NAFCU Compliance Blog

“I’ve Got to Keep on Moving”: CFPB Continues Its Prosecution of RESPA Violations

Written By Shereefat Balogun, Regulatory Compliance Counsel

Any P.Diddy fans out there?! Well, Diddy’s 1997 hit “Can’t Nobody Hold Me Down” rings loud in my head as I read through the latest CFPB Order against a mortgage lender for violating the prohibition on “kickbacks” in Section 8(a) of RESPA.  Now many of you are aware that the CFPB’s order and penalty against PHH Corporation similarly alleging RESPA violations was reversed by a panel of the U.S. Court of Appeals for the D.C. Circuit.  Notwithstanding, the CFPB seems resilient in its efforts.

The Story

A few days ago, the CFPB announced consent orders against Prospect Mortgage, LLC (Prospect), a mortgage lender for paying illegal kickbacks for mortgage business referrals, and some of its partners.  Essentially, the order against Prospect accuses the lender of using a variety of schemes to pay kickbacks for referrals of mortgage business in violation of RESPA.  Here are some of the activities the CFPB found to be in violation of Section 8(a) of RESPA:

• Using Lead Agreements to Pay Brokers for Referrals. According to the order, Prospect entered into agreements whereby it paid real estate brokers for each lead it received.  A lead generally consisted of a prospective buyer’s name, address, email address, and phone number, which Prospect would then use to reach out to the prospective buyer to market its loans products.  Moreover, under these agreements, brokers would also take steps to steer consumers to Prospect, many times under Prospect’s encouragement.  For example, the order states that Prospect paid one broker between $25 to $500 per lead, typically totaling $2k to $3k a month.  The broker, in turn, would hand out $20 bills to their agents, one for each consumer that the agent directed to Prospect’s loan officers.
• Encouraging Brokers and their Agents to Require Buyers to Obtain Preapprovals with Prospect’s Loan Officers. The CFPB found that Prospect violated Section 8(a) by providing that a broker listing a property for sale would require any prospective buyer seeking to submit an offer to first obtain a preapproval from Prospect. For example, one lead agreement required the broker to “educate and train” its agents on the need for consumers to seek Preapproval with Prospect, and that the broker would only earn lead fees for those listings “in which Prospect has been designated as the preferred lender such that the listing agent is required to have all customers who desire to submit an offer on the property receive a Prospect Mortgage pre-qualification.”
• Paying a Mortgage Servicer for Referrals. The CFPB alleges that Prospect had a contract with a mortgage servicer whereby the mortgage servicer would market Prospect’s services to its servicing clients, and tried to persuade them to refinance their existing mortgage with Prospect.  In return, Prospect paid the mortgage servicer a portion of the proceeds received from any resulting refinance and also gave them the mortgage servicing rights on the refinance mortgage.
• Encouraging Brokers to Use Fees and Credits to Pressure Consumers into Using Prospect. The order alleges that in response to pressure from Prospect, brokers at time took steps to economically coerce consumers into using Prospect. For example, one broker made a seller’s credit conditional on using Prospect for the mortgage.  Also, other brokers allegedly imposed per diem fees (a penalty imposed on the buyer for each day beyond the contractual closing date the buyer was unable to close because financing had not been approved) unless the buyer used Prospect.

Remind Me About Section 8(a) Again.

Section 8(a) of RESPA generally prohibits any person from giving or receiving a fee, kickback, or other “thing of value” in exchange for the referral of a settlement service involving federally related mortgage.  See, 12 U.S.C § 2607(a). “Thing of value” is broadly defined, and thus many credit unions tend to be cautious regarding real estate transactions and referrals.  In short, a credit union may not pay another company or its employees for the referral of settlement service business.  

What Are Compliance Folks Saying?

“OK, I understand the general prohibition, but I thought some activities were allowed.  What about Section 8(c)?”  Interestingly, the CFPB did not even mention Section 8(c) in its orders. 

Section 8(c) lists several types of conduct that are permitted, so long as certain conditions are satisfied.   Indeed, Section 8(c), states:

Nothing in this section shall be construed as prohibiting (1) the payment of a fee (A) to attorneys at law for services actually rendered or (B) by a title company to its duly appointed agent for services actually performed in the issuance of a policy of title insurance or (C) by a lender to its duly appointed agent for services actually performed in the making of a loan, (2) the payment to any person of a bona fide salary or compensation or other payment for goods or facilities actually furnished or for services actually performed…

12 U.S.C § 2607(c)(emphasis added).

Regulation X further expressly permits:

• A payment to an attorney at law for services actually rendered;

• A payment by a title company to its duly appointed agent for services actually performed in the issuance of a policy of title insurance;

• A payment by a lender to its duly appointed agent or contractor for services actually performed in the origination, processing, or funding of a loan;

• A payment to any person of a bona fide salary or compensation or other payment for goods or facilities actually furnished or for services actually performed;

• A payment pursuant to cooperative brokerage and referral arrangements or agreements between real estate agents and real estate brokers. (The statutory exemption restated in this paragraph refers only to fee divisions within real estate brokerage arrangements when all parties are acting in a real estate brokerage capacity, and has no applicability to any fee arrangements between real estate brokers and mortgage brokers or between mortgage brokers.);

• Normal promotional and educational activities that are not conditioned on the referral of business and that do not involve the defraying of expenses that otherwise would be incurred by persons in a position to refer settlement services or business incident thereto; or

• An employer's payment to its own employees for any referral activities.

See, 12 C.F.R. §1024.14(g)(iv)(emphasis added.).

Despite acknowledging that referrals are inherent in real estate transactions, the CFPB did not provide much guidance as to how lenders and other industry partners should structure referral arrangements to comply with RESPA.  

If it’s any consolation, the rule does advise that the CFPB “may investigate high prices to see if they are the result of a referral fee or a split of a fee. If the payment of a thing of value bears no reasonable relationship to the market value of the goods or services provided, then the excess is not for services or goods actually performed or provided. These facts may be used as evidence of a violation of section 8 and may serve as a basis for a RESPA investigation.”  12 C.F.R. §1024.14(g)

What Now?

If your credit union is offered some kind of referral or similar arrangement, or is involved in referral programs that may not have previously been vetted, it may be worth calling your lawyer.  In light of RESPA’s already restrictive language, coupled with the recent CFPB interpretations and aggressive prosecution, credit unions involved in the mortgage business are advised to consult with counsel before making referrals.

If you have any questions on this or any other compliance issue, please feel free to reach out to us.  We’re here to help 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. 

