NAFCU Compliance Blog

QM Balloon Loans and Rural or Underserved Areas; Free Webcast!; Compliance School

Written by Eliott C. Ponte, Regulatory Compliance Counsel

QM Balloon Loans and Rural or Underserved Areas

Yesterday, the CFPB issued an interim final rule that expands certain special provisions for small creditors that operate in rural or underserved areas.  The CFPB issued these changes to implement the Helping Expand Lending Practices in Rural Communities Act of 2015 (HELP Rural Communities Act of 2015), which Congress enacted on December 4, 2015.  The amendments affect Regulation Z in two ways. 

First, the amendment changes the definition of “rural.”  Regular blog readers may recall that we discussed a previous change to the definition of small creditor, including what is meant by “rural” area, last year.  The interim final rule establishes a new temporary application process — or third method — to have an area designated by the CFPB as a rural area for purposes of Regulation Z.  This temporary application process will expire on December 4, 2017.  Any area classified under this method will no longer be effective after December 4^th..

Second, the amendment changes the eligibility of certain small creditors that operate in a rural or underserved areas for special provision that permit the (i) origination of balloon-payment qualified mortgages, (ii) balloon-payment high cost mortgages, and (iii) for an exemption requirement to establish a higher-priced mortgage.  Prior to the HELP Rural Communities Act of 2015, the TILA escrow rule offered relief for small creditors operating predominantly in rural or underserved markets.  Predominantly was defined as a credit union, in the preceding year, that originated more than 50% of its first lien mortgages in counties that are determined to be “rural” or “underserved.”  The interim final rule removes the word predominantly from the definition of small creditor.  Thus, as of March 31, 2016, a credit union in the preceding year that originated at least one first lien mortgage in counties that are determined to be “rural” or “underserved” (instead of over 50%) is eligible for the “small creditor” exemption.  Note that this change does not affect small creditor qualified mortgages, as this type of qualified mortgage does not require a loan be made in a rural or underserved market.  See 12 C.F.R. § 1026.43(e)(5)(i)(D).

So why is this important?  Right now, all credit unions that meet the current asset and loan origination threshold requirements (assets below $2.060 billion, non-portfolio mortgage originations below 2,000, both as combined with certain affiliates), as detailed in section 1026.35(b)(2)(vi)(B) and (C), may make loans that are qualified mortgages with a balloon payment feature, as detailed in section 1026.43(f). After April 1, 2016, only the “small creditor” credit unions that also meet the rural standard set forth in section 1026.35(b)(2)(vi)(A) will continue to be able to make balloon payment qualified mortgages.  By implementing this statutory change, more credit unions may qualify for the flexibility of the permanent balloon payment QM by offering at least one first lien mortgage in a rural or underserved area and continuing to meet the rule’s asset and origination thresholds. For a good discussion on these different kinds of QM loans, check out this article from the Minneapolis Federal Reserve.

Update: Shortly after this blog posted, the CFPB released an executive summary on the interim final rule. Compliance officers briefing executives on the interim final rule may find this resource helpful. 

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Free Webcast!  How to Create a Culture that Creates Engagement

Live Webcast: Friday, April 8 | 2:00 p.m. – 3:30 p.m. EST

Did you know that 68% of employees report being disengaged in their work?  This free webcast will discuss leadership behaviors and cultural imperatives that create engagement and grow a mission-focused, engaged organization where employees are motivated to provide exceptional member service.  The webcast is based on a top-rated session at NAFCU’s recent Strategic Growth conference, and will feature an introduction by NAFCU’s President and CEO, Dan Berger, and will be hosted by Mike Neill of Michael Neill and Associates.

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Compliance School 2016!

If you attended the NAFCU Regulatory Compliance School last week, it was a pleasure seeing you!  I thoroughly enjoyed getting to know everyone; please keep in touch.  If you are one of our blog readers who did not attend this year’s compliance school, look at all the fun you missed:

 

 

 

 

If you have pictures with the compliance team that are not featured in this blog, please send them to me:  [email protected]. 

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.

NCUA Supervisory Focus for 2015; Consumer Compliance Outlook; Last Day for Holiday Savings

Written by Bernadette Clair, Senior Regulatory Compliance Counsel

NCUA Supervisory Focus for 2015. NCUA recently released Letter to Credit Unions 15-CU-01, detailing the agency’s supervisory priorities for 2015. Areas of focus include cybersecurity, interest rate risk, Bank Secrecy Act compliance, and compliance with new regulations – NCUA’s liquidity rule, the CFPB’s Ability-to-Repay and Qualified Mortgage rule, and the CFPB’s TILA/RESPA Integrated Disclosure rule (after the rule goes into effect on August 1, 2015), are specifically mentioned.

In the area of cybersecurity, the focus is on proactive measures to protect data and members, as well as the ability to respond in the event of a breach. From the letter:

“NCUA field staff will focus on proactive measures credit unions can take to protect their data and their members, including:

• encrypting sensitive data;
• developing a comprehensive information security policy;
• performing due diligence over third parties that handle credit union data;
• monitoring cybersecurity risk exposure;
• monitoring transactions, and
• testing security measures.

Field staff will also be evaluating credit unions’ capacity to recover and resume operations in the event a security breach does occur. Appendix B to NCUA Rules and Regulations Part 748 provides guidance on developing an incident response program that can help a credit union react to a breach. These programs can help the credit union assess the nature and scope of an incident, determine when to contact law enforcement and notify members, and take steps to safely resume operations.

Credit union officials are also encouraged to review the online cybersecurity resources posted by NCUA and the FFIEC’s Cybersecurity and Critical Infrastructure Working Group to promote cybersecurity throughout the financial services industry.”

In the letter, NCUA also indicates that it is continuing to monitor trends in credit unions’ loan portfolios, and that it is streamlining exams for credit unions with assets up to $50 million and CAMEL ratings of 1, 2, or 3. For complete details, the letter is available in its entirety here.

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Consumer Compliance Outlook. The Fourth Quarter 2014 issue of the Federal Reserve’s Consumer Compliance Outlook is now available.  One of the articles, entitled “Managing Compliance Risk Through Consumer Compliance Risk Assessments,” discusses the use of consumer compliance risk assessments in identifying, measuring, monitoring, and managing consumer compliance risks associated with products and services.  Although geared towards institutions subject to the Federal Reserve Board’s Community Bank Risk-Focused Consumer Compliance Supervision Program, the article is a good read.

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Final day: Save $200 on any NAFCU Conference! Save $200 when you use code HOLIDAY on any of NAFCU’s 2015 conferences. It’s a great way to save big on NAFCU training; you can use code HOLIDAY as many times, and with as many employees, as you like! Our conferences are jam-packed with ideas designed to help you eliminate compliance headaches. View our conferences now and register using code HOLIDAY today; it’s your last day to save $200!

The CFPB Updates Two Asset-Size Thresholds; Cybersecurity Webcast; Puppy Love

Written by Brandy Bruyere, Regulatory Compliance Counsel

Two Asset-size Thresholds Adjusted for Inflation.

The CFPB recently adjusted two of its asset-size exemption thresholds relating to mortgages as required by underlying statutes. The first is under Regulation C relating to the Home Mortgage Disclosure Act (HMDA). HMDA includes asset-size exemptions within its definition of the term “financial institution” so some smaller institutions receive regulatory relief from HMDA’s data reporting requirements. This asset threshold must be adjusted annually for inflation, and for 2015 the CFPB increased the threshold by $1 million. Accordingly, credit unions with assets of $44 million or less as of December 31, 2014 will be exempt from HMDA data collection requirements in 2015.

