NAFCU Compliance Blog

Deconstructing the QM Safe Harbor in Construction to Permanent Loans; CFPB Mortgage Servicing Guide Updates

By: Reginald Watson, Regulatory Compliance Counsel

Greetings Compliance Friends!

It has been a few years since the CFPB's implementation of the ability to repay requirements and qualified mortgage safe harbor, yet many credit unions still find the points and fees calculations confusing, particularly the scale of the exemption for construction loans in the context of a hybrid construction to permanent loan.  As a reminder, Regulation Z now requires credit unions to consider a consumer's ability to repay a residential mortgage loan and these requirements are set out in section 1026.43(c).

Loans that meet the standard of a qualified mortgage under sections 1026.43(e) or (f) are given a presumption that the borrower has the ability to repay. The calculation of all applicable points and fees are an aspect of determining whether a transaction is a qualified mortgage and therefore, whether the transaction is presumed to meet the “ability-to-repay” requirements of section 1026.43(c). The procedures for counting points and fees are the same as those provided in the high cost mortgage rule found in section 1026.32(b)(1). The credit union is required to establish a member's ability to repay for only those residential mortgage loans which are covered by the scope of section 1026.43(a), which contains a specific exemption for "a construction phase of 12 months or less of a construction-to-permanent loan." 12 C.F.R. §1026.43(a)(3)(iii). If a loan is outside the scope of section 1026.43(a), then there is no regulatory requirement to establish a consumer's ability to repay under section 1026.43 or calculate the points and fees.

So, how do we account for the points and fees calculation when the credit union is financing the permanent loan in addition to the construction phase? 

The commentary to Regulation Z seems to give us two options: for purposes of the qualified mortgage rule, the credit union may treat the construction phase and the permanent phase as one single transaction, or as two separate transactions.  Either way, the credit union would be required to follow the procedures under section 1026.32(b)(1) to calculate the points and fees for all applicable charges for both the construction phase and the life of the loan. However, it is not entirely clear how to allocate fees between the construction and permanent phase of a loan – but the preamble to the ATR/QM rule indicates that the ability to treat these kinds of loans as either one or two transactions draws upon section 1026.17(c)(6)(ii)-5. The preamble also referred back to section 1026.17(c)(6)(ii) in other areas, so while not entirely clear, it seems this rule may be helpful guidance generally.  The staff commentary to section 1026.17(c)(6)(ii)-5 seems to suggest that when separating the transactions, the points and fees may be allocated as the credit union sees fit:

5. Allocation of costs.When a creditor uses the special rule in §1026.17(c)(6) to disclose credit extensions as multiple transactions, fees and charges must be allocated for purposes of calculating disclosures. In the case of a construction-permanent loan that a creditor chooses to disclose as multiple transactions, the creditor must allocate to the construction transaction finance charges under §1026.4 and points and fees under §1026.32(b)(1) that would not be imposed but for the construction financing. For example, inspection and handling fees for the staged disbursement of construction loan proceeds must be included in the disclosures for the construction phase and may not be included in the disclosures for the permanent phase. If a creditor charges separate amounts for finance charges under §1026.4 and points and fees under §1026.32(b)(1) for the construction phase and the permanent phase, such amounts must be allocated to the phase for which they are charged. If a creditor charges an origination fee for construction financing only but charges a greater origination fee for construction-permanent financing, the difference between the two fees must be allocated to the permanent phase. All other finance charges under §1026.4 and points and fees under §1026.32(b)(1) must be allocated to the permanent financing. Fees and charges that are not used to compute the finance charge under §1026.4 or points and fees under §1026.32(b)(1) may be allocated between the transactions in any manner the creditor chooses. For example, a reasonable appraisal fee paid to an independent, third-party appraiser may be allocated in any manner the creditor chooses because it would be excluded from the finance charge pursuant to §1026.4(c)(7) and excluded from points and fees pursuant to §1026.32(b)(1)(iii).

Thus, it seems that the credit union may make a risk-based business decision when allocating points and fees for purposes of the qualified mortgage safe harbor for the permanent financing phase of the loan. Appendix D to Reg Z provides specific guidance on how to make the actual calculations when these loans are treated as separate transactions in Part I or as a single transaction in Part II.

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CFPB Issues Update to Small Entity Compliance Guide

On March 29, 2018, CFPB updated the Mortgage Servicing Small Entity Compliance Guide (version 3.1) to incorporate recent amendments to the 2016 Mortgage Servicing Rules. As you may recall, we discussed these amendments in a previous NAFCU blogpost. Check out this link for our other blogs on the 2016 Mortgage Servicing Rules. CFPB also recently created a mortgage servicing coverage chart that credit unions may find helpful.

Mortgage Servicing Rules – A Drafting Error?

Written by Brandy Bruyere, Director of Regulatory Compliance

As everyone gears up to consume turkey tomorrow (or Tofurkey, or some other option, to each their own!), I wanted to share with everyone an issue with the mortgage servicing rules that a couple of our “eagle eye” members have asked about recently. This gets technical, so hang in there with me.

Most of the 2016 mortgage servicing rules go into effect on October 19, 2017, although provisions relating to successors in interest and borrowers in bankruptcy go into effect on April 19, 2018. Here’s an excerpt from the preamble to the rule:

“…the Bureau is adopting an effective date of one year after publication for all provisions, except for an effective date of 18 months after publication for the bankruptcy periodic statement exemption and modified statements (§ 1026.41(e)(5) and (f)) and for the following regulation text and commentary provisions specifically addressing successors in interest: In Regulation X, § 1024.30(d) and related comments 30(d)-1 through -3; the definitions of successor in interest and confirmed successor in interest in § 1024.31 and related comments 31 (Successor in interest)-1 and -2; § 1024.32(c) and related comments 32(c)(1)-1, 32(c)(2)-1 and -2, and 32(c)(4)-1; § 1024.35(e)(5); § 1024.36(d)(3) and (i) and related comments 36(i)-1 through -3; § 1024.38(b)(1)(vi) and related comments 38(b)(1)(vi)-1 through -5; comment 41(b)-1; comment appendix MS to part 1024-2; and in Regulation Z, § 1026.2(a)(11) and (27) and related comments 2(a)(11)-4 and 2(a)(27)(i)-1 and -2; comment 20(e)(4)-3; § 1026.20(f); comment 36(c)(1)(iii)-2; § 1026.39(f); comment 41(c)-5; and § 1026.41(g). The Bureau considered the comments, including the potential issues that could arise as a result of an inadequate implementation period and industry's focus on other recent mortgage rulemakings, and believes that these effective dates achieve the right balance between affording industry sufficient time for implementation and promptly affording consumers the benefits of the final rule.”

(emphasis added)

Notice, the preamble specifically notes that the commentary relating to successors in interest will take 18 months to become effective, but what about the commentary to the provisions on periodic statements for borrowers in bankruptcy (sections 1026.41(e)(5) and (f))? These provisions of the regulatory text have an 18 month implementation period, but there is no corresponding reference to the commentary to these two provisions being effective in 18 months.

This seems like a possible error in drafting. Commentary that does not reference a rule that is in effect does not have much meaning or weight as guidance. For example, should Regulation Z be updated with commentary to section 1026.41(f) before section 1026.41(f) is formally incorporated into the regulation, it would essentially be commentary to nothing, temporarily orphaned. Additionally, throughout the preamble, the CFPB is consistent in its position that the provisions specific to borrowers in bankruptcy become effective 18 months after the rule published in the Federal Register, or April 19, 2017. Here’s another excerpt relating to the effective dates:

“The Bureau recognizes that the final rule provisions regarding bankruptcy periodic statements and successors in interest may take more time to implement than the other final rule provisions. Specifically, servicers and third-party service providers need sufficient time to coordinate, develop, and test systems required to modify periodic statements for consumers in bankruptcy. They also need sufficient time to train employees regarding the bankruptcy periodic statement requirements. In addition, although the successor in interest provisions generally should not require the same levels of operating systems changes as the bankruptcy periodic statement requirements, the Bureau acknowledges that these proposed provisions generated more comments than any other aspect of the proposal. Many servicers may need to institute new systems to track potential and confirmed successors in interest who are not obligated on the loan, particularly as to those successors in interest who are not already covered under the policies and procedures requirement in existing [rules]. Servicers also need sufficient time to develop policies and procedures relating to the types of documents that they will accept to confirm successor in interest status for common factual scenarios that could arise under the final rule's broader definition of successor in interest. The Bureau also recognizes that servicers may wish to work with third-party service providers to ensure compliance with the successor in interest provisions. Thus, the Bureau believes that an implementation period of 18 months is reasonable for the changes to the bankruptcy periodic statement exemption and modified statements and to the provisions specifically addressing successors in interest.”

