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.

CFPB Finalizes Important Change for Lenders Dealing with Member Borrowers in Bankruptcy

Written by: André B. Cotten, Regulatory Compliance Counsel

Hi, Compliance Friends. We are finishing up another awesome week of our Regulatory Compliance School, and we now have a new cohort of NCCO's!

Earlier this month, the CFPB finalized a technical change that will allow credit unions greater flexibility when dealing with a borrower in bankruptcy or transitioning out of bankruptcy. If you can recall, the 2016 Mortgage Servicing Final Rule addresses Regulation Z's periodic statement and coupon book requirements when a person is a debtor in bankruptcy. The bankruptcy requirements will take effect on April 19, 2018. Today's blog will discuss the change and what it will mean for mortgage servicing.

To provide some overview, as early as 2013, the CFPB issued regulations requiring credit unions who meet certain thresholds to provide monthly periodic statements to member borrowers. In theory, the concept of providing periodic statements seems easy, but in implementation, it has proved to be a bit more complicated. In particular, the obligation to provide periodic statements to members in bankruptcy had become troublesome. The recent CFPB amendments give credit unions greater flexibility in complying with the periodic statement requirement for members involved in bankruptcy.

Due to the highly technical nature of the changes, I have extracted two examples from the final rule to demonstrate the CFPB's most recent amendments. Both examples assume that a mortgage loan has a monthly billing cycle, each payment due date is on the first day of the month following its respective billing cycle, and each payment due date has a 15-day courtesy period.

The CFPB's amendment made the following change as demonstrated here:

"i. explains that, if an event listed in § 1026.41€(5)(iv)(A) occurs on October 6, before the end of the 15-day courtesy period provided for the October 1 payment due date, and the servicer has not yet provided a periodic statement or coupon book for the billing cycle with a November 1 payment due date, the servicer is exempt from providing a periodic statement or coupon book for that billing cycle. The servicer is required thereafter to resume providing periodic statements or coupon books that comply with the requirements of § 1026.41 by providing a modified or unmodified periodic statement or coupon book for the billing cycle with a December 1 payment due date within a reasonably prompt time after November 1 payment due date."

Here is another example from the CFPB's recent amendment:

"ii. Provides an example for when a servicer already timely provided a periodic statement or coupon book for a billing cycle in which an event listed in § 1026.41(e)(5)(iv)(A) occurs. It provides that, if an event listed in § 1026.41(e)(5)(iv)(A) occurs on October 20, after the end of the 15-day courtesy period provided for the October 1 payment due date, and the servicer timely provided a periodic statement or coupon book for the billing cycle with a November 1 payment due date, the servicer is not required to correct the periodic statement or coupon book already provided and is exempt from providing the next periodic statement or coupon book, which is the owner that would otherwise be required for the billing cycle with a December 1 payment due date. The servicer is required thereafter to resume providing periodic statements or coupon books that comply with the requirements of § 1026.41 by providing a modified or unmodified periodic statement or coupon book for the billing cycle with a January 1 payment due date within a reasonably prompt time after December 1 or the end of the 15-day courtesy period provided for the December 1 payment due date."

The CFPB stated that it believes these amendments will provide a clearer and more straightforward standard than the timing requirement finalized in the 2016 Mortgage Servicing Final Rule. The Bureau also anticipates that the amendments will offer greater certainty for implementation and compliance, without unnecessarily disadvantaging members.

Breaking Down the TRID Fix: 60 Days Isn't Really 60 Days, Except When It Is; Two Upcoming CECL Webcasts

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

On July 6^th, the CFPB finalized its TRID "Fix" rule. Unfortunately, the CFPB continues to punt on addressing some obvious issues with TRID, including declining to address the obvious errors in their own sample forms. In TRID-land, we'll take what we can get.

Before jumping into the nuts and bolts of the final rule itself, it's important to get one thing straight: the effective date.

TRID "Fix" Implementation Dates

The proposal included a 120-day effective date for the implementation of the changes to TRID.

It its comment letter on the proposed rule, NAFCU reminded the CFPB that, as with the initial implementation of the TRID rule, credit unions will have to work with vendors to update processes and systems, perform testing and provide training to incorporate the changes. As such, the proposed 120 day time period for implementation was simply not realistic.

NAFCU also specifically asked for an extended period or 12 months to implement the changes, and for the Bureau to allow for early compliance where possible. Apparently NAFCU's requests were echoed by the majority of other industry commenters and the Bureau heard us.

For the majority of the changes, the rules themselves will become effective in the Code of Federal Regulations 60 days after they are published. However, compliance with the changes will not become mandatory at that time. Instead, compliance will become mandatory for applications received on or after October 1, 2018.

Regarding how credit unions can begin to implement the changes, the Bureau stated:

"For these reasons, the Bureau agrees with several commenters that it is appropriate to allow creditors flexibility to comply with the 2017 TILA-RESPA Amendments all at one time, or to phase in the changes prior to the mandatory compliance date. After considering the comments, the Bureau does not believe that it would be optimal in these circumstances for the Bureau to impose a detailed schedule for creditors to phase in the changes required by this final rule, for example by establishing multiple effective dates that are staggered over time. Thus, after the effective date of the 2017 TILA-RESPA Amendments, creditors generally may phase in the 2017 TILA-RESPA Amendments as best comports with their business models, whether based on application dates for specific provisions or even during the course of a transaction, although such phased-in compliance may not place the creditor in violation of provisions of Regulation Z (as interpreted by the commentary) unchanged by this final rule…" Final Rule, p. 416.

Exceptions for Two Post-Consummation Requirements

There is an exception to this implementation framework regarding a change to commentary implicating two requirements: (1) subsection 1026.20(e) regarding escrow cancellation notices and (2) the partial payment policy disclosure required by paragraph 1026.39(d)(5). Both of these provisions address notices which may be required during the life of the loan, possibly long after consummation.

There has been some confusion as to when exactly these post-consummation requirements applied to loans that might have been applied for or originated before the October 3, 2015 TRID implementation deadline. To clarify the issue, the CFPB is amending comment 1 to the scope of Subpart E to address this. New comment 1 to paragraph 1(d)(5) explains when these post-consummation requirements apply:

"Additionally, §§ 1026.20(e) and 1026.39(d)(5), as amended or adopted by the TILA-RESPA Final Rule, took effect on October 3, 2015, for transactions for which the creditor or mortgage broker received an application on or after October 3, 2015, and take effect October 1, 2018, with respect to transactions for which a creditor or mortgage broker received an application prior to October 3, 2015." Final Rule, p. 461.

This commentary becomes effective 60 days after publication of the final rule in the Federal Register, and there is no delayed implementation for that guidance. We will continue to dig into the so-called TRID Fix, and we will let you know what we find.

Two Upcoming CECL Webcasts

CECL - A Deep Dive Into 5 Implementation Models (For Purchase)
Wednesday, July 19 | 2:00 p.m. – 3:30 p.m. ET

NAFCU teamed up with a renowned team of data scientists to analyze the pros and cons of five implementation models for the new CECL rules. Hear what we found so you can choose the best model for your credit union.

 

CECL Roadmap - Understanding Requirements, Dispelling Myths & Planning Implementation (Free)
Thursday, July 20 | 2:00 p.m. – 3:30 p.m. ET 

Hear directly from FASB regulators the key steps and actions credit unions should take for a successful CECL implementation. You'll also gain a general understanding of CECL requirements.

 

ICYMI: The Neverending Story on Mortgage Servicing, New COPPA Guidance and More Payments Data; TRID "Fix" Final Rule

Written by Jennifer Aguilar, Regulatory Compliance Counsel

2016 Mortgage Servicing Amendments

Enforcement. Late last month the CFPB issued a policy statement on the new mortgage servicing rules set to go into effect later this year and early next year. In the statement, the CFPB explains that credit unions will be permitted to implement the new rules three days prior to the compliance deadline of October 19 and April 19. The CFPB does not intend to take enforcement action for violations of the current mortgage servicing rules that occur between October 16 – 18 and April 16 – 18 resulting from a credit union's compliance with the new rules.

The CFPB issued this statement to allow credit unions more time to update and test their systems. In its statement, the CFPB explained that it has heard concerns that the compliance deadline may raise some operational issues since both dates fall midweek, on a Thursday. This would mean that credit unions would have from the close of business on Wednesday to the start of business on Thursday to update and test systems to ensure they are set for full compliance on Thursday. The CFPB believes that credit unions will benefit from being able to update and test systems over the weekend prior to the compliance deadline. 

Technical Corrections. The CFPB has also issued a number of technical corrections to the new mortgage servicing rules. These corrections go into effect on October 19. The corrections address two errors in the new Regulation X rules – a typo in model clause MS-4(D) and a cross reference in comment 39(d)(2)-1.

The corrections also address a few of the new provisions relating to periodic statements in Regulation Z. First, the effective date of April 19, 2018 for comment 41(c)-5 is added to the relevant amendatory instruction. Second, the effective date for model forms H-30(E), H-30(F) and commentary to section 1026.41(e) and (f) is changed from October 19 to April 19. This brings these forms and the commentary into conformity with the revisions to section 1026.41(e) and (f) which are effective April 19. Finally, the corrections add 12 U.S.C. 3533 as an authority citation for the Regulation Z amendments.

Updated COPPA Guidance

Last month, the FTC issued new guidance on the Children’s Online Privacy Protection Rule (COPPA) in order to address new developments, such as internet-connected devices for kids. The revised Six-Step Compliance Plan contains updates to assist credit unions in determining whether they are covered by COPPA and what they need to do to comply. For example, the new Plan explains that internet-connected toys or other devices are included in the definition of a “website or online service.” The Plan also expands the methods for obtaining a parent’s verifiable consent to collect information from children. Now, credit unions may verify that it really is the child’s parent giving the consent by using knowledge-based authentication questions or facial recognition to get a match with a verified photo ID. For a bit of a COPPA refresher, you can find some past blog posts here.

Federal Reserve’s Payments Study

The Federal Reserve has released additional data from its 2016 Payments Study. The Payments Study was developed in 2001 to evaluate trends in noncash payments in the US and is conducted every three years. Initial data from the 2016 Study was released last December. The additional data focuses on recent changes in both consumer and business payment methods. Here are some key findings from the Study:

• Noncash payments are on the rise. Households made 79% noncash payments per month in 2015. In 2000, households made 40% noncash payments per month.
• Consumers and businesses are writing fewer checks. In 2015, checks accounted for 13% of noncash payments, compared with 58% in 2000.
• The top four noncash payments among consumers were non-prepaid debit cards, general-purpose credit cards, checks and ACH debit transfers. The top four noncash payments among businesses were ACH credit transfers, checks, general-purpose credit cards and non-prepaid debit cards.
• The number of payments made with general-purpose credit cards and non-prepaid debit cards grew the fastest among all payment types between 2012 and 2015.

CFPB Issues Final TRID "Fix" Rule

Last Friday, the CFPB announced that it has finalized the amendments to the TILA-RESPA integrated disclosures that were proposed last year. The final rule seeks to provide additional guidance and clarity on the TRID requirements and makes a few technical corrections. Among other things, the final rule addresses tolerances, housing assistance loans and sharing disclosures with third parties. In the same announcement, the CFPB also issued a proposed rule on when it is permissible to use a Closing Disclosure for determining good faith and tolerances. NAFCU is reviewing both the final rule and the proposed rule and will have blogs and other tools available for members in the coming weeks.