Regulation Z also includes an asset-size threshold as one of several requirements for a financial institution to be eligible for an exemption from the escrow requirements for higher-priced mortgage loans (HPMLs). The Truth in Lending Act requires the CFPB to also adjust this threshold for inflation which for 2015 is increasing from $2.028 billion to $2.060 billion in assets. It is important to note that this also impacts the qualified mortgage (QM) rules relating to small creditor portfolio and balloon payment QMs because the definition of “small creditor” cross-references this section of the HPML rule (See 12 C.F.R. 1026.43(e)(5)(i)(D)).

Cybersecurity Governance Update: New FFIEC Requirements.

It feels like there’s a new example of failed cybersecurity efforts every week. Don’t be the next. Attend this webcast to get help aligning your credit union with the FFIEC’s new cybersecurity requirements. You’ll discover the latest cyber-fraud trends, gain an understanding of the new requirements, and learn how to apply them to your risk management program.

Puppy Love. Lemmy just loves having a “human puppy” around the house, we're still working with him on his personal space issues though. As you can see, he has not quite mastered that! Also, while the holidays are a couple of weeks behind us now, I can’t help but share a photo that our son will despise when he’s a teenager—yes, that is an elf costume. A friend pointed out that he looks pretty mad about the indignity even as a baby.

NCUA’s December Report Addresses Concerns about Liability Under the Ability-to-Repay-Rule; Impact of DoD Proposed Rule Webcast; Programming Note

Written by Victoria Daka, Regulatory Compliance Specialist

Compliments of the season! "It’s the most wonderful time of the year.”

On Friday, Brandy blogged about the Region III Report article from the latest NCUA Report. Today, I’d like to take a look at another article from the NCUA Report, which focuses on the Ability-to-Repay Rule. This article seeks to address the concerns about liability under the CFPB’s Ability-to-Repay Rule by indicating the reason for the “qualified mortgage” definition; extending leeway to credit unions to continue using their existing successful traditional relationship-lending approach; and, summarizing the three main categories of “qualified mortgages.”

As per the article, “Congress directed [the CFPB] to define a category of loans where lenders would have certainty that their loans comply with the rule, and where borrowers would have the greatest protections. So, [the CFPB] developed criteria for what are called “qualified mortgages.” In addition, this article informs credit unions that they may continue to utilize their successful traditional relationship-lending approach, regardless of whether the mortgagees are “qualified,” as there many loans that are not qualified mortgages, yet are fundamentally sound.  

 Furthermore, this article summarizes the three types of qualified mortgages: (1) the general definition; (2) the “GSE eligible” provision; and (3) the small-creditor provision as follows:

“General Definition. Any loan for which the consumer’s income and debt have been considered and verified with a debt-to-income ratio of 43 percent or less is a qualified mortgage.

GSE or Agency-eligible” Category of Qualified Mortgages. If a mortgage is eligible to be purchased, guaranteed or insured by one of several government-sponsored enterprises or certain government agencies—Fannie Mae, Freddie Mac, the U.S. Department of Agriculture and the Rural Housing Service—it is considered a qualified mortgage…

Small-Creditor Category of Qualified Mortgages. If your credit union has less than $2 billion in assets (adjusted annually for inflation) and your credit union and affiliates made 500 or fewer first-lien, closed-end mortgages in the prior year, then all mortgages you keep in portfolio are considered qualified mortgages.”

 The article is available in its entirety here.

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Webcast: How All Credit Unions Will Be Impacted by the DoD Proposed Rule

If you offer unsecured credit of any kind, then this webcast is a must-attend event—the proposed rule doesn’t just affect military-focused credit unions. The Department of Defense’s proposed rule would amend the Military Lending Act (MLA) to make the definition of “consumer credit” cover more credit types. Learn what you can do to prepare and protect your credit union with this strategic webcast.

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Programming Note. NAFCU's office will close at noon today and will also be closed on Thursday and Friday for the long holiday weekend. We will be back to blogging on Monday. Happy Holidays!

CFPB Provides Guidance on Using Social Security Disability Income in Mortgage Lending

Written by Angela Meyster, Senior Regulatory Affairs Counsel

Two weeks ago, the CFPB released a bulletin providing guidance for lenders using consumers’ Social Security disability insurance and Supplemental Security Income (collectively, Social Security disability income) to determine whether to provide mortgage loans.  The guidance stems from the recurring issue that many consumers relying on Social Security disability income cannot provide proof of how long they will continue to receive their benefits and lenders are worried that, without this proof, they cannot adequately determine a consumer’s ability to repay. Generally the Social Security Administration (SSA) will provide proof that a consumer is currently receiving benefits, but will not forecast for how long the consumer will continue to receive the benefits.

The Bureau in its bulletin cites critically to instances where, in an effort to address this issue, applicants have been asked by mortgage lenders for information about their disability or a statement from their physician about the duration of their disability.

According to the Bureau, to verify income under the CFPB’s Qualified Mortgage debt-to-income ratios, a lender must look at whether the SSA benefit verification letter or equivalent document includes a defined expiration date for payments.  If there is no explicit mention that benefits will expire within three years of loan origination, the lender can treat the benefits, for purposes of being compliant with the Qualified Mortgage rule, as likely to continue. 

The CFPB’s bulletin also highlights that if a lender places “unnecessary documentation requirements” (such as those mentioned above) on a consumer who is receiving Social Security disability income, the CFPB may subject the lender to a fair lending violation. Specifically, fair lending concerns may arise under the Equal Credit Opportunity Act (ECOA) and Regulation B. Under the ECOA and Regulation B, creditors cannot discriminate against an applicant on the basis that the applicant’s income derives from a public assistance program.  A creditor may only take into account the length of time an applicant will remain eligible to receive income from such a program. Creditors should also avoid creating a disparate impact by imposing a different set of requirements for applicants deriving income from public assistance programs. The CFPB encourages creditors to spell out clearly their verification requirements for Social Security disability income, train their personnel in fair lending practices, and ensure strict compliance with underwriting policies.

Finally, the Bulletin outlines a similar approach the Department of Housing and Urban Development, Department of Veterans Affairs, Fannie Mae, and Freddie Mac have taken with respect to Social Security Disability Income.

For more information about compliance with the fair lending requirements of ECOA and Regulation B, see CFPB Bulletin 2012-04: Lending Discrimination.

CFPB Mortgage Rule Tidbits – Final Rule on Points and Fees Cure; Updated Mortgage Readiness Guide; Proposed Changes to TILA/RESPA Final Rule

Written by Bernadette Clair, Senior Regulatory Compliance Counsel

Final Rule on Points and Fees Cure. Recently, the CFPB issued a final rule that, among other things, provides a limited cure mechanism under the ability-to-repay rule that allows lenders to refund points and fees that exceed the 3 percent cap on a loan that otherwise meets the qualified mortgage (QM) requirements at consummation.

Under the rule, a lender can refund excess points and fees, with interest, within 210 days after the loan is made to meet the QM requirements as long as one of the following has not occurred:

(1)   The institution of any action by the consumer in connection with the loan;

(2)   Receipt by the creditor, assignee, or servicer of written notice from the consumer that the transaction’s total points and fees exceed the cap; or

(3)   The consumer becomes 60 days past due on the legal obligation.

In addition, the creditor must maintain and follow policies and procedures for reviewing points and fees and providing refunds to consumers. Note that this provision will expire on January 10, 2021.

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Updated Mortgage Readiness Guide. The CFPB also recently revised its 2014 CFPB Dodd-Frank Mortgage Rules Readiness Guide to include the TILA-RESPA Integrated Disclosure Rule that takes effect August 1, 2015.  The guide, designed to help institutions come into and maintain compliance with mortgage rule changes, is now current as of final rule changes issued through August 1, 2014.