So if the commentary looks a little odd and refer to provisions not yet in effect when it is published in the Code of Federal Regulations, it would seem to be an error. The CFPB has issued technical corrections on somewhat similar occurrences but for now, the intention that the effective date of April 19, 2018 apply to these bankruptcy provisions seems clear.

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Programming Note. NAFCU's offices will close at noon today and also be closed on Thursday and Friday in observance of Thanksgiving. We wish you all a safe and wonderful holiday. We'll be open and back to blogging on Monday. 

CFPB’s Mortgage Servicing Rules - Part 6: Early Intervention

Written by Elizabeth M. Young LaBerge, Senior Regulatory Compliance Counsel

As you know, at the end of the summer, the CFPB amended its mortgage servicing requirements with a Final Rule that beats Fyodor Dostoyevsky, Thomas Pynchon and Ayn Rand for page count. The NAFCU Regulatory Compliance Team has already blogged on several topics:

• Successors in Interest;
• Force-Placed Insurance;
• Loss Mitigation;
• Small Servicer Exemption; and
• Periodic Statements.

Also, when we last blogged on this topic, the date of publication had been announced as October 19, 2016. Now we also have the citation: the Final Rule has been published in the Federal Register at 81 Federal Register 72160 (October 19, 2016).

Today, we are going to highlight some changes to the early intervention requirements in section 1024.39 of Regulation X. Early Intervention has two big pieces: establishing live contact with a delinquent borrower and providing written notice. But first, it’s important to highlight a new definition in Regulation X.

New Definition of Delinquency

Currently, there is discussion about when delinquency starts in the commentary of Regulation X. In its amendment, the CFPB added a formal definition to section 1024.31 for use across Regulation X. The definition does not differ from the existing commentary to early intervention:

“Delinquency means a period of time during which a borrower and a borrower’s mortgage loan obligation are delinquent. A borrower and a borrower’s mortgage loan obligation are delinquent beginning on the date a periodic payment sufficient to cover principal, interest, and, if applicable, escrow becomes due and unpaid, until such time as no periodic payment is due and unpaid.” 81 Fed. Reg. 72160, 72371.

Establishing Live Contact

Under amended section 1024.39(a), the requirement for live contact is no longer solely required before “the 36th day of the borrower’s delinquency;” it is required “again no later than 36 days after each payment due date so long as the borrower remains delinquent.” See, 81 Fed. Reg. 72372. So establishing or making an effort to establish live contact is required for each delinquent payment.

However, the new commentary also indicates the Bureau is not necessarily requiring the same efforts on a rolling basis. First, amended comment 39(a)-3 states that good faith efforts to establish live contact are relative to the age of the delinquency and responsiveness of the borrower. The amended commentary states that a phone call may be necessary to establish live contact on a new delinquency, but if an account has 6 or more missed payments, a written statement in the periodic statement or an email may satisfy the requirement. See, 81 Fed. Reg. 72381.

Also, an example in the commentary indicates that one attempt to establish live contact can be used to satisfy the requirement for multiple payments. Amended comment 39(a)-1.i.B. provides an example where a borrower has missed January, February and March payments. Where there is overlap in the 36 day period after payments, a single effort to establish contact can be used for multiple payments. See, 81 Fed. Reg. 72381.

Below is a table illustrating this example:

Providing Written Notice

There is a similar requirement in amended section 1024.39(b)(1) to provide the written notice in conjunction with each delinquent payment, rather than just by the 45^th day of the borrower’s delinquency. However amended section 1024.39(b)(1) only requires written notice to be sent once every 180 days. If, at that expiration of that 180 day period, the account is still more than 45 days delinquent, notice must be provided again. If the account is less than 45 days delinquent, then the credit union must simply provide additional notice no later than the 45 days after the payment due date for which they are delinquent. See, 81 Fed. Reg. 72372.

Written Notice and Bankruptcy. Notice must also be provided within 45 days of any bankruptcy filing, if the member is delinquent at the time of the filling. While the bankruptcy is ongoing, further written notice is not required, regardless of the 180 day rule or further delinquencies. If the member was current with the credit union at the time the bankruptcy was filed, but becomes delinquent during the course of the bankruptcy, the notice must be provided within 45 days of the delinquency, but not again during the bankruptcy. No notice is required if the member is in bankruptcy and has either requested no further contact under the FDCPA, or if there are no loss mitigation options available to that member. See, 81 Fed. Reg. 72372.

Written Notice and the FDCPA. Similarly, if the member has requested to cease contact under the FDCPA and no loss mitigation options are available to the member, the credit union is not obligated to send the written notice, even if no bankruptcy is involved. However, if loss mitigation options are available and no bankruptcy is involved, Regulation X still requires that the notice be sent. Amended section 1024.39(d) contains specific requirements for that notice, including new model clause language in MS-4(D) which will be added to Appendix MS. See, 81 Fed. Reg. 72372.

The amendments are dense, and your NAFCU Regulatory Compliance Team will keep sorting through the changes. NAFCU members should feel free to reach out to us with questions.

Monday Morning Wrap Up – FAQs and Upcoming Deadlines; NAFCU Congressional Caucus

Written by Brandy Bruyere, Director of Regulatory Compliance

NAFCU’s Congressional Caucus kicks off today, and hundreds of credit union representatives will hear from various regulators and members of Congress before heading to Capitol Hill to discuss important credit union issues with members of Congress and their staff. Regulatory burden remains a theme in many of these issues, and today I wanted to give a round-up of a couple of frequently asked questions and deadline reminders.

Mortgage Servicing Rule. Many people keep asking – when is this finally going to publish in the Federal Register? On August 4, the CFPB released changes to the 2014 mortgage servicing rules, with deadlines either 12 or 18 months after the rule is formally published.  It's been six weeks, but as of Friday when this blog was drafted, the rule had not yet hit the Federal Register so you did not miss it! NAFCU will be monitoring the Federal Register and we are in the process of completing additional resources for our members on this rule, but are holding off until we have formal compliance deadlines. We’ll continue to keep you posted on this one!

Military Lending Act. This deadline is in two weeks (October 3, 2016) and many credit unions have asked us about record retention requirements under the MLA. The DoD’s regulation does not specify the type of information that must be retained or contain a set record retention period.  Rather, the rule states that the safe harbor is available “so long as that creditor timely creates and thereafter maintains a record of the information so obtained.” Here’s the rule text for reference:

(3) Determination and recordkeeping; one-time determination permitted. A creditor who makes a determination regarding the status of a consumer by using one or both of the methods set forth in paragraph (b)(2) of this section shall be deemed to be conclusive with respect to that transaction or account involving consumer credit between the creditor and that consumer, so long as that creditor timely creates and thereafter maintains a record of the information so obtained. A creditor may make the determination described in this paragraph (b), and keep the record of that information obtained at that time, solely at the time—

(i) A consumer initiates the transaction or 30 days prior to that time;

(ii) A consumer applies to establish the account or 30 days prior to that time; or

(iii) The creditor develops or processes, with respect to a consumer, a firm offer of credit that (among the criteria used by the creditor for the offer) includes the status of the consumer as a covered borrower, so long as the consumer responds to that offer not later than 60 days after the time that the creditor had provided that offer to the consumer. If the consumer responds to the creditor's offer later than 60 days after the time that the creditor had provided that offer to the consumer, then the creditor may not rely upon its initial determination in developing or processing that offer, and, instead, may act on the consumer's response as if the consumer is initiating the transaction or applying to establish the account (as described in paragraph (b)(3)(i) or (ii) of this section).