"If You Scratch My Back, I'll Scratch Yours"... Maybe Not Says CFPB

Written by Shereefat Balogun, Regulatory Compliance Counsel

The CFPB is embroiled in an enforcement action involving RESPA Section 8, and this case is being closely monitored because of the significant impact any decision will have on the mortgage industry.  If the court accepts the CFPB’s interpretation of what constitutes a referral fee, just about any aspect of the mortgage settling business will be impacted, from loan applications and originations, to closings, and insurance on a home. In light of this significance and the growing industry concerns, here is an overview of Section 8’s regulatory requirements for credit unions involved in the mortgage business.

As way of background, in 2014, the CFPB brought an enforcement action against PHH Corp., a mortgage lender, alleging that when PHH originated mortgages, it referred consumers to mortgage insurers with which PHH had partnered. In exchange for this referral, the insurers purchased reinsurance from PHH's subsidiaries. The CFPB says this is a kickback, and thus a clear violation of Section 8. 

As you know, Section 8 of RESPA generally prohibits kickbacks and referrals. Specifically, Section 8(a) provides that no person shall give and no person shall accept any fee, kickback, or other thing of value pursuant to any oral or written agreement or understanding for the referral of a settlement service involving federally related mortgage. See, 12 U.S.C. §2607(a). “Thing of value” is broadly defined, and thus many credit unions tend to be cautious regarding real estate transactions and referrals. Regulation X, which implements RESPA, defines a “thing of value” as:

"(d) Thing of value. This term is broadly defined in section 3(2) of RESPA (12 U.S.C. 2602(2)). It includes, without limitation, monies, things, discounts, salaries, commissions, fees, duplicate payments of a charge, stock, dividends, distributions of partnership profits, franchise royalties, credits representing monies that may be paid at a future date, the opportunity to participate in a money-making program, retained or increased earnings, increased equity in a parent or subsidiary entity, special bank deposits or accounts, special or unusual banking terms, services of all types at special or free rates, sales or rentals at special prices or rates, lease or rental payments based in whole or in part on the amount of business referred, trips and payment of another person's expenses, or reduction in credit against an existing obligation. The term “payment” is used throughout §§1024.14 and 1024.15 as synonymous with the giving or receiving of any “thing of value” and does not require transfer of money." 12 CFR §1024.14(d).

Regulation X also broadly defines both “agreement or understanding” and “settlement service”. With respect to “agreement or understanding,” the regulation states:

"(e) Agreement or understanding. An agreement or understanding for the referral of business incident to or part of a settlement service need not be written or verbalized but may be established by a practice, pattern or course of conduct. When a thing of value is received repeatedly and is connected in any way with the volume or value of the business referred, the receipt of the thing of value is evidence that it is made pursuant to an agreement or understanding for the referral of business."  12 CFR §1024.14(e)(emphasis added).

The term "settlement services," as defined in RESPA 12 U.S.C. §2602(3), includes any service provided in connection with the settlement of a loan.  Similarly, Regulation X's definition of "settlement services" contains a laundry list of activities.  

In addition to the prohibition of Section 8(a), RESPA Section 8(b) prohibits the splitting of charges for providing real estate settlement services. The section specifies:

"No person shall give and no person shall accept any portion, split, or percentage of any charge made or received for the rendering of a real estate settlement service in connection with a transaction involving a federally related mortgage loan other than for services actually performed." 12 U.S.C. §2607(a).

As you can see, the definitions of some of these terms are extremely broad, and the provisions of Sections 8(a) and (b) seem very restrictive. While, these two provisions can be read to cover any type of arrangement or partnership, many players in the mortgage industry relied on Section 8(c) as a possible safe harbor… well until recently when Director Cordray expelled that notion in the PHH case.

Section 8(c), unlike the other two sections, sets forth permissive conduct. Rather than describe conduct that is prohibited, it lists several types of conduct that are permitted, so long as certain conditions are satisfied.   Indeed, Section 8(c), states:

"Nothing in this section shall be construed as prohibiting (1) the payment of a fee (A) to attorneys at law for services actually rendered or (B) by a title company to its duly appointed agent for services actually performed in the issuance of a policy of title insurance or (C) by a lender to its duly appointed agent for services actually performed in the making of a loan, (2) the payment to any person of a bona fide salary or compensation or other payment for goods or facilities actually furnished or for services actually performed…" 12 U.S.C. §2607(a)(emphasis added).

Similarly, Regulation X provides:

"(g) Fees, salaries, compensation, or other payments. (1) Section 8 of RESPA permits:

…

(iv) A payment to any person of a bona fide salary or compensation or other payment for goods or facilities actually furnished or for services actually performed…"  12 CFR §1024.14(g)(iv)(emphasis added.).

Many relied on this provision allowing the payment of a bona fide salary or compensation where services are actually performed in justifying their arrangements. However, the CFPB’s current position is that Section 8(c)(2) merely “clarifies section 8(a), providing direction as to how that section should be interpreted, but does not provide a substantive exemption from section 8(a).” See, In re PHH Corp., page 16. Director Cordray explains that in order to be lawful, payments must be bona fide, which he defined as not being tied in any way to a referral of business. This seems to be the first time that the term “bona fide” for purposes of Section 8(c) has been qualified this way. Certainly, this definition is not found in the statute or the regulation, hence the reason for the industry concern. Moreover, the Bureau’s new interpretation is a departure from other interpretations including previous guidance issued by the U.S. Department of Housing and Urban Development (HUD), which enforced RESPA prior to the CFPB.

The CFPB’s new interpretation of RESPA would essentially invalidate and make unlawful most payment arrangements. If the CFPB prevails this will definitely be a game changer. If it’s any consolation, the judges seemed to share the industry’s concerns and questioned the fairness of the Bureau’s decision to disregard HUD’s guidance and other judicial interpretations, also noting that the entire industry relied on HUD’s interpretations. NAFCU will keep you updated on any further developments.

In light of RESPA’s already restrictive language, coupled with the recent CFPB interpretation, credit unions involved in the mortgage business are advised to consult with counsel before making referrals.  Note also that Appendix B to Regulation X includes examples of the application of RESPA, which credit unions can review for additional guidance.  

Deconstructing TRID’s Application to Construction Loans: Disclosing AP Table in Single Combined Disclosures; BSA Webcast Series

Written by Shereefat Balogun, Regulatory Compliance Counsel

It has been over five months since the implementation of the Consumer Financial Protection Bureau’s (CFPB) TILA-RESPA Integrated Disclosure (TRID) rules, yet many credit unions are still worried about disclosure requirements, particularly as they apply to construction-to-permanent loans. One issue that credit unions have had questions about is the Adjustable Payment Table under §1026.37(i) and how it should be completed if a construction-to-permanent loan is disclosed as a single transaction with one set of disclosures. Some have had some confusion as to whether the table is even required in every circumstance.