CFPB Continues to Take Action Against Mortgage Servicers Who Don't Play by the Rules

Written by Jennifer Aguilar, Regulatory Compliance Counsel

Earlier this month, the CFPB issued a consent order against yet another mortgage servicer. The order claims that Fay Servicing, LLC (Fay) failed to inform borrowers of certain foreclosure protections, did not provide required notices informing borrowers of their options to save their homes and moved forward with the foreclosure process in violation of the mortgage servicing regulations. The CFPB ordered Fay to stop their illegal practices, create policies and procedures to ensure compliance with the mortgage servicing regulations and pay $1.15 million to harmed borrowers.

Applicable Laws. Regulation X provides a number of requirements for mortgage loan servicers. Section 1024.38 generally requires servicers to have policies and procedures in place that ensure the servicer complies with the mortgage servicing regulations. Among other things, the rule requires that these policies and procedures be reasonably designed to ensure the servicer provides timely notices and accurate information to borrowers, properly evaluates loss mitigation applications and identifies all loss mitigation options available to a borrower.

Section 1024.41 provides specific requirements regarding all loss mitigation applications. The rules require servicers to provide an acknowledgement notice that informs the borrower that her application has been received and, if the servicer needs additional information, what documents the borrower must submit in order for the servicer to evaluate the application. Once a servicer has evaluated a complete loss mitigation application, the rules require the servicer to provide an evaluation notice that informs the borrower whether she has been approved for a loss mitigation option and, if she has been denied all options, that she has the right to appeal the decision. The loss mitigation rules also prohibit a servicer from taking certain foreclosure actions, including filing for foreclosure or conducting a foreclosure sale, after the servicer has received a complete loss mitigation application.

Fay's Actions. According to the CFPB, Fay repeatedly failed to send the acknowledgement and evaluation notices within the timeframes required by the rules and, in some instances, failed to send the notices altogether. The order explains that these failures stemmed from the fact that Fay did not have proper procedures in place to ensure these notices were sent. At first, Fay's policies did not address either acknowledgment or evaluation notices at all. Fay's policies later addressed both of these notices but only regarding applications where the borrower indicated a preference for retaining her home. Even after implementing these policies, the order explains that Fay still failed to send the required notices. At no point did Fay's policies address notices for those loss mitigation applications where a borrower did not indicate a preference to retain her home.

Even where Fay did send an acknowledgment or evaluation notice, the CFPB found that these notices did not contain all required information. Where Fay needed additional documentation from the borrower, the acknowledgement notice did not adequately inform the borrower of the required documentation. For example, for a self-employed borrower, Fay needed profit and loss statements as documentation of the borrower's income; however, the acknowledgement notice simply stated "Income Documentation (e.g., two most recent paystubs)." Also, Fay's evaluation notices did not adequately inform borrowers of their right to appeal a decision. The rules allow a borrower to appeal the denial of any option as long as the servicer received the loss mitigation application more than 90 days before a foreclosure sale. Fay's evaluation notices instead stated that the borrower could appeal only if "a foreclosure sale was 90 days or more from the date on the Evaluation Notice."

In addition to the notification issues, the CFPB also determined that Fay moved forward in the foreclosure process after receiving a complete loss mitigation application by moving for foreclosure judgments and conducting foreclosure sales. Again, Fay failed to have policies and procedures in place to prevent these violations and, even after implementing such policies, the policies were only for those applications where the borrower indicated a preference to retain her home. According to the CFPB, these policies also failed to properly address when borrowers were entitled to foreclosure protections. For example, when Fay denied a borrower's application for all available options, it lifted all foreclosure holds as soon as it made this determination, rather than waiting until all appeals had been exhausted as required by Regulation X. For borrowers who submitted a loss mitigation application and did not indicate a preference for retaining their home, Fay left it up to its personnel and its Foreclosure Review Committee to determine whether the borrower was entitled to any foreclosure protections. The rule affords foreclosure protections to all borrowers.

CFPB's Judgment. As a result of these violations, the CFPB ordered Fay to comply with a number of requirements. First, Fay was ordered to stop its illegal practices. Depending on where the borrower was in the loss mitigation process, this meant that Fay must stop the foreclosure process (dismissing the complaint, vacating the judgment, etc.), properly evaluate the borrower for all loss mitigation options, or send required notices. Second, Fay was ordered to establish a compliance committee, made up of three members of Fay's board of directors, and develop a compliance plan that would ensure future compliance with the mortgage servicing regulations. Finally, Fay was ordered to pay $1.15 million to harmed borrowers.

* * *

These rules, along with a number of other servicing rules in Regulations X and Z, have been amended recently. These amendments go in effect in October 2017 and April 2018. For more on these amendments, check out NAFCU's mortgage servicing webpage and blogs.

Mortgage Servicing Gone Rogue

By Stephanie Lyon, Regulatory Compliance Counsel

As some of you may have heard, the CFPB recently sued one of the country's largest nonbank mortgage loan servicers—Ocwen Financial Corporation and its subsidiaries (Ocwen)—for numerous mortgage servicing violations. The 93 page complaint is very informative and provides insight into what practices make the CFPB tick. While Ocwen is not a financial institution, it does have to follow some of the same mortgage servicing rule as credit unions. So breaking down the alleged violations is helpful when reviewing your credit union's policies and procedures to make sure it is not engaging in the same practices that got Ocwen into hot waters with the bureau. The alleged deficiencies include the following:

1. Used incorrect information to service loans

Regulation X requires mortgage servicers to maintain policies and procedures to provide timely and accurate information. See, 12 C.F.R. § 1024.38. Allegedly, Ocwen loaded incorrect information into its loan servicing system and also managed to change correct information because of system errors and deficient programming. Ocwen's own Head of Servicing described Ocwen’s technology as "[a]n absolute train wreck." The CFPB claims that even though Ocwen was aware of these deficiencies, it used the faulty information to service borrowers’ loans. Some of the issues caused by using the erroneous information was failing to cancel borrowers’ private mortgage insurance (PMI) in a timely manner which caused borrowers to overpay about $1.2 million for PMI premiums. Ocwen did eventually refund this money, but only after the CFPB called it to its attention.

2. Illegally foreclosed on homeowners

Section 1024.41 of Regulation X has requirements for loss mitigation procedures. Under the rule, if a mortgage servicer offers loss mitigation options and receives a completed application more than 37 days before foreclosure, it must evaluate the borrower for all loss mitigation options and notify the borrower of its determination. See, 12 C.F.R. § 1024.41(c). Ocwen allegedly failed to provide required foreclosure protections and wrongfully initiated foreclosure proceedings and sales on at least 1,000 borrowers. More specifically, the bureau claims that Ocwen initiated the foreclosure process before completing a review of borrowers’ loss mitigation applications and foreclosed on those who were fulfilling their obligations under a loss mitigation agreement.

3. Failed to resolve errors

Regulation X has error resolution procedures that generally require the servicer to investigate and correct servicing errors within 7 days of receiving a notice of error. See, 12 C.F.R. § 1024.35(a)-(e). Ocwen received numerous error notices on inappropriately credited payments and allegedly failed to correct these billing and payment crediting errors. The CFPB claims that Ocwen's policies and procedures required that borrowers complained at least five times in nine days before Ocwen automatically escalates their complaint to be resolved.

4. Incorrectly managed escrow accounts

There are several requirements associated with escrow accounts, such as providing an annual escrow account statement; conducting an analysis to resolve escrow surpluses or shortages and notifying borrowers of shortage or deficiencies in the account. See, 12 C.F.R. § 1024.17(f)-(g). Even though Ocwen manages escrow accounts for the majority of the loans it services, the servicer allegedly failed to conduct escrow analyses and sent some borrowers’ escrow statements late or not at all. Ocwen also allegedly failed to resolve escrow shortages by misapplying borrowers' payments resulting in some borrowers paying inaccurate amounts towards their escrow accounts.

Servicers that administer escrow accounts must also make timely insurance and tax payments on behalf of the borrower. In addition to the other escrow managing deficiencies, Ocwen allegedly failed to make timely insurance payments to pay for borrowers’ home insurance premiums which led to the lapse of homeowners’ insurance coverage for more than 10,000 borrowers. Because of this error, some of these borrowers had to pay for force-placed insurance.

5. Failed to assist heirs seeking foreclosure alternatives

Current mortgage servicing rules require the servicer to "promptly identify and facilitate communication with the successor in interest of the deceased borrower with respect to the property secured by the deceased borrower's mortgage loan." 12 C.F.R. § 1024.38(b)(1)(vi). Once these successors in interest are identified, the servicer is supposed to evaluate loss mitigation options for those who may be eligible. Ocwen allegedly mishandled accounts for successors-in-interest by failing to properly recognize individuals as heirs, denying assistance to help avoid foreclosure and in some instances, foreclosing on individuals who may have been eligible to save these homes through a loan modification or other loss mitigation option.

6. Deceptively signed up and charged borrowers for add-on products

The CFPB also claims that Ocwen took some other lenders' playbook and enrolled some consumers in add-on products through deceptive solicitations or without the consumer's consent. Ocwen then billed and collected payments for these ad-on products that the borrowers had not requested.

CFPB's complaint against Ocwen is a great example of when a mortgage servicer does not have proper internal controls, policies and procedures or a culture of compliance.

NCUA Issues Regulatory Alerts Regarding CFPB Mortgage Rules; Fed Reserve’s Consumer Compliance Regulatory Update Webinar

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

The compliance gauntlet that is 2017 is underway and compliance officers are running through it like it’s the finals of American Ninja Warrior. NCUA has started off the year by issuing two Regulatory Alerts, both relating the CFPB regulations governing mortgages. It always helps to see the obstacle course beforehand.

Mortgage Servicing and the FDCPA

In Regulatory Alert No. 17-RA-01, NCUA highlights the CFPB’s recent amendments to the 2013 Mortgage Servicing Rules and the Interpretive Rule issued by the CFPB regarding the amendments in light of the FDCPA. The alert is intended to provide general information about the CFPB’s rules, and outlines some very high level changes. Credit unions looking for more in-depth information about these rules can review NAFCU’s 2016 Mortgage Servicing Rules & TRID Compliance webpage.

HMDA Data Collection

In Regulatory Alert No. 17-RA-02, NCUA provided a summary of HMDA’s institutional coverage for data collection in 2017:

“Regulation C requires you to collect HMDA data associated with mortgage loan applications processed during 2017, if:

1. Your credit union’s total assets as of December 31, 2016, exceeded $44 million;²
2. Your credit union had a home or branch office in a Metropolitan Statistical Area on December 31, 2016;
3. Your credit union originated at least one home purchase loan (other than temporary financing such as a construction loan) or refinanced a home purchase loan, secured by a first lien on a one-to-four-family dwelling during 2016; and
4. Your credit union originated at least 25 home purchase loans, including refinancings of home purchase loans in each of the two preceding calendar years (2015 and 2016).³

If your credit union meets all four criteria, you must collect HMDA data during calendar year 2017 and submit the data to the Consumer Financial Protection Bureau no later than March 1, 2018.

If your credit union does not meet all four criteria, you are exempt from filing HMDA data for calendar year 2017.”

Credit unions looking for more in-depth information about the new HMDA rules, their institutional or transactional coverage, or the timelines for implementation, can visit NAFCU’s HMDA Compliance webpage.

Consumer Compliance Regulatory Update Webinar

 Compliance officers looking for more information on recent regulatory changes can sign up for the Federal Reserve’s Consumer Compliance Regulatory Update webinar. The webinar will be held Thursday, February 2 at 2:00 pm eastern. It’s a great resource for compliance officers wanting to get ahead of the compliance crucible that will be the 4^th quarter of 2017. Registration for the webcast is here.