Without an interpretation from the DoD about what precisely is sufficient, and knowing that this could be important for both demonstrating a covered borrower check to examiners as well as to assert a defense in litigation, many are opting to keep either the document from the MLA database or the credit report as the “record of the information so obtained.”  Additionally, the recent interpretative rule clarified that assignees of loans can also benefit from the safe harbor covered borrower check, if the assignee “continues to maintain the record created by the creditor that initially extended the credit.” Credit unions may want to consider what they are comfortable having as proof that the covered borrower check was performed for examination and litigation purposes.

NAFCU recently updated its MLA Compliance Guide which can be found here along with our other MLA resources.

NACHA Same Day ACH Phase 1. Phase 1 of NACHA’s same-day ACH changes go into effect on September 23, 2016 –this upcoming Friday. For more information, we blogged about this last year, NACHA has a resource center for this rule with helpful materials, the Federal Reserve has a FAQ page, and NCUA issued a Letter to Credit Unions earlier this month.

Other miscellaneous deadlines – Department of Labor, IRS Tax Reporting Changes. The DOL’s overtime rule is effective December 1, 2016 which impacts credit unions as employers.  Another deadline to keep on the radar especially if your credit union has relationships with investment providers is the DOL’s fiduciary duty rule, effective April 10, 2017 (more information is available in this NAFCU blog post). Finally, some of you may recall that the IRS made changes to the 2016 1098 mortgage interest statement, we blogged about this earlier in the year but as we approach the end of 2016, it seemed worth a reminder

Nolan and Lemmy. Nolan is almost 2, and he really likes petting Lemmy (or as he calls him, “Mem-mee”). For his part, Lemmy is a very patient guy about it! 

CFPB Issues Mortgage Servicing Rules – Part I: Successors in Interest

Written by Benjamin M. Litchfield, Regulatory Compliance Counsel

Greetings to all of you out there in regulatory compliance land. On August 4, 2016, the Consumer Financial Protection Bureau (CFPB or Bureau) issued a final rule amending certain mortgage servicing rules issued by the Bureau in 2013 and codified in various sections of Regulations X and Z. The rulemaking addresses issues such as force-placed insurance notices, early intervention, loss mitigation, prompt payment crediting, and the issuance of periodic statements. This blog highlights a topic that received more comments than any other aspect of the Bureau’s mortgage servicing proposal, the provisions addressing the rights of successors in interest.

Under the current 2013 RESPA Servicing Rules, credit unions are required to maintain policies and procedures designed to “promptly identify and facilitate communication with the successor in interest of [a] deceased borrower with respect to the property secured by the deceased borrower’s mortgage loan.” 12 C.F.R. § 1024.38(b)(1)(vi). In the October 2013 Servicing Bulletin, the Bureau provides examples of servicer practices that it believes should be part of the policies and procedures required by Regulation X, including promptly providing any party claiming to be a successor in interest with a list of all the documents that the servicer requires to establish the death of the borrower and the identity and legal interest of the successor and evaluating whether the successor is eligible for any loss mitigation options if the mortgage loan is delinquent. See, Servicing Bulletin at 2-3.

The 2016 Mortgage Servicing Rules amend commentary to Section 1024.38(b)(1)(vi) to provide further guidance on the types of documents that a servicer can reasonably require to confirm a potential successor in interest’s identity and ownership interest in the property. While these documents may vary depending on the law in the relevant jurisdiction, the Bureau provides several illustrative examples depending on the nature in which the successor in interest acquires an ownership interest in the property. In addition, the amended commentary notes that “a servicer’s policies and procedures must be reasonably designed to ensure that the servicer can promptly notify the potential successor in interest that the servicer has confirmed the potential successor in interest’s status.” See, Preamble to 2016 Mortgage Servicing Rules, pp. 821-4.

Most importantly, however, the Rules significantly expand the protections afforded to successors in interest by redefining “borrower” in Subpart C of Regulation X and “consumer” in Regulation Z to include “confirmed successors in interest.” See, Preamble to 2016 Mortgage Servicing Rules, pp. 782, 854. This means that the mortgage servicing provisions contained in Subpart C of Regulation X, including error resolution, early intervention, and loss mitigation, will apply to successors in interest that have been verified by the servicer. Credit unions will also be required to provide confirmed successors in interest with rate adjustment notices for adjustable rate mortgages, periodic statements, and to promptly credit payments according to the requirements in Section 1026.36 of Regulation Z. Furthermore, the Mortgage Servicing Rules extend the coverage of Section 1024.17 of Regulation X, which sets forth certain requirements for escrow accounts, to confirmed successors in interest.

In addition, while the limited protections in the 2013 RESPA Servicing Rules were naturally limited to the “spouse, child, or heir of a deceased borrower or other party with an interest in the property,” the 2016 Mortgage Servicing Rules expand the number of individuals who qualify as successors in interest under Regulations X and Z. As amended, mortgage servicing protections, such as loss mitigation, will now be available to transferees of property securing a mortgage loan transferred from a borrower under the following circumstances:

• A transfer by devise, descent, or operation of law on the death of a joint tenant or tenant by the entirety;

• A transfer to a relative following the death of a borrower;

• A transfer where the spouse or children of the borrower become an owner of the property;

• A transfer resulting from a divorce decree, legal separation agreement, or incidental property settlement agreement, by which the spouse of the borrower becomes the owner of the property; or

• A transfer into an inter vivos ("between the living") trust in which the borrower is and remains a beneficiary and which does not relate to transfer of rights of occupancy in the property.

See, Preamble to 2016 Mortgage Servicing Rules, pp. 783-4. One point of clarification here is that individuals who may otherwise qualify as successors in interest but who are already joint obligors on the mortgage loan are already protected as borrowers under Regulations X and Z and those protections are not limited to those available to successors in interest under the 2016 Mortgage Servicing Rules. For example, as a joint obligor, this individual would typically have standing to bring a Regulation Z claim not related to any mortgage servicing acts or practices committed by the servicer.

The amended commentary also clarifies that confirmed successors in interest are not required to assume a mortgage loan prior to receiving the protections of the Rules. If the confirmed successor in interest does decide to assume the mortgage loan or otherwise becomes liable on the obligation, the successor in interest is entitled to the full protections of Regulations X and Z rather than just the mortgage servicing provisions. Furthermore, even after the servicer has confirmed a successor in interest, the servicer must still comply with all applicable requirements of Regulations X and Z with respect to the transferor borrower. See, Preamble to 2016 Mortgage Servicing Rules, pp. 114-5; 813-4.

To address privacy concerns raised by NAFCU, the 2016 Mortgage Servicing Rules also amend the error resolution and request for information provisions in Sections 1024.35 and 36 of Regulation X to permit credit unions to omit certain information such as location, contact information, and personal financial information other than the terms, status, and payment history of the mortgage loan from information provided to a potential or confirmed successor in interest. See, Preamble to 2016 Mortgage Servicing Rules, pp. 787-9. When responding to a request for information from a potential successor in interest, credit unions are required to treat the potential successor as a “borrower” for purposes of Section 1024.36. This means, for example, that the credit union would be subject to the timing requirements in paragraph (d) and the prohibition on charging a fee for an information request in paragraph (g)(1) of that Section.

While the bulk of the 2016 Mortgage Servicing Rules are effective 12 months after publication in the Federal Register, the successor in interest provisions are not effective until 18 months after publication. These effective dates happen to roughly coincide with the first and second implementation phases of the CFPB’s revised HMDA Rules, which NAFCU expects will be a significant compliance challenge for credit unions. In order to help assist our members, the Regulatory Compliance Team will provide additional resources on both the Mortgage Servicing Rules and revised HMDA in the coming months through blog posts, guides, and other publications. Currently available resources can be found here and here.

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A Seaside Vacation. While not typically NAFCU policy, I happened to write this blog post on a rainy day while on vacation in Rhode Island. I found the calm ocean vistas an interesting contrast to the sturm und drang of the CFPB’s Mortgage Servicing Rules. Here are some photos of Block Island, just an hour ferry ride away from the mainland.