Generally, the “Adjustable Payment Table” (the “AP Table”) described in 1026.37(i) is only required if the periodic principal and interest payment may change after consummation based on a loan term other than a change to the interest rate, or the transaction contains a seasonal payment product feature. If the transaction does not include either of these loan terms, then the table should not be disclosed on the Loan Estimate.

If the creditor is required to disclose the AP Table because the periodic principal and interest payment will change after consummation, for reasons other than a change to the interest rate, or if the transaction contains a seasonal payment feature, then Section 1026.37(i)(1) through (4) requires a creditor to disclose on the Loan Estimate the periods during which the following features will be in effect: (i) interest only; (ii) optional payment; (iii) step payment; and (iv) seasonal payment product features. The periods required to be disclosed should be disclosed by describing the number of payments counting from the first periodic payment due after consummation.

In the context of a construction-to-permanent loan, if the creditor chooses to disclose this loan as a single transaction with one set of disclosures, the AP Table must be disclosed. Note that, in the construction phase of this loan, the borrower will typically make interest-only payments. Once the construction phase is complete and the permanent phase starts, the borrower will transition into making regular periodic principal and interest payments. Accordingly, with construction-to-permanent loans transactions, there will always be a payment change after consummation that will not be based on a change to the interest rate.

When a creditor elects to disclose a construction-to-permanent loan as a single transaction, the AP table is disclosed pursuant to §1026.37(i), with particular adherence to §§1026.37(i)(1) and (5). The rule provides in relevant part:

(i) Adjustable payment table. If the periodic principal and interest payment may change after consummation but not based on an adjustment to the interest rate, or if the transaction is a seasonal payment product as described in paragraph (a)(10)(ii)(E) of this section, a separate table under the master heading “Closing Cost Details” required by paragraph (f) of this section and under the heading “Adjustable Payment (AP) Table” that contains the following information and satisfies the following requirements:

(1) Interest only payments. Whether the transaction is an interest only product pursuant to paragraph (a)(10)(ii)(B) of this section as an affirmative or negative answer to the question “Interest Only Payments?” and, if an affirmative answer is disclosed, the period during which interest only periodic payments are scheduled.

…

(5) Principal and interest payments. Under the subheading “Principal and Interest Payments,” which subheading is immediately preceded by the applicable unit-period, the following information:

(i) The number of the payment of the first periodic principal and interest payment that may change under the terms of the legal obligation disclosed under this paragraph (i), counting from the first periodic payment due after consummation, and the amount or range of the periodic principal and interest payment for such payment, labeled “First Change/Amount”;

(ii) The frequency of subsequent changes to the periodic principal and interest payment, labeled “Subsequent Changes”; and

(iii) The maximum periodic principal and interest payment that may occur during the term of the transaction, and the first periodic principal and interest payment that can reach such maximum, counting from the first periodic payment due after consummation, labeled “Maximum Payment.”

12 CFR 1026.37(i)(1) and (5)(emphasis added).

As way of illustration, if the interest-only period during the 12-month construction phase has a rate that adjusts monthly, in disclosing whether there are interest-only payments as required under §1026.37(i)(1), the creditor should state “yes for your first 12 months”. Moreover, under §1026.37(i)(5)(i), the monthly principal and interest payments disclosure labeled “First Change” or “Amount” must disclose the range of minimum and maximum payments that will be made at the second payment.

Note that this general rule applies whether the construction and permanent phases have fixed rates or adjustable rates, or one phase is fixed and the other is adjustable. The key is to remember that the loan is considered a single transaction; and within that single transaction there is a change in payment after consummation as a result of the transition from construction to permanent, which therefore requires the AP Table and the corresponding disclosures under Section 1026.37(i).

On a final note, many creditors have criticized the CFPB for its lack of clear guidance on TRID’s application to construction loans and specifically cite the absence of sample forms and minimal reference to construction loans in the commentary. While some credit unions have considered whether to continue offering construction loans, TRID and Regulation Z's disclosure requirements and guidance generally apply to covered construction loans, except where otherwise mentioned. This is the case even if the guidance or rule provision is not directly on construction loans. And of course, for NAFCU members, if you have any questions on any specific disclosure requirements, please feel free to contact NAFCU’s Regulatory Compliance team, and we would be happy to address any of your specific concerns.

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BSA: Reports & Training for CU Boards

Live Webcast: Tuesday April 19 | 2:00 p.m. – 3:30 p.m. EST

Part of the BSA Webcast Series

It’s vital to understand the roles and responsibilities of credit union board members regarding the Bank Secrecy Act (BSA). Attend this webcast to understand your board’s BSA duties such as risk assessments, policy reviews, and updates, as well as recommended additional training needs. You’ll also get tips for in-house training and learn how to properly report SARs to your board.

CFPB Issues Compliance Bulletin on MSAs

By Eliott C. Ponte, Regulatory Compliance Counsel

Last week, the Consumer Financial Protection Bureau (CFPB) issued a compliance bulletin regarding marketing services agreements (MSAs) under the Real Estate Settlement Procedures Act (RESPA).  The CFPB stated it issued the compliance bulletin because of “grave concerns” about the use of MSAs to evade RESPA.  Readers should note that the compliance bulletin issued is non-binding. 

What’s The Rub?

Section 8(a) of RESPA prohibits the giving and accepting of “any fee, kickback or thing of value pursuant to any agreement or understanding, oral or otherwise, that business incident to or a part of a real estate settlement service involving a federally related mortgage loan shall be referred to any person.”  12 U.S.C. § 2607(a); see 12 C.F.R. § 1024.14(b).  While RESPA’s prohibition on paying referral fees are broad, section 8(c) allows for the lawful payment to “any person of a bona fide salary or compensation or other payment for goods or facilities actually furnished or for services actually performed.”  12 U.S.C. § 2607(c); see 12 C.F.R. § 1024.14(g).  MSAs, which are generally marketing agreements and initiatives with settlement services, are often structured to meet the requirements of this exception.  The compliance bulletin, however, hints that the CFPB does not believe MSAs should fall under this exception.  In fact, the compliance bulletin states that the CFPB’s efforts have found “that many MSAs are designed to evade RESPA’s prohibition on the payment and acceptance of kickbacks and referral fees.”

Guidance?  No!

