemaking stages: prerule stage, proposed rule stage, final rule stage, long-term actions and completed actions.  

Below is a listing of the various future regulations - organized by rulemaking stage.  Keep in mind the agenda is current as of April 13, 2012 and the CFPB has taken numerous actions since putting this agenda together.    

Prerule Stage:

• Registration of Certain Nonbank Covered Persons
• Supervision of Larger Depository Institutions and Affiliates
• Home Mortgage Disclosure Act (Regulation C)
• Requirements for Prepaid Cards (Regulation E) 

Proposed Stage:

• Amendments to TILA and FIRREA Concerning Appraisals
• Disclosure Rules and Substantive Protection for Certain High Cost Mortgage Loans (Regulation Z)** (proposed on July 9th)
• Mortgage Originator Standards (Regulation Z)
• Mortgage Servicing (Regulation X; Regulation Z)
• TILA/RESPA Mortgage Disclosure Integration (Regulation X; Regulation Z)** (proposed on July 9th)
• Credit Card Pre-Opening Account Fees (Regulation Z)
• Procedural Rule To Establish Supervisory Authority Over Certain Nonbank Covered Persons Based on Risk Determination
• Supervision of Certain Nonbank Covered Persons—Defining Larger Participants in Certain Consumer Financial Product and Service Markets (LP 2) 
• Copies of Appraisals or Other Valuations To Be Furnished by Creditor (Regulation B)

Final Rule Stage:

• Supervision of Certain Nonbank Covered Persons—Defining Larger Participants in Certain Consumer Financial Product and Service Markets (LP 1)** (finalized on July 16th)
• Disclosure of Records and Information
• State Official Notification Rule
• Rules Relating to Investigations
• Rules of Practice for Adjudication Proceedings
• Restatement of Federal Consumer Financial Law Regulations
• Requirements for Escrow Accounts (Regulation Z)
• TILA Ability to Repay (Regulation Z)
• Confidential Treatment of Privileged Information
• Disclosure Rules for Remittance Transactions (Regulation E)

Long-Term Actions:

• Alternative Mortgage Transaction Parity (Regulation D)
• Business Lending Data (Regulation B)
• TILA Mortgage Amendments (Regulation Z) 

Completed Actions: 

• Disclosure Rules for Remittance Transactions (Regulation E)

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Only 27 potential rulemakings!!  The Regulatory Agenda also includes a short summary of each rulemaking that is useful for providing a quick overview of what will be covered by the rulemaking.  However, as last Monday's proposed rules show - a short summary doesn't do much when the proposals are 1099 pages and 293 pages.  

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NAFCU's 2012 Regulatory Compliance Seminar.  Luckily, you don't have to read and understand all 27 potential rulemakings on your own.  We'll be covering quite a few of them at our 2012 Regulatory Compliance Seminar in Seattle, Washington - October 23-26.

The program-at-a-glance is available here (and we'll be including additional sessions as the proposals continue to flow).  We already have a session on the TILA/RESPA mortgage disclosures, the upcoming mortgage servicing proposal (including the periodic statement requirement) as well as a session on the remittances final rule.  Detailed session descriptions can be found here.

Remember - you do not need to be a NAFCU member to attend.  And, Save $100 if you Register by August 31st!

Mortgage Periodic Statement Requirement; NAFCU Video Contest

Written By JiJi Bahhur, Regulatory Compliance Counsel

Earlier this week, the CFPB issued its lengthy proposals on TILA/RESPA Combined Disclosures and HOEPA, which we briefly blogged about.  I’m almost sure that was enough to put most compliance officers in a frenzy.  But that’s not all we have to look forward to this year!  In fact, there are quite a few other issues that the CFPB has in the works, mainly due to mandates prescribed by the Dodd-Frank Act.  Today, I will focus on the mortgage servicing mandate – specifically, the periodic mortgage statement. 

The Dodd-Frank Act requires creditors or mortgage servicers to provide most mortgage borrowers with periodic statements containing certain information.  The periodic statement must include the principal loan amount, the current interest rate, the date on which the interest rate may next reset, a description of any late payment and penalty fees, information about housing counselors, and a telephone number and email address that may be used to contact the mortgage servicer/creditor.  The idea is to make it easier for homeowners to understand their loans and avoid unnecessary costs and fees. 

If you noticed my usage of the word “most” when referring to what borrowers must receive the periodic statements, it’s because Dodd-Frank provides an exception to the mortgage statement requirement.  A mortgage servicer or creditor that provides coupon books to its borrowers is excepted from the requirement to provide mortgage statements if the mortgage has a fixed rate and the coupon book contains substantially the same information as required to be on the monthly statement. 

On February 13, 2012, the CFPB published a prototype monthly mortgage statement to solicit general feedback from the public.  However, the draft statement was not accompanied by a proposed rule.  We are expecting a proposed rule to be released sometime this summer since Dodd-Frank requires a final rule by January 21, 2013.  The mortgage statement requirement comes from Section 1420 of Dodd-Frank and will become part of Regulation Z once the rule is finalized. 

We have blogged on mortgage servicing and the periodic statement requirement a few times.  These blogs can be found here, here, and here.  I also wanted to bring to your attention the CFPB’s Fact Sheet on Mortgage Servicing, as it contains very valuable information and does a great job summarizing the items that are being considered for the mortgage servicing proposal.

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NAFCU Video Contest – Members Only.  Enter for the chance to win a flip video camera and a free registration for anyone at your credit union to our advocacy event of the year – NAFCU's 2012 Congressional Caucus.  In 3-minutes or less, tell us what benefits, experiences or connections you enjoy most as a NAFCU member.  It’s easy to enter – just grab your smart phone or video camera, upload your video to You Tube and send us your link.  Click here for more info.

CFPB Proposes (1) TILA/RESPA Combined Disclosures & (2) HOEPA Changes

Written by Steve Van Beek

The First Shoe.  Well - the initial mortgage proposals from Dodd-Frank are out.  The initial verdict:  1099 pages and 293 pages.  And, keep in mind that this is only the beginning.  There are numerous other mortgage proposals required by Dodd-Frank that will be proposed soon (and finalized within a short period of time after that).

Today's post will not attempt to provide an overview of the two proposals (we'll do that in our webcast tomorrow).  Instead, we'll link to various documents and information released by the CFPB yesterday.   