 

CFPB’s Summer 2015 Supervisory Highlights; Programming Notes

Written by JiJi Bahhur, Director of Regulatory Compliance

Last week, the Consumer Financial Protection Bureau (CFPB) released its eighth edition – Summer 2015 – of Supervisory Highlights.  Each edition of the CFPB’s Supervisory Highlights reports outline illegal practices that the CFPB’s examiners uncovered during a specific timeframe.  Specifically, the Summer 2015 edition covers illegal practices cited during the first four months of 2015 and include observations in:

• Consumer reporting;
• Debt collection;
• Student loan servicing;
• Mortgage origination;
• Mortgage servicing; and
• Fair lending. 

One of the CFPB’s concerns was that mortgage servicing rules still remained an issue even after being in effect for a year.  In a press release, CFPB Director Richard Cordray stated, “Consumers deserve to be treated with honesty and integrity, and our rules require that servicers give borrowers a fair process when they try to save their homes.  The CFPB will continue to stand beside consumers to make sure mortgage servicers are following the law.” 

I don’t want to spoil your reading if you haven’t had a chance to read it yet, but here is a snippet from the mortgage servicing portions of the report:

“2.5.1 Loss mitigation

Regulation X sets forth requirements for soliciting, completing, and evaluating loss mitigation applications. As part of these requirements, servicers must notify borrowers in writing within five days after receiving a loss mitigation application acknowledging that it received the application, and stating whether it is complete or incomplete. If the application is incomplete, the servicer must list in its notice the additional documents and information the borrower must submit to complete the application, often called “acknowledgement notices.”

Examiners found that at least one servicer sent borrowers loss mitigation acknowledgment notices requesting documents, sometimes dozens in number, inapplicable to their circumstances and which it did not need to evaluate the borrower for loss mitigation. Examiners also found that at least one servicer sent loss mitigation acknowledgement notices requesting documents that borrowers had previously submitted. Supervision cited the servicers for violating Regulation X and directed them to state in acknowledgment notices the specific additional documents actually required to complete a loss mitigation application.

Examiners also found that one or more servicers failed to send any loss mitigation acknowledgment notices. At least one servicer did not send notices after a loss mitigation processing platform malfunctioned repeatedly over a significant period of time. Supervision cited one or more servicers for violating Regulation X. Supervision also cited this practice as unfair because the breakdown caused delays in converting trial modifications to permanent modifications, resulting in harm to borrowers, and may have caused other harm. The injury caused by the platform failure is not reasonably avoidable by consumers and is not outweighed by countervailing benefits to consumers or competition. At Supervision’s direction, one or more servicers have begun to remediate consumers, including for interest and fees incurred and for any additional harm. Supervision also directed one or more servicers to fix the servicing platform and to monitor for system weaknesses.

At least one other servicer did not send loss mitigation acknowledgment notices to borrowers who had requested payment relief on their mortgage payments. One or more servicers treated certain requests as requests for short-term payment relief instead of requests for loss mitigation under Regulation X. However, short-term payment relief, including deferments, provide loss mitigation options in that they provide borrowers an alternative to foreclosure, and Regulation X requires that servicers send loss mitigation acknowledgment notices in response to requests for a loss mitigation option. Supervision determined that at least one servicer violated Regulation X by failing to send these notices.

Additionally, examiners found a deceptive practice related to how one or more servicers disclosed the terms of a payment plan that deferred mortgage payments for daily simple interest mortgage loans.35 The servicer’s communications included misleading representations about how the deferments worked, incorrectly suggesting that deferred interest would be repayable at the end of the loan term when, in fact, it would be collected from the consumer immediately after the deferment ended. Supervision directed one or more servicers to clearly disclose how interest accrues while on the plan and its impact on monthly payments after the deferment period concludes.

The Bureau continues to examine for the risks inherent in transferring loans in loss mitigation, including the risk that information is not accurately transferred between servicers. Examiners found one or more servicers failed to honor the terms of some trial modifications after transfer. Some borrowers who completed trial payments with the new servicer nonetheless encountered substantial delays before receiving a permanent loan modification. Supervision concluded that the delay caused substantial injury as trial payments were less than the amounts required by the promissory note, and consumers continuing to make trial payments while waiting for the permanent modification accrued interest on the unpaid principal balance. Because Supervision also concluded that such injury is not reasonably avoidable by consumers and is not outweighed by countervailing benefits to consumers or competition, Supervision cited this practice as Supervision directed one or more servicers to develop and implement policies, procedures, training, and audits to promptly identify and honor loss mitigation agreements, whether completed or in progress, between the borrower and prior servicer at time of transfer.””(footnotes omitted). 

Other violations cited under the mortgage servicing section of the report included findings in the areas of foreclosure, periodic statement disclosures, and Homeowners Protection Act compliance. 

Although the CFPB only has examination authority over certain financial institutions, including credit unions over $10 billion, its supervisory focus affects all financial institutions and serves as a means for even smaller credit unions to stay compliant with federal consumer financial laws.

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Programming Note #1.  Exciting news!  NAFCU’s Compliance Team strives to ensure that its credit union members continue to receive up-to-date, useful compliance resources.  As part of those efforts, we will be releasing the first issue of a new online newsletter – NAFCU Compliance Cybercafé – in August.  As the name suggests, the newsletter, which will be made available periodically, will focus on cyber security and other inter-related items, with an emphasis on looking at these issues from the perspective of a compliance officer. 

In related news,  we have made a business decision to combine the July and August Compliance Monitor issues into one – the July/August issue.  We will release the issue in mid-July.   Rest-assured, all content that would normally be covered over 12 issues will still be covered within the existing issues we release.

Programming Note #2.  NAFCU's office will close at noon on Thursday and will also be closed on Friday for the long holiday weekend. We will be back to blogging on Monday. Have a great long weekend!

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NAFCU, CBANC Network Form Strategic Alliance. NAFCU and CBANC Network have partnered to help credit unions share policies, procedures, agreements, and best practices in real time. CBANC’s content is community-driven, with thousands of policy and procedure documents, vendor and product reviews, and Q&A forums. Click here to join and access this helpful compliance resource! CBANC content is peer-to-peer and not reviewed for accuracy by NAFCU; it does not constitute legal advice.

 

CFPB Releases Compliance Bulletin and Guidance for Mortgage Servicers

Written by Angela Meyster, Senior Regulatory Affairs Counsel

Last week, the Consumer Financial Protection Bureau (CFPB) released a Compliance Bulletin and Policy Guidance(Guidance) for residential mortgage servicers and subservicers to use in evaluating the potential risks to consumers that may occur when transferring residential mortgage servicing rights (MSRs). Of course, for credit unions, such transfers are one way - NCUA prohibits credit unions from purchasing MSRs, but not selling them, in Section 703.16(a).

The Guidance replaces CFPB Bulletin 2013-01, released in February 2013, and serves to inform mortgage servicers that the CFPB intends to review carefully compliance with the revised Regulation X that took effect on January 10, 2014. The revised Regulation X implements the Real Estate Settlement Procedures Act (RESPA) and requires servicers to maintain policies and procedures “reasonably designed to achieve the objectives of facilitating the transfer of information … and of properly evaluating loss mitigation applications.”

The Guidance has four sections. Section A, “General Transfer-Related Policies and Procedures,” gives examples of transfer-related policies and procedures the CFPB may evaluate to determine a servicer’s compliance with revised Regulation X. Section B, “Applicability of the New Servicing Rules to Transfers,” provides answers to frequent questions regarding revised Regulation X and identifies risk areas on which CFPB examiners may focus. Section C, “Protections under Federal Consumer Financial Law,” offers descriptions of the other federal law that may be applicable to transfers of MSRs, as well as the possible consequences of non-compliance. Finally, Part D, “Plans for Handling Servicing Transfers,” alerts entities engaged in frequent MSR transfers that the CFPB may require them to prepare and submit informational plans to ensure that they manage any risks posed to consumers. 

The takeaway here is that this is clearly an area to which the CFPB, and, by a function of that, NCUA, are paying attention. If your credit union transfers its mortgage servicing rights you will need to be on the lookout for these issues and should consider giving the Guidance an in-depth read. The Guidance is effective October 23, 2014 and applicable beginning August 19, 2014.