Regulatory Compliance School

Lastly, if you feel like you need a bootcamp before tackling this year’s compliance gauntlet, join us at NAFCU’s Regulatory Compliance School. Our spring school in the Washington, DC metro area is quickly approaching. Get up to speed by taking exams and earning the NCCO designation. If you are already an NCCO, earn the 24 hours you need for recertification and get your warrior face on so you can attack the implementation challenges of this upcoming year.

Enjoy $200 in savings with the code SPRINGSAVINGS if you register by February 10, 2017. Seats are filling up quickly, so check out the agenda and make your plans soon.

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 Publishes 2017 Rural and Underserved Counties Lists; 18-Month Exam Cycle is Back

Written by Pamela Yu, Special Counsel for Compliance and Research

Happy Monday!  Last week, CFPB published a list of counties determined to be rural and a list of counties determined to be rural or underserved for use in 2017. 

CFPB has several rules that refer to its “rural or underserved” and “rural” counties lists.  Each year, the Bureau publishes new lists for use the following year.  As a refresher, the rules that refer to these lists are:

• Escrow requirements under TILA/Regulation Z.
• Ability to repay and qualified mortgage standards (ATR/QM) under TILA/Regulation Z.
• High-cost mortgage and homeownership counseling amendments to TILA/Regulation Z and RESPA/Regulation X.
• Appraisals for higher-priced mortgage loans (HPML).

Why does this matter? Well, the lists can significantly impact mortgage originations for certain entities. Credit unions operating predominantly in rural or underserved counties are exempt from certain regulatory requirements.

For example, as we blogged about back in September 2015, the CFPB’s final amendments to its definition of small creditors and rural or underserved areas under Regulation Z provided some credit unions with regulatory relief, specifically with respect to the HPML escrow requirement, which contains an exemption for small creditors; the high-cost mortgage rule, which exempts small creditors from a prohibition against balloon payment features on these kinds of loans; and the ATR/QM rule, which permits small creditors to make certain portfolio and balloon payment QMs.

In amending the rural definition by substituting the word “area” for “counties” within the regulation, the September 2015 final rule moved to a more granular approach than the previous standard, thus providing greater relief to certain credit unions.

CFPB’s rural counties lists are generally defined by using the United States Department of Agriculture Economic Research Service’s urban influence codes, while the underserved counties lists are defined by reference to data collected under the Home Mortgage Disclosure Act (HMDA).  The 2017 lists also include, in their entireties, the following U.S. territories as rural areas: Guam, the Commonwealth of the Northern Mariana Islands, American Samoa, and the U.S. Virgin Islands.

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NCUA’s 18-Month Exam Cycle is Back—Hooray!

Last Thursday, the NCUA Board approved, as part of the agency’s 2017-2018 budget, ten recommendations from the agency’s Exam Flexibility Initiative  working group, including an extended 18-month exam cycle for well-managed, low-risk federal credit unions with assets of less than $1 billion.  Since NCUA moved to an annual exam cycle at the height of the financial crisis, credit unions have contended with more frequent exams of increased scope and complexity in the post-Dodd-Frank era.  However, as the industry has recovered along with the overall U.S. economy, NAFCU and its member credit unions have called for relief in this area. 

In response, in May 2016, NCUA Chairman Metsger established the Exam Flexibility Initiative to review NCUA’s examination and supervision program and to consider ways to modernize and improve the agency’s examination process.  A working group formed under the initiative solicited input from credit union stakeholders and, as a result of that feedback, issued a report in October 2016 making ten recommendations for approval by the NCUA Board.  Specifically, in addition to an 18-month exam cycle for certain well-run credit unions, the working group recommended the following:

• An 8- to 12- month examination cycle, timed from the prior exam completion date, for federal credit unions not meeting the criteria for an 18-month exam cycle.
• Enhanced examinations of small federal credit unions.
• Enhanced coordination of exams for federally insured, state-chartered credit unions.
• Establishment of an NCUA and state supervisor working group.
• Establishment of provisions for all federally insured credit unions relative to random sampling examinations, measurement of exam cycles, and NCUA’s authority to conduct more frequent examinations.
• Enhanced examination planning and notice procedures.
• An optional post-exam credit union survey.
• Reduction of NCUA’s onsite exam presence.
• Improved consistency of examiner training.

The working group’s full report is available here. 

While the NCUA Board’s approval of these recommendations is mostly welcome news for credit unions, NAFCU continues to call for an extended exam cycle for all well-run, healthy credit unions regardless of asset size, as well as an independent appeals process for disputing exam results.

The extended exam cycle will become effective January 1, 2017. Other improvements, including the post-exam credit union survey, will begin in July of next year.

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Upcoming NAFCU Webcast: CFPB Mortgage Servicing Rules – 2016 Final Changes

Live Webcast Wednesday, November 30, 2016 | 2:00-3:30 p.m. ET

Although most of the new requirements are not effective until October 19, 2017, our experiences with the CFPB have taught us that it's best to begin implementing reviews and processes early rather than wait to implement changes within tight timeframes. Attend this strategic webcast to explore the details of the new final rule and the potential impact on your credit union's servicing processes and procedures.

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.

Mortgage Servicing Rules – Deadlines, Small Servicers Update and Refresher

Written by Brandy Bruyere, Director of Regulatory Compliance

I’m trying something new today and providing the blog as “the long and the short,” with the idea that if you want the details, wonderful, and if you just want a couple of key takeaways, then the end of the blog has a short summary. Some of our readers who spend time on various social media may call this approach “TLDR” or “TL;DR,” shorthand for “too long, didn’t read,” aimed at those who scroll through long posts straight to the conclusion. Of course, as a regulatory attorney, I prefer the long, but some days it’s helpful to be able to distill a few items as a starting point.

The Long: We’ve been blogging about recent changes to the CFPB’s mortgage servicing rules, and we finally have an answer to one key frequently asked question – what are the effective dates? Well, we can finally answer that one for you. On Monday, the Bureau announced the following deadlines:

• Successor in interest provisions              April 19, 2018 (18 months after publication)
• Bankruptcy periodic statements              April 19, 2018 (18 months after publication)
• All other rules                                       October 19, 2017  (12 months after publication)                  

Then, on Tuesday the Federal Register announced that formal publication was scheduled for October 19, 2016. At least the CFPB let us know the deadlines a few hours earlier than we would have found out otherwise.

It is worth noting that the 2016 rules do not make significant changes to the definition of “small servicer,” here’s how the CFPB summarized the changes to this definition:

"The Bureau is finalizing certain changes to the small servicer determination. The small servicer exemption generally applies to servicers who service 5,000 or fewer mortgage loans for all of which the servicer is the creditor or assignee. The final rule excludes certain seller-financed transactions and mortgage loans voluntarily serviced for a nonaffiliate, even if the non-affiliate is not a creditor or assignee, from being counted toward the 5,000 loan limit, allowing servicers that would otherwise qualify for small servicer status to retain their exemption while servicing those transactions."

As a reminder, currently these are credit unions who, together with any affiliates, service 5,000 or fewer mortgage loans, not counting:

• Mortgage loans voluntarily serviced by the credit union for a “creditor” or “assignee” that is a non-affiliate and for which the credit union does not receive any compensation or fees.
• Reverse mortgages
• Mortgages secured by timeshares

There are two changes to the definition of “small servicer,” found in section 1026.41(e)(4), exempting from the 5,000 loan threshold:

• Loans voluntarily serviced for all non-affiliates, even if that entity is not a “creditor or assignee” (the requirement that the credit union does not receive compensation or fees remains); and
• Loans serviced for non-certain seller financers that meet all of the criteria identified in §1026.36(a)(5) (seller-financier for one property in a 12 month period, etc.)

While these are not large changes, it could impact some credit unions that service these kinds of loans, or perhaps those who occasionally service either of these two categories of exempt loans and are rather close to either exceeding or have barely exceeded the 5,000 threshold.

The 2016 rules do not change which rules the small servicer exemption applies to, here is a summary of various mortgage servicing rules as a refresher or for reference:

Rule and Current Version	Small Servicer Exemption?
Section 1024.32, general disclosure requirements	No
Section 1024.33, mortgage servicing transfers	No
Section 1024.34, timely escrow payments and treatment of escrow account balances	No
Section 1024.35, error resolution procedures	No
Section 1024.36, requests for information	No
Section 1024.37, force-placed insurance	No
Section 1024.38, general servicing policies, procedures and requirements	Yes
Section 1024.39, early intervention requirements for certain borrowers	Yes
Section 1024.40, continuity of contact	Yes
Section 1024.41, loss mitigation procedures	Partial exemption for small servicers (article available with NAFCU log in)
Section 1026.20(c), rate adjustments with a change in payment Section 1026.20(d), initial rate adjustment notices Section 1026.20(e), escrow account cancellation notice	No
Section 1026.39, mortgage transfer disclosures	No
Section 1026.41, periodic statements for residential mortgage loans	Yes

Some of the more complex requirements, like periodic statements for borrowers in bankruptcy, are subject to the small servicer exemption. Other rules, like error resolution requirements, force-placed insurance notices and certain loss mitigation procedures, are amended by the 2016 rules but small servicers are not exempt.

The Short: The mortgage servicing rules largely go into effect on October 19, 2017 although provisions relating to successors in interest and periodic statements for certain borrowers in bankruptcy will go into effect on April 19, 2018. These rules do not make significant changes to the current definition of “small servicer” and do not change which rules contain an exemption for small servicers. However, credit unions may want to review the small changes to the small servicer definition closely, especially if relying on small servicer status or if the credit union is fairly close to the 5,000 limit, give or take a few loans.

CFPB Issues Mortgage Servicing Rules – Part Four: Periodic Statements

Written by Shereefat Balogun, Regulatory Compliance Counsel

On August 4, 2016, the CFPB amended its mortgage servicing requirements.  Since then, NAFCU has been combing through and analyzing the 900+ page rule to help our members better understand the changes and new requirements.  We have already blogged on the changes relating to Successors in Interest, Force-Placed Insurance, and Loss Mitigation.  Today, we will highlight some of the notable changes made to the periodic statement requirements under Regulation Z’s servicing provisions. 

Before getting into the specifics though, here are some resources from the CFPB that break down the final rule to make it easier to digest:

• Here’s a link to the Final Rule. This final regulation includes the preamble with rulemaking background, and a section-by section analysis with the provisions of the final rule and public comments.
• There’s a 9-page summary of the major changes which gives a high-level discussion of the major provisions of the rule. View the overview here.
• The actual amended rule with model forms and commentary (and 100+ pages), can be found here.

Moving on…the final rule makes several significant changes to the periodic statement requirements under Regulation Z, including:

Clarifies certain periodic statement disclosure requirements relating to mortgage loans that have been accelerated, have been permanently modified, or are in temporary loss mitigation programs (12 C.F.R. Part 1026, comment 1026.41(d)(1)).  Section 1026.41(d)(1)(iii) provides that the periodic statement required by §1026.41(d) must include the amount due.  The CFPB added commentary to clarify that:

• If the balance of a mortgage loan has been accelerated but the servicer has agreed to accept a lesser amount to reinstate the loan, the servicer MUST disclose the LESSER amount, i.e. the reinstatement amount, on the periodic statement; not the entire accelerated balance.  In the preamble, the CFPB reasoned that displaying the lesser amount rather than the full accelerated balance would make the consumer more likely to pay the reinstatement amount, thereby preventing foreclosure.  The CFPB further explained that having the full acceleration amount on the periodic statement will cause confusion, particularly if the consumer was told previously that he/she was only required to pay a lesser reinstatement amount. 

• If the loan contract has been permanently modified, the servicer MUST disclose the amount due under the modified loan contract; not the pre-modified amount. 