One might expect that when a regulator highlights such a “grave concern,” the regulator would provide guidance to correct any identified problems.  Unfortunately, the compliance bulletin did not issue guidance explaining how to lawfully form and operate a MSA.  Instead, the compliance bulletin publically praised the decision of some lenders to dissolve their agreements with MSAs:

“In recent months, various mortgage industry participants have publicly announced their determination that the risks and complexity of designing and monitoring MSAs for RESPA compliance outweigh the benefits of entering the agreements. Accordingly, certain lenders have dissolved existing agreements and decided that they will no longer enter into MSAs. The Bureau encourages all mortgage industry participants to consider carefully RESPA’s requirements and restrictions and the adverse consequences that can follow from non-compliance.”

 The compliance bulletin also failed to give meaningful guidance as to what type of MSA arrangement would be allowed under RESPA.  According to the compliance bulletin, any MSA that involves an exchange of a thing of value will likely violate RESPA:

 “In the Bureau’s experience, determining whether an MSA violates RESPA requires a review of the facts and circumstances surrounding the creation of each agreement and its implementation.  The nature of this fact-intensive inquiry means that, while some guidance may be found in the Bureau’s previous public actions, the outcome of one matter is not necessarily dispositive to the outcome of another. Nevertheless, any agreement that entails exchanging a thing of value for referrals of settlement service business involving a federally related mortgage loan likely violates RESPA, whether or not an MSA or some related arrangement is part of the transaction.”

Going Forward

The CFPB is giving the industry clear indications that MSAs will be in their crosshairs in the coming months.  Credit unions that have active MSAs may want to review their agreements to ensure it is properly structured to avoid RESPA violations.  These credit unions may also want to review Appendix B to Part 1024, which contains illustrations of RESPA violations.  Another helpful resource is NAFCU’s Monthly Compliance Newsletter (login required), which recently featured an article on RESPA Section 8 violations.  

CFPB Issues Interpretive Rule on Homeownership Counseling Requirements, and Finalizes One-Year Suspension of TILA Requirement for Quarterly Submission of Credit Card Agreements

Written by Eliott C. Ponte

CFPB Issues Interpretive Rule on Homeownership Counseling Requirements.  The CFPB issued a final interpretive rule, amending its 2013 guidelines, to assist lender compliance with RESPA and TILA homeownership counseling requirements. 

Under RESPA, credit unions must provide applicants for a federally related mortgage loan with a clear and conspicuous written list of certified homeownership counselors.  12 C.F.R. 1024.20(a)(1).  RESPA states a credit union may use one of two methods for generating the required list.  First, a credit union can use a tool developed and maintained by the CFPB.  Second, a credit union can use data made available by the CFPB or HUD, provided the data are used in accordance with instructions provided with the data.  12 C.F.R. 1024.20(a)(1)(ii).  The interpretive rule describes instructions for credit unions to use in complying with the second method for generating a list.  The interpretive rule addresses the number of counselors that must appear on a list of counselors (according to the CFPB, listing ten housing counseling agencies ensures fairness among housing counseling agencies), the use of zip codes to generate a list of counselors, counselor contact information, and combining the list of counselors with other discourses. 

TILA prohibits a credit union from making a high-cost mortgage loan (as defined by HOEPA) unless it receives written certification that the member has obtained mortgage counseling from an approved counselor.  The interpretive rule clarifies the qualifications necessary to provide high-cost mortgage counseling, and provides guidance on the issue of credit union participation in counseling. 

With regard to the credit union’s participation in counseling, it is the CFPB’s position that “counselor independence and impartiality, which the anti-steering provision seeks to preserve, may be adversely affected by a concern that another counselor may be selected or the content of the counseling influenced if the counselor requests that the [credit union] not listen to the counseling and the [credit union] does not agree.”  See final interpretive rule page 12.  Therefore, the interpretive rule states that credit unions will “comply with the anti-steering provision if a counselor is allowed to request that the creditor not participate or listen on the call.”  Id.  However, the CFPB is not enacting a prohibition on credit union’s participation, as the CFPB states that a “counselor ... is allowed to request that a [credit union] participate in a call or a portion of a call.”  Id. 

CFPB Finalizes One-Year Suspension of TILA Requirement for Quarterly Submission of Credit Card Agreements.  Last week the CFPB issued a final rule adopting a one-year suspension of its own regulation that requires certain credit card issuers to send their credit card agreements to the CFPB each quarter. Under the final rule, credit card issuers will not be required to submit agreements that would otherwise have been due to the CFPB by the first business day on or after April 30, July 31, and October 31 of 2015, and January 31, 2016.  The suspension does not affect the requirement for issuers to post their credit card agreements on their own publicly available websites.  12 C.F.R. 1026.58(d).

The rationale behind the suspension of quarterly submissions is so the CFPB can develop a more streamlined and automated electronic submission system. In its statement, the CFPB said the new system should enable faster posting of new and revised agreements on its website.

Credit card issuers must resume submitting credit card agreements on a quarterly basis to the CFPB starting on April 30, 2016.  In lieu of providing new and amended agreements and notice of withdrawn agreements for the April 30, 2016 submission, issuers are permitted to submit to the CFPB a complete, updated set of agreements offered to the public as of the calendar quarter ending March 31, 2016.  See comment 58(c)(1)-3.

Learning from NewDay: Referral Fees and Deceptive Practices

Written by Eliott C. Ponte, Regulatory Compliance Counsel

On February 10, 2015, the CFPB announced a consent order with NewDay Financial, LLC (NewDay) regarding two violations resulting from its marketing practices. First, the order states that NewDay’s marketing constituted unfair and deceptive acts and practices (UDAAP) in violation of Dodd-Frank. Second, NewDay engaged in referral arrangements with a veteran’s group that violate the Real Estate Settlement Procedures Act’s (RESPA) prohibition against kickbacks for referrals of federally related mortgage loans.  The CFPB assessed a $2 million civil money penalty under the consent order.  The facts as described in the consent order do not involve typical marketing service agreements; however, the consent order makes clear that endorsements of a company in advertisements are considered referrals by the CFPB, and failing to disclose material information to consumers regarding a marketing relationship is deceptive under UDAAP. 

UDAAP Violation. The marketing agreement listed NewDay as the exclusive lender and “lender-of-choice” of a not-for-profit Veterans’ Organization (the organization was not named in the consent order).  Under the marketing agreement, NewDay sent direct advertisements under the Veterans’ Organization’s name, which promoted the relationship between the two companies and recommended the use of NewDay’s mortgage products.  One advertisement also stated the Veterans’ Organization endorsed NewDay after spending significant time with NewDay’s management and loan professionals.  Another advertisement indicated that NewDay had become the “exclusive provider” of mortgages based on NewDay’s “high standards for service and the excellent value of their programs.”  Veterans’ Organization members were not made aware of the agreement between NewDay and the Veteran Organization and this information was not made public.   Based on these facts, the CFPB found that NewDay’s failure to disclose its arrangements with the Veterans’ Organization would likely be material to consumers choosing a lender and likely be misleading to “reasonable” consumers.  Accordingly, the CFPB concluded that NewDay engaged in deceptive acts or practices in violation of UDAAP. 