• Director Cordray's Speech - No Más: Restoring Trust in Home-buying
• CFPB's Press Release - CFPB Proposes "Know Before You Owe "Mortgage Forms
• CFPB's July 5th Blog Post - Preparing for New Mortgage Disclosures: A Look Back at Know Before You Owe
• CFPB's July 6th Blog Post - Know Before You Owe: How We Learned to Build a Better Mortgage Disclosure
• CFPB's July 9th Blog Post - Know Before You Owe: Introducing our Proposed Mortgage Disclosure Forms
• CFPB's 5-Page Mortgage Fact Sheet - Restoring Trust in the Mortgage Market
• TILA/RESPA Disclosure Proposed Rule (1099 Pages)
• HOEPA/High-Cost Mortgage Loans Proposed Rule (293 Pages)
• CFPB's Know Before You Owe webpage with resources and additional information.  

Quite a day for the Consumer Financial Protection Bureau.  It is probably a good thing the CFPB doesn't have a Board and doesn't hold public meetings prior to proposing regulations - who has the time anyway when there is so much regulating that needs to be done??

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No Más.  Director's Cordray's speech didn't hold back when it came time to summarize the existing mortgage market:

"I am here today to say about the mortgage market: “No Más.” No more costs and risks buried in the fine print that do not become clear until it is too late. No more mortgages designed to fail – mortgages that benefit originators but not borrowers. No more last-minute shocks at the closing table that leave consumers stuck with fees they did not know about or plan for. And no more costly surprises and runarounds by mortgage servicers that leave people with nowhere to turn when they need help the most."

The CFPB's Fact Sheet carries this theme as well as it highlights future changes to (1) Shopping for a Mortgage; (2) Closing on a Mortgage; and (3) Paying Off a Mortgage.  

***

Regulatory Burden is in the Details.  Not surprising, the CFPB's press release and blog posts do not mention the current and future burden that is placed on financial institutions trying to understand and comply with these future changes.  Unfortunately, while just reading through the proposals themselves seem like a momentous task - the actual regulatory burden is in the details as credit unions and other mortgage lenders will need to alter almost every aspect of their mortgage lending practices.  Oh, and retrain all their staff.    

Updated Threshold Levels for 2012; Musings from the CU Suite

Written by Steve Van Beek

A new year usually brings with it updated thresholds for various regulations.  Below are a couple of updated thresholds and, unfortunately, one unknown.  

Reg Z - Section 32 Threshold

Each year, the "points and fees" dollar amount threshold for Section 32 (high-cost mortgage loans) is adjusted.  The underlying requirement comes from 12 CFR 1026.32(a)(1)(ii):

"(ii) The total points and fees payable by the consumer at or before loan closing will exceed the greater of 8 percent of the total loan amount, or $400; the $400 figure shall be adjusted annually on January 1 by the annual percentage change in the Consumer Price Index that was reported on the preceding June 1."

Here are the last few years - including 2012 - from Comment 2 in the Official Staff Commentary to Section 1026.32(a)(1)(ii):

"xiv. For 2009, $583, reflecting a 3.94 percent increase in the CPI–U from June 2007 to June 2008, rounded to the nearest whole dollar.

xv. For 2010, $579, reflecting a 0.74 percent decrease in the CPI–U from June 2008 to June 2009, rounded to the nearest whole dollar.

xvi. For 2011, $592, reflecting a 2.2 percent increase in the CPI–U from June 2009 to June 2010, rounded to the nearest whole dollar.

xvii. For 2012, $611, reflecting a 3.2 percent increase in the CPI–U from June 2010 to June 2011, rounded to the nearest whole dollar."

The 2012 threshold was published in the Federal Register by the Federal Reserve on June 20, 2011 (the Fed had authority over Reg Z until July 21, 2011).

Thresholds for Regulation Z and Regulation M

Dodd-Frank increased the exemptions in Regulation Z and Regulation M from $25,000 to $50,000 on July 21, 2011.  These exemptions were also tied to inflation and increased to $51,800 on January 1, 2012.

• Regulation Z Federal Register from June 20, 2011.
• Regulation M Federal Register from June 20, 2011.

Comment 1 to the Official Staff Commentary to Regulation Z includes background on these exemption levels:

"i. Prior to July 21, 2011, the threshold amount is $25,000.

ii. From July 21, 2011 through December 31, 2011, the threshold amount is $50,000.

iii. From January 1, 2012 through December 31, 2012, the threshold amount is $51,800."

HMDA Reporting Asset Threshold

I wish I knew what to tell you.  This seems to be the perfect example of growing pains with a new regulator.

In the past, the Federal Reserve published the HMDA asset threshold each December informing institutions who would need to collect HMDA data during the following year.  Below are the announcements from the Federal Reserve for past years:

• For the 2011 reporting year, a $40 million asset threshold.
• For the 2010 reporting year, a $39 million asset threshold.
• For the 2009 reporting year, a $39 million asset threshold.  

So, what is the threshold for 2012?  Unfortunately, no one seems to know - the CFPB hasn't provided any information on the 2012 threshold.  When the CFPB republished the consumer regulations, including Regulation C (HMDA), it did not update the asset threshold.  

Here is how the Official Staff Commentary currently reads for Regulation C:

"2. Adjustment of exemption threshold for depository institutions. For data collection in 2011, the asset-size exemption threshold is $40 million. Depository institutions with assets at or below $40 million as of December 31, 2010 are exempt from collecting data for 2011."  (emphasis added).

We'll be sure to update everyone as soon as we hear from the CFPB on the asset level for 2012 reporting.  In the meantime, chalk this one up as an example of unnecessary regulatory burdens.  

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New NAFCU Blog.  The new year also brings exciting news on the blog front.  Everyone knew blogging runs through his veins and it was only a matter of time before Anthony Demangone was blogging again.  Well, he's back - this time sharing his experiences as an executive.  

What is the new blog about?  The blog's subtitle says it all: Great Links. Big Ideas. A splash of Random Commentary.

Take a peek at NAFCU's new blog - Musings from the CU Suite.  Stop by, say hi, leave a comment and consider signing up for the email feed.   

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. 

***

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. 

 

 

Fed Guidance on HPMLs, "Balloons" and Ability to Repay

Posted by Anthony Demangone

Earlier this week, the Fed issued a nice guidance document to clear some confusion on higher priced mortgage loans that centered on balloon loans and verifying the borrower's ability to repay. Access the guidance here.  Before the guidance, many concluded that HPMLs with short-term balloons (less than 7 years) were a no-no.  The Fed clarifies that this isn't the case.

I'd keep an eye out for this type of guidance moving forward.  With virtually every aspect of Reg Z being amended, the Fed will have to clarify issues that pop up.  And many will.  I'd bet on it.