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And now for a shameless plug on an upcoming NAFCU Webcast: Annual BSA Training for Boards of Directors. Equip your volunteer officials with an overview of their fiduciary duties while meeting annual BSA training requirements with this special webcast presented by NAFCU’s executive vice president and COO, Anthony Demangone. This short, fast-paced training session will highlight the general structure of America's anti-money laundering system, outline your directors’ responsibilities related to BSA and OFAC requirements, and more. Your entire board can take part for only one special price: $100 for members, $150 for nonmembers. Sign up here. 

CFPB Releases Winter 2013 Edition of Supervisory Highlights; Time-Out

Written by JiJi Bahhur, Director of Regulatory Compliance

Recently, the Consumer Financial Protection Bureau (CFPB) released its winter 2013 edition of Supervisory Highlights, a report highlighting issues it uncovered through its supervision program during a specified period of time.   The winter edition includes supervision work completed between July and October 2013, and highlights problems like unfair and deceptive practices in the mortgage servicing market. 

In this edition of the Supervisory Highlights, the CFPB made it a priority to address mortgage servicing problems so that servicers can make necessary changes and prepare for compliance with the new mortgage servicing rules.  The new rules, which went into effect on January 10, 2014, require servicers to maintain accurate records, give troubled borrowers direct and ongoing access to servicing personnel, promptly credit payments, and correct errors on request.  The rules also provide strong protections for homeowners facing foreclosure. 

The CFPB’s press release summarizes some of the items that mortgage servicers were cited for, specifically relating to the ban on unfair, abusive or deceptive acts and practices.  These include: 

• “Unfair practices with servicing transfers: The rights to manage a loan are frequently bought and sold among servicers. Examiners found that two servicers engaged in unfair practices by failing to honor existing permanent or trial loan modifications after a servicing transfer, which resulted in borrowers being charged the wrong amount or being told to pay the wrong amount.

 

• Waiving consumer rights: CFPB examiners found that two servicers were requiring borrowers to waive any existing claims in order to get a forbearance or loan modification agreement. The examiners found these broad waiver clauses to be unfair as they were done without regard to individual circumstances.

 

• Poor payment processing: Servicers are responsible for processing loan payments and handling tax and insurance payments through escrow accounts. Examiners found that a servicer was marketing bi-weekly payment plans and misrepresenting how the plans worked. As a result, consumers did not save money the way they thought they would. Another servicer told some borrowers they would receive refunds from their escrow accounts, when in fact they would not.

 

• Failing to provide correct information to consumer reporting agencies:  Mortgage servicers generally provide data to consumer reporting agencies.  CFPB examiners found cases where servicers were misreporting short sales as foreclosures, which have a much more negative impact on a consumer’s      ability to get certain types of credit.”

Companies that were cited for the above violations were notified and required to take remedial measures.  In certain instances, the CFPB opened investigations for potential enforcement actions.

Even though the CFPB only supervises credit unions with total assets of more than $10 billion, the Supervisory Highlights can serve as a useful tool for credit unions of all sizes.  Why you ask?  The credit union can check their current practices and make necessary adjustments to potentially avoid scrutiny from their applicable examining agency, at least on those particular issues. 

***

It’s Friday!  And even better, the weekend has arrived.  I like to take this time to try to take a time-out from compliance land.  Speaking of time-outs, my husband and I have attempted to implement “time-out” with our 17-month old son because he loves to pull his twin sister’s hair, steam roll her, use her as a bench, etc.  Last weekend, my son, Kyse, decided he wanted to break the blinds in the living room, which he successfully did.   Before my husband or I could even say anything, Kyse immediately ran to the time-out chair and sat down like it was common procedure.  I’m pretty sure both of our jaws hit the ground; we had to walk away quickly because we both were about to burst out into laughter.

Have a great weekend!

NCUA Regulatory Alerts; CFPB Updates Consumer Brochures & Examination Manuals; Upcoming Webcast

Written by Brandy Bruyere, Regulatory Compliance Counsel

We hope everyone successfully survived last Friday’s mortgage rule compliance deadlines! While many of us spent Monday settling into the new regulatory regime, NCUA released two Regulatory Alerts— 14-RA-03 and 14-RA-04 (Alerts). These Alerts provide an overview of the new mortgage servicing rules under Regulation X (RESPA) and Regulation Z (TILA). Most of these rules went into effect on January 10^th and these Alerts are helpful basic summaries of these rules.

Together, these two Alerts address the nine mortgage servicing provisions. The first three are under Regulation Z and the last six are under Regulation X:

• Periodic statements;
• Adjustable Rate Mortgage (ARM) disclosure notices;
• Prompt crediting and payoff statements;
• Force-placed insurance;
• Error resolution and information requests;
• General servicing policies, procedures, and requirements;
• Early intervention with delinquent members;
• Continuity of contact with delinquent members;
• Loss mitigation

Generally, the Alerts address the scope of the regulations as well as the content and timing required for various notices and statements. Also, both Alerts summarize the definition of the small servicer exemption:

“How Does a Credit Union Qualify for the Small Servicer Exemption?

Your credit union is considered a small servicer under both the TILA and RESPA Mortgage Servicing rules if:

• Together with any affiliates, you service 5,000 or fewer mortgages, and you (or an affiliate) are the creditor or assignee for all of them.

An affiliate is defined as any company that controls your credit union, is controlled by your credit union, or is under common control with your credit union.6 For example, a credit union service organization (CUSO) that is owned by a credit union is considered an affiliate.

If you service any mortgages you (or an affiliate) did not originate or do not own, you do not qualify as a small servicer, even if you service 5,000 or fewer loans overall. For example, if you service 2,000 loans—1,999 of which you own or originated and one of which you neither own nor originated but for which you own the servicing rights—you do not qualify as a small servicer because you service a loan for which you (or an affiliate) are not the creditor or assignee.

To determine if you are a small servicer, count “mortgage loans” only. A mortgage loan is a closed-end consumer credit transaction secured by a dwelling. Do not include reverse mortgages, timeshare plans, or loans you voluntarily service for a creditor or an assignee that is not an affiliate and for which you do not receive any compensation or fees.

The small servicer exemption is determined each calendar year based on the loans you and your affiliates service as of January 1 for the remainder of the year.

You can lose the small servicer exemption if you:

• Service more than 5,000 loans; or

• Take on the servicing of a loan you do not own or did not originate.

If you lose the exemption, you have six months from the date you stopped being a small servicer or until the next January 1 (whichever is later) to comply with the RESPA/TILA mortgage servicing requirements from which you were exempt as a small servicer.”

Just remember, the small servicer exemption is only available for a few of the mortgage servicing rules. Here is a past NAFCU blog which clarifies which rules are eligible for this exemption.

***

CFPB Updates. Also, on Friday the CFPB released two items that may be of interest. The first details changes to certain consumer information brochures (Sample Letters to Mortgage Servicers to Guide Consumers). The second is a notice regarding updates to its examination manuals for mortgage origination and servicing.

***

Shameless Plug Alert—Webcast: On Wednesday, February 5^th, NAFCU will host a webcast titled Getting Complaints – What to Do Next to Safeguard and Improve Your Credit Union. A properly activated complaint management process helps satisfy NCUA requirements for documenting and responding to customer criticisms. Register by Jan. 29 to save $100 and learn the steps your credit union should be implementing.

I’ll end on a palate cleanser, at least for those who love dogs. My husband and I adopted our dog from a local rescue two years ago, and during that time my dog has almost grown as big and robust as mortgage regulations. It’s hard to believe he was ever so “small.”

 

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.

***

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. 

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. 

 ***

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. 

***

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. 

***

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!

CFPB’s Modifications to Loss Mitigation Procedures and Pre-Foreclosure Review Period

Written by Angela Meyster, Regulatory Affairs Counsel

By now you’ve probably begun looking at the CFPB’s January 2013 mortgage rules and started thinking about how to comply.  The CFPB understands there have been some hiccups with implementing certain provisions of the rules and, accordingly, has been rolling out modifications as part of its implementation plan. On September 13, 2013, the CFPB released amendments to the 2013 Mortgage Rules under the Equal Credit Opportunity Act (Regulation B), Real Estate Settlement Procedures Act (Regulation X), and the Truth in Lending Act (Regulation Z).  