• If the consumer has agreed to a temporary loss mitigation program, the servicer MAY disclose either: (i) the payment due under the temporary loss mitigation program; or (ii) the amount due according to the original loan contract.

Requires servicers to send periodic statements to borrowers in bankruptcy or who have discharged the loan, subject to a limited exemption (12 C.F.R. §1026.41(e)(5)).  Currently, §1026.41(e)(5) provides a blanket exemption from the requirement to send a periodic statement  if a consumer is in bankruptcy or has discharged a mortgage loan through bankruptcy. The final rule changes that, and now generally requires servicers to send periodic statements to borrowers, unless otherwise exempted.  Section 1026.41(f) of the final rule requires servicers to send modified statements to certain borrowers in bankruptcy or who have discharged the loan.  The content of the statement will vary depending on whether the borrower is in bankruptcy under Chapter 12 or 13.  These changes were driven by a general concern that borrowers in bankruptcy often lack important information about their mortgage loan account if a servicer does not send the periodic statement.  Here are some takeaways:

• The final rule limits the circumstances in which a servicer is exempted from providing a periodic statement.  Under the final rule, a servicer is exempted from providing the periodic statement if a two-prong test is satisfied.  A servicer is not required to provide a periodic statement if: (1) any borrower on the loan is a debtor in bankruptcy or has discharged personal liability for the mortgage loan through bankruptcy; and (2) any of the following occurs: (i) the borrower requests in writing that the servicer cease providing a periodic statement; (ii) the borrower’s bankruptcy plan provides that the borrower will surrender the home securing the loan, will avoid the lien, or otherwise does not provide for payment of pre-bankruptcy arrearage or maintenance of payments due under the loan; (iii) the bankruptcy court order provides for the avoidance of the lien, lifts the automatic stay, or requires the servicer to stop providing statements; or (iv) the borrower files a statement of intent to surrender the home securing the loan and has not made any payment on the loan after filing for bankruptcy.

• The final rule applies the exemption at the loan level.  Thus, a servicer is exempt with respect to all consumers on a mortgage loan if the exemption criteria are met with respect to any borrower on the loan. 

• Servicers are required to provide modified periodic statements for certain borrowers in bankruptcy.  Section 1026.41(f) lays out certain omissions and additions for these modified statements.  For example, the statement may omit information about late payment fees, certain delinquency information, and the notice of whether the servicer has issued the first notice or filing for foreclosure.  On the other hand, the periodic statement must include a statement identifying the borrower’s status as a borrower or the discharged status of the loan, as well as a statement that the periodic statement is for informational purposes only.  There are additional provisions relating to borrowers in bankruptcy under Chapter 12 or 13.  For example, these periodic statements may omit the information regarding delinquency.  Similarly, there are certain required additions as well.  For example, the statement must show all the payments received since the last statement, as well as all charges the servicer has imposed since the last statement.  Additionally, these periodic statement must disclose a statement that, as applicable: (i) the amount due includes only post-petition payments and no other payments due under the bankruptcy plan; (ii) the borrower should send post-petition payments to the trustee, and not the servicer, if the borrower’s plan so requires; (iii) the information disclosed on the periodic statement may not include payments the borrower made to the trustee, and may be inconsistent with the trustee’s records; (iv) encourages the borrower to contact his/her attorney or trustee with questions; and (v) if the borrower is more than 45 days delinquent on post-petition payments, the servicer has not received all payments that became due since the bankruptcy filing. 

Exempts servicers from sending periodic statements if the loan is charged off, provided the servicer meets certain conditions (12 C.F.R. §1026.41(e)(6)).  The final rule exempts servicers from the periodic statement requirements of §1026.41 for charged-off loans if: (i)  the servicer will  not charge additional fees or interest on the account; and (ii) the servicer provides a final periodic statement, clearly and conspicuously labeled “Suspension of Statement & Notice of Charge Off- Retain This Copy for Your Records.”  This final periodic statement must contain certain disclosures, including statements that the loan has been charged off, the servicer will not impose new fees or interest, the lien on the property remains in place and that the borrower is liable for the loan and related obligations such as taxes, and that the lien is not being cancelled or forgiven.  In the preamble, the CFPB stated that these disclosures were important to help borrowers better understand the meaning and consequence of charge-off, including the borrower’s ongoing payment obligations.  Also, the Bureau concluded that this final statement will provide important consumer protections while easing the burden for servicers associated with providing ongoing periodic statements. 

Provides sample periodic statement forms.  The final rule provides sample forms that servicers may use for borrowers in bankruptcy to ensure compliance with the requirements under §1026.41.

Rule’s Effective Date: The changes regarding the bankruptcy periodic statement exemption and modified statements for borrowers in bankruptcy are effective 18 months after publication in the Federal Register, and the other periodic statement changes are effective 12 months after publication in the Federal Register.  And yes, we’re still waiting for the rule to be published. Not there yet! 

In the meantime, while preparing for the new compliance requirements, credit unions may want to consider reviewing their policies and procedures to make sure they reflect the new servicing requirements. 

As always, if you have any questions relating to this article or any other issues concerning the amended mortgage servicing rules, please contact NAFCU’s regulatory compliance team.  We’re here for you!

CFPB Issues Mortgage Servicing Rules – Part Three: Loss Mitigation; DoD Military Lending Act Interpretive Guidance out Today

Written by Shereefat Balogun, Regulatory Compliance Counsel

As many of you know, the CFPB recently issued its final amendments to the mortgage servicing rules contained in Regulation X and Z.  Now we all know that compliance folks work hard, and we’re use to reading through voluminous pages of regulatory text.  However, ending our short summer with 900+ pages of mortgage servicing rules (or any rule!) is a bummer.  In an effort to make this more manageable and “pleasant”, we’re breaking this up a bit.  The changes can be grouped in broad topics including: Successors in Interest; Requests for Information; Force-Placed Insurance; Early Intervention; Loss Mitigation; Prompt Payment Crediting; Periodic Statements; and Small Servicer Exemption.  We have already covered the changes relating to “Successors in Interest” and “Force-Placed Insurance”.  This post will focus on the changes made to the loss mitigation requirements.    

Before getting into the specifics of the loss mitigation requirements, we've broken up the final rule to make it easier to digest:

• Here’s a link to the Final Rule. This final regulation includes the preamble with rulemaking background, and a section-by section analysis with the provisions of the final rule and public comments.
• There’s a 9-page summary of the major changes which gives a high-level discussion of the major provisions of the rule. View the overview here.
• The actual amended rule with model forms and commentary (and 100+ pages), can be found here.

Moving on to the changes made to the loss mitigation requirement.  The final rule makes several significant changes to loss mitigation requirements under the mortgage servicing rules, including:

• Requires servicers to notify borrowers when their loss mitigation applications are complete (§ 1024.41(c)(3)). Under the final rule, a servicer will be required to provide written notice that a borrower’s loss mitigation application is complete within 5 days (excluding legal public holidays, Saturdays, and Sundays) of receiving a complete application.  The notice must set forth certain information including: (i) a statement that the loss mitigation application is complete; (ii) the date the servicer received the completed application; (iii) a statement that the servicer will evaluate the application within 30 days; (iv) a statement that the borrower is entitled to certain foreclosure protections while the application is pending; (v) a statement that the servicer may require and request additional information, and the consequences if the borrower fails to respond to that request; and (vi) that the borrower may be entitled to additional protections under State or Federal Law. 

• Permits servicers to provide short-term loss mitigation options based on evaluation of incomplete applications (§ 1024.41(c)(2)(iii)).  Under the existing rule, a servicer may offer a short-term payment forbearance program to a borrower based upon an evaluation of an incomplete loss mitigation application.  The final rule now adds the ability for a servicer to offer a short-term repayment plan.  The final rule requires that, if accepted by the borrower, the servicer must provide a written notice stating the specific terms and duration of the plan, that other loss mitigation options may be available, and that the borrower may submit a complete application to be evaluated for those options.  Note that the servicer still cannot file for foreclosure if the borrower is performing under the plan.

• Requires servicers to exercise reasonable diligence in obtaining third party information, and prohibits servicers from denying a borrower solely because of the missing information unless efforts have been made for a significant period of time (§ 1024.41(c)(4)). Under the current rule, servicers must use reasonable diligence in obtaining documents or information from third parties, if such information is needed to determine which loss mitigation options it will offer to the borrower.  Moreover, the current rule prohibits servicers from denying an application solely because the servicer lacks the necessary third party information.  The final rule reiterates this point, but provides an exception to this general prohibition.  Under the new rule, a servicer may deny an application if a servicer has exercised reasonable diligence to obtain the required information “for a significant period of time.”  See comment 41(c)(2)(ii) for a discussion of what might be considered a “significant period of time.”

• Modifies an existing exception to the 120-day prohibition on foreclosure filing to allow a servicer to join the action of a superior lienholder (§ 1024.41(f)).  The current exception merely allowed the servicer to join as a subordinate lienholder. 

• Reinforces and clarifies prohibition on “dual tracking” (Commentary to § 1026.41(g)). The current rule prohibits servicers from moving for judgment or order of sale while simultaneously working with borrowers on loss mitigation options. The commentary to the final amended rule clarifies that, if a servicer has already initiated a foreclosure action and subsequently receives a timely complete application, the suit should avoid a foreclosure judgment or order of sale, unless the borrower’ application is properly denied, withdrawn, or the borrower fails to perform on a loss mitigation agreement.  It is important to note that, according to the commentary, the responsibility falls on the servicer to ensure that the foreclosure does not move forward while an application is pending.  This is especially key where the servicer has hired outside counsel to handle the foreclosure.  The commentary makes clear that “a servicer is not relieved of its obligations because foreclosure counsel’s actions or inaction caused a violation.”

• Requires servicers to offer borrowers with loss mitigation options throughout the life of the loan (§ 1026.41(i)). The current rule requires servicers to consider loss prevention programs and avoid foreclosure one time during the life of the loan. Thus, if a delinquent borrower became current and subsequently defaulted again, a servicer was not required to consider the borrower for loss mitigation options.  However, this “one bite at the apple” provision is no longer sufficient.  The final amended rule requires a servicer to evaluate a borrower for loss mitigation whenever the borrower becomes delinquent and is otherwise eligible for a loss mitigation program, unless the borrower was delinquent at all times since submitting the prior application.  For example, if the borrower has previously submitted a complete application and fully performed under the plan and becomes current on payments, but then becomes delinquent again, the servicer must evaluate the borrower for loss mitigation options. 

• Clarifies obligations of servicers when a servicing transfer occurs (§ 1026.41(k)). The final amended rule makes clear that when a service transfer occurs while a loss mitigation application is pending, the new servicer (the transferee servicer) must comply with the loss mitigation requirements within the same timeframes that applied to the transferor servicer; however the rule does provide extensions to the timeframes in certain limited circumstances.

Rule’s Effective Date: Generally, the amendments to the final rule will become effective one year after publication in the Federal Register, with some exceptions including amendments to the rule that address successors in interest, the provisions of periodic statements to borrowers in bankruptcy, and the amendments that address when servicers may stop collecting information from borrowers for a particular loss mitigation option.  These amendments will not become effective until 18 months after publication in the Federal Register.   

In preparing for the new compliance requirements, credit unions may want to consider reviewing their policies and procedures to make sure they reflect the new servicing requirements, including policies that address communications with outside foreclosure counsel. 

As always, if you have any questions relating to this article or any other issues concerning the amended mortgage servicing rules, please contact NAFCU’s regulatory compliance team.  We’re here for you!

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DoD Military Lending Act Interpretive Guidance out Today!