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Proposed Changes to TILA/RESPA Final Rule. This CFPB proposed rule would amend the Truth in Lending Act (TILA) /Real Estate Settlement Procedures Act (RESPA) Integrated Disclosures Rule (TILA/RESPA final rule) to allow more time for providing a revised Loan Estimate disclosure when the consumer locks a rate or extends a rate lock after the initial Loan Estimate is provided. Under the TILA/RESPA final rule, a creditor must issue a revised Loan Estimate on the same business day the interest rate is locked. The proposal would relax the redisclosure timeframe, giving creditors until the next business day to provide the revised disclosures. 

The proposal would also permit language related to new construction loans to be included on the Loan Estimate disclosure. Under the TILA/RESPA final rule, a creditor can issue a revised Loan Estimate for a new construction loan where the creditor reasonably expects settlement will occur more than 60 days after providing the initial Loan Estimate if the creditor includes a clear and conspicuous statement on the initial disclosure reserving that right. However, the TILA/RESPA final rule does not allow a creditor to state that it may issue revised disclosures on the Loan Estimate, so this amendment has been proposed to resolve that issue.

The proposal would also amend the 2013 Mortgage Loan Originator Final Rule to provide for the placement of the NMLSR ID on the integrated disclosures.

Have a great weekend everyone and Happy Halloween!

Election Day and Lame Duck Congress around the Corner

Written by, Jillian Pevo, Director of Legislative Affairs               

It seems like we are in a perpetual campaign cycle here in Washington, DC, I’m sure many of you have seen enough political commercials, yard signs and shameless self-promotion in the last six months to last a lifetime. The stakes seem to be pretty high for a midterm election with Senate Democrats fighting to keep a razor thin majority and a number of competitive statewide races that could go either way. In the House of Representatives, Republicans are expected to retain their majority but there will still be some personnel changes on key committees. With just over a week to go, national headlines are being dominated by issues of concern to many Americans including the government’s response to the Ebola virus and Islamic State in Iraq and Syria (ISIS). These high-profile issues and others could sway undecided voters as they head to the polls next Tuesday. 

Regardless of election outcomes, the current Congress is scheduled to reconvene one last time after election day for a “lame duck” session.  While much of the session’s agenda will be shaped by what happens on election day and who will control Congress in January, there are a few items that are very likely to see action, including government funding and expiring tax provisions known as tax extenders. At NAFCU, we will continue to push the Senate to take up House-passed regulatory relief measures that will make small but positive changes at our nation’s credit unions. These measures include:

• Exempting financial institutions from sending annual privacy notice disclosures when policies have not changed (House-passed H.R. 749/S. 635 awaits Senate action).  While the CFPB has recently acted on this issue, we believe a legislative solution is the better answer in the long run;
• Providing credit unions parity with FDIC-insured institutions when it comes to deposit insurance coverage on Interest on Lawyers Trust Accounts or IOLTAs (House-passed H.R. 3648/S. 2699 awaiting Senate action); and
• Amending the calculation of points and fees under the CFPB’s qualified mortgage rule (House-passed H.R. 3211/S. 1577 awaiting Senate action).        

While legislative action this Congress is unlikely, NAFCU will also continue to push lawmakers to address the lack of national data security standards at retailers. Countless breaches occurred while Congress was out of session including the massive Home Depot breach. NAFCU has called for the creation of a bipartisan-bicameral Congressional working group to get key lawmakers together to devise a set of legislative policy prescriptions that would put standards into place at retailers and ensure that they are financially liable when a breach occurs on their end. President Obama recently called for national legislation to address ongoing data security breaches and we are hopeful that Congress acts with urgency.

Please don’t hesitate to reach out to NAFCU’s Legislative Affairs division should you have any questions about matters before Congress. And, don’t forget to vote! 

CFPB Proposed Rule Round-up; Spoiled Pup

Written by Brandy Bruyere, Regulatory Compliance Counsel

Happy Friday everyone! There’s reason to feel a bit optimistic today, a rare treat for those who spend their time navigating complex regulations. Today we’ll review some of the key provisions of three recent CFPB proposed rules in the areas of privacy, mortgages, and remittances.

Proposed Rule on Privacy Disclosures

On May 6^th, the CFPB proposed a rule that would bring some relief for the requirement to provide annual privacy notices. Currently, credit unions must mail or electronically deliver a privacy notice to each member every year. Under the proposed rule, a credit union could generally post this notice on their website instead, provided that five conditions are met:

(1) the credit union does not share the member’s nonpublic personal information with nonaffiliated third parties in a way that triggers a member’s opt-out rights;

(2) the credit union does not include on its annual privacy notice a FCRA opt-out notice;

(3) the credit union’s annual privacy notice is not the only notice provided regarding sharing consumer reports with affiliates for marketing purposes under the FCRA;

(4) the information included in the privacy notice has not changed since the member received the previous notice; and

(5) the credit union uses the model form provided in Regulation P.

The proposed rule would require credit unions that use this alternative delivery method to provide a “clear and conspicuous statement” annually on a notice or disclosure that is sent to the member announcing that the privacy disclosure is available online. Credit unions would also have to mail the notice to members who request it. Comments are due to the CFPB thirty days after the proposed rule is published in the Federal Register.

Proposed Changes to the Ability-to-Repay/Qualified Mortgage Rule

On April 30^th, the CFPB proposed some “minor” changes to the mortgage rules. Two of these changes relate to certain 501(c)(3) nonprofits and do not impact credit unions, but the third may help some credit unions meet the points and fees requirements of a Qualified Mortgage (QM).  The points and fees calculation under the Ability to Repay (ATR) rule is very complex, and the CFPB acknowledged that this can lead to “inadvertent errors” in making the QM determination. Under the proposed rule, under certain limited circumstances, if a loan inadvertently exceeds the points and fees limit, the credit union could “cure” this problem after consummation.  To be eligible for this relief, the credit union would have to meet three requirements:

• The credit union originated the loan in good faith as a QM and the loan otherwise meets the requirements of the ATR rules;
• The credit union refunds the member any points and fees over the 3% threshold within 120 days of consummating the loan; and
• The credit union maintains policies and procedures for reviewing loans post-consummation  and making refunds as needed.

In addition to these provisions, the CFPB is also seeking comment on whether a similar post-consummation cure could be provided for loans exceeding the ATR rule’s 43% debt-to-income ratio requirement. The Bureau is also seeking feedback from smaller creditors regarding how their lending operations have changed due to the new mortgage rules. Comments are due to the CFPB  by July 7, 2014.

Proposed Changes to Remittance Rule

Finally in case you missed it, on April 15^th, the CFPB is considering some revisions to the remittance rule. First, the proposed rule would extend the temporary exception that allows credit unions to estimate fees and exchange rates in some cases. If finalized, the exception would apply until July 21^st, 2020, the latest date permitted under Dodd-Frank. Second, the Bureau is seeking comment on how to treat US military bases abroad under the rule. The CFPB proposal would consider these military bases to be within a “State” for the purposes of the rule. This would mean that transfers to “designated recipients” located on US military bases from the US or another such base would not be considered a remittance for the purposes of the rule. Other minor proposed revisions include:

• Determine the purpose of the transfer based on the purpose of the sender’s account (i.e. personal, family, or household purposes);
• Revise the CFPB staff commentary to clarify that disclosures may be provided by fax; and
• Change sections of the rule’s error resolution process.

Comments are due to the CFPB by May 27, 2014.

Spoiled Pup

We finally got rid of one of our last “college kid” pieces of furniture and replaced our couch. Of course, it did not take long for Lemmy to decide that he belonged on the chaise lounge. He even prefers to make use of a decorative throw pillow to further cushion his head. I keep telling myself I’ll be firmer with him, but saying no to that face is hard!