Here's the Q and A portion of the guidance:

Frequently Asked Questions and Answers

1. Question: Does the rule prohibit short-term balloon loans that are higher-priced mortgage loans?

Answer: No. However, the creditor must use prudent underwriting standards and, after considering consumers’ income, employment, obligations and assets other than the collateral, the creditor should determine that the value of the collateral (the home) is not the basis for repaying the obligation (including the balloon payment).

2. Question: Does that mean the creditor must verify that the consumer has assets and/or income at the time of consummation that would be sufficient to pay the balloon payment when it comes due?

Answer: No, such a requirement would effectively ban short-term balloon loans. If the Board had intended to ban these products it would have done so explicitly.

3. Question: What must the creditor do, then, to verify the borrower’s ability to repay a short-term balloon loan?

Answer: In addition to verifying the consumer’s ability to make regular monthly payments, a creditor should verify that the consumer would likely be able to satisfy the balloon payment obligation by refinancing the loan or through income or assets other than the collateral.

4. Question: How does the creditor verify, when it originates a short-term balloon loan, whether the consumer could qualify for a refinancing before the balloon payment is due?

Answer: The creditor has an affirmative duty to engage in prudent underwriting. Thus, the creditor should consider factors such as the loan-to-value ratio and the borrower’s debt-to-income ratio or residual income—all as of the time of consummation. A borrower with a high debt-to-income ratio, and/or with little or no equity in the property, will be less likely to be able to refinance the loan before the balloon payment comes due than a borrower with lower debt-to-income and loan-to-value ratios. The creditor is not required to predict the consumer’s future financial circumstances, interest rate environment, and home value.

Grab Bag

Posted by Anthony Demangone

While the proposed changes to Regulation Z have grabbed our attention, other compliance issues continue to come up.  With that in mind, here are a few things that have happened recently that I wanted to mention.  We'll get back to Reg Z tomorrow.

• Everyone continues to ask HUD to delay implementation of its RESPA rule, due to take affect January 1, 2010.  RESPA keeps saying, thanks, but no thanks.

• The CFPA debate continues to rage on the Hill.  The latest development?  An amendment that would exempt credit unions under $1.5 billion in assets.  Stay tuned.

• The Fed continues its check processing restructuring.  Yesterday, the Fed issued a final rule to implement recent changes.  In this notice, I saw something of note.  The Fed gave us a heads up that they'll need to tinker with Reg CC's rules.  I'm not sure what those changes will look like, but here's why they'll need the changes.  Due to the consolidation of check processing centers, next year at some point...all checks will be considered local. 

• OTS issued a CEO memorandum that does a great job of summarizing how the recently enacted HOEPA rules affect HMDA reporting.  In short, OTS has amended their HMDA examination procedures, and this CEO memo addresses those changes.  It is a concise, clear overview.

• The revised model privacy form is coming. Soon.

• FinCEN has released the latest issue of its SAR Activity Review, Trends, Tips and Issues.   This document is a BSA goldmine.  In this issue, there's an article on SAR completion tips from law enforcement and another on how to avoid errors in SAR filings.

• Also, we hear that FinCEN is planning to release its rule to put stored value cards under its BSA requirements in February.

There. That's more than enough for a Monday.

Escrow for Flood Insurance; Dividends on Escrow Accounts?

Posted by Steve Van Beek

The new higher-priced mortgage requirements under HOEPA require the escrowing of taxes and mortgage insurance for loans secured by a first lien on a principal dwelling.  This blog post discusses this requirement.  Reminder: the deadline is April 1, 2010 (or October 1, 2010 for manufactured homes).  

So what does this have to do with flood insurance?  NCUA's regulations require credit unions that escrow for taxes and mortgage insurance to also escrow for flood insurance:

"§ 760.5 Escrow requirement.
If a credit union requires the escrow of taxes, insurance premiums, fees, or any other charges for a loan secured by residential improved real estate or a mobile home that is made, increased, extended, or renewed on or after November 1, 1996, the credit union shall also require the escrow of all premiums and fees for any flood insurance required under § 760.3. The credit union, or a servicer acting on behalf of the credit union, shall deposit the flood insurance premiums on behalf of the borrower in an escrow account. This escrow account will be subject to escrow requirements adopted pursuant to section 10 of the Real Estate Settlement Procedures Act of 1974 (12 U.S.C. 2609) (RESPA), which generally limits the amount that may be maintained in escrow accounts for certain types of loans and requires escrow account statements for those accounts, only if the loan is otherwise subject to RESPA. Following receipt of a notice from the Director of FEMA or other provider of flood insurance that premiums are due, the credit union, or a servicer acting on behalf of the credit union, shall pay the amount owed to the insurance provider from the escrow account by the date when such premiums are due."

Note that the section says "if a credit union requires the escrow."  Could you argue that it is not the credit union requiring escrow but, rather, HOEPA which requires the credit union to escrow?  I'm not so sure.  In practice, the credit union would require escrowing of taxes and mortgage insurance to comply with HOEPA and, therefore, would need to escrow for flood insurance as well.

Thanks to Katey from Chevron FCU for bringing this to our attention.  

***

The new HOEPA requirements will result in some credit unions escrowing for the first time which will bring some new challenges.  One of them is state law that attempts to require escrow accounts to pay interest (or dividends).  

Do federal credit unions have to pay dividends on escrow accounts?  NCUA says that these state laws are preempted as they attempt to regulate the setting of dividends (an explicit power granted to the FCU Board under the Federal Credit Union Act).  Here is another NCUA opinion from 1991 on a Wisconsin state law.

HOEPA - Section 226.36: No-nos related to principal dwellings; NCUA Chairwoman Speaks on CARD Act Compliance

Posted by Anthony Demangone

I HOEPA you enjoyed this overview.  Today, we've come to the last "new" provision in the HOEPA rulemaking: 226.36.  This section has a title that just rolls off the tongue: Prohibited acts or practices in connection with credit secured by a consumer’s principal dwelling.  While the title will not win marketing awards, it is fairly accurate. And note: the requirements below do not apply to HELOCs.

Broker defined.  226.36(a) defines the term "mortgage broker."  The definition excludes an employee of the creditor. 