A few weeks ago, NAFCU issued a statement indicating that the DOD is expected to publish interpretive guidance on the MLA rules soon.  Well, the guidance was published today in the Federal Register.  NAFCU's Regulatory Compliance team is studying the guidance and will update the association’s MLA Compliance Guide in advance of the effective date (October 3, 2016).  In the meantime, you can find NAFCU’s extensive collection of MLA compliance resources here. 

CFPB Issues Mortgage Servicing Rules – Part Deux: Force-Placed Insurance

Written by Stephanie Lyon, Regulatory Compliance Counsel

My colleague Benjamin recently blogged about the mortgage servicing final rule and how it will expand the rights granted to verified successors in interest under Regulations X and Z. This second part reviews a few force-placed insurance (FPI) requirements and highlights three revisions to section 1024.37 and the model forms. The FPI notice requirements take me back to the time when my mortgage servicing department sent an FPI notice signed with my name and phone extension to over one hundred members who had nonconforming hazard insurance. The conversation went something like this:

Member: “Hello, my name is Joe Smith and I received a FPI notice that states I do not have hazard insurance. Well I am calling to inform you, I do in fact have hazard                     insurance.”

Stephanie: “Mr. Smith, could you give me your account number so that I can find your account and verify this information?”

Member: “I don’t know it and I don’t feel comfortable sharing my social security number.”

Stephanie: “Mr. Smith I was able to pull your account from your phone number, I see that the reason you received that letter was not because you don’t have insurance, but rather because you don’t have the right amount of hazard insurance as stated in the mortgage agreement.”

Member: “Why didn’t you just tell me that from the start!?”

Unfortunately, credit unions had very few options when disclosing the reasons why hazard insurance was being force-placed as the current model forms lack clarity. This led to a few headaches for credit union folks and a great deal of confusion for members.

Currently, Regulation X allows servicers to force-place insurance if the servicer has a reasonable belief that the borrower has failed to comply with the mortgage loan’s contract requirement to maintain hazard insurance. See, 12 C.F.R. § 1024.37(b). Prior to force-placing insurance, there are a couple of notices that a servicer must provide— an initial notice (45 days prior to force-placing) and a reminder notice (15 days prior). See, 12 C.F.R. § 1024.37(c)(1)(i)-(ii). Section 1024.37(c)(4) and (d)(4) prohibit servicers from including in the FPI notices any information other than that required by the rule. It was unclear if this prohibition extended to language clarifying why the credit union would force-place insurance and additional disclosures required by state law. In the final rule, CFPB clarified that no additional information can be added to FPI notices even if the information is required by state law because of the potential to ‘confuse members’ and ‘obscure the most important information.’ See, Final Rule, pp. 173 & 178-9.

While credit unions may not include additional information other than what is allowed under Regulation X, the final rule does address some issues that may provide for greater clarity. The first issue the final rule corrects is that it permits credit unions to include a third option when disclosing the reason why insurance has been force-placed. : (1) hazard insurance has expired or (2) will expire and the credit union has not received evidence that the borrower has hazard insurance past the expiration date. See, 12 C.F.R. § 1024.37(c)(2)(v). Neither option adequately explains the case in which a borrower has hazard insurance but the amount is below the requirements stipulated in the mortgage agreement.

Effective 12 months from the date of publication in the Federal Register, the final rule adds a third option to paragraph 37(c)(2)(v) and Model Form MS-3(A) that will enable servicers to provide borrowers with notices that are more accurately tailored and potentially avoid confusing borrowers that have nonconforming FPI insurance. See, Final Rule, pp. 804-808. The option will read: (3) the borrower’s hazard insurance provides insufficient coverage. See, Final Rule, pp. 176-178. This third option provides enough flexibility to cover cases in which the member purchased hazard insurance for nonconforming amounts or through a company that the lender or servicer does not allow. Additionally, if the credit union needs to include information not required or allowed by the final rule, it may do so on a separate document that can be included in the FPI correspondence. See, 12 C.F.R. § 1024.37(c)(4).

The second addition to the FPI notice is the ability to include the mortgage or account number of the borrower. See, Final Rule, pp. 789. While this is a minor addition, it allows servicers to inform the member of the mortgage they are referencing and makes the communication between the servicer and the borrower easier. The rationale behind including account numbers is that some credit unions rely on this information to correctly identify the loan in question when members call in regard to the FPI notice. Do note that the inclusion of the account number is not mandatory.

The third change to the FPI section of Regulation X is the modification of the Appendix to correct discrepancies between the model forms and the text of section 1024.37. Currently the model forms MS-3(A) through (D) omit the word “significantly” from the statement that “the insurance the servicer has purchased or purchases may cost more than hazard insurance purchased by the borrower.” The amendment will amend the phrase to read “…may cost significantly more…” in each of the model forms. The new model forms also include a requirement that certain text be formatted in bold type to emphasis that text in the forms. See, Final Rule, pp. 489-490. The format used in FPI notices will be important because a technical correction in the final rule will require that when some of the same information appears in both the initial and the final notice, the format of both notices must match. See, Final Rule, pp. 171.

Needless to say, my story would have been quite different if the Mortgage Servicing rule had amended a year ago. Hopefully, the final rule will allow a conversation to go from the example above to:

Member: “Hello, my name is Joe Smith and I received a FPI notice that states my hazard insurance provides insufficient coverage. An additional document that came with the notice stated that my hazard insurance coverage is $500 off what the mortgage agreement requires. I am sending you a copy of my new conforming hazard insurance with the loan number listed in the notice.”

Stephanie: “Mr. Smith, you are my favorite member.”

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 Policy Priorities Confirm Rulemaking Plans on Overdraft, Debt Collection and Interest in Small Business Lending

Written by Shereefat Balogun, Regulatory Compliance Counsel

On Thursday, February 25, 2016, the CFPB held a Consumer Advisory Board meeting which generally provided an overview of the bureau’s strategic outlook. The CFPB subsequently published a report outlining its two-year supervision and enforcement priorities. Many of the stated priorities are iterations of previous comments made by the bureau, and confirm impending rulemaking. Others provide insight on new areas of interest.  Credit unions under the bureau’s jurisdiction should note the following priorities as they set their compliance goals for the next two years:

• Arbitration: The CFPB indicated that it will continue the rulemaking process to regulate the use of arbitration clauses, especially those that limit a consumer’s right to bring a class action.

• Consumer Reporting: The bureau reported that it will continue to examine and investigate consumer reporting companies and furnishers of information, with a focus on accuracy and dispute resolution processes. The CFPB also stated that it may consider rulemaking around furnisher and consumer accuracy, dispute resolution, and related issues.

• Debt Collection: The CFPB confirmed that it will initiate the rulemaking process and finalize a rule that establishes guidelines to ensure that debt collectors treat consumers with respect, substantiate the debts they collect on, and “provide consumers with appropriate information about their rights and the debt collection process.”

• Mortgages: The CFPB has restated its commitment to ensure that the Home Mortgage Disclosure Act (HMDA) rule is successfully implemented, and that its supervisory and enforcement programs work to provide equal and fair access to mortgage credit. The CFPB also indicated a particular focus on implementing its mortgage servicing rules. Lastly, the bureau stated that it will begin to assess the effectiveness of significant rules that are already in place.

• Overdraft: The bureau makes clear that it fully intends to move forward with the rulemaking process related to overdrafts, with a purported goal of making the overdraft market “fairer and more transparent”.

• Small Business Lending: The CFPB confirmed its growing interest in small business lending, and lists its plan to build a small business lending team and begin “market research and outreach for a rulemaking on business lending data collection.” The bureau also indicated that it will continue to examine small business lenders for compliance with fair lending laws. As a reminder, Dodd-Frank amended the Equal Credit Opportunity Act (ECOA), requiring financial institutions to collect and maintain certain information in connection with credit applications submitted by women-owned, minority-owned or small businesses.

This is a few of the priorities listed in the report. NAFCU previously reported on the full list of priorities. Notably, the CFPB clarifies that, in addition to the stated priority goals, it will continue its ongoing efforts in its fair lending oversight of indirect auto lenders and rulemaking on prepaid cards. The bureau also advises companies to “continue their focus on complying with the law beyond the particular issues described in the goals, whether or not they see their particular industry or product mentioned explicitly among the shared cross-Bureau priorities.”

As a reminder, this will only be applicable to credit unions directly supervised by the CFPB- those with over $10 billion in assets. For those credit unions not subject to CFPB’s supervision, the priorities may nonetheless be a useful tool. The policy priorities can be found here. Credit unions are also advised to review NCUA’s Supervisory Priorities for 2016.

CFPB Releases Monthly Complaint Report and Notes Debt Collection, Mortgage, and Credit Reporting as Top Complaints; DMDC Extends MLA Database Deadline; Free Webcast - Breaking Down the NCCO Exam

Written by Shereefat Balogun, Regulatory Compliance Counsel

On January 28, 2016, the CFPB released its Monthly Complaint Report for December 2015, which provides a high-level snapshot of trends in consumer complaints. It is important to keep in mind that credit unions under $10 billion are not included in the Consumer Complaint Database, which forms the basis of the monthly reports. Notwithstanding, the reports can be a useful tool, as they can help credit unions evaluate which products and services are more problematic and thus, should be addressed in order to avoid or mitigate regulatory risks.

As of January 1, 2016, the CFPB has handled about 790,000 consumer complaints, including approximately 20,3000 complaints in December 2015. The Report notes that:

• Complaints related to prepaid products rose from 138 complaints between October- December 2014 to 459 complaints between October-December 2015, representing a 233% increase;

• For the 28^th consecutive month, the CFPB handled more complaints about debt collection than any other type of complaint. Debt collection complaints represented about 31% of complaints in December 2015.

• Debt collection, mortgage, and credit reporting complaints continue to be the top three most-complained-about consumer financial products and services, which together represented 68% of all complaints submitted in December 2015.

• Equifax, Transunion, and Experian were the most-complained-about companies for August-October 2015.

As stated previously, credit unions under $10 billion are not included in the Consumer Complaint Database.  Rather, the CFPB will forward any complaints from these credit unions to NCUA, and credit unions will need to follow NCUA's procedures for responding to member complaints.

You can view the CFPB’s Monthly Complaint Report here: http://files.consumerfinance.gov/f/201601_cfpb_monthly-complaint-report-vol-7.pdf

You can view the CFPB’s Consumer Complaint Database here: http://www.consumerfinance.gov/complaintdatabase/

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MLA Database Update. As NAFCU reported earlier this week, DMDC agreed to extend the deadline to seek direct access to the MLA database until February 15, 2016. Those credit unions who express interest in the direct connect option will receive a questionnaire in a response email. DMDC set a February 19, 2016 deadline for interested credit unions to complete and return this questionnaire. If you have any questions about this deadline or the database, please email Brandy Bruyere, NAFCU’s Director of Regulatory Compliance, [email protected].

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Free Webcast - Breaking Down the NCCO Exam

Live Webcast: Tuesday, February 9 | 3:00 p.m. – 4:00 p.m. EST

As a serious compliance professional, you either have, or are thinking about earning, your NAFCU Certified Compliance Officer (NCCO) designation. This challenging but comprehensive exam will prove that you have a solid understanding of the major regulations that govern credit union operations. Join this free webcast for an in depth look at how to best prepare for the NCCO exam and utilize the material. NAFCU’s very own Director of Regulatory Compliance and Director of Education will guide you through learning the best approach for earning this prestigious designation.