NCUA Letter to Credit Unions on QM and Non-QM Loans; Fannie Mae Updates

Written by JiJi Bahhur, Director of Regulatory Compliance

Last week, we blogged about NCUA’s Regulatory Alert on Ability-to-Repay (ATR) and Qualified Mortgages (QM), two of several mortgage rules that go into effect as of today.   In the Regulatory Alert, NCUA stated that it would be releasing a Supervisory Letter to its examiners pertaining to the subject matter.  As promised, the Supervisory Letter accompanied NCUA’s Letter to Credit Unions 14-CU-01 as an enclosure. 

The Letter to Credit Unions (Letter) reiterates that “NCUA field staff will take into account a credit union’s good –faith efforts to comply with the new rule.”  Further, the Letter emphasizes that credit unions may originate both QM and non-QM loans, explaining that non-QM lending can be an effective member service if conducted safely and soundly.  NCUA’s field staff will be placing an emphasis on safety and soundness implications which will not be judged solely on the basis of a loan’s status as QM or non-QM.

Addressed to the NCUA Examiners, the enclosed Supervisory Letter provides guidance to credit union mortgage lenders on the expectations for complying with the Consumer Financial Protection Bureau (CFPB)’s final ATR and QM rules.  It describes specific examination procedures and expectations for credit unions and may serve as another handy tool for preparing for your examination.

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Fannie Mae Updates. As a follow-up to our recent blogs (here and here) on FHFA fee increases, FHFA Director Mel Watt announced that his agency is reconsidering guaranteed fee hikes announced last year by Fannie Mae and Freddie Mac.  Watt also stated that any changes in fees will not be implemented for at least 120 days following review.

Other recent Fannie Mae news:  Fannie Mae published a new web page with information about the recently implemented Appraiser Quality Monitoring (AQM) process (described in Lender Letter LL-2013-10). The new AQM page includes FAQs and a link to the AQM list identifying appraisers whose appraisals will be subject to 100% review by Fannie Mae or whose appraisals are no longer accepted by Fannie Mae.  

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I wish you all a happy Friday and a great weekend!

 

Just Here to Help; NAFCU's Compliance Team

Written by JiJi Bahhur, Director of Regulatory Compliance

With several of the new mortgage rules set to go into effect tomorrow, including ability-to-repay and qualified mortgages, the NAFCU compliance team wanted to take a moment to reach out to those that have been tirelessly involved in implementing compliance programs to address the numerously burdensome changes.  It has been a long, hard (and of course expensive) journey, and unfortunately, it’s not over.

We have heard that there are credit unions (or really, in many cases, their vendors) that aren’t going to be ready by tomorrow.  As scary as this can be, the credit union still has a leg to stand on: the CFPB and NCUA have both assured credit unions that good faith efforts of compliance will be acceptable in the early months after the new rules become effective.  

More specifically, CFPB Director Richard Cordray has said that the agency is seeking “good faith efforts of substantial compliance” in the first few months.  Echoing the same sentiment, NCUA wrote, in Letter to Credit Unions 14-CU-01, that “[a]s with any new requirement in its early stages after becoming effective, NCUA field staff will take into account a credit union’s good-faith efforts to comply with the new rule.”

Having this leg to stand on is indeed comforting, but only time will tell how this will pan out with the examiners of each agency.  As many credit unions have encountered in the past, examiners from different agencies, or even individual examiners within the same agency, are not always on the same page, especially where there isn’t a detailed definition of “good faith efforts of substantial compliance” available. 

NAFCU has been here to assist you with these upcoming rules and will continue to do so, both through our advocacy with the agencies and through numerous compliance resources that NAFCU has authored. To help with complying with these mortgage changes, all of NAFCU’s resources on the new mortgage rules, including Scope & Applicability Charts, articles, blog posts, webcasts and consolidated regulatory text can be found on our special mortgage resources webpage.  And, here are links to articles on various aspects of the mortgage rules that appeared in the Compliance Monitor in the last several months (available with NAFCU login):

• Qualified Mortgages Without the 43 Percent Debt-to-Income Ratio Requirement
• Mortgage Servicing: Error Resolution& Information Request Processing,
• Small Creditor Portfolio Exemption for QMs Explained,
• Understanding the Qualified Mortgage Quagmire,
• New Appraisal Requirements: Regulation B and Higher-Priced Mortgage Loans,
• Mortgage Loan Originator Requirements,
• New Homeownership Counseling Disclosure Requirement, and
• Escrow Requirements for Higher-Priced Mortgage Loans.

Also, to help make researching on the blog a little easier, we created blog categories for mortgage reform posts. The categories are:

• Mortgage Reform – Appraisals,
• Mortgage Reform – Escrow,
• Mortgage Reform – HOEPA/High-Cost,
• Mortgage Reform – Loan Originator,
• Mortgage Reform – Qualified Mortgages; and
• Mortgage Reform – Servicing.

Other NAFCU resources available to assist with the mortgage rules include:

• NAFCU’s Regulatory Compliance School
• NAFCU’s Regulatory Compliance Seminar
• NAFCU’s Online Learning options, including its unlimited webcast subscription.

The CFPB also has numerous resources for complying with the mortgage rules, including a central page for their mortgage rule implementation resources. This page includes compliance guides, videos and other resources.  Additionally, NCUA issued a regulatory alert and supervisory letter to examiners that both provide general guidance for credit unions to comply with the CFPB’s ability-to-repay/qualified mortgage rule for all loan applications received on or after Jan. 10.  NCUA also issued a regulatory alert on mortgage servicing and a regulatory alert on homeownership counseling requirements.

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NAFCU’s Compliance Team.  You may have noticed some new names on the blog.  NAFCU’s compliance team has made some additions in an effort to continue to provide our members with valuable, timely compliance information.  We’d like to take this opportunity to say thank you for being dedicated readers of our blog.  We aspire to provide you with materials that will assist you with your day-to-day needs. 

NCUA Issues Regulatory Alert on Upcoming Deadline for ATR/QM; NAFCU Regulatory Affairs Team Releases Final Regulation on the TILA/RESPA Final Rule

Written by Brandy Bruyere, Regulatory Compliance Counsel

Yesterday, NCUA released a Regulatory Alert containing an overview of the CFPB’s Ability-to-Repay/Qualified Mortgage (ATR/QM) rule. This rule becomes effective next week and will apply to loan applications received on or after January 10, 2014. Drawing upon several resources including CFPB’s small entity compliance guide and mortgage origination comparison chart, the Regulatory Alert is a helpful summary that simplifies some complex issues. Some of the key topics include:

• The scope of the rule, meaning which loans are covered and which are exempt;
• The eight ATR underwriting factors;
• Explanation of the verification requirements for making its ATR determinations;
• Overview of the record retention requirements;
• Discussion of QMs including the distinction between non-higher priced QMs which receive safe harbor protection and higher-priced QMs which are presumed compliant;
• The four type of QMs (general, temporary, small creditor, and balloon-payment) which NAFCU outlined in this month’s Compliance Monitor (available with login);
• A chart of caps on QM points and fees limits;

The Regulatory Alert notes that NCUA plans to release a Supervisory Letter to examiners prior to the January 10, 2014 deadline. The Alert also includes links to other resources such as the CFPB’s small entity compliance guide, a mortgage origination comparison chart, and a small creditor QM flowchart. Finally, keep in mind that NAFCU has a variety of helpful compliance resources for the upcoming mortgage rules deadlines.

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TILA-RESPA Final Rule. The CFPB’s TILA-RESPA final rule on integrated mortgage disclosures has been published in the Federal Register. We previously blogged about this rule on November 22, 2013. NAFCU’s Regulatory Affairs team has prepared a Final Regulation (13-EF-31) summarizing key aspects of this rule for NAFCU members, available here (with login).

CFPB Updates its Mortgage Exam Procedures; On the Move

Written by JiJi Bahhur, Director of Regulatory Compliance

I don't know about you all, but I have a hunch that most of us are still trying to catch up with our reading from the holiday.  We'll keep it light today . . .