Coercion of appraisers.  226.36(b) addresses practices that will constitute impermissible coercion of appraisers for consumer credit transactions secured by a consumer's principal dwelling.  This sort of closes the loop on appraisals.  The HVCC only applied to Fannie/Freddie transactions, and some of the anti-coercion guidance on appraisals was just that - guidance.  Now, such practices are a violation of Regulation Z.  This section lists a number of examples of impermissible coercion, such as implying to an appraiser that current or future work depends on the value of an appraisal.  But it also gives a number of examples that are not impermissible coercion, such as asking an appraiser to consider additional information about the basis for a valuation.

In addition, this section states that a creditor may not extend credit secured by a consumer's principal dwelling if it is aware of impermissible coercion in relation to the appraisal.  There is an exception to this; if the creditor acts with reasonable diligence to determine that the appraisal does not misrepresent the value of the dwelling, then all is hunky-dory.

Servicing requirements.  Section 226.36(c) places new requirements on loan servicers, which often are the creditors themselves. You may see a trend here: these requirements apply to loans that are secured by a consumers principal dwelling.  Servicers must credit payments when they are received.  If you provide specific instructions for payments that are not followed, and you accept the payment, you can credit it no more than 5 days after it is received.  Servicers cannot pyramid late fees, and they cannot refuse to provide an accurate payoff statement within a reasonable time of receiving such a request.  What is a reasonable amount of time?  The Fed doesn't say for sure, but it states that 5 days would be reasonable.  Or in other words, a safe harbor.

As always, there are additional details lurking within the Official Staff Interpretation section of the regulation.

 

***

On Friday, new NCUA Chairwoman Deborah Matz issued a statement regarding CARD ACT Compliance for credit unions.

 

..We understand some credit unions may experience difficulties complying with the requirement of the Credit CARD Act and the Federal Reserve Board’s interim rule regarding the mailing of periodic statements. The amount of time necessary to come into full compliance will likely vary, depending on the type of credit arrangements a credit union offers its members and, in many cases, the cooperation of third party vendors in revising billing procedures and statements. All credit unions are expected to come into full compliance as early as reasonably possible, and to demonstrate their efforts to do so. In the interim, credit unions should follow the alternative allowed by the Federal Reserve. Like any regulatory compliance matter, examiners will review credit union efforts to achieve compliance. In no event can credit unions impose a late fee or change terms except as permitted by the Credit CARD Act and the Federal Reserve’s regulation.  (Emphasis added.)

***

 

OK, it is a Monday, and we're still slogging through Regulation Z.  With that in mind, enjoy the following photo that I took of my son recently.  It never fails to crack me up.  How he finds this pose comfortable is beyond my understanding.  Let's have a great week, everyone!

HOEPA - Section 226.35 - Higher-Priced Mortgage Loans - Cont'd

Posted by Steve Van Beek

Yesterday's blog posting discussed the creation of the new "higher-priced mortgage loans" category, and today we will take a look at some of the restrictions and requirements that come with that special category of loans.

Higher-priced mortgages will be under the following restrictions:

Repayment Ability.  Higher-priced mortgage loans will be subject to the same repayment ability requirement that "Section 32" loans - which Sarah discussed earlier this week.  The key is to realize that Section 226.35(b)(1) simply indicates that credit unions must verify repayment ability as provided in 12 C.F.R. 226.34(a)(4).  So, refer to that section when looking for how to determine repayment ability (including the very, very useful official staff commentary).

Prepayment Penalties.  As you are aware, FCUs are already prohibited from charging prepayment penalties.  However, if you are a state-chartered credit union - be sure to analyze these restrictions:

"(2) Prepayment penalties. A loan may not include a penalty described by §226.32(d)(6) unless:
(i) The penalty is otherwise permitted by law, including §226.32(d)(7) if the loan is a mortgage transaction described in §226.32(a); and
(ii) Under the terms of the loan—
(A) The penalty will not apply after the two-year period following consummation;
(B) The penalty will not apply if the source of the prepayment funds is a refinancing by the creditor or an affiliate of the creditor; and
(C) The amount of the periodic payment of principal or interest or both may not change during the four-year period following consummation."

A key here is to realize that these restrictions - which had already applied to "Section 32" mortgages - have been strengthened.  Be sure you review any prepayment penalties your credit union may offer to make sure it will still be allowed when the stronger requirements go into place after October 1, 2009.

Escrow Requirement.  This requirement applies to loans secured by a first lien on a principal dwelling.  In short, credit unions will not be able to extend a higher-priced mortgage loan unless they escrow for for property taxes and mortgage-related insurance.  Mortgage-related insurance includes "insurance against loss of or damage to property, or against liability arising out of the ownership or use of the property, or insurance protecting the creditor against the consumer's default or other credit loss."  This blog post contains a link to a great resource from the Philadelphia Federal Reserve Bank on escrow requirements.

Compliance Dates.  The escrow requirement has an effective date of April 1, 2010.  Loans secured by manufactured houses have an extended deadline of October 1, 2010.

Cancellation.  The credit union can allow the member to cancel the escrow account only if one year has passed from consummation of the mortgage and the member submits a dated, written request to cancel the escrow account.  Keep in mind that the request to cancel must come from the member and can not be signed at consummation to apply in the future.  Rather, the written request must be signed, dated and submitted by the member after the one year period has expired.

Again, this escrow requirement applies to higher-priced mortgage loans secured by a first lien on a principal dwelling.  Footnote 99 to the Final Rule (page 42 of the PDF) reiterates the definition of dwelling for Regulation Z:

"99 Regulation Z currently defines a dwelling to include manufactured housing. See § 226.2(a)(19).  Official staff commentary § 226.2(a)(19) states that mobile homes, boats and trailers are dwellings if they are in fact used as residences; § 226.2(b) clarifies that the definition of ‘‘dwelling’’ includes any residential structure, whether or not it is real property under state law; §§ 226.15(a)(1)–5 and 226.23(a)(1)–3 make clear that a dwelling may include structures that are considered personal property under state laws (e.g., mobile home, trailer or houseboat) and draws no distinction between personal property loans and real property loans. "

The official staff commentary includes similar language:

"35(b)(3) Escrows. 
Paragraph 35(b)(3)(i). 
1. Section 226.35(b)(3) applies to principal dwellings, including structures that are classified as personal property under state law. For example, an escrow account must be established on a higher-priced mortgage loan secured by a first-lien on a mobile home, boat or a trailer used as the consumer’s principal dwelling. See the commentary under §§ 226.2(a)(19), 226.2(a)(24), 226.15 and 226.23. Section 226.35(b)(3) also applies to higher-priced mortgage loans secured by a first lien on a condominium or a cooperative unit if it is in fact used as principal residence."