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 500 Page Mortgage Servicing Proposal

Written by Alicia Nealon, Regulatory Affairs Counsel

CFPB releases 500 Page Mortgage Servicing Proposal

Last week, the CFPB announced a proposed rule that the Bureau claims will“ensure that homeowners and struggling borrowers are treated fairly.” Given its 500 page length, it’s no surprise that the proposal would make several amendments to Regulation Z’s and Regulation X’s mortgage servicing requirements.  Most notably, the proposal would require servicers to provide certain borrowers with foreclosure protections more than once over the life of the loan.  Currently, a mortgage servicer must give the borrower certain foreclosure protections, including the right to be evaluated under the CFPB’s requirements for options to avoid foreclosure, only once during the life of the loan. The proposal, however, would require that servicers give these protections again for borrowers who have brought their loans current at any time since the last loss mitigation application.

Here are some other highlights from the proposal:

1. Successors in interest. The Bureau is proposing expand consumer protections to surviving family members and other homeowners. For example, the CFPB is proposing to apply all of Regulation Z’s and X’s mortgage servicing requirements to successors in interest once a servicer confirms the successor in interest’s identity and ownership interest in the property.
2. Definition of delinquency. The CFPB is proposing to add a general definition of delinquency that would apply to all of the servicing provisions of Regulation X and the provisions regarding periodic statements for mortgage loans in Regulation Z. Under the proposed definition, a borrower and a borrower’s mortgage loan obligation are delinquent beginning on the date a payment sufficient to cover principal, interest, and, if applicable, escrow, becomes due and unpaid.
3. Force-placed insurance. The Bureau is also proposing to amend the required disclosures to account for when a servicer wishes to force-place insurance when the borrower has insufficient, rather than expiring or expired, hazard insurance coverage on the property.
4. Early intervention. The Bureau is proposing to require servicers to provide written early intervention notices to certain borrowers who are in bankruptcy or who have invoked their cease communication rights under the Fair Debt Collections Practices Act.
5. Loss Mitigation. As noted above, the proposal would make several amendments to the Loss Mitigation Rule.  It is also worth mentioning that the proposal would require a servicer to provide a written notice to a borrower promptly upon receiving the borrower’s complete loss mitigation application.
6. Prompt payment crediting. The CFPB is further proposing to clarify how servicers must treat periodic payments made by consumers who are performing under either temporary loss mitigation programs or permanent loan modifications. Under the Bureau’s proposal, periodic payments made pursuant to temporary loss mitigation programs would continue to be credited according to the loan contract and could, if appropriate, be credited as partial payments, while periodic payments made pursuant to a permanent loan modification would be credited under the terms of the permanent loan agreement
7. Periodic Statements. The Bureau is also proposing to, among other things, modify the periodic statement and coupon book requirements for certain consumers who are in bankruptcy or have discharged personal liability for a mortgage loan through bankruptcy. The proposal would also provide an exemption from the servicing rule’s periodic statement requirement for loans that have been charged off so long as the servicer will not charge any additional fees or interest on the account

Again, this is a 500 page proposal so this blog is just a very broad overview. However, NAFCU’s Regulatory Affairs team will work on a Regulatory Alert for our members that provides further details.

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 Mortgage Servicing Transfer Bulletin; Free Kick; Webcast

Written by Ricardo Piñeres, Regulatory Compliance Counsel

CFPB Releases Mortgage Servicing Transfer Bulletin.  Last week, the CFPB released Bulletin 2014-01 that is billed as a compliance bulletin and policy guidance with regards to mortgage servicing transfers.  This bulletin replaces CFPB Bulletin 2013-01, and provides guidance for mortgage servicers.  It states that “the CFPB will be carefully reviewing servicers’ compliance with Federal consumer financial laws applicable to servicing transfers.”  Furthermore, the bulletin is the first one regarding mortgage servicing transfers released since the changes to Regulation X and Regulation Z went into place back in January.

In a press release touting the bulletin’s release, the CFPB noted that the “bulletin gives examples of some things CFPB examiners will look for when loans are transferred. In particular, CFPB examiners will carefully scrutinize transfers of loans with pending loss mitigation applications or approved trial and permanent modification plans. Examples of good practices by servicers include flagging those loans and taking special care to ensure that all relevant documents are transferred in a timely manner.”

The bulletin is divided into four main sections: (A) General Transfer-Related Policies and Procedures; (B) Applicability of Other Parts of the New Servicing Rule to Transfers; (C) Protections under Federal Consumer Financial Law; and (D) Plans for Handling Servicing Transfers.

Section A provides examples of general transfer-related policies and procedures that CFPB examiners may consider in their evaluation of servicers with regards to maintaining policies and procedures that are “reasonably designed to achieve the objectives of facilitating the transfer of information during mortgage servicing transfers and of properly evaluating loss mitigation applications.”  The bulletin states that the examples in Section A are not intended to be an exhaustive list of policies and procedures, and that “in future examinations CFPB examiners will consider a servicer’s transfer-related policies and procedures as a whole in determining whether they are reasonably designed to achieve these objectives.”

Section B discusses how transfers interact with other portions of the servicing rule.  Its discussion includes portions regarding:

• Error resolution procedures;
• Requests for information;
• Force-placed insurance;
• Early intervention;
• Continuity of contact; and
• Loss mitigation.

Section C gives a brief listing of other federal consumer financial laws applicable to servicing transfers and explains potential consequences if servicers are not fulfilling their obligations under the law.  Lastly, Section D discusses how, in certain circumstances, the CFPB may “require servicers engaged in significant servicing transfers to prepare and submit written plans to the CFPB detailing how they will manage the associated consumer risks.”

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Free Kick.  My in-laws were visiting this past weekend, and in order to spend quality time with them, I drafted this blog post before leaving the office on Friday.  Therefore, while I would have loved to have given my take on the EPL games from this past weekend, I will instead have to focus on the big news from Friday – the Mario Balotelli move to Liverpool.

Having lost Luis Suarez this summer, I understand the reflexive need to try and fill the void with a “superstar” goal scorer.  Rickie Lambert certainly is an inadequate signing that did little to make up for the loss of Suarez.  But Balotelli, really?  Sure, he has raw talent, but he is also temperamental, inconsistent diva that has shown a penchant for disappearing for long stretches of games and seasons.  If they can control Balotelli’s self-imploding impulses, then this will be a brilliant coup for Brendan Rodgers and the Liverpool brass.  That being said, neither Manchester City nor AC Milan could effectively do that.  Therefore, while Balotelli may pay early dividends for Liverpool, I have no doubt that that he will devolve into a clubhouse cancer and inconsistent performer on the pitch by the end of the season.

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Webcast.  Your Credit Union’s Website: Keys to a Successful Compliance Review.  Your credit union website is subject to the same compliance requirements as printed material—but the parameters don’t always seem clear.  In NAFCU’s informative webcast, Steven Van Beek will help ensure you can pass a website compliance review by discussing the key disclosures that must appear on your website, and when.  You’ll also receive best practices, learn to utilize the One Click Rule for disclosures, and more.

HUD Proposes Rule on ARM Notification Requirements and Look-Back Period for FHA-Insured Single Family Mortgages; NAFCU Webcast – Quarterly Economic Update & Credit Union Outlook

Written by Bernadette Clair, Senior Regulatory Compliance Counsel

The Department of Housing and Urban Development (HUD) recently issued a proposed rule that would align adjustable rate mortgage (ARM) notification requirements and the look-back period for FHA-insured single family mortgages with the Truth in Lending Act (TILA), as implemented by the CFPB’s Regulation Z mortgage servicing rule (“mortgage servicing rule”) published in the Federal Register February 14, 2013, and which became effective January 10, 2014.

Currently, FHA regulations have a 30 day look-back period for determining the current index to use for interest rate changes on FHA-insured ARMs and require notification at least 25 days in advance of a corresponding change in the mortgagor’s monthly payment. These timeframes were consistent with the rate adjustment notification requirements of prior Regulation Z, which required notice of rate adjustments between 25 and 120 days before the due date of the new payment. However, going forward, these timeframes will not be sufficient to comply with the revised timing requirements in Regulation Z, section 1026.20(c), which generally requires advance notice of a rate change with a corresponding payment change between 60 and 120 days before the new monthly payment is due.

Noting the timing issue for existing ARMs with short look-back periods, the CFPB’s mortgage servicing rule included special timing requirements for providing the section 1026.20(c) notice for ARMs with look-back periods less than 45 days and originated prior to January 10, 2015.  For these loans, the section 1026.20(c) disclosure must be provided at least 25 days, but no more than 120 days, before the new payment is due. This “grandfathering” of loans with look-back periods of less than 45 days was intended to provide HUD with enough time to bring its regulations in line with TILA and the mortgage servicing rule.

Accordingly, HUD is now proposing two revisions to FHA regulations that would (1) establish a 45 day look-back period for FHA-insured ARMs, instead of the current 30 day look-back period; and (2) require the mortgagee of an FHA-insured ARM to comply with the disclosure and notification requirements in the mortgage servicing rule.

For additional details, the proposed rule is available here.  HUD is accepting comments until June 9, 2014.

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NAFCU Webcast – Quarterly Economic Update & Credit Union Outlook. Economic and regulatory factors can affect you just as much as your members and employees. Gain a greater understanding of the most impactful current and forecasted economic conditions. You’ll also explore key performance metrics to help you measure the health of your credit union, such as member growth, ROA, delinquencies, and mortgage lending. The webcast will take place on Thursday, June 12, 2014 at 2:00pm Eastern time. Register by June 5 to save $100. For details on this webcast, click here.

FHA Makes Positive E-Signatures Change; Free Kick; ERM Webcast

Written by Ricardo Piñeres, Regulatory Compliance Counsel

With all of the new compliance requirements that have accompanied the start of 2014, it is easy to get trapped in a vortex of negativity.  Credit unions are struggling to keep up with the growing regulatory burdens, and many in our industry have suggested that instead of just adding new regulations, regulators should be looking to modernize some of their more outdated requirements.  Well, for those that have been clamoring for a step in the direction of modernity, I bring good news.  At the end of last month, the FHA announced that it would finally expand the list of documents for which it will accept electronic signatures!

Prior to this announcement, FHA only accepted e-signatures on third-party documents (i.e. sales contracts and other documents not under the lender’s control).  In addition to third-party documents, the new policy states that e-signatures are valid on the following documents:

• Origination;
• Servicing;
• Loss mitigation;
• FHA insurance claims;
• REO sales contracts; and
• Related addenda.

Lenders that choose to accept e-signatures may begin taking advantage of the FHA’s new policy immediately on both single family forward mortgages and reverse mortgages.  For the time being, the FHA will not be accepting e-signatures on the mortgage note, itself.  It is expected that they will begin accepting e-signatures on forward mortgage notes by the end of the year.

In order to take advantage of the FHA’s new policy, all lenders that submit electronically-signed documents must have specific technology and operational capabilities and controls, documented quality control processes, and the ability to adapt the electronic signature to FHA’s existing record retention processes.  Furthermore, any lender that chooses to take advantage of the FHA’s new policy must still comply with all of the requirements of the E-SIGN Act.  For more information on the requirements, credit unions should view FHA’s Mortgagee Letter 2014-03.

While this may not do much to ease the ever-growing regulatory burden on credit unions, it is heartening to see a government entity seeking to improve its processes.  I applaud the FHA for making it easier for lenders to work with them, and hope that they continue to streamline their processes.  Not only will this help lenders, but ultimately, it will help consumers seeking to take advantage of the FHA’s products.

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Free Kick. I am in the middle of a tense two weeks.  As a die-hard supporter of Arsenal, the schedule has put together a string of fixtures that will either make or break the Gunners’ season.  If Arsene Wegner and Company can survive these two weeks, then maybe I can dream of an end to the trophy drought.