Of particular interest to credit unions are the provisions relating to loss mitigation procedures and the pre-foreclosure review period.  The newly amended rule, found in § 1024.41(f), reads:

"(1) Pre-foreclosure review period. A servicer shall not make the first notice or filing required by applicable law for any judicial or non-judicial foreclosure process unless:

(i) A borrower’s mortgage loan obligation is more than 120 days delinquent;

(ii) The foreclosure is based on a borrower’s violation of a due-on-sale clause; or

(iii) The servicer is joining the foreclosure action of a subordinate lienholder." 

Thus, the rule does not generally allow servicers to make the first notice or filing that is required under state law within 120 days of delinquency.

The September 2013 Amendments specifically address what constitutes the “first notice or filing required by applicable law.”  NAFCU had sought clarification that certain state-required notices that are meant to notify borrowers about counseling or other loss mitigation resources are not prohibited under this rule. The CFPB has provided some clarity as to what a credit union can do to comply with state law foreclosure requirements within the 120-day period without running afoul of the CFPB’s prohibition against making the first notice or filing.

In its new commentary, the CFPB clarifies whether a credit union has made “the first notice or filing required by applicable law” prohibited by the 120-day rule. The commentary specifies that, where State foreclosure law requires a court action or proceeding, a document is a first notice or filing if it is the earliest document State law requires a credit union to file with a court or other judicial body to commence the action or proceeding.  This could be a complaint, a petition, an order to docket, or a notice of a hearing.

The commentary also explains that if applicable State law does not require an action or proceeding in court, and instead allows the use of a power of sale or the publishing or recording of a similar document, a document is the first notice or filing if it is the earliest document that State law requires that a credit union record or publish to begin the foreclosure process.  Where applicable State law requires neither a court action nor the recording or publishing of a particular document, a document is the first notice or filing if it is the earliest document to establish or schedule a particular date for a foreclosure sale.

Finally, the CFPB’s new commentary points out that a credit union doesn't violate this provision if it gives a borrower a document that applicable State law doesn't initially require to be filed, recorded, or published simply because the credit union would have to include that document as an attachment to other documents necessary to initiate a foreclosure.

***

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, don’t forget to use this valuable member resource (login required) when researching the rules!

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.

The consolidated regulatory text has been updated with the recent final rule issued by the CFPB on September 13, 2013 (published in the Federal Register on October 1). The final rule discussed above will be incorporated into the consolidated regulatory text when they are published in the Federal Register.

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 NAFCU’s Mortgage Rules webpage. 

 

 

CFPB Releases New Mortgage Servicing Guidance; NCUA’s October 2013 Board Agenda Available; Programming Note

Written by JiJi Bahhur, Director of Regulatory Compliance

Mortgage Servicing Guidance.  Earlier this week, the CFPB issued additional guidance on the CFPB’s mortgage servicing rules.  Specifically, the CFPB released a bulletin and an interim final rule to provide greater clarity to the 2013 TILA and RESPA mortgage servicing rules that take effect in January, 2014.  According to the CFPB’s press release, the new guidance provides clarifications on three servicing issues, among other things. 

The three servicing issues that are clarified are home retention efforts after a borrower dies, early intervention requirement to contact delinquent borrowers, and the interplay between the servicing rules, bankruptcy code, and the Fair Debt Collection Practices Act (FDCPA).

For further detail, the press release can be located here.  The bulletin – only 7 pages in length – can be located here.  And the interim final rule is located here.

NAFCU will issue a Regulatory Alert seeking comments on the amendments within the interim rule.  Once available, it will be located here (NAFCU log-in required).

***

NCUA’s October 2013 Board Agenda.  NCUA’s next board meeting takes place on October 24, 2013 with the open session starting at 10:00am.  Matters that will be considered during the open session include:

• Proposed Interagency Rule, Part 760, Loans in Areas Having Special Flood Hazards;
• Quarterly National Credit Union Share Insurance Fund Report;
• Final Rule, Parts 741 and 748, Electronic Filing of Financial Reports;
• Final Rule, Part 741, Liquidity and Contingency Funding Plans; and
• Proposed Rule, Part 702, Credit Union Capital Planning and Stress Testing.

The board agenda, available as of yesterday, is available here.

***

Programming Note.  Next week is NAFCU’s Regulatory Compliance Seminar, which will be held at the Gaylord Opryland Resort & Convention Center in Nashville, Tennessee.  NAFCU’s Regulatory Affairs, Political Affairs, and Legislative departments have volunteered to hold down the blog fort during this busy time, so keep your eyes peeled for these exciting guest blog posts next week. 

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! 

 

Update on Interchange Fees; CFPB Releases Supervisory Highlights; Seminar Savings End Today

Written by Steve Van Beek

Happy Friday! First off, there was another hearing on Wednesday discussing the interchange fees and the next steps for the Federal Reserve. At the hearing, the Federal Reserve indicated:

• It was appealing the District Court decision;
• It was requesting a stay of the decision (and if that was denied, they would appeal that decision); and
• It was seeking an expedited appeal to return certainty to the market.

Interestingly, the merchants supported the Fed's request for a stay - as a world without the Fed's regulation would mean no cap on interchange fees.

For additional information, be sure to review NAFCU's video update featuring Carrie Hunt, NAFCU's senior vice president of government affairs and general counsel:

***

CFPB's Supervisory Highlights. On Wednesday, the CFPB issued their second Supervisory Highlights Report (which looks at exams completed between November 2012 and June 2013). 

The first two sentences of the CFPB's press release sum up the report:

"Today, the Consumer Financial Protection Bureau (CFPB) issued a report detailing mortgage servicing problems at banks and nonbanks. The report also found that many nonbanks lack robust systems for ensuring they are following federal laws."

We'll be taking a deeper look at this report in future blog posts but, for now, be sure to read through the press release.

***

NAFCU's Regulatory Compliance Seminar. Today is the last day of savings for NAFCU's Regulatory Compliance Seminar - October 22-25 in Nashville, Tennessee. Need to convince someone at your credit union that you need to attend? I'm biased, of course, but pass along the Curriculum and the Faculty information and that should help!!

Hope to see you in Nashville! And, the seats are filling up fast - if you are planning on attending - register soon!

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.

***

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

 

***

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!

CFPB Amends Ability-to-Repay and Mortgage Servicing Rules; Provides Clarification on Implementation Dates for ARM Disclosures

Written by Bernadette Clair, Regulatory Compliance Counsel

Last week, the CFPB finalized amendments to its ability-to-repay and mortgage servicing rules. These amendments clarify, correct, or amend provisions on:

• The relation to State law of Regulation X’s servicing provisions;

• Implementation transition requirements for adjustable-rate mortgage disclosures;

• The small servicer exemption from certain of the new servicing rules;

• Exclusions from the repayment ability and prepayment penalty requirements for higher-priced mortgage loans (HPMLs);

• The use of government sponsored enterprise (GSE) and Federal agency purchase, guarantee or insurance eligibility for determining qualified mortgage (QM) status; and

• The determination of debt and income for purposes of originating QMs.

The CFPB's press release highlights some of the changes, and the final rule may be found here.

*** 

Implementation Dates for ARM Notices. One particular item that I want to bring to your attention – which is not a revision to the rule itself or the official commentary – is clarification that the CFPB has included in the section-by-section analysis regarding implementation dates for ARM Notices.

When the CFPB issued its final mortgage servicing rules amending Regulation Z back in February, it did not provide guidance regarding its expectations for providing ARM disclosure notices required by amended sections 1026.20(c) and 1026.20(d) for ARMs that would be adjusting shortly after the January 10, 2014 effective date (and for which the timing requirements could not be complied with unless institutions sent out notices before the effective date of the rule).

Well, the CFPB must have received quite a few requests for clarification on the issue, and includes this clarification:

"Implementation Date. In its proposal, the Bureau did not seek to revise or clarify § 1026.20(c) and (d), the adjustable-rate mortgage (ARM) servicing regulations issued by the Bureau in the 2013 TILA Servicing Final Rule. Nevertheless, the Bureau received unsolicited queries regarding the implementation dates for these rules. Despite the unsolicited nature of these comments, the Bureau believes it would be helpful to clarify the ARM implementation dates.

ARM regulations § 1026.20(c) and (d) generally apply to ARMs originated both prior to and after the January 10, 2014, effective date. However, no servicer is required to comply with the rule until the effective date.