RESPA Violation. Recall that under RESPA, “[n]o person shall give and no person shall accept any fee, kickback or other thing of value pursuant to any agreement or understanding, oral or otherwise, that business incident to or part of a settlement service involving a federally related mortgage loan shall be referred to any person.” RESPA also broadly defines the terms “referral” and “thing of value.” See 12 C.F.R. § 1024.14. 

NewDay's marketing agreement with a not-for-profit Veterans’ Organization was arranged and coordinated by a Broker Company (unnamed in the Order), which contracted directly with NewDay on behalf of the Veterans’ Organization.  Under the agreement, NewDay paid a monthly “licensing fee” of $15,000 to the Broker Company.  In addition, NewDay paid “lead generation fees” to both the Broker Company and the Veterans’ Organization for members who contacted NewDay to inquire about loan products.  The Broker Company also paid the Veterans’ Organization a portion of the fees the Broker received from NewDay. The CFPB found that the payments made by NewDay to the Veterans’ Organization and the Broker constituted payments for referrals in violation of Section 8 of RESPA. 

The key takeaway form this consent order is that marketing agreements involving third-parties can carry risks relating to both UDAAP and RESPA.  Referrals exist in many forms and fees cannot be paid for those referrals. Meanwhile, to the extent that the content of an advertisement contains a particular endorsement, credit unions should note that in the CFPB’s eyes, that conduct may be deemed as a misleading representation in violation of UDAAP.  This enforcement action highlights the importance of ensuring that members are informed about marketing agreements and lenders avoid referrals for federally-related mortgage loans. Credit unions considering omitting material information should proceed with caution, and when appropriate, seek advice from local counsel familiar with UDAAP. For more information on RESPA kickbacks, NAFCU members can check out this month’s Compliance Monitor (log in required).

Monday Morning Tidbits

Written by Victoria Daka, Regulatory Compliance Specialist

NCUA Hosting Webinar on New TILA-RESPA Disclosure Rules (with the CFPB)

Do you have lingering questions about the new TILA-RESPA Integrated Disclosures requirements scheduled to take effect August 1^st? Do you want to get a head start on compliance? Well, you are in luck. The NCUA, with the CFPB, will host a free webinar, “Preparing for the New TILA-RESPA Integrated Disclosures,” on Wednesday, Feb. 11, 2015, starting at 2 p.m. This webinar will outline the significant changes to the disclosures and forms required and detail: 1) the new loan estimate and closing disclosure forms; 2) what types of mortgage transactions are covered by the new rules; and 3) the new timing requirements for the disclosures. You will find the registration for the webinar here. Credit unions may also submit questions in advance to [email protected].

NCUA February 10^th Town Hall Webinar Will Feature CFPB’s Cordray

For the upcoming NCUA Town Hall Webinar, set for Tuesday, February 10, 2015, starting at 3 p.m., NCUA’s Board Chairman Debbie Matz says that the webinar will feature CFPB’s Director Richard Cordray. This is a great opportunity for credit unions to discuss their issues and concerns directly with federal regulators. In this webinar, attendees can submit questions regarding the broad credit union industry and the work of the CFPB. You will find the registration for the webinar here. Credit unions may also submit questions in advance to [email protected].

CFPB Compliance Bulletin

The CFPB recently issued a Compliance Bulletin reminding CFPB supervised institutions that, among other things, non-disclosure agreements institutions may have, with third parties, do not alter or limit the CFPB’s access to information under their supervisory authority. Pursuant to Dodd-Frank, the CFPB has the authority to request reports to conduct supervisory duties, from its supervised institutions, and supervised institutions may not use non-disclosure disagreements to transact out of this request.  It should be noted that a failure to provide information required by the CFPB is a violation of federal law.

To view the Compliance Bulletin in its entirety, see here.

Recent CFPB Action on RESPA Prohibition on Kickbacks; CUSO Rule Reminder; Free NCUA Webinar

Written by Brandy Bruyere, Regulatory Compliance Counsel

Last week, the CFPB announced an enforcement action against RealtySouth, Alabama’s largest real estate firm, for violation of RESPA’s prohibition against kickbacks for referrals. These kinds of questions come up with some frequency from our members. In light of this reminder that compliance with both new and old rules is important, today we will focus on RESPA kickbacks and affiliated business relationships.

Under Section 8 of RESPA, implemented by 12 CFR 1024.14, has a broad prohibition against receiving “any fee, kickback, or other thing of value” in exchange for referrals for “business incident to or part of a settlement service involving a federally related mortgage.” Meanwhile, the definitions of some of these terms only further broaden the scope of the prohibition.  RESPA defines a “thing of value” in an extremely broad manner as “any payment, advance, funds, loan, service, or other consideration.” The definition of “settlement service” is also expansive, including things like title insurance, credit reports, pest inspections, the services of a realtor, and loan origination activities.

However, RESPA does permit referrals as part of affiliated business relationships, so long as certain requirements are met. First, credit union must provide proper disclosures which notify the member of the affiliated relationship and provide an estimate of the affiliated provider’s charges. Second, the credit union cannot require the member to use the affiliate’s services. Finally, the only “thing of value” the credit union can receive is the return on investment that results from having ownership interest in the affiliate. This provision does not bar the affiliate from receiving payments for services actually provided to the member.

In the case of RealtySouth, the company did not meet these requirements. RealtySouth used standard contract language that required home buyers to use title and closing services provided by its affiliate, TitleSouth. RealtySouth even at times advised their agents that home buyers were required to use its affiliates for services relating to the transaction. Meanwhile RealtySouth was also not using compliant disclosures for the affiliated business relationship. While RESPA does not prohibit referrals to affiliates for settlement-related services, the particular disclosures are required to avoid violating Section 8. If your credit union refers members to certain affiliates for settlement services,  Appendix D to Part 1024 includes a model Affiliated Business Arrangement Disclosure which credit unions can use to ensure that these kinds of referrals are properly disclosed to members.

CUSO Rule Deadline Approaching. Speaking of affiliates, we would just like to remind everyone that NCUA’s new CUSO reporting requirements go into effect on June 30^th, 2014. For more information on the rule, check out this NCUA Letter to Credit Unions and its enclosures.