Sadly, things did not get off to a good start over the weekend.  The drubbing at Anfield saw Arsenal play its worst game of the season (excluding the league opener to West Ham).  While Liverpool has been firing on all cylinders, I’m hoping that the embarrassment of this past weekend will fuel Arsenal to seek some revenge and move into the FA Cup Quarterfinals when they host Liverpool on Sunday.

Turning to the Premier League, thankfully, Chelsea dropped two points to West Bromwich in the waning minutes of yesterday’s match.  Therefore, Arsenal can go back to the top of the Premier League with a win later today against Manchester United.  ManU, frankly, has been mediocre to start 2014, so Arsenal need all three points if they are to truly contend down the stretch.

Lastly, the knockout stages of the UEFA Champions League get underway next week.  Arsenal was unable to win their group in the fall, so they have drawn Bayern Munich.  This is a repeat of last year’s Round of 16 matchup.  While Arsenal is a much improved squad this season, I see a similar result in our future with Bayern Munich coming away with a close win over the two-legged contest.

Hopefully, the loss to Liverpool at Anfield was just an aberration, and I can continue to dream of a trophy or two!  Go Gunners!

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Webcast. Enterprise Risk Management (ERM) – Practical Ways to Implement at Your Credit Union.

Does ERM really differ from normal risk management? Yes! ERM allows you to leverage the risk-return relationship in everything from project management to strategic planning. Register by Feb. 27 to save $100 and learn how to make your credit union more effective.

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.

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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.

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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.

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

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

Written by JiJi Bahhur, Director of Regulatory Compliance

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

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

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

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

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

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

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

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

Remittance Rule Safe Harbor List; November Compliance Monitor Available; Meet the NAFCU Family (Fun Video Alert)!

Written by JiJi Bahhur, Director of Regulatory Compliance

Remittance Rule Safe Harbor List.  Yesterday, the CFPB published a notice of the current safe harbor list of countries that qualify for an exception in the remittance rule.  The list, effective concurrently with the final remittance rule on October 28, 2013, remains unchanged from the initial release on September 26, 2012.

To provide some background, the final remittance rule generally requires remittance transfer providers to give consumers sending remittance transfers certain specified disclosures, including the applicable exchange rate, any fees imposed and taxes collected by the provider, and covered third-party fees.  The safe harbor list provides an exception: it permits estimates of certain disclosures when a remittance transfer provider cannot determine the exact amounts it must disclose at the time the disclosures are required because the laws of the recipient country do not permit such determinations. 

The list currently contains the following countries: Aruba, Brazil, China, Ethiopia, and Libya.  The CFPB intends to revise the list periodically; however, none of the countries currently listed will be removed from the list prior to July 1, 2014. 

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November Compliance Monitor.  The November 2013 NAFCU Compliance Monitor is now available for download by NAFCU members. This month's articles are on Mortgage Servicing: Error Resolution & Information Request Procedures and the NCUA Common Bond Advertising Requirements.  And, of course,
the latest Compliance Calendar is also available.

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NAFCU Video.  Ever wonder who you’re speaking with when you call in to NAFCU?  Or even who is behind these crazy blog postings?  Well wonder no more!  Meet the folks that provide you with Extreme Member Services every day.  This video will definitely make your Wednesday!

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.

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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 Supervisory Highlights – Mortgage Servicing

Written by Bernadette Clair, Regulatory Compliance Counsel

Earlier this week, we blogged about the CFPB’s Summer 2013 Supervisory Highlights Report, and the sections of the report dealing with compliance management systems and fair lending issues related to providing adverse action notices.  Another hot button topic covered in the report is mortgage servicing, particularly issues related to servicing transfers, payment processing, and loss mitigation.  Here are some of the highlights:

Servicing Transfers. Back in February 2013, the CFPB announced its intention to closely monitor transfer activity by mortgage servicers and issued Bulletin 2013-1 providing information on particular areas of focus. The latest Supervisory Highlights Report reflects the CFPB’s focus in this area and provides examples of some of the servicing transfer issues that the CFPB has found during reviews. From the report:

“During its reviews of mortgage servicing, the CFPB detected risks to consumers in transfers of the servicing of  loans among institutions. For example, examiners found noncompliance with the requirements of the Real Estate Settlement Procedures Act (RESPA)⁵ to provide disclosures to consumers about transfers of the servicing of their loans. In other reviews, examiners noted lack of controls relating to the review and handling of key documents –  such as loan modification applications, trial modification agreements, and other loss mitigation agreements – necessary to ensure the proper transfer of servicing responsibilities for a loan. For example, examiners noted that one servicer conducted some due diligence on transferred servicing data but did not review any individual documents that the prior servicer had transferred, such as trial loan modification agreements.” (Footnote omitted.)

Payment Processing. The CFPB also found issues related to payment processing during its reviews. A couple of the examples in the report include a servicer that failed to provide adequate notice to borrowers of a change in the address for sending payments, and a servicer that paid property taxes late. Here’s a taste of how the CFPB handled the servicer that paid property taxes late:

“In another review, the CFPB determined that a servicer paid certain property taxes late, in violation of RESPA. The CFPB directed the servicer to pay any fees associated with the late payment, and to investigate whether consumers experienced any additional harm as a result of the late payments. Further, at the CFPB’s direction, the servicer will notify consumers of the late payment and fee payment, and solicit information from borrowers about any additional harm caused by the late payment. If any such harm is identified, the servicer will remediate it.”

Loss Mitigation. In the area of loss mitigation, CFPB examiners found several issues, including:

• Inconsistent loss mitigation underwriting;

• Inconsistent waivers of certain fees or interest charges;

• Long application review periods;

• Missing denial notices;

• Incomplete and disorganized servicing files;

• Incomplete written policies and procedures; and

• Lack of quality assurance on underwriting decisions.

The CFPB also provides its expectations when these types of issues are identified by examiners. From the report:

“When examiners identify these issues, CFPB expects corrective action, and in the case of violations, directs the servicer to improve its policies and procedures governing the handling of loans in loss mitigation and the documentation of servicer actions, as well as training appropriate personnel on the new policies and procedures. Additionally, CFPB has directed servicers to engage in specific corrective actions appropriate to the circumstances, such as: reviewing loss mitigation decisions and related fees or charges to borrowers to determine whether any reimbursement is appropriate, conducting periodic testing to monitor areas of concern, and providing reports to CFPB on progress completing these corrective actions.

In addition to general compliance risks, weak compliance management surrounding loss mitigation processes creates fair lending risk. CFPB expects that entities servicing mortgage loans will implement fair lending policies, procedures, and controls to ensure that they are complying with the Equal Credit Opportunity Act. ⁸ While the appropriate program will vary from financial institution to financial institution, CFPB expects that at a minimum, entities servicing mortgage loans will conduct fair lending training for loss mitigation staff, and will engage in effective and timely fair lending risk assessments, compliance monitoring, and testing of fair lending risks.” (Footnote omitted.)

Once again, fair lending issues are emphasized, and as Mike noted in Monday’s blog post, this will continue to be a hot topic for the CFPB and NCUA.

For more details on the CFPB’s supervisory findings and program developments, check out the complete Supervisory Highlights Report.

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:

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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.

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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)

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.

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.  

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.

Cyber Threats; SCRA; Fannie Mae Resources; Economic Update; Mortgage Servicing Transfers

Written by Steve Van Beek

Below are couple of tidbits for your Tuesday.

***

NCUA Risk Alert on Cyber Threats.  NCUA issued Risk Alert 13-Risk-01 on steps credit unions should take to protect against Distributed Denial-of-Services (DDoS) attacks.  In recent months, these attacks have ticked up at financial institutions – including credit unions.  Be sure to pass this Risk Alert along to those in charge of risk management and information technology at your credit union.    

***

CFPB “Hit or Myth” on SCRA.  The CFPB had a recent blog post on various confusing issues related to servicemember protections under SCRA.  These “Hit or Myth” questions and answers might be useful for internal SCRA training.  For more CFPB information on servicemembers, check out this page.    

*** 

Fannie Mae Loan Quality Resources. If your credit union sells loans to Fannie Mae, be sure to check out their new resources regarding Loan Quality.  The webpage includes resource guides as well as free webinars to help understand Fannie Mae’s procedures.  Be sure to pass along the resource page to others at your credit union. 

***

NCUA’s February Economic Video.  NCUA’s latest economic video is now available for viewing on YouTube.  Each month, NCUA’s Chief Economist John Worth provides an overview of the economic market and how it impacts credit unions.  These are great videos to include in strategic planning or board sessions as NCUA comes directly to you – via YouTube – each month with an economic update.  

***

CFPB Bulletin on Mortgage Servicing Transfers.  In addition to changing nearly all the mortgage servicing requirements in January, the CFPB has mortgage servicing transfers in their crosshairs.  In mid-February, the CFPB announced their intent to “closely monitor transfer activity” by mortgage servicers.  In conjunction with the announcement, the CFPB issued Bulletin 2013-1 which provides specific information regarding the CFPB’s detailed focus on mortgage servicing transfers.  

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.   

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.    

Economic Census Forms; Upcoming Webinars & Webcasts

Written by Steve Van Beek

Economic Census.  Your credit union may have gotten an Economic Census form (the forms were sent between October and December).  The deadline for completion is February 12th.  To help facilitate understanding of this form and the requirement, the Office of Business Liaison at the Department of Commerce has put together information, numerous FAQs and is hosting a webinar on Wednesday, January 24th at 1:00 p.m. EST.  Note: There was a prior webinar on October 11th, 2012.  The slides from that presentation are here (very large PPT file) and a transcript is available here.

There are additional help resources available here.  

The FAQs include specific information for different industries - including credit unions.  The credit union FAQs are here and forms are here.  Remember, the deadline is February 12th, 2013.  

Note:  Not every credit union will receive a form.  But, be sure to check with folks and see if your CU has and make sure it is completed by February 12th. 

***

There are also numerous other webinars and webcasts this week.  

NCUA Webinar on Serving Low-Income Members.  NCUA is hosting a free webinar on Strategic Issues for Servicing Low-Income Members.  This webinar is Wednesday, January 23rd at 2 p.m. EST.  If your credit union recently received your low-income designation, this might be a useful webinar.  Here is from the announcement:

"Staff from [NCUA's] OSCUI and NCUA’s Office of Consumer Protection will discuss ways low-income designated credit unions may improve and increase service to low-income members. In addition, the staff will present sample products and services designed to meet the needs of these members."

You can register here. 

***

NCUA HMDA Webinar.  NCUA will also be offering a free webinar entitled HMDA: Accuracy and Timeliness.

The webinar will be Thursday, January 24th at 2 p.m. EST.  You can register for the webinar here and you can also send any questions to [email protected].  

NCUA also recently issued Regulatory Alert 13-2 which highlights the March 1, 2013 deadline for submitting HMDA data.  Earlier, they had sent Regulatory Alert 13-1 which discusses the $42 million asset threshold for 2013 HMDA reporting.

Does anyone know how these Regulatory Alerts are delivered?  Why don't they go through NCUA Express?  Another one they buried on their website was Regulatory Alert 12-4 on the CFPB's Remittance Rule. 

***

Upcoming NAFCU Webcasts.  NAFCU will be offering a very full slate of webcasts in 2013.  And, you can be assured that quite a few will be focusing on compliance - especially the new mortgage requirements.  Below are our next couple webcasts:

• The CFPB's International Remittance Transfer Disclosure Rules - Thursday, January 24th from 2:00 - 3:30 p.m. EST.  Mary Lou Heighes will walk attendees through the final rule as well as aspects of the proposed rule that you need to know.  Mary-Lou has been very involved in the remittance transfer rule from the start and gave a great presentation at our Compliance Seminar in October.  And, because of the importance of this rule - we are extending the early-bird registration price indefinitely.  You can sign-up for this webcast any time and receive the early-bird price.  