Last week, the Consumer Financial Protection Bureau (CFPB) released updates to its exam procedures in connection with the new mortgage regulations issued in January 2013.  The updates cover all final rules issued by the CFPB through October 15, 2013.

Although the CFPB only has examination authority over credit unions with more than $10 billion in assets, the exam procedures serve as guidance to all credit unions on how the CFPB will conduct examinations for compliance with the Truth in Lending Act (TILA) and Real Estate Settlement Procedures Act (RESPA).

The CFPB’s Supervision and Examination Manual can be located here. 

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Baby Kyse is on the move!  Ava isn’t quite there yet, but she does enjoy standing on her feet so I know she’ll get there soon enough!

 

That's my boy!

 

CFPB Accepting Payday Loan Complaints; Free NCUA Webinars to Address Remittances and Mortgage Lending Rules; Programming Note

Written by JiJi Bahhur, Director of Regulatory Compliance

Payday Loan Complaints.  As we’ve mentioned on other occasions, payday lending is definitely on the CFPB’s radar.  Yesterday, this was further confirmed through the CFPB’s blog where it announced that consumer complaints regarding payday loans are now being accepted.  From the blog:

“Starting today you can submit a complaint if you have a problem with your payday loan. You can submit a complaint about:

• Unexpected fees or interest
• Unauthorized or incorrect charges to your bank account
• Payments not being credited to your loan
• Problems contacting the lender
• Receiving a loan you did not apply for
• Not receiving money after you applied for a loan."

The CFPB uses this complaint data to identify business practices that may pose risks to consumers, which in turn will pave the way for new payday lending rules and regulations. 

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NCUA Webinars on Remittances and Mortgage Lending Rules.  In a press release yesterday, the NCUA announced that it will host a free, two-part webinar, “New Dodd-Frank Remittances and Mortgage Lending Rules.”  The first part, which will cover remittance transfers, higher-priced mortgage loan appraisals, mortgage servicing, and higher-priced mortgage loan escrows, will take place at 2:00pm Eastern on November 18, 2013.  The second part, which will cover ability-to-repay and qualified mortgages, high-cost mortgage and home ownership counseling, loan originator compensation, and Equal Credit Opportunity Act appraisals and valuations, will take place at 2:00pm Eastern on December 18, 2013. 

Credit unions should take advantage of these free high-level overviews.  Click here to register for the November 18 session and here to register for the December 18 session.

If you are looking for additional compliance assistance on these new rules and regulations, the NCUA also issued regulatory alerts and YouTube videos summarizing the rules and highlighting issues of particular importance for credit unions. 

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Programming Note.  NAFCU’s offices will close today at noon and remain closed until Tuesday for the long holiday weekend.  We’ll be back to blogging next Wednesday!  Have a great weekend!

The Mortgage Choice Act (H.R. 3211); Congress Must Address the Points & Fees Issue

Written by Jillian Pevo, NAFCU’s Director of Legislative Affairs

For over two weeks it felt like Groundhog Day here in Washington –each day it seemed like additional federal employees were furloughed, Congress did a whole bunch of arguing, and not a lot got done. Congressional staffers deemed “non-essential” were instructed to stay home, and the agendas of various committee chairmen temporarily fell by the wayside as negotiating relative to the government shutdown and national debt ceiling took center stage. 

It’s worth noting that credit unions really showed their true colors during this difficult time – numerous lawmakers took note of the special incentives and programs many of your credit unions offered to your members affected by the shutdown. We aren’t surprised, but our staff here at NAFCU can’t thank you enough for all you do. 

When the logjam in Congress finally broke last week, with an agreement on government funding until January 15 and on the debt ceiling through February 7, elected officials scrambled to fill the Congressional agenda with previously postponed hearings and a host of other activity related to the issues they care about most.  

One issue that seems to be percolating in both the House Financial Services and Senate Banking Committee’s is the CFPB’s qualified mortgage (QM) definition in satisfying “ability to repay” requirements under the Dodd-Frank Act. As currently defined, QMs cannot have points and fees in excess of 3 percent of the loan amount (for loans $100,000 or greater). This will make meeting the QM test problematic for lenders and non-QM loans would be less likely to be made or would only be available at higher rates due to heightened liability risks.

Representative Bill Huizenga (R-MI) has been out front on this issue and recently, in the spirit of compromise, introduced a scaled down version of a more board piece of legislation to modify the definition of “points and fees.”  The Mortgage Choice Act (H.R. 3211) would exclude title charges from the “points and fees” definition, and clarify that escrow charges should also be excluded. Representative Huizenga’s bill is bipartisan, and there is also a bipartisan Senate bill (S.949) that would also address this issue. 

With the ability-to-repay provisions set to take effect in January of 2014, time is of the essence for stakeholders to make their case to Congress. NAFCU’s government affairs team is committed to pursuing this issue in hopes of seeing changes before the effective date. As Congress came back into session yesterday, NAFCU brought H.R. 3211 to the attention of House Speaker Boehner and Minority Leader Nancy Pelosi. We are also working with other industry groups to help educate members of Congress about how burdensome the points and fees definition will be for lenders, and ultimately consumers. We recognize the importance of this issue to credit unions.  However, it should be noted, as the recent government funding fight so keenly demonstrated, getting almost anything passed in the current environment is an uphill battle.  Nonetheless, NAFCU will be here fighting for you.

As always, if you have questions about what’s happening in Congress, or additional insight that may be helpful to NAFCU’s lobbying team, please reach out to us. 

September 2013 NCUA Report; NAFCU Member Resources - Consolidated Regulatory Text and Commentary for the CFPB’s Mortgage Rules

Written by Michael Coleman, Regulatory Compliance Counsel

NCUA Report. The September 2013 NCUA Report is now available, you can find it here. This month's issue covers: 

• Office of Consumer Protection Report: Overview of New Mortgage Rules
• Chairman's Corner: The Financial Crisis, Five Years Later: Lessons Learned
• Office of Consumer Protection Report: Low-Income Credit Union Initiative Boosts Community Investment
• Board Perspective - Michael E. Fryzel: A Year to Remember
• Board Perspective - Rick Metsger: May You Live in Interesting Times
• Region III Report: Understanding Enterprise Risk Management
• Office of Examinations and Insurance: Credit Union Membership, Loans Grow in Second Quarter
• Office of Small Credit Union Initiatives Report: Introducing FAQ+, A New Search Engine for Credit Unions

As always, the report includes some interesting articles and information, it is worth a read. This edition features NCUA Board Member Metsger’s first Board Perspective, here is an excerpt I thought was interesting and shows a great attitude as these are most certainly “interesting times” in credit union land:

“While preparing to leave Oregon for my new assignment in Washington, D.C., a long-time friend noted the many dynamic changes and challenges in today’s financial services marketplace, wished me well and parted with the observation: “May you live in interesting times.”

We have all heard the phrase before. It is purported to be an old Chinese proverb, seemingly positive in nature. Dig deeper into its origins, however, and evidence advances the theory it was actually one of three ancient curses, each imparting increased severity upon the designated target.

As the newest member of the National Credit Union Administration Board, I am mindful that how we decide to interpret a message goes a long in way in determining the direction and the outcome of our actions. Like my friend, I choose to observe these “interesting times” as an opportunity, not a curse, and a chance to make a difference in advancing the vital role credit unions play in the lives of so many Americans.

[…]

In the months ahead, I will use this column to discuss my perspective on issues as they come before the Board. I look forward to an open and robust dialogue on each of these issues and value your insights, observations and opinions. Together we have an opportunity to make these “interesting times” one of the best times for the American financial services consumer.”

The NCUA report also contains an overview of the CFPB’s mortgage rules which the article notes will be the first in a series of articles to help credit unions comply with the impending mortgage rules.

NAFCU Member Resource - Consolidated Regulatory Text and Commentary for the CFPB’s Mortgage Rules.