Limited Exemptions for Cooperatives and certain Condominium units.  Escrow accounts do not need to be established for loans secured by shares in a cooperative.  

For loans secured by condominium units, the exemption is smaller - it only excludes the requirement to escrow for mortgage-related insurance premiums if the condominium association has an obligation to maintain a master policy insuring condominium units.  However, even if this exception applies there is still a requirement to establish an escrow account for property taxes.

Have a great weekend!

HOEPA - Section 226.35 - Higher-Priced Mortgage Loans; Early-Bird Pricing

Posted by Steve Van Beek

Section 226.35 creates a new category of mortage loans - "Higher-Priced Mortgage Loans" - which come with their own requirements and restrictions.  Keep in mind that although this category was created by the HOEPA amendments to Reg Z, it is distinct and separate from the traditional HOEPA loans (a.k.a. "Section 32 mortgages" or "high-rate/high-fee loans").

A mortgage loan is considered a "higher-priced mortgage loan" if the loan's APR exceeds the average prime offer rate for a comparable transaction:

• By 1.5 or more precentage points for loans secured by a first lien on a dwelling, or 
• By 3.5 or more precentage points for loans secured by a subordinate lien on a dwelling. 

The "average prime offer rate" will be determined by the Federal Reserve Board and posted at least weekly on the FFIEC website.  Because this rate will change on a weekly basis, credit unions will need to track their APR rates against this continuously moving "average prime offer rate" benchmark.

When do you measure the rate against the "average prime offer rate"?  The official staff commentary has the answer:

"3. Rate set. A transaction’s annual percentage rate is compared to the average prime offer rate as of the date the transaction’s interest rate is set (or ‘‘locked’’) before consummation. Sometimes a creditor sets the interest rate initially and then re-sets it at a different level before consummation. The creditor should use the last date the interest rate is set before consummation."  Comment 3 - Official Staff Commentary to 12 C.F.R. 226.35(a).

To see the latest "average prime offer rates" tables to gauge how your mortgage loan rates stack up, go to the FFIEC's rate spread calculator and review the tables for the maturity terms your credit union offers.  For this week, the average prime offer rate for a 30-year fixed mortgage was 5.18%.  Thus, if the new amendments were effective today, a first lien mortgage loan with a rate of 6.68% or higher would be a "higher-priced mortgage loan."

Remember, this benchmark will be a moving target that the credit union will need to monitor their loans against to ensure they are in compliance. 

Exceptions. Temporary or "bridge" loans with a term of twelve (12) months or less, reverse-mortgage loans, and HELOCs are not included in the definition of "higher-priced mortgage loans" regardless of their APR. 

Tomorrow we will cover the additional requirements and restrictions on "higher-priced mortgage loans" - including the escrow requirement for higher-priced mortgage loans secured by a first lien.

***

Two early-bird pricing offers expire tomorrow, Friday, August 28th.  The two offers are for NAFCU's Online Training Program and NAFCU's Regulatory Compliance Seminar.

Online Training.  By signing up for NAFCU's Online Training program by Friday, August 28th you will be able to lock-in the 30% introductory savings on the annual subscription price.  After Friday, the introductory pricing expires but you can still sign-up and receive access to the online training program for one-year from the date of subscription.  You can demo the online training program before purchasing and this powerpoint presentation Anthony created gives some additional information (including the pricing before and after Friday's early-bird deadline). 

Compliance Seminar.  The early-bird pricing for Compliance Seminar also ends Friday, August 28th.  Signing-up by August 28 allows you to save $200 off the full compliance program registration price.  The dates are October 19-22 in lovely Charleston, South Carolina.   

Special Offer for Blog Readers.  Given the short notice on the end of the early-bird pricing for Compliance Seminar - I've received the "go-ahead" to extend the early-bird for one week for blog readers.  Between August 31 and September 4, when you sign-up for Compliance Seminar - use promo code "THEBLOG" and receive the early-bird pricing through September 4.  Note: The promo code will not work prior to August 31 but the regular early-bird will still available through COB on Friday, August 28.  

Remember, anyone can sign-up and attend Compliance Seminar.  NAFCU members, non-members, and other credit union industry professionals are all welcome (and add significant value to the compliance discussions).

Compliance Hodgepodge at Seminar.  At Compliance Seminar, Anthony and I will have time set aside to discuss a number of important compliance issues that have not been given their own slot in the program.  In this fast-paced compliance environment, we decided to set aside these "Hodgepodge Sessions" on Wednesday and Thursday afternoons to discuss multiple issues.  

Here are the topics we plan to touch on: RESPA, S.A.F.E. Act, E-SIGN Act & E-statements, HVCC, Regulation D changes, Share Insurance, Fair Lending Exams, Regulation CC consolidation, Gift Cards, as well as Regulation Z issues (Private Student Lending Rules, HOEPA & MDIA Issues, and Proposed HELOC and Closed-End Amendments). 

We will also touch on these issues: Legislative Update, BSA Update, Corporate Stabilization Update, Pandemic Update, and a NCUA Guidance Update. 

If you have other ideas or topics you would like us to discuss, please leave a comment on the blog or shoot us an e-mail and we will do our best to incorporate them into the Hodgepodge Sessions.  

HOEPA - Section 226.34, Prohibited Acts or Practices for Section 32 Loans

Posted by Sarah Loats

This amendment to section 226.34 strengthens the requirement to verify repayment ability for "section 32" mortgage loans (it does not apply to temporary or bridge loans that do not extend beyond 12 months). What are Section 32 loans? These are the traditional HOEPA high-cost loans. They are referred to as section 32 loans because the definition of and requirements for these loans are found in section 226.32 of Reg Z.

The new rule provides that a credit union may not extend a Section 32 loan to a consumer based on the value of the consumer’s collateral without regard to the consumer’s repayment ability as of consummation, including the consumer’s current and reasonably expected income, employment, assets other than the collateral, current obligations, and mortgage-related obligations.

• Current obligations include other loans, that the credit union has knowledge of, that are entered into at or around the same time as the current transaction and are secured by the same dwelling (i.e., piggy-back loans).
•  Mortgage related obligations include property taxes, premiums for mortgage-related insurance, and similar expenses such as homeowners/condo dues.

Repayment Ability

The credit union must verify the amounts of income/assets that you rely on by IRS W-2 forms, tax returns, payroll receipts, financial institution records, or other documents that provide reasonable reliable evidence. The credit union must also verify the consumer's current obligations, and this can be done by reviewing a credit report.