Remember: All of NAFCU's webcasts are available on-demand as well.  If you can't make the live webcast (perhaps because you need to watch the HMDA webinar or the Census webinar live), you can always watch the on-demand webcast at a later date.

• Top HR Compliance Issues Affecting Credit Unions in 2013 - Wednesday, February 6th from 2:00 - 3:30 p.m. EST.  Margaret Fiester from the Society of Human Resource Management (SHRM) will discuss how credit unions will be impacted by various future reforms - including tax reform and health care reform.  Register by January 30th to Save $100.  

NCCOs:  Both of the webcasts above will earn credits toward renewing your NAFCU Certified Compliance Officer (NCCO) designation.  If you see this logo -  - you'll be sure the webcast will be offering NCCO credits.

New NCCO Affidavit Process:  We also have a new, streamlined NCCO affidavit.  You can find the fillable-form located here.  If you are an NCCO and attend a NAFCU webcast with this symbol -   - be sure to use this form.   

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

Written by Steve Van Beek

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

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

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

Effective Date:  January 18, 2014.  

***

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

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

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

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

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

Here is from the final rule:

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

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

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

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

Say that five times fast.  

***

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

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

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

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

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

***

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

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

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

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

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

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

Have a great weekend!

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

Written by Steve Van Beek

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

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

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

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

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

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

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

"SMALL SERVICER EXEMPTIONS

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

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

***  

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

***

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

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

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

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

Written by Steve Van Beek

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

***

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

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

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

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

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

***

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

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

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

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

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

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

***

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

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

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

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

***

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

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

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

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

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

***

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

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

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

NAFCU Letter on Effective Dates; Field Hearings on Mortgages - Qualified Mortgages Rule; School Deadline

Written by Steve Van Beek

You've probably heard the rumors that the first of the CFPB's mortgage regulations are expected to be released today. In anticipation of this, NAFCU sent another comment letter to the CFPB encouraging flexibility with regard to effective dates: 

"NAFCU believes that the CFPB does have the discretionary authority to provide much longer than the publically stated 12 months for one or more of the final rules. While we understand that Title XIV of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) provides a set effective date for the agency’s “qualified mortgages,” the CFPB can assert its greater discretionary rulemaking, examination and supervisory authorities to determine that 12 months is an inadequate period for financial institutions to effectively implement the regulations. In fact, NAFCU believes that this short period could lead many financial institutions to improperly implement the regulations, thus diminishing the statutory purposes underlying the regulations.

Alternatively, the CFPB could use its broad authority to consider the regulatory burden on small entities and provide an extended effective date for all credit unions. As we have stated on numerous occasions, Congress granted the CFPB this authority with the understanding that small entities will be disproportionately affected by the agency’s extensive regulations issued pursuant to the Dodd-Frank Act. NAFCU believes that the issue of the effective dates of these rules is well within the scope of the agency’s discretionary authority related to small entities."

We hope the CFPB will seriously consider the differences between the big banks and nonbank mortgage lenders on one hand and credit unions and community banks on the other.  Both in terms of whose actions lead to Dodd-Frank and which should have the obligation to restructure their entire mortgage operations within a short period of time.  

***

Field Hearings.  Today marks the first of two planned Field Hearings on mortgages that were announced by the CFPB.  Today's hearing will be at 11 a.m. in Baltimore, Maryland (at Westminster Hall and Burying Ground).  The second will be January 17th in Atlanta, Georgia (hopefully at a less foreboding location).  According to the announcements, each field hearing will feature remarks from CFPB Director Richard Cordray, as well as testimony from consumer groups, industry representatives, and members of the public.   

Additionally, if the past is any indicator - the CFPB will be announcing their final rules either prior to the field hearings or directly following the hearings.  Stay tuned.

*** Update ***

Qualified Mortgage Final Rule - (Updated at 7:00 a.m. on 01/10/13).  Early this morning (12:01 a.m.), the CFPB announced it has finalized the qualified mortgages regulation.  This is also known as the ability-to-repay mortgage rule.  You can find information on the final rule below.

• Summary of the Ability-To-Repay Rule (and Concurrent Proposal)
• Fact Sheet on the Ability-To-Repay Rule (Full Title is:  Protecting Consumers from Irresponsible Mortgage Lending)
• Press Release on Ability-To-Repay
• CFPB Director Cordray's Prepared Remarks

In true CFPB fashion, the actual regulation isn't available yet - but will be posted on their regulations page later today.  An interesting way to control the news reporting, isn't it?  Give out just the highlights from the CFPB's perspective and don't release the details.  By the time the details (and the associated burdens) come out, the CFPB's message is already out and through the news cycle.  

For more, check out the NAFCU Today.  Of course, NAFCU's Regulatory Affairs team will be preparing a Final Regulation for NAFCU memebers. 

***

NAFCU's Regulatory Compliance School.  Just a reminder that the early bird deadline for registering for NAFCU's 2013 Regulatory Compliance School ends tomorrow - January 11th.  Register by COB tomorrow and Save $100.  

Don't Forget:  Use promo code "NEWYEAR" when you register for School, Seminar or any of NAFCU's 2013 Conferences and save an additional $100.  Register by January 31st to Save.  

Mortgage Periodic Statements: Combined Statements; NAFCU Member Call-In

Written by Steve Van Beek

This week we've been discussing the possibility of sending electronic mortgage periodic statements.  There are also quite a few other issues related to mortgage statements that credit unions need to be ready for.  One, in particular, is whether or not combined statements are a viable option after the mortgage servicing proposals are finalized.

The issue with combined statements comes down to timing.  In fact, this issue was brought up by credit unions prior to the proposed rule and the CFPB solicited comments:

"Based on industry outreach, the Bureau understands that some institutions provide a combined statement for mortgage loans and other financial products. For example if a consumer has both a checking account and a mortgage with a credit union, the consumer may receive a single combined statement. The Bureau seeks comment on how servicers would actually combine statements. In particular, the Bureau notes that difficulties may arise when different disclosures have different timing requirements, and when multiple disclosures have requirements that information be presented on the first page of the statement. For example, if both mortgage loan disclosures and credit card disclosures are required to be on the first page of a statement, how would these statements be combined?"

Of course, NAFCU addressed this issue in our comment letter and asked the CFPB for flexibility so that credit unions would not be required to drastically change their current business practice given the fact that the benefit to members was not proven.

"The timing requirements of the proposed periodic statements will pose tremendous problems for both credit unions and their members. For example, many credit unions service mortgages with due dates throughout the month, and would have to mail statements each day in order to comply with the proposed requirement that a statement be sent within 4 days after the close of the grace period of the previous cycle.

Many credit unions currently provide combined statements at the beginning of each month. The combined statements contain a vast majority of the information that the proposed periodic statement contains. Borrowers are not only used to this format, but prefer it because they are not receiving multiple statements from their credit union throughout the month, but rather, a single combined statement that contains information about their loan, checking, share (savings) and other appropriate accounts. The proposed timing requirements would make this tried and true credit union practice virtually impossible to continue. Accordingly, NAFCU strongly urges the agency to carve out exceptions from the proposed timing and other requirements that would allow credit unions to provide combined statements, and provide a sample form of such combined statement. As the CFPB finalizes the rule, it should reach out to credit unions that currently provide combined statements to construct its final rule and NAFCU would be pleased to assist the agency in this endeavor."

If your credit union currently provides mortgage information on your other statements, be sure to keep an eye on this issue when the final rule comes out.  

***

Member Call-In.  NAFCU’s last member-only call-in of the year will take place December 6, 2012 at 3:30 p.m. (EST). Join NAFCU President and CEO Fred Becker and senior staff for an important briefing on current legislative developments and regulatory challenges affecting credit unions. 

The call is free and a NAFCU-member exclusive benefit, but you must register to participate.

Mortgage Periodic Statements & The E-SIGN Act: Part 3

Written by Steve Van Beek

Yesterday we blogged further on mortgage periodic statements and the E-SIGN Act.  We noted that the CFPB's mortgage servicing proposal could change when it is finalized.  In fact, the CFPB specifically asked for comments on the delivery of mortgage statements electronically.  As we noted yesterday, NAFCU supported electronic delivery in our comment letter.

Well, this section of the CFPB's proposed rule is actually a very interesting read - including this portion:

"The Bureau seeks comment as to whether additional requirements should be placed on when a consumer consents to receiving electronic statements. For example, must consent be obtained or confirmed electronically in a manner that demonstrates that the consumer is able to access information electronically? The Bureau also seeks comment on whether consumers who already receive electronic statements should be deemed as having consented to receive statements electronically. Additionally, the Bureau seeks comment on whether consumers who have auto-debit set up to deduct payments from their bank account should be deemed as having consented to receive statements electronically."  (Emphasis added).

As this paragraph indicates, the CFPB is looking at a wide range of options and solicited comments from interested parties.  The CFPB is looking for comments on whether the full E-SIGN Act consent process should apply regardless of the plain language of Dodd-Frank and TILA.  They are also seeking comments on whether a member's past consent to electronic statements - such as for their credit card or checking account statements - should be sufficient evidence to allow credit unions to send the mortgage periodic statement to existing members.  Additionally, that last option of electronic payments equaling consent for electronic statements is certainly an interesting approach.   

Again - it will be very interesting to see how the CFPB analyzes the comment letters from all interested parties and what the final rule will look like.  We'll know by January 21, 2013.  

Mortgage Periodic Statements & The E-SIGN Act: Part 2

Written by Steve Van Beek

A couple of weeks ago we blogged on the CFPB's mortgage servicing proposal and the ability to send mortgage periodic statements electronically - if the proposal is adopted as proposed - without following the full E-SIGN Act consent process.  Here was a snippet from that post:

"Thus, if the CFPB's proposal is adopted as is - credit unions would have flexibility to send mortgage periodic statements electronically without following the full E-SIGN Act consent process.  A member's authorization - properly documented by the CU - would be sufficient."

NAFCU's comment letter showed strong support for this ability to have member's sign up for mortgage statements without following the full E-SIGN Act process:

"NAFCU does support allowing credit unions to be able to send notices electronically without following the E-SIGN Act. Under the proposal, the periodic statement may be transmitted in writing or electronically; thus, a credit union would not need to obtain a person’s signature as required by the E-SIGN Act. NAFCU strongly supports this proposal and urges the CFPB to pursue legislation that would amend the E-SIGN Act to remove the outdated and onerous requirement of obtaining the borrower’s signature in order to transmit communications electronically."

The next question is - what about members with existing mortgages?  How does the credit union obtain a member's authorization or opt-in for electronic periodic statements?  

Here is from NAFCU's comment letter:

"NAFCU requests that the CFPB develop a model opt-in form that credit union can send to their members to facilitate member acceptance of electronic statements. This is especially important considering the new periodic statement requirement would apply to existing mortgages as well as new mortgages."

A model opt-in form that credit unions could send to existing members would help both credit unions and their members.  Members would be able to simply agree to "go paperless" in response to the monthly statement they are sent.  They could also opt-in for electronic periodic statements by providing the indication inside the CU's online banking platform.  

***

Of course, this is still a proposal and the final rule could differ.  Additionally, keep in mind that this flexibility for member agreement for electronic delivery of statements without the full E-SIGN Act consent process does not necessarily extend to other proposed notices that are being added to Reg Z and RESPA.