Implementation Date for § 1026.20(d). Because the notice required by § 1026.20(d) must be provided to the consumer between 210 and 240 days before the first payment is due after the initial interest rate adjustment, servicers will not be required to provide the § 1026.20(d) notice when such payment is due 209 or fewer days from the effective date. However, payments due 210 or more days from the effective date are subject to the rule.

Implementation Date for § 1026.20(c). Because the notice required by § 1026.20(c) must be provided to the  consumer between 60 and 120 days before the first payment is due after an interest rate adjustment causing a corresponding change in payment, servicers will not be required to provide the § 1026.20(c) notice when such payment is due 25 to 59 days from the effective date. Note that, under the time frame of current § 1026.20(c), notices are required 25 to 120 days before the first payment is due after the interest rate adjustment. Thus, servicers already will have provided the § 1026.20(c) notices required by the current rule when such payment is due 24 or fewer days from the January 10, 2014, effective date.” (Emphasis added)

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

***

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

****

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

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

Written by Steve Van Beek

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

***

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. 

30 Minutes to Report Credit Card Plans?; Consumer Compliance Outlook; HELOC Webcast

Written by Steve Van Beek

Information Collection on Report for Credit Card Plans. Remember back on February 1 where I got all bent out of shape regarding the CFPB's expansion of their Credit Card Survey to certain credit unions with 10 days notice? 

Yesterday, the CFPB issued an Information Collection Request which asks whether the 30 minutes it estimates for financial institutions - including approximately 20 of the largest credit unions - is accurate. 

"Request for Comments: Comments are invited on: (a) Whether the collection of information is necessary for the proper performance of the functions of the Bureau, including whether the information shall have practical utility; (b) The accuracy of the Bureau's estimate of the burden of the collection of information, including the validity of the methods and the assumptions used; (c) Ways to enhance the quality, utility, and clarity of the information to be collected; and (d) Ways to minimize the burden of the collection of information on respondents, including through the use of automated collection techniques or other forms of information technology. Comments submitted in response to this notice will be summarized and/or included in the request for Office of Management and Budget (OMB) approval. All comments will become a matter of public record."  (Emphasis added).

The reporting form is FR 2572. And, you can also review the instructions and form (opens as an Excel document) for responding to the report. After reading the instructions, would you say that completing the task would take 30 minutes?  Me neither.  

For the 20 or so credit unions who were recently added to the Report - did it take your credit union 30 minutes?  For those credit unions who weren't covered - how long did it take you to determine you weren't covered?  

***

Consumer Compliance Outlook. The First Quarter issue of the Philadelphia Federal Reserve's Consumer Compliance Outlook is now available. The articles this issue include:

• Servicemember Financial Protection Webinar: Questions and Answers
• 2012 Year in Review Webinar: Questions and Answers
• Credit CARD Act Requirements for Gift Certificates, Store Gift Cards, and General-Use Prepaid Cards

You can also download the full PDF here.

***

HELOC Webcast. Don't miss NAFCU's webcast tomorrow on Which New Requirements Apply to HELOCs? - where I'll be walking through the new mortgage requirements that apply to HELOCs.   

***

Wow - you couldn't ask for a better game last night (a different outcome, sure!).  Hats off to Louisville on a great season and an outstanding game. For Michigan - what a run and well done. 

I'll leave you with my favorite image from the game (Getty Images):

Oh, yeah - that was called a foul. One thing is for sure, the blog has definitely upped its basketball coverage since the days of Anthony's Penn State Nittany Lions. Fred also mentioned the coverage was a little too skewed to Michigan - so here is a link to Navy's season as well (does David Robinson have any eligibility left?).   

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!

Outstanding Article on Reg E Error Resolution Procedures; Upcoming NAFCU Webcasts

Written by Steve Van Beek

Last Wednesday, I blogged on an article from the Fourth Quarter 2012 Philadelphia Federal Reserve's Consumer Compliance Outlook on Vendor Risk Management. Today, I wanted to share another outstanding free article on Error Resolution Procedures and Consumer Liability Limits for Unauthorized Electronic Funds Transfers.

The article is an absolute must read  - especially the examples which demonstrate the timeframes and liability limits. I strongly suggest passing this around to others at your credit union and consider using for training.

Reg E error resolution procedures has been mentioned by NCUA's Office of Consumer Protection in the past as an area where they see numerous member complaints and technical violations by credit unions (for example, by missing the timeframe requirements).  Again, take a look at the full article and be sure to share liberally at your credit union to ensure everyone is on the same page.

***

Upcoming NAFCU Webcasts.  We have another full slate of webcasts for the next month or so. Registration is open for all the webcasts listed below:

• Which New Requirements Apply to HELOCs? - April 10, 2013.  Register by COB Wednesday to Save $100!
  • Unfortunately, the new requirements applicability to HELOCs are scattered throughout the 3507 pages of mortgage information released by the CFPB. I'll be explaining which requirements apply to HELOCs and, just as importantly, which do not. If your credit union makes HELOCs, be sure to sign up!

• Preparing for New Mortgage Servicing Notices - April 17, 2013
  • Suzanne Garwood of Venable, LLP will explain new mortgage servicing notices including the mortgage periodic statement, interest rate adjustment notices (ARM notices) and force-placed insurance notices. Keep in mind that the small servicer exemption only applies to the periodic statement requirement and all credit unions servicing closed-end mortgages would need to comply with the ARM notices and force-placed insurance notices. Sign up by April 10 to Save $100!

• A Look Inside NCUA's National Supervision Policy Manual - May 1, 2013
  • Hear from experienced credit union attorney David Reed and Larry Fazio, Director of NCUA's Office of Examination & Insurance, on NCUA's new National Supervision Policy Manual. You'll receive an overview of the examination process - including recent (and future) changes by NCUA. Sign up today!

• NCUA's Office of Consumer Protection: Function, Role and Objectives - May 8, 2013 - Free to all credit unions!!
  • Keeping an eye on NCUA's Office of Consumer Protection was a key takeaway from NAFCU's Regulatory Compliance School. The webcast will feature Gail Laster, Director of NCUA's Office of Consumer Protection, and Moisette Sweat, Director of Consumer Compliance Policy & Outreach, as they explain the role of NCUA's Office of Consumer Protection. Because of the importance of this information, we are making this webcast available for free to all credit unions.  Sign-up here (look to the right for the "Register Now" button).

You can find additional information on NAFCU's live and on-demand webcasts here.  

Interagency Statement on Flood Insurance; NAFCU's April Compliance Monitor; Go Blue!

Written by Steve Van Beek

On Friday afternoon, the Office of Comptroller Currency posted an Interagency Statement on the impact of the Biggert-Waters Act. NCUA is a part of the interagency group and I expect that they'll issue an announcement early this week. According to the statement, "this guidance discusses the effective dates of certain provisions of the Biggert-Waters Flood Insurance Reform Act of 2012 (the Act), enacted July 6, 2012, and the impact of the Act on the Agencies’ proposed Interagency Questions and Answers."

Specifically, the Interagency Statement discusses:

• Force Placement
• Civil Money Penalties
• Private Flood Insurance
• Escrow of Flood Insurance Premiums
• Interagency Q&As

The full Interagency Statement is here.

***

April Compliance Monitor. The April 2013 NAFCU Compliance Monitor is now available for download (NAFCU members only). The April issue includes a detailed article on new Mortgage Loan Originator Requirements as well as an article outlining the New Homeownership Counseling Disclosure Requirement. If you've missed any Compliance Monitors in 2013, head to this link where you can find the 2013 issues as well as direct links to the main articles.

Additionally, the April 2013 edition of NAFCU's Compliance Calendar & Pending Regulations Chart is also available.

***

Final Four Bound. In case you missed Michigan's domination of Florida yesterday, I've conveniently included a link to the highlights here. And, who can forget Friday's outstanding comeback against Kansas. If you were wondering my reaction to Trey Burke's three-pointer late in regulation, this video pretty much sums it up (if you need a refresher on the 1998 World Cup and Dennis Bergkamp, I've got you covered).

Go Blue!