There is a get-out-of-jail-free card of sorts - if the credit union didn't verify income and assets, it will not be considered in violation of this provision if it can demonstrate that the income and assets it relied upon were not materially greater than the consumer's actual income and assets. Here's an example from the Staff Commentary:

"For example, if a creditor determines a consumer's repayment ability by relying on the consumer's annual income of $40,000 but fails to obtain documentation of that amount before extending the credit, the creditor will not have violated this section if the creditor later obtains evidence that would satisfy Sec. 226.34(a)(4)(ii)(A), such as tax return information, showing that the creditor could have documented, at the time the loan was consummated, that the consumer had an annual income not materially less than $40,000."

Presumption of Compliance

A credit union is presumed to comply with these requirements if it verifies the consumer's repayment ability as mentioned above, determines the consumer's repayment ability using the largest payment of principal and interest scheduled in the first 7 years of the loan, taking into account current obligations and mortage-related obligations, and assesses the consumer's repayment ability taking into account at least one of the following:

1. the ratio of total debt obligations to income; or 
2. the income the consumer will have after paying debt obligations.

Notwithstanding the above, there is no presumption of compliance for loans where the regular periodic payments for the first 7 years would cause the princpal balance to increase, or the term of the loan is less than 7 years and the regular periodic payments do not fully amortize the outstanding principal balance.

I know I go on and on about the Staff Commentary (I really am a fan), but again, the Fed provides great tidbits in there, including examples of how to determine the maximum scheduled payment in the first 7 years of the loan.

Tomorrow is Section 226.35, which incorporates these rules for higher-priced mortgage loans.

HOEPA: Section 226.32 (Prepayment penalties)

Posted by Anthony Demangone

On to section 226.32.  The HOEPA amendments added a new protection for "section 32" mortgages.  But this new protection shouldn't be that big of a deal.  It says that unless you fit within the exception outlined in 226.32(d)(7), you won't be able to charge a prepayment penalty on a mortgage subject to 226.32 (as determined by fees or the loan's interest rate). 

That's old news to us.  FCUs, as an industry, can't charge prepayment penalties.  The prohibition is outlined in the Federal Credit Union Act.

Worth noting: Some federal credit unions waive closing costs on their mortgages. But if the member pays off that mortgage within 2 years, they seek to recoup those fees.  Is that a prepayment penalty?  NCUA says no.

***

Here are a few other things to chew on:

• NCUA recently issued Letter to Credit Unions 09-CU-17.  The letter gives everyone a "heads up" that on September 1, 2009, NCUA is moving toward web-based system to collect Report of Officials and 5300 Call Report information.   NCUA conducted a webinar to explain the changes, which you can access from the guidance noted above.  They plan to offer 3 more webinars on the subject in the next few months
• On September 18, 2009, the NACHA IAT era will begin. The Fed is offering IAT transaction testing until September 11, 2009 for its FedACH customers. If you are one of those customers, you may want to take advantage.
• Each year, the Fed's annual report documents how banks and thrifts are complying with consumer regs.  It lists the most common compliance boo-boos in many areas.  Shari Pogach has written an article highlighting the report, and the article can serve as a simple auditing tool to judge whether you have made similar mistakes in your shop.  NAFCU members can access the article here.

HOEPA: 226.24 - Closed-End Advertising

Posted by Anthony Demangone

Sure, HOEPA was designed to place a ton of protections on "higher-priced" mortgage loans.  But the new regulations will create quite of few new consumer protections that affect many other loans.  The new regulations add a number of requirements to Regulation Z's closed-end advertising rules.

In the Fed's own words..." The three most significant aspects of the (rule) related to strengthening the clear and conspicuous standard for advertising disclosures, regulating the disclosure of rates and payments in advertisements to ensure that low promotional or ‘‘teaser’’ rates or payments are not given undue emphasis, and prohibiting certain acts or practices in advertisements."

The Federal Reserve overviewof the HOEPA changes does a great job of highlighting the new rules.  Rather than recreate the rule, here's what they had to say.

Under the new rules, advertisements for home-secured loans may include only the simple annual interest rate, or the rate at which interest will accrue, along with and not more conspicuously than the disclosed APR. In addition, if an advertisement for a dwelling-secured loan includes a simple annual interest rate, such as a teaser rate, and more than one rate may apply during the loan's term, the advertisement must include:

• each simple annual rate of interest that will apply;
• the time period for which the rate will apply; and
• the loan's APR.

If an advertisement for a dwelling-secured loan states any payment amount, the advertisement must include:

• the amount of each payment that will apply during the loan's term, including any balloon payment;
• the period of time each payment will apply; and
• the fact that the payments do not include taxes and insurance premiums if a first-lien loan.

The additional disclosures discussed above must be equally prominent and in close proximity to the advertised payment or rate that triggered the required disclosures.

Prohibited Advertising Practices. The final rule prohibits a number of advertising practices for dwelling-secured loans deemed to be unfair, deceptive, associated with abusive lending practices, or otherwise not in the borrower's interest. These prohibited practices are:

1. using the term “fixed” when advertising a variable- rate loan or a transaction with a planned payment increase without including information about the time period for which the rate or payment is fixed and stating “ARM,” if applicable;
2. comparing the advertised rate or payment to an actual or hypothetical rate or payment without disclosing the rates or payments that will apply during the entire loan's term, and that they do not include taxes and insurance, if applicable;
3. misrepresenting that a loan is government endorsed;
4. using the name of the borrower's current lender without including the actual advertiser's name and disclosing that the current lender is not associated with the advertisement;
5. making a misleading claim that debt will be eliminated or waived rather than replaced;
6. using the term “counselor” to refer to a for-profit mortgage broker or creditor; and
7. providing an advertisement in one language while providing required disclosures in another.

I find it amazing that the Fed felt the need to regulate away some of these practices. But just the other night, I saw an ad that did a number of these things.  The ad showed a clip of President Obama talking about the need for affordable mortgages.  Then the ad jumped into the marketing of the lender's mortgage product.  The false implication was more than clear.  And then the ad stated that depending on the value of the home, you could eliminate credit card debt.  Note: the ad was at 2:30 in the morning while I was feeding Briggs.  But still. 

HOEPA - Sections 226.17 .19; This and that

Posted by Anthony Demangone

I'll handle these two sections rather quickly.  As I mentioned earlier, the Fed first issued their HOEPA regulations in 2008.  But then Congress passed MDIA, which overtook the HOEPA regs in several areas.  Well, the overlapped areas affect the two sections noted above in this post's title.