And speaking of helping credit unions to comply with the CFPB’s mortgage rules, NAFCU’s compliance division has put together a great member resource (login required) which will hopefully save you quite a few headaches.

The CFPB's mortgage rules amended several federal regulations (Regulation Z, Regulation X, Regulation B), and many of the individual regulatory sections were amended by different final rules. As a result, it is difficult to determine the complete picture of the requirements when the rules become effective.

To solve this problem, NAFCU has consolidated the regulatory text and commentary for each amended (and added) regulatory section from each of the CFPB's final mortgage rules. The consolidated regulatory text and commentary show how the regulatory sections will look when the final rule(s) are effective in January 2014.

Check out our new webpage where you can download the consolidated regulatory text of each individual amended section or you can download the entire consolidated final rule as amended! You can also link to the consolidated text from the NAFCU Mortgage Rules webpage. Hopefully you will never have to use this stress reduction kit again! 

 

CFPB Releases Second Update to its Exam Procedures Pertaining to the Mortgage Rules; Oh, How Time Just Flies

Written by JiJi Bahhur, Regulatory Compliance Counsel

Last week, the CFPB released its second update to its exam procedures in connection with the new mortgage regulations that were issued in January 2013.  Specifically, the second update covers the Ability-to-Repay/Qualified Mortgages, high-cost mortgages, appraisals for higher-priced mortgage loans, the new amendments related to the escrows rule, the recent changes to the credit card rules, the mortgage origination rules issued through May 29, 2013, and mortgage servicing rules issued through July 10, 2013. 

The updated exam procedures will, according to the CFPB’s press release, help financial institutions understand and prepare for how they will be examined in a number of different areas.  For a list of some of examination areas from the second update and how to prepare for them, click here to view the second press release.

Also, if you’re interested in what examination areas were covered in the first update, click here to view the first press release.

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If you’re looking for further assistance with the mortgage rules, take a look at NAFCU’s mortgage rules resources page.  Also, take a look at these NAFCU Monitor articles (NAFCU log-in required) we’ve written on the mortgage rules:

• Understanding the Qualified Mortgage Quagmire
• Small Creditor Portfolio Exemption for QMs Explained
• Understanding the Small Servicer Exemptions
• Mortgage Loan Originator Requirements for Qualification and Screening, Training and Disclosures
• New Appraisal Disclosure Requirements: Regulation B and Higher-Priced Mortgage Loans
• Escrow Requirements for Higher-Priced Mortgage Loans
• New Homeownership Counseling Disclosure Requirement

 

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It’s a good thing that the CFPB is making these updates and providing them to the industry, especially since it’ll be January, 2014 before we know it.  Speaking of time flying . . . one year ago (from yesterday), my sweet babies – Kyse and Ava – were born.  I cannot believe how quickly the time has come and went.  I’m not going to bog you down with pictures at this very moment, but I assure you there will be pictures to share after this weekend . . . since I plan on having a big birthday bash for them!

Updated Small Entity Compliance Guide on ATR/QM; Consumer Compliance Outlook Webinar

Written by Bernadette Clair, Regulatory Compliance Counsel

Small Entity Compliance Guide on ATR/QM. Last week, the CFPB issued an updated Small Entity Compliance Guide for the Ability-to-Repay and Qualified Mortgage (ATR/QM) Rule. This update incorporates changes  that were included in the June 2013 ATR/QM Concurrent Final Rule and July 2013 Final Rule, both of which amended the final rule issued January 10, 2013.

Today I want to focus on the section of the guide dealing with balloon-payment qualified mortgages (balloon-payment QMs). In the June 2013 ATR/QM Concurrent Final Rule, the CFPB adopted a two-year transition period during which all small creditors can make balloon-payment QMs, even if they do not operate predominantly in rural or underserved areas.

Keep in mind that to qualify for the exemption as a small creditor, a credit union must have less than $2 billion in assets and have originated 500 or fewer closed-end, first lien mortgages in the preceding year.  The guide provides this overview of the transition period:

“The Bureau is providing a two-year transition period during which all small creditors can make Balloon-Payment QMs, regardless of where the small creditor operates. After that two-year period expires, only small creditors that operate predominantly in rural or underserved areas will be able to make Balloon-Payment QMs. On or before  January 10, 2016 (two years after the effective date of the ATR/QM rule), you can originate Balloon-Payment QMs if you satisfy the asset size and number of originations requirements. Balloon-Payment QMs that are originated during this two-year period will retain their QM status after January 10, 2016, assuming the requirements to hold the loan in portfolio are met.

After January 10, 2016, you can originate Balloon-Payment QMs only if you meet the asset size and number of originations criteria as well as a requirement that you operate predominantly in rural or underserved areas.”

The CFPB also provides this tip:

“Implementation Tip: After January 10, 2016, in order to make Balloon-Payment QMs, more than half of your organization’s first-lien covered transactions in the prior calendar year must have been secured by properties in rural areas (equivalent to the USDA’s Economic Research Service Urban Influence Codes 4, 6, 7, 8, 9, 10, 11, or 12) or underserved areas (counties where no more than two creditors extend five or more first-lien covered transactions in a calendar year). The Bureau will publish an annual list of rural or underserved counties. This is not the same definition of “rural” used for Home Mortgage Disclosure Act (HMDA) reporting or used by other agencies. For example, you may not be considered rural under this definition even though you are considered rural under HMDA and are not a HMDA reporter.”

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NAFCU Resources. Credit unions can learn more about the updates to the ATR/QM rule during a NAFCU webcast on August 21st.  Find more information and register here. Remember, NAFCU's webcasts are available to anyone and everyone.  Also, NAFCU’s Compliance Calendar has been updated with the latest CFPB small entity guides for ATR/QM and remittances.

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Consumer Compliance Outlook Webinar. Tomorrow, the Federal Reserve System “Outlook Live” Audio Conference series will host a webinar on Conducting Consumer Compliance Risk Assessments – Examiner Insights. Topics to be covered include:

• What are risk assessments and why are they important?

• Suggestions on ways to complete a risk assessment for a business line or product

• Suggestions on ways to complete a risk assessment for a specific department

• Risk assessment red flags

The webinar will be Tuesday, August 20, 2013, 2:00 p.m. – 3:00 p.m. Eastern. You can find more information and register for the webinar here.

Cordray Confirmed by Senate for 5-Year Term; Final List of Rural and Underserved Counties for Use in 2014

Written by JiJi Bahhur, Regulatory Compliance Counsel

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Update - 7:45 a.m. - Yesterday evening, the Senate confirmed Richard Cordray for a full five-year term as the Director of the Consumer Financial Protection Bureau. 

***

Recently, the Consumer Financial Protection Bureau (CFPB) posted a list of counties determined to be “rural” or “underserved” during 2013 for use in 2014.  Don’t mistake this list with the list posted on May 16, 2013, which was for use in 2013. 

If you aren’t familiar with the purpose of these lists, they exist because the CFPB has several rules with provisions related to mortgage loans made by creditors that during the preceding year operated predominantly in “rural” or “underserved” counties.  For instance, the TILA Escrow Rule, which took effect on June 1, 2013, requires certain creditors to create escrow accounts for a minimum of 5 years for higher-priced mortgage loans.  However, certain small creditors that operate predominantly in rural or underserved counties are exempt from this requirement.  For other examples of provisions that have a “rural” or “underserved” component, see the CFPB’s blog from July 2, 2013.

For purposes of these provisions, both “rural” and “underserved” counties are defined on an annual basis, using the USDA Economic Research Service’s urban influence codes for rural counties and data collected under the Home Mortgage Disclosure Act (HMDA) for underserved counties. Because the counties are defined on an annual basis, some counties’ status as rural or underserved may have changed between the list for use in 2013 and the recently posted list for use in 2014.  Although the CFPB has taken some steps to address this concern (also discussed in the CFPB’s blog from July 2, 2013), this may result in some small creditors losing eligibility for the exemptions they may have received the year prior. 