Upcoming NCUA Webinar. On June 25^th, 2014 at 2:00 PM, NCUA will host a free webinar, How to be in Compliance with OFAC and FinCEN (Part 2). This is the second of two sessions on this topic, the first of which took place on May 21^st. For those who are interested, here is the registration page for this webinar.

Will Work for Food. Lemmy is in constant need of training from distractions while on walks. One tool we like to use is his backpack, especially since during the summer, this means he can carry his own water on long walks! In case you can't tell, he's rather begrudging about the backpack. However, by keeping him a bit more occupied, it does lead to less leash-pulling which is important when your dog weighs over 130 lbs!

 

The Start of a Series: TILA/RESPA Integrated Mortgage Disclosures Rule - Scope and Applicability

Written by JiJi Bahhur, Director of Regulatory Compliance

As many of you already know (we’ve blogged about it here, here, and here), the Consumer Financial Protection Bureau (CFPB) finalized the Truth in Lending Act/ Real Estate Settlement Procedures Act (TILA/RESPA) Integrated Mortgage Disclosures rule in November of last year.  The final rule is a biggie – nearly 2,000 pages in length – and because of that, I’d like to start a series of blogs on the subject (which will post intermittently between other hot credit union topics).  These blogs will not fully cover any particular part of the TILA/RESPA rule but rather will serve to point out certain aspects of the rule or to put something on your credit union’s radar. 

Today, I’d like to focus on the scope and applicability of the TILA/RESPA rule.

Which Credit Unions are Covered?

The TILA/RESPA Integrated Mortgage Disclosures rule applies to most closed-end mortgage loans, regardless of the credit union’s asset size or pricing of the mortgage (i.e., Higher Priced Mortgage Loans).  Because there is no small creditor exemption under this rule, all credit unions who originate closed-end mortgage loans must comply with these new mortgage disclosure regulations.

What Mortgage Loans are Covered?

Closed-end mortgage loans are consumer credit transactions secured by real property, including transactions such as: purchases, refinances and loans for second homes or vacation homes. Of note, the disclosures are also required for construction-only loans, for loans secured by vacant land and for loans secured by 25 acres or more. Currently, those three types of loans are not within the scope of RESPA, but are subject to the new TILA/RESPA rule.

While the final mortgage disclosures rule applies to most mortgage loans that credit unions make, it does not apply to the following:

• Home-equity lines of credit (HELOCs);
• Reverse mortgages;
• Mortgages secured by a mobile home or dwelling that is not attached to real property; and
• Mortgage loans made by persons that are not “creditors” under Regulation Z.

The new Integrated Disclosures must be provided by a credit union that receives an application from a consumer on or after August 1, 2015.  The credit union may not use the new disclosures for applications received prior to August 1, 2015 because TILA/RESPA did not provide a provision for early compliance.  Early use of the new disclosures would result in violation of the current TILA and RESPA rules.

If you’d like to track other / future TILA/RESPA blogs in the series, click here.  Also, check out NAFCU’s Mortgage Resources Page.  We’ve updated it to include a section of resources on TILA/RESPA including NAFCU’s Scope and Applicability Chart (NAFCU log-in required).

CFPB Releases Guide to Completing TILA/RESPA Integrated Disclosure Forms; NCUA Board Meeting Agenda; Deadline Alert-Submission of First Quarter 2014 Call Report and Profile Information; Past Due Twin Check-In

Written by JiJi Bahhur, Director of Regulatory Compliance

TILA/RESPA Integrated Disclosure Forms Guide.  Last Thursday, the CFPB released a guide to assist with the completion of the new Truth in Lending Act and Real Estate Settlement Procedures Act (TILA/RESPA) integrated disclosure forms.  The guide provides instructions for completing loan estimate and closing disclosure forms as well as models and samples of these forms. The guide comes as a companion to the recently released Small Entity Compliance Guide which we blogged about here.   

It is important to note that the TILA/RESPA rule does not allow creditors the ability to comply early.  In other words, creditors may not use the new integrated disclosures prior to the rule’s effective date, August 1, 2015.  Between now and then, creditors should follow the current disclosure requirements under Regulations Z and X, and use the existing forms for applications received before the effective date.

NAFCU’s compliance team recently made available a scope and applicability chart and the first of a series of articles on the TILA/RESPA integrated disclosure rule.  NAFCU’s resources on the TILA/RESPA integrated disclosure rule can be found here.  We will continue to update this page with any NAFCU-created resources as they become available.

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NCUA’s Board Meeting Agenda.  NCUA’s April Board Meeting will take place tomorrow, Thursday, April 24, 2014.  Matters to be considered during the open session include, among other items, the following:

• Proposed Rule, Appendix B of Part 701, Associational Common Bond Requirements.
• Final Rule, Part 702, Credit Union Capital Planning and Stress Testing.

We’ll be sure to blog on the outcome of the meeting once that information is available.

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Deadline Approaching! Submit First Quarter 2014 Call Report and Profile Info by Friday!  The deadline for submitting first quarter 2014 Call Report and Profile information is Friday, April 25^th (11:59:59 pm, Eastern Daylight Time). 

Credit unions that fail to meet the filing deadline may potentially be subject to civil money penalties.  According to the April 2014 NCUA Report, “each penalty will vary based on the reason for the delay or inaccuracy, ranging from $10 per day to a maximum of $1 million per day or one percent of total assets, whichever is less.” 
 
For more information on this issue, take a look at the related Letter to Credit Unions (14-CU-03) here.

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Past Due Twin Check-In.  I’ve received some emails that I’m past due for sharing more pictures of the twins.  My sweet buds, Kyse and Ava, turned 20 months old on Easter Sunday.  Here are a few recent photos!

 

CFPB Releases Small Entity Compliance Guide for Integrated TILA/RESPA Disclosures; April Compliance Monitor and New TILA/RESPA Scope & Applicability Chart Now Available

Written by Brandy Bruyere, Regulatory Compliance Counsel

On Monday, the CFPB released its newest Small Entity Compliance Guide for the TILA/RESPA integrated disclosures rule. The guide is 89 pages long and intended to provide a plain English explanation of the rules. While this may seem long, the guide is substantially more manageable than the nearly 2,000 page final rule the CFPB issued in November, 2013. The guide is a good starting point for credit unions to use for determining what is necessary to be compliant by the rule’s August 1, 2015 effective date.