Mortgage Periodic Statements & The E-SIGN Act; Key Takeaways from NAFCU's Webcast

Written by Steve Van Beek

One of the issues discussed last week at School and again on yesterday's webcast was the ability of credit unions to send mortgage periodic statements electronically without going through the full E-SIGN Act consent process.

Here is the language from new 12 CFR 1026.41(c):

"(c) Form of the periodic statement. The servicer must make the disclosures required by this section clearly and conspicuously in writing, or electronically if the consumer agrees, and in a form that the consumer may keep. Sample forms for periodic statements are provided in appendix H-30. Proper use of these forms complies with the requirements of this paragraph (c) and the layout requirements in paragraph (d) of this section." (Emphasis added).

The official staff commentary to 12 CFR 1026.41(c) has additional information:

"41(c) Form of the periodic statement.

1. Clear and conspicuous standard. The “clear and conspicuous” standard generally requires that disclosures be in a reasonably understandable form. Except where otherwise provided, the standard does not prohibit adding to the required disclosures, as long as the additional information does not overwhelm or obscure the required disclosures. For example, while certain information about the escrow account (such as the account balance) is not required on the periodic statement, this information may be included.

2. Additional information; disclosures required by other laws. Nothing in § 1026.41 prohibits a servicer from including additional information or combining disclosures required by other laws with the disclosures required by this subpart, unless such prohibition is expressly set forth in this subpart, or other applicable law.

3. Electronic distribution. The periodic statement may be provided electronically if the consumer agrees. The consumer must give affirmative consent to receive statements electronically. If statements are provided electronically, the creditor, assignee, or servicer may send a notification that a consumer's statement is available, with a link to where the statement can be accessed, in place of the statement itself.

4. Presumed consent. Any consumer who is currently receiving disclosures for any account (for example, a mortgage or checking account) electronically from their servicer shall be deemed to have consented to receiving e-statements in place of paper statements."  (Emphasis added).

As you can see, the commentary is extremely important. It clarifies that simple consent to electronic statements is sufficient (as opposed to the electronic consent required by the E-SIGN Act). It also clarifies that members who have consented to receive other disclosures electronically "shall be deemed to have consented" to receiving their mortgage periodic statement electronically.

Of course, the new periodic statement requirement only applies to credit unions that service 5000 or more mortgage loans (NAFCU log-in required). However, credit unions below the threshold - and, thus, not required to the new periodic statement - can still use the commentary as a guide to the delivery of any mortgage servicing information they currently send to members.

***

Two Important Notes.  

1. Limited Scope. This does not open the flood gates with regard to the E-SIGN Act. This flexibility applies solely to closed-end loans secured by a dwelling. It does not extend to HELOC statements which must follow 12 CFR 1026.7. The flexibility also does not extend to other products (checking accounts, credit cards, etc.). 
2. Training Staff. The E-SIGN Act has already caused numerous headaches for compliance officers. This flexibility for mortgage periodic statements (simple consent versus full E-SIGN Act consent) has the potential to amplify this confusion.

***

Yesterday's webcast included a detailed discussion of this issue as well as many of the other "under the radar" issues in the new mortgage regulations. Below you can find the Key Takeaways from the webcast (click on the photo of the slides):

Of course, the webcast is available for on-demand purchase. If you are following the Key Takeaways from School and putting together a mortgage implementation team at your credit union, this would be a good webcast to watch together to ensure everyone is on the same page.

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

Written by Steve Van Beek

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

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

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

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

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

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

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

***

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

• Details on homeownership counseling requirements;

• Mortgage loan originator qualifications, certifications and training requirements;

• New appraisal disclosure and delivery requirements;

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

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

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

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

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.  

Bozo's Grand Prize Game & Share Insurance; NAFCU's March Compliance Monitor

Written by Steve Van Beek

NAFCU's Compliance School is only a couple of weeks away and we are busy putting together the final details - including our presentations.  One of the sessions is on NCUA's Share Insurance and I wanted to share my favorite slide:

To me, Bozo's Grand Prize Game contains lessons for understanding share insurance coverage.  An account can only fit in one "bucket" at a time.  Understanding this helps explain share insurance coverage and how members can structure their accounts to maximize share insurance.  

***

NAFCU's March Compliance Monitor.  The March issue of NAFCU's Compliance Monitor is now available for NAFCU members.  The March issue highlights NAFCU's Scope & Applicability Charts and includes two main articles:

• Understanding the Small Servicer Exemptions

• NCUA's Final Credit Ratings Rule Impacts Credit Union Investments

There are also numerous Q&As on the CFPB's new mortgage requirements - including ones submitted during our webcast on the CFPB's Final Mortgage Regulations (available for on-demand purchase).

NAFCU Members:  If you click on the article links above you'll notice a new feature - we are publishing our articles in HTML format (in addition to the PDF).  This means the articles are fully-searchable on NAFCU's website.  And, we have more enhancements in the works as well - so stay tuned!

Have a great weekend!

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.  

                     

Cordray Nominated for Full 5-Year CFPB Term; Scope of Mortgage Servicing Exemptions; NAFCU Mortgage Reform Webcast Series

Written by Steve Van Beek

Cordray Nominated.  Yesterday, President Obama nominated current CFPB Director Richard Cordray for a full 5-year term as Director of the CFPB.  Under Cordray's current recess appointment, his term expires at the end of 2013.  This full appointment - if confirmed by the Senate - would result in Cordray having a full 5-year term.  For additional information, check out the NAFCU Today (you can sign-up for the NAFCU Today here).    

***

Mortgage Servicing Exemptions.  Last Friday, we blogged a little bit on the mortgage servicing exemptions.  Today, I wanted to help clarify which of the new requirements the 5000 or less mortgages exemption will apply to and, more important, which will not be eligible for the exemption

There are nine major requirements in the new mortgage servicing requirements (and tons of minor requirements).  Of the nine, the "small servicer exemption" will apply to five (and, only in limited situations, to a sixth):

• Mortgage Periodic Statements - Eligible for Small Servicer Exemption

• Interest Rate Adjustment Notices (for ARMs) - Not Eligible

• Prompt Crediting of Payments & Payoff Statements- Not Eligible 

• Force-Placed Insurance - Not Eligible (except in very limited situations)

• Error Resolution Procedures & Information Requests - Not Eligible

• General Servicing Policies & Procedures - Eligible for Small Servicer Exemption

• Early Intervention with Delinquent Borrowers - Eligible for Small Servicer Exemption

• Continuity of Contact with Delinquent Borrowers - Eligible for Small Servicer Exemption

• Loss Mitigation Procedures - Eligible for Small Servicer Exemption (but there are certain requirements that still apply)

Additionally, keep in mind that the "small servicer exemption" only applies to the CFPB's mortgage servicing regulations.  The other six regulations do not have similar exemptions.  

***

NAFCU's February 13th Webcast.  On Wednesday, February 13th, I'll be presenting a 2-hour webcast on The CFPB's Final Mortgage Regulations.  Specifically, I'll be providing an overview of the scope and applicability of each of the new regulations and how your credit union's products will be impacted.  I'll run through which requirements apply to first mortgages, which to just principal dwellings, which to subordinate liens, which to HELOCs.  I'll also go in more detail about the mortgage servicing exemptions above and explain which transactions you need to consider when you "count to 5000."  You can find the additional key takeaways here.

For the full description and information on registering, click here.

***

NAFCU's Mortgage Reform Webcast Series.  Also, be sure to check out our full listing of webcasts for our Mortgage Reform Webcast Series.  My February 13th webcast will be followed by Andy Keeney's March 6th webcast on the CFPB's Qualified Mortgage/Ability-to-Repay regulation (registration will be available soon - if you want to be notified when registration is open, just shoot us an email).   

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

Written by Steve Van Beek

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

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

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

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

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

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

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

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

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

***

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

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

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

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

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

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

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

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

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

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

Written by Steve Van Beek

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

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

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

Effective Date:  January 18, 2014.  

***

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

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

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

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

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

Here is from the final rule:

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

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

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

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

Say that five times fast.  

***

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

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

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

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

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

***

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

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

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

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

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

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

Have a great weekend!

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

Written by Steve Van Beek

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

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

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

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

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

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

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

"SMALL SERVICER EXEMPTIONS

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

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

***  

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

***

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

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

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