You can find the final list of rural and underserved counties for use in 2014 here, and the final list for use in 2013 here. 

CFPB Releases 2013 Dodd-Frank Mortgage Rules Readiness Guide

Written by JiJi Bahhur, Regulatory Compliance Counsel

On Monday, the Consumer Financial Protection Bureau (CFPB) released its first version of the 2013 Dodd-Frank Mortgage Rules Readiness Guide.  The Guide is made for use by financial institutions of all sizes to evaluate their readiness and to help them come into and maintain compliance with the upcoming mortgage rule changes. 

According to the CFPB, the Guide serves the following purposes:

• Assists regulated entities in achieving compliance with the mortgage rules
• Highlights key issue areas that may be closely examined during a review
• Focuses the industry and examiners on key elements of a compliance management system that may warrant review, modification, or other enhancement.

It should be noted that the Readiness Guide should not be used as a substitute for reading the mortgage rules, as it is not comprehensive of all the requirements.  Rather, the Guide consists of:

• Part I, Summary of the Rules
• Part II, Readiness Questionnaire
• Part III, Frequently Asked Questions
• Part IV, Tools

I especially like the Readiness Questionnaire, as it is a great tool for a self-assessment in determining the credit union’s progress towards compliance with the new mortgage rules.  Why do I like it?  I’m a checklist person and the questionnaire is laid out in way where you can focus in on one particular item at a time and go down the list of questions under that item to see if you have covered key areas.  Here’s an example from the Questionnaire:

“Policies and Procedures

1. Do your policies and procedures reflect the appropriate provisions in the following rules? (Note: The below list does not encompass all possible provisions that may apply to your institutions. For a more detailed list of all provisions, requirements, and exemptions please visit http://www.consumerfinance.gov/regulatory implementation/)

•  Ability-to-Repay and Qualified Mortgage Standards (Reg Z 1026.43)

 Ability-to-Repay

To the extent you seek to preserve your ability to make loans that are not Qualified Mortgages, do your policies and procedures address the key components of the ability-to-repay provisions, including:

 - Obtaining and verifying certain financial information related to the consumer(s)?

- Ensuring that borrowers have sufficient assets or income to pay back the mortgage?

- For adjustable-rate mortgages, that the monthly payment is calculated using either a fully indexed rate or an introductory rate, whichever is higher?

- Any exemptions that apply and a full description of when the exemptions apply and conditions for exemptions (e.g., for a customer trying to refinance certain risky loans only after specific conditions are met)?"

The Guide will be updated periodically as rule clarifications and amendments are finalized or available. 

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

Written by Bernadette Clair, Regulatory Compliance Counsel

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

CFPB videos:

• Overview of the 2013 New Mortgage Rules

• Ability-to-Repay and Qualified Mortgage Rule

• 2013HOEPA Rule

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

• Loan Originator Compensation Rule

• Mortgage Servicing Rules

• TILA Escrow Rule

CFPB Small Entity Compliance Guides:

• Ability-to-Repay and Qualified Mortgage Rule

• 2013 HOEPA Rule

• ECOA Valuations Rule

• TILA Higher-Priced Mortgage Loans Appraisal Rule

• TILA Escrow Rule

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

H.R. 1077, the Consumer Mortgage Choice Act; QM Points and Fees Caps - Part 3

Written by Michael Coleman, Regulatory Compliance Counsel

Last week we blogged about the CFPB’s Small entity compliance Guide for the Ability to Repay/Qualified Mortgage final rule, as well as some NAFCU resources on the CFPB’s final mortgage rules, specifically about the points and fees caps contained in the qualified mortgage final rule.

Today we’d like take a look at H.R. 1077, the Consumer Mortgage Choice Act, introduced by Representative Bill Huizenga on March 12, 2013. If you have ever talked with me on the phone (particularly about some kind of a violation/non-compliance with a regulation), you might have heard me utter one of my favorite sayings: “you can’t unscramble those eggs.” Well, we mere-mortal compliance officers might not be able to unscramble those eggs, but Congress sure can.

The final rule on ability to repay and qualified mortgages section 1026.43(e)(3) contains restrictions on points and fees for qualified mortgages. H.R. 1077 would amend the Truth in Lending Act (TILA) definition of “points and fees.”

On May 3rd, Dan Berger, NAFCU’s Executive Vice President of Government Affairs, sent a letter on H.R. 1077 to Rep. Jeb Hensarling, the Chairman of the House Financial Services Committee, and Rep. Maxine Waters, the ranking member of the House Financial Services Committee, here’s an excerpt:

“As currently defined, “points and fees” include, among other charges, fees paid to affiliated title companies, salaries paid to loan originators, amounts of insurance and taxes held in escrow, loan level price adjustments, and payments by lenders to correspondent banks, credit unions and mortgage brokers in wholesale transactions.  As a result of this troublesome definition, many affiliated loans, particularly those made to low- and moderate-income borrowers, would not qualify as Qualified Mortgages (QMs) and would be unlikely to be made or would only be available at higher rates due to heightened liability risks.  Consumers would lose the ability to choose to take advantage of the convenience and market efficiencies offered by one-stop shopping.

The Consumer Mortgage Choice Act would make important changes that would:

- Exclude title charges from “points and fees” definition. 

- Prevent double-counting of loan officer compensation.  

- Clarify that escrow charges should be excluded from any calculation of “points and fees.”

- Exclude loan level pricing adjustments (LLPAs).     

- Exclude lender-paid compensation to mortgage brokers. 

 Taken together, these changes would make important improvements to the definition of “points and fees” used to determine whether a loan meets the QM test.” 

 Contact your members of Congress. My colleague Katie Marisic – NAFCU’s Director of Political Affairs- wrote a great guest blog a while back about the importance of reaching out to your members of Congress on important issues that affect credit unions.  As Katie pointed out, legislative advocacy is an important means by which credit unions (and their members) can help stem the tide of regulatory burden. And every now and then, a bill is introduced that will do just that – help credit unions by directly reducing regulatory burden. Or as I like to say: “unscrambling those eggs.” Check out NAFCU's Legislative Resource Center, it has links to help you find your Representative, as well as other great resources such as NAFCU’s Grassroots Action Network. 

I don’t know about you, but I would much rather be spending my free time watching the Capitals playoffs than worrying about the points and fees calculations for qualified mortgages. 

A Closer Look at the QM Points and Fees Caps - Part 2

Written by Michael Coleman, Regulatory Compliance Counsel

Yesterday we blogged about the CFPB’s Small Entity Compliance Guide for the Ability to Repay/Qualified Mortgage final rule (“ATR/QM Guide”). Today we'd like to highlight some of NAFCU's mortgage rules compliance resources (shameless plug alert!).

As we mentioned last week, NAFCU's Mortgage Rules webpage is the ultimate compliance resource center for the CFPB's mortgage rules. It is the "one-stop shop" for all of the NAFCU resources on these rules (NAFCU login required for member resources). 

Below is a Question & Answer on the points and fees calculations for qualified mortgages that came from NAFCU's CFPB Mortgage Reform Webcast Series: CFPB’s New Rules: Ability-to-Repay/Qualified Mortgages. The Q&A also appeared in NAFCU’s April 2013 Compliance Monitor’s “Compliance Forum.”

"Question: The qualified mortgage rule has limitations for points and fees depending on the size of the loan. Are third party fees such as appraisal fees and title insurance costs included in the restrictions on points and fees used in the qualified mortgage rule?

Answer:  It depends on the type of third party fee. This is a complicated issue and you will have to look closely at the definition of “points and fees” as well as the commentary to determine whether or not the fees you charge are included and whether you exceed the limitations.