Sections 226.17 (general disclosure requirements) and .19 (certain mortgage and variable rate transactions) were amended by the Fed in 2008, but were superseded by the MDIA amendments to Reg Z.  When you begin working toward compliance for HOEPA, remember this important distinction.  The FDIC created thisgreat side-by-side chart that details how MDIA widened and strengthened the disclosure requirements.

With all the important compliance work we're going to have to do, I didn't want you heading down alleyways that are no longer relevant.

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Here are a few things kicking around my in-box.

• Prescreened offers are important.  Just ask this mortgage company that forgot to include the all-important prescreen opt-out notice.   A mistake that cost them $20,000.
• NCUA issued a legal opinion recently offering guidance to a credit union that was trying to offer loan servicing and collection services to a non-profit entity.    It is an interesting read, as it brings up a credit union's charitable donation powers in a way that had not occurred to me.  The letter also offers guidance relating to nonmember services and CUSOs.
• FinCEN issued a ruling to issue guidance on this situation: what do you do when four customers/members get together to have an armored car service to deliver cash to your institution in amounts greater than $10,000?  Well, I won't answer that question, because it is fairly complicated - and the ruling does a good job of walking you through the process.  But here's a great idea for training: ask a group of tellers how they would treat the transaction, and see if the come up with the same answer as FinCEN.  (Just don't tell them that it was my idea.)
• The OCC has issued an updated version of its "Other Consumer Protection Laws and and Regulations.  While not every reg in the massive document apply to federal credit unions, many do.  And there are audit checklists for each one.  Two words for this, my friends.  Good stuff.

Have a great weekend, everyone.

HOEPA - Section 226.16 Con't; CC Act - NCUA Reg Alert

Posted by Sarah Loats

The Federal Reserve provides guidance on the clear and conspicuous standard through new comments in the staff commentary. Which brings up a researching tidbit - always look to see if the rule includes staff commentary. The Federal Reserve hides very useful information in its staff commentary to rules, as we'll see below.

Clear and Conspicuous Standard
In general, all advertisements are subject to a "clear and conspicuous" standard. In the final rule, the Federal Reserve has provided guidance on what is "clear and conspicuous" for certain types of HELOC advertisements.

Promotional Rates and Payments for HELOCs. Additional disclosures that are required due to the advertisement of a promotional rate or payment will be deemed in compliance if they are in the same type size as the trigger terms and appear immediately next to or directly above or below the trigger terms, without any intervening text or graphical displays.

Internet Advertisements for HELOCs. The required disclosures cannot be obscured by such techniques as graphical displays, shading, coloration, or other devices that hinder the consumer's ability to read them. This is true for visual text TV HELOC advertisements as well. Also, for TV advertisements, the consumer should be able to read the disclosures - very fine print would not comply with the standard if consumers cannot read it.

Oral Advertisments for HELOCs. Disclosures should be given at a speed and volume at which consumers can understand them (i.e., not too fast, not too quiet). This applies to all oral advertisements whether over the radio, TV, or internet.

And just a couple of last tidbits for HELOC advertisements. The final rule requires additional disclosures regarding balloon payments if an advertisement states any minimum periodic payment amount. An advertisement that states or implies that the interest expenses under a HELOC plan may be tax deductible must not be misleading, and an advertisement distributed in paper form or via the internet that states the advertised extension of credit may exceed the fair market value of the applicant’s dwelling will trigger additional disclosures.

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NCUA has issued a Regulatory Alert regarding the Credit CARD Act requirements. For regular readers of the blog, I don't know that there's much in here that would be new to you, but they do provide it in a handy-dandy chart form.

HOEPA - 226.16

Posted by Sarah Loats

Although most of the HOEPA provisions apply to closed-end loans, the final rule did tweak advertising rules for HELOCs. The major changes to Section 226.16 relate to the clear and conspicuous standard, the advertisement of promotional terms, and the advertisement of initial discounted and premium rates. As Anthony mentioned, these rules apply for advertisements that occur on or after October 1, 2009.

Promotional Rates and Payments
If a HELOC advertisement includes a promotional rate or payment amount, the advertisement must also include:

1. the period of time during which the promotional rate or payment will apply (the promotional period); and

2. information about the rate or payment that will apply after the promotional period. These must be listed in a clear and conspicuous manner with equal prominence and in close proximity to each listing of the promotional rate or payment.

A promotional rate is defined as a rate, in a variable rate plan, that is not based on the index and margin that will be used later in the plan, if that rate is less than a reasonably current APR that would be in effect under the index and margin.

A promotional payment is defined, for a variable-rate plan, as a payment applicable for a promotional period that is not derived by applying the index and margin, and is less than other minimum payments under the plan derived by applying a reasonably current index and margin, given an assumed balance. For a non-variable-rate plan, the promotional payment is any minimum payment applicable for a promotional period if that payment is less than other payments required under the plan given an assumed balance.

Initial Discounted and Premium Rates
First of all, what’s the difference between a discounted/premium rate and a promotional rate? The rule limits discounted/premium rates to initial rates (so, a promotional rate could occur anytime throughout the loan). Also, a promotional rate is a rate that is not based on the index or margin that will be used later only if that promotional rate is less than a reasonably current APR that would be in effect under the index and margin. A discounted/premium rate is an initial rate that is not based on the index and margin to be used later, period. Got that? Ok…

Under the rule, if an advertisement states a discounted or premium rate, it must also state the amount of time the rate will be in effect, and a reasonably current APR that would be in effect using the index and margin. Again, these must be stated with equal prominence and in close proximity to the advertised discounted or premium rate.

Television and Radio Ads
The final rule provides alternative disclosure options for radio and television HELOC advertisements that contain trigger terms. A radio/television HELOC ad that contains a trigger term may comply with the disclosure rules by providing APR information and a toll-free telephone number (or any number that allows the consumer to reverse charges) along with a reference that the consumer may call to obtain additional cost information.

Tomorrow we’ll go through the clear and conspicuous standards, which help to explain what “equal prominence and in close proximity” mean, along with some other amendments to the HELOC advertising rules.

HOEPA - 226.2; A little of this, a little of that

Posted by Anthony Demangone

When navigating a new regulatory requirement, do not overlook definitions. With the Reg Z changes that implement HOEPA, there was a tweak of the definition of "business day."  This is important because the HOEPA changes create new requirements for early disclosures. 