The guide is organized similarly to the CFPB’s other compliance guides. There are several main sections including an introduction, an overview, and the scope of the rule followed by the various requirements for the disclosures themselves. Generally, the rule requires two main disclosures—the Loan Estimate and the Closing Disclosure. The CFPB explains the Loan Estimate as follows:

 “For closed-end credit transactions secured by real property (other than reverse mortgages), the creditor is required to provide the consumer with good-faith estimates of credit costs and transaction terms on a new form called the Loan Estimate. This form integrates and replaces the existing RESPA GFE and the initial TIL for these transactions. The creditor is generally required to provide the Loan Estimate within three-business days of the receipt of the consumer’s loan application (see section 6.1 below on the timing requirements of the Loan Estimate). (§ 1026.19(e)(1)).”

 The CFPB gives the following summary of the Closing Disclosure:

“For loans that require a Loan Estimate and that proceed to closing, creditors must provide a new final disclosure reflecting the actual terms of the transaction called the Closing Disclosure. The form integrates and replaces the existing HUD-1 and the final TIL disclosure for these transactions. The creditor is generally required to ensure that the consumer receives the Closing Disclosure no later than three business days before consummation of the loan. (§ 1026.19(f)(1)(ii)).”

The guide goes on to discuss the specific content requirements for the disclosures, the tolerances for estimates, and the rules for revising or correcting the disclosures. There is also an overview of the delivery and timing requirements for providing members with these documents.    

 In terms of the compliance deadline, the guide answers a key question—can credit unions use the integrated disclosures to comply with TILA/RESPA before August 1, 2015. Unfortunately, the answer to this question is no:

 “…For transactions where the application is received prior to August 1, 2015, creditors will still need to follow the current disclosure requirements under Regulations X and Z, and use the existing forms (Truth-in-Lending disclosures, GFE, HUD-1).”

In other words, the effective date of the rule operates like a switch, requiring credit unions to change from one compliance system to another overnight. This will present difficulties, particularly for loans with closing dates that are at or near the compliance deadline.

As compliance professionals tackle these challenges, besides the guide the CFPB created an implementation page on its website for the rule. On this webpage, you will find links to the final rule and several sample Loan Estimates and Closing Disclosures which may be helpful. The CFPB also listed an email address for sending questions or feedback to the bureau: [email protected].

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April Compliance Monitor and New Scope and Applicability Chart. NAFCU will have ongoing efforts to help members prepare to implement the TILA/RESPA integrated disclosures rule. Our Compliance Monitor will feature an ongoing series of articles discussing the rules, starting with our April issue which we released yesterday. This month’s Compliance Monitor discusses the scope of the rule and the basic requirements for the Loan Estimate and Closing Disclosures. Additionally, NAFCU’s compliance team created a new Scope and Applicability Chart for the rule which is now available in the CFPB mortgage rules resources section of our website.

Giant Treat for a Giant Dog! We aren’t the only ones who spoil our dog. A friend recently attended a pet expo, and couldn’t resist the impulse to buy our dog a two-foot long cow femur. He likes when treats come in his size! 

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 Updates its Mortgage Exam Procedures; On the Move

Written by JiJi Bahhur, Director of Regulatory Compliance

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

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

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

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

 ***

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

 

That's my boy!

 

CFPB Finalizes TILA/RESPA Integrated Disclosure Rule; 2013 NAFCU Compliance Seminar Group Photo

Written by JiJi Bahhur, Director of Regulatory Compliance

After more than two years of research and testing, the Consumer Financial Protection Bureau (CFPB) issued – this past Wednesday – the long-anticipated Truth in Lending Act (TILA) and Real Estate Settlement Procedures Act (RESPA) rule.  Among several highlights from the rule, it provides for new, easier-to-use integrated disclosures, also known as the “Know Before You Owe” mortgage forms, that clearly lay out the terms of a mortgage for a homebuyer. The purposes of these new integrated disclosures are to provide improved consumer understanding, better comparison shopping, and avoid costly and unexpected surprises at the closing table. 

Currently, credit unions are required to provide two separate disclosures – “early” TILA Statement and Good Faith Estimate (GFE) – within three business days after receiving a mortgage application.  Under the final rule, these disclosures would be combined into one early disclosure document, the Loan Estimate, which borrowers must receive within three days after application.

Also, credit unions are currently required to provide two separate closing disclosures – final TILA Statement and HUD-1 Settlement Statement – three business days before closing on a loan.  The final rule combines the final TILA and HUD-1 disclosures into one closing form, the Closing Disclosure, which borrowers must receive three days before closing.

The TILA/RESPA rule (and mandatory use of the new integrated forms) is set to take effect on August 1, 2015.  While this extended implementation time is a win for credit unions – and something NAFCU pushed the CFPB for – it is important to note that the rule is 1,888 pages long and will require your credit union to make significant changes to how it conducts a mortgage transaction.

For a quick look at some of the other highlights from the rule, take a look at this message from Carrie Hunt, NAFCU’s Senior Vice President of Government Affairs/General Counsel.  Also note, NAFCU will issue a Final Regulation providing a summary of the final rule.  When it is available, you can find it here (NAFCU log-in required).

For further information on these new integrated mortgage disclosures, check out these CFPB resources:

• CFPB Press Release
• Factsheet about the “Know Before You Owe” Mortgage Disclosures
• The TILA/RESPA Mortgage Disclosure Rule

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On a lighter note, I’d love to share the group photo from NAFCU’s Regulatory Compliance Seminar that took place this past October in Nashville, Tennessee.  It was a great crowd and we look forward to seeing you all next year in Baltimore, Maryland. 

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Have a fabulous weekend!

CFPB Announces Website Tool, Issues Interpretive Rule and Bulletin on Homeownership Counseling List Requirements

Written by Bernadette Clair, Senior Regulatory Compliance Counsel

Last Friday, the CFPB announced the availability of a new tool on its website to help consumers find local housing counseling agencies. In conjunction with that announcement, the CFPB also released an interpretive final rule, rule summary, and Bulletin 2013-13 providing instructions and guidance for generating the lists of housing counseling agencies that lenders will be required to provide applicants for federally-related mortgage loans effective January 10, 2014.

Buried in the CFPB’s 2013 HOEPA final rule, the requirement to provide applicants for federally-related mortgage loans with a written list of HUD-approved housing counseling agencies is implemented in Regulation X, Section 1024.20(a)(1). Under the rule, lenders can generally obtain the lists in one of two ways:

• Generating lists using a website maintained by the CFPB for this purpose; or
• Generating lists independently using the same HUD data that the CFPB uses on HUD-approved counseling agencies, in accordance with CFPB’s list instructions.

The CFPB’s new tool is available for lenders that choose to use the first option.