The final rule on ability to repay and qualified mortgages section 1026.43(e)(3) contains the restrictions on points and fees for qualified mortgages, which cross references the definition of “points and fees” contained in section 1026.32(b)(1), which reads:

 “(b) Definitions. For purposes of this subpart, the following definitions apply:

(1) In connection with a closed-end credit transaction, points and fees means the following fees or charges that are known at or before consummation:

[…]

(iii) All items listed in § 1026.4(c)(7) (other than amounts held for future payment of taxes), unless:

(A) The charge is reasonable;

(B) The creditor receives no direct or indirect compensation in connection with the charge; and

(C) The charge is not paid to an affiliate of the creditor;” (Emphasis added.)

 Both appraisal fees and title insurance are listed in section 1026.4(c)(7). The next step is to take a look at the official staff commentary from the final rule to section 1026.32(b)(1)(iii):

 “Paragraph 32(b)(1)(iii).

 1. Other charges.  Section 1026.32(b)(1)(iii) defines points and fees to include all items listed in § 1026.4(c)(7), other than amounts held for the future payment of taxes, unless certain exclusions apply.  An item listed in § 1026.4(c)(7) may be excluded from the points and fees calculation if the charge is reasonable; the creditor receives no direct or indirect compensation from the charge; and the charge is not paid to an affiliate of the creditor.  For example, a reasonable fee paid by the consumer to an independent, third-party appraiser may be excluded from the points and fees calculation (assuming no compensation is paid to the creditor or its affiliate and no charge is paid to an affiliate).  By contrast, a fee paid by the consumer for an appraisal performed by the creditor must be included in the calculation, even though the fee may be excluded from the finance charge if it is bona fide and reasonable in amount.”  (Emphasis added.)

Thus, according to the definition of “points and fees” in section 1026.32(b)(1), the fees listed in section 1026.4(c)(7) would be considered “points and fees” for the purposes of the limitations on points and fees for qualified mortgages under section 1026.43(e)(3), unless they meet the conditions set out in section 1026.32(b)(1)(iii)."

NAFCU Members: This and many other detailed questions and answers on the CFPB's recent mortgage rules can be found on the mortgage rules webpage, as well as in recent issues of NAFCU's Compliance Monitor, available here for download (with NAFCU login).  Don't forget to utilize these resources when you are conducting your research! 

Non-members: Keep in mind that all of NAFCU’s webcasts (including NAFCU's CFPB Mortgage Reform Webcast Series) and conferences (including our Compliance School each March and our Compliance Seminar each October) are available to all credit unions – regardless of NAFCU membership. You do not even need to be affiliated with a credit union (we have attorneys, consultants, vendors and others attend regularly). The goal is to stay compliant with these increasingly complex issues, we hope you join us! 

CFPB Small Entity Compliance Guide for ATR-QM: A Closer Look at the QM Points and Fees Caps

Written by Michael Coleman, Regulatory Compliance Counsel

Last week we blogged in more detail about the CFPB’s Small Entity Compliance Guide on escrow requirements for higher priced mortgage loans (“Escrow Guide”) from the recent final rule. Today we would like to take a closer look at the CFPB’s Small Entity Compliance Guide for the Ability to Repay/Qualified Mortgage final rule (“ATR/QM Guide”), which we mentioned in this blog post a few weeks ago.

Similar to the Escrow Guide, the ATR/QM Guide attempts to explain this very complicated rule in plain English, and the ATR/QM Guide is broken up into relatively easy to digest sections:

1. Introduction
2. Overview of the Ability-to-Repay/Qualified Mortgage Rule
3. About Ability to Repay
4. About Qualified Mortgages
5. Refinancing from Non-Standard to Standard Loans: ATR Special Circumstance (§ 1026.43(d))
6. Proposed Changes to the Ability-to-Repay/Qualified Mortgage Rule
7. Practical Implementation and Compliance Considerations
8. Other Resources

Today we’d like to highlight the discussion on the calculation of points and fees caps for qualified mortgages, located in section 4 of the ATR/QM Guide, starting on page 31. This particular section of the ATR/QM Guide gives a brief description of the points and fees caps contained in the qualified mortgage rule, section 1026.43(e)(3), and the fact that the fixed dollar caps will be updated annually in the Regulation Z commentary. The ATR/QM Guide then gives a nice break down of the definition of "points and fees" as contained in section 1026.32(b)(1) - which is cross referenced in section 1026.43(e)(3) - into its six categories:

1. Finance charge;
2. Loan originator compensation;
3.  Real estate-related fees;
4. Premiums for credit insurance; credit property insurance; other life, accident, health or loss-of-income insurance where the creditor is beneficiary; or debt cancellation or suspension coverage payments;
5. Maximum prepayment penalty; and
6. Prepayment penalty paid in refinance. 

Each section of the breakdown contains a nice summary of the charges and what must be included and what can be excluded from the "points and fees" calculation.  The ATR/QM Guide is a good place to start your research and wrap your head around the concepts. 

However, these calculations will undoubtedly be complex (and fact specific based on the fees that your credit union charges), so there is no substitute for digging into the sections themselves and the commentary when making your calculations. 

***

Nationals Baseball. As a special Thursday morning treat, I thought I would take this opportunity to reward you with this video and this video of Nationals star Bryce Harper hitting a few dingers. Bryce is such a nice guy, he even helps the opposing team hit home runs sometimes so they don't feel left out. Too early for MVP talk? Not according to this Nats fan!

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

Written by Steve Van Beek

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

***

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

The announcement includes this language from the CFPB:

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

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

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

• Debt-to-income ratio

• Contract variances and the temporary QM provision

• Purchase, guarantee or insurability status and the temporary QM

• No field preemption under Regulation X

• Small servicer exemption

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

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

Written by Steve Van Beek

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

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

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

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

***

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

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

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

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

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

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

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

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

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

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

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

***

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

The Federal Credit Union Magazine; Upcoming NAFCU Webcasts

Written by Steve Van Beek

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

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

• The Vital Life of the CU Director

• NAFCU Expands Regulatory Team

• NAFCU's Legislative Priorities

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

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

• Learning from Noncompliance

• What Bankers Worry About

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

***

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

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

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

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

• Which New Requirements Apply to HELOCs?  - April 10

• Preparing for New Mortgage Servicing Notices - April 17

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

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

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

Written by Steve Van Beek

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

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

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

• New Interest-Rate Adjustment Notices - 12 CFR 1026.20

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

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

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

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

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

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

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

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

• Periodic Statements for Mortgage Loans - 12 CFR 1026.41

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

Appendices to Regulation Z

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

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

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

• Standards for Determining Monthly Debt and Income - Appendix Q

Official Staff Commentary to Regulation Z - Appendix I

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

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

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

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

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

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

• Changes to Escrow Accounts - 12 CFR 1024.17

• New Homeownership Counseling Disclosure - 12 CFR 1024.20

New Subpart C to 12 CFR 1024

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

Subpart C—Mortgage Servicing

1024.30   Scope.

1024.31   Definitions.

1024.32   General disclosure requirements.

1024.33   Mortgage servicing transfers.

1024.34   Timely escrow payments and treatment of escrow account balances.

1024.35   Error resolution procedures.

1024.36   Requests for information.

1024.37   Force-placed insurance.

1024.38   General servicing policies, procedures, and requirements.

1024.39   Early intervention requirements for certain borrowers.

1024.40   Continuity of contact.

1024.41   Loss mitigation procedures.

The language of those new sections is available here.

Appendices to Regulation X

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

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

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

***

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

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

Written by Steve Van Beek

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

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

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

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

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

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

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

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

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

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

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

***

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

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

***

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.

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

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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.    

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.  

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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).  

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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. 

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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.  

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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.

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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.     

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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.   

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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!