The final HOEPA rule was designed to expand upon Regulation Z's requirements to require early TILA disclosures for certain mortgage loans.  In addition, a new requirement will prohibit a lender or any person from collecting a fee, other than a credit report fee, from a borrower until after the borrower has received the early TILA disclosures. For mailed disclosures, the lender may assume that the disclosures have been received three business days after mailing and assess a fee at that time.

Does this sound familiar?  It should.  MDIA did the same thing.  Only sooner.   If you recall, after the Fed issued the HOEPA regs that we are discussing, Congress passed the Mortgage Disclosures Improvements Act, which pushed up (and expanded) some of the HOEPA requirements.  If it sounds confusing, it is.  But here's the point I am trying to make: when MDIA or HOEPA talks about days or business days, be sure you understand what they mean.   Because it can mean two things, depending on the situation.

Under the standard definition, a business day means a day on which the creditor’s offices are open to the public for carrying on substantially all of its business functions. However, for purposes of rescission under §§ 226.15 and 226.23, and for purposes of § 226.31, a ‘‘business day’’ means all calendar days except Sundays and specified legal public holidays.The definition of ‘‘business day’’ is being revised to apply the second definition of business day to the consumer’s receipt of early mortgage loan disclosures under § 226.19(a)(1)(ii). The Board believes that the definition of business day that excludes Sundays and legal public holidays is more appropriate because consumers should not be presumed to have received disclosures in the mail on a day on which there is no mail delivery.

So, as you work through the HOEPA (and review MDIA) requirements, don't forget to note that business day has a very specific meaning.  The devil is in the details, or definition section, many times.

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Here are some odds and ends.

• You may have noticed already, but the NAFCU Compliance Blog has surpassed 1,000 subscribers.  Did you hear that sound?  It was us patting ourselves on the back.  :)  All kidding aside, we have a lot of fun with this, and we appreciate that you choose to read what we have to say.
• NAFCU's August Flash Report is available.  (NAFCU log-in needed.) Many folks do not know that NAFCU has a team of economists that do a BUNCH of stuff.  One of the things they do is issue a monthly Flash Report, which summarizes the results of a member survey.  The August issue, linked above, looks at regulatory burden.  From a compliance perspective, it is fairly interesting.  For example...(a)lmost all participating credit unions said that they would expect their regulatory burden to increase should the June 30th proposal for a consumer finance protection agency come into effect. The rough estimate respondents stated of their credit union’s annual regulatory costs due to a duplicate agency was an average of $45,120.

• Remember when I wrote about how GAO wasn't overly pleased with how fair lending regs are being enforced?  Well, on August 4, the FFIEC did release new fair lending exam procedures.   I would glance through this doc if you are in lending. 

HOEPA Overview - Intro and 226.1; RESPA FAQs

Posted by Anthony Demangone

HOEPA.  Compliance deadline: October 1, 2009. 

Overview.  The mortgage crisis continues to throw curve balls at compliance officers.   Using its existing powers under the Home Ownership and Equity Protection Act (HOEPA), the Fed amended Regulation Z to create a slew of consumer protections in the area of mortgage lending.  And while many refer to this as the "higher priced mortgage" regulation, there are provisions that affect all dwelling-secured loans. 

First, there's one area of confusion that I want to clear up.  These regulations do create a category of loans, known as "higher-priced" loans.  Many of the restrictions within the new changes affect these loans.  (But not all.)  Regulation Z already has an existing category of HOEPA loans, known as "Section 32 loans."  Don't get these confused.  Here's how the Fed explains the distinction:

Distinguishing New Higher-Priced Loans From Existing HOEPA Loans
Many of the key provisions of the rule relates to higher-priced loans, a new category of mortgage loans within Regulation Z containing expanded consumer protections. This new loan category should not be confused with existing HOEPA loans, often referred to as “section 32” loans. Higher-priced loans have lower triggers than HOEPA loans and therefore encompass more loans. In addition, the rule for higher-priced loans applies to purchase money mortgages, which are excluded from HOEPA's coverage. But like HOEPA, the final rule for higher-priced loans excludes home equity lines of credit (HELOCs) and construction and reverse mortgage loans. The final rule also prohibits lenders from structuring a closed-end higher-priced loan as an open-end line of credit to evade the rule's protections. The rule for HOEPA loans remains in effect, albeit with some enhancements.

Next, I think it would be good to share some resources on the upcoming requirements.

• Here's a link to the actual regulation itself.
• Here's a link to a wonderful overview produced by the Philadelphia Fed.

• Here's a link to NAFCU's Final Regulation on the changes. (NAFCU Member Log-in needed.)

• In addition, this Wednesday, NAFCU will host a webcast that will address HOEPA requirements.

I'd read the overview first or our Regulatory Final.  This will give you a good foundation. Then you can dive into the rule itself for tough issues.  Now, let's get started.

The changes amend many sections of Regulation Z.  Today, we'll focus on section 226.1.  The section covers "Authority, purpose, coverage, organization, enforcement, and liability." Never overlook these sections when reviewing regs.  They can hold important information.

The HOEPA changes amend paragraph (d)(5) within 226.1 as follows:

Subpart E contains special rules for mortgage transactions. Section 226.32 requires certain disclosures and provides limitations for loans that have rates and fees above specified amounts. Section 226.33 requires disclosures, including the total annual loan cost rate, for reverse mortgage transactions. Section 226.34 prohibits specific acts and practices in connection with mortgage transactions that are subject to § 226.32. Section 226.35 prohibits specific acts and practices in connection with higher-priced mortgage loans, as defined in § 226.35(a). Section 226.36 prohibits specific acts and practices in connection with credit secured by a consumer’s principal dwelling.

The staff commentary for the section does the following:

• Makes it clear that the requirements apply to covered loans where applications are received on or after October 1, 2010.
• Makes it clear that the rules apply to refinances and assumptions considered new transactions under 226.20. 
• Notes that the rules for mandatory escrow for certain covered loans kicks in on April 1, 2010.  But mandatory escrow for covered manufactured loans kicks in October 1, 2010.  We'll tackle the escrow issue later.

• It also notes that for advertising, requirements apply to ads occurring on or after October 1, 2009.  But interestingly, it notes that a radio advertisement, for example, occur on the day it they are "first broadcast."  And that would make sense.  Perhaps advertisements are scheduled to air for months.  Forcing folks to plan ahead to make advertisements comply with future requirements would effectively move up the compliance date.

Tomorrow, we'll tackle 226.2, definitions.

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HUD has dropped its FAQ document that is designed to help compliance with the upcoming RESPA changes.  It was announced as HUD's "first release," so hopefully, there will be more.