Lenders that choose the second option will want to review the additional instructions in the CFPB’s interpretive final rule.  In Bulletin 2013-13, the CFPB recognizes that some lenders using the second option may not be able to bring their systems into compliance in time for the rule’s January 10, 2014 effective date.  The CFPB discusses this issue and provides an interim procedure that lenders can use “in good faith” while they are building their systems.  From the Bulletin:

“Accordingly, while lenders are incorporating § 1024.20(a)(1)(ii) list instructions into their systems, they may direct borrowers to the Bureau’s housing counseling agency website to obtain a list of housing counselors, using the format and text suggested below, www.consumerfinance.gov/find-a-housing-counselor. These steps, if taken by lenders in good faith while they are building their systems or are working with vendors to build systems, would achieve the goals of the regulation and would not raise supervisory or enforcement concerns.  Following is the suggested text to be used for this interim procedure:

“Housing counseling agencies approved by the U.S. Department of Housing and Urban Development (HUD) can offer independent advice about whether a particular set of mortgage loan terms is a good fit based on your objectives and circumstances, often at little or no cost.

If you are interested in contacting a HUD-approved housing counseling agency in your area, you can visit the Consumer Financial Protection Bureau’s (CFPB) website, www.consumerfinance.gov/find-a-housing-counselor, and enter your zip code.

You can also access HUD’s housing counseling agency website via http://www.consumerfinance.gov/mortgagehelp/.

For additional assistance with locating a housing counseling agency, call the CFPB at 1-855-411-CFPB (2372).”

 See the interpretive final rule, summary, and bulletin for complete details.

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

Written by Steve Van Beek

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

Specifically, the Interagency Statement discusses:

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

The full Interagency Statement is here.

***

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

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

***

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

Go Blue!

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

Written by Steve Van Beek

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

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

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

• New Interest-Rate Adjustment Notices - 12 CFR 1026.20

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

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

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

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

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

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

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

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

• Periodic Statements for Mortgage Loans - 12 CFR 1026.41

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

Appendices to Regulation Z

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

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

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

• Standards for Determining Monthly Debt and Income - Appendix Q

Official Staff Commentary to Regulation Z - Appendix I

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

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

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

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

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

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

• Changes to Escrow Accounts - 12 CFR 1024.17

• New Homeownership Counseling Disclosure - 12 CFR 1024.20

New Subpart C to 12 CFR 1024

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

Subpart C—Mortgage Servicing

1024.30   Scope.

1024.31   Definitions.

1024.32   General disclosure requirements.

1024.33   Mortgage servicing transfers.

1024.34   Timely escrow payments and treatment of escrow account balances.

1024.35   Error resolution procedures.

1024.36   Requests for information.

1024.37   Force-placed insurance.

1024.38   General servicing policies, procedures, and requirements.

1024.39   Early intervention requirements for certain borrowers.

1024.40   Continuity of contact.

1024.41   Loss mitigation procedures.

The language of those new sections is available here.

Appendices to Regulation X

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

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

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

***

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

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

Written by Steve Van Beek

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

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

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

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

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

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

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

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

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

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

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

***

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

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

***

Mortgage Headache Areas; Upcoming Mortgage Reform Webcasts

Written by Steve Van Beek

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

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

• Determining Exemption Applicability

• New Notices – Content-Rich and Strict Timelines

• Error Resolution & Information Request Procedures

• Loan Originator Compensation Determinations

• Implementing So Many Changes At One Time

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

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

***

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

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

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

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

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

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

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

***

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

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

Written by Steve Van Beek

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

• Regulation Z (TILA) Mortgage Servicing Requirements

• Regulation X (RESPA) Mortgage Servicing Requirements

• Loan Originator Compensation, Qualifications, Training and Disclosure Requirements

• Regulation B Appraisal Requirements

• Appraisal Disclosure Requirement for Higher-Priced Mortgage Loans

• Appraisal Requirements for Higher-Priced Mortgage Loans

• New Escrow Requirements for Higher-Priced Mortgage Loans

• New Requirements for High-Cost Mortgage Loans

• New Homeownership Counseling Disclosure Requirement

• Ability-to-Repay Requirements and Qualified Mortgage Standards 

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

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

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

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

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

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

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

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

***

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

Finding the New Requirements in the Electronic Code of Federal Regulations

Written by Steve Van Beek

On Friday, I inquired as to whether the CFPB would make available a full version of Reg Z and Reg X as they would be in January 2014.  The seven new regulations are very much related and, in fact, cross-reference each other.

Luckily, the Electronic Code of Federal Regulations links to amendments - including the new mortgage rules. If you are researching a particular regulatory section, you are alerted that there are upcoming changes and the effective date of those changes.  

An example may work best to explain.  Section 1024.20 of Regulation X (RESPA) includes the new Homeownership Counseling Disclosure Requirement that must be provided to any applicant of a "federally related mortgage loan" (don't be fooled by the fact that this requirement was part of the "high-cost" final rule).    

Note: The rules need to be published in the Federal Register before they'll start showing up on the Electronic Code of Federal Regulations.  As we indicated in last Tuesday's blog post, all but one of the rules will be published by the end of this week.

***

On to the screen shots.  The main Regulation X - 12 CFR 1024 - in the e-CFR is below.  You can see the 1024.20 followed by XXX which simply means there will be a future requirement placed in this section.

If you click on the 1024.20 link you'll be taken to the place holder page below.  This means there is not a current requirement under 1024.20 but there is an amendment - the Homeownership Counseling Disclosure Requirement - that will be effective in the future.

If you click the link to the the amendment - you'll be taken to future text of 1024.20 as well as a reminder of the effective date.

The same approach will work for Regulation Z - provided the rules have been published in the Federal Register - and this also works for the Official Staff Commentary (click here and you can see two amendments to the OSC of Reg Z). 

Hope this helps - have a great week!

Where is the Full Regulation Z (and Regulation X)?

Written by Steve Van Beek

It has been almost a month since the CFPB started finalizing their new mortgage rules.  And, credit unions still don't have a full picture of what Regulation Z and Regulation X will look like come January 2014.  

I blogged about this issue back in September 2012 - when credit unions were trying to understand the proposals and how they would impact their credit union:

"The response in the joint letter is to strongly request that the CFPB publish a complete version of Regulation Z (i.e., as the regulation would be if all the proposals were adopted):

'Finally, there are several outstanding proposed rules making changes to Regulation Z.  These proposals cross-reference provisions in each other, making it difficult to tell what each references and what Regulation Z would look like if all of these proposals are finalized.  In addition, there are conflicts among the proposals.  For example, the proposed Ability to Repay rule would remove § 1026.35 because Dodd-Frank made it obsolete, but the proposed HOEPA rule would retain it.  We respectfully request that the CFPB publish a single version of Regulation Z as it would be amended by all of the pending rulemakings as soon as possible.  This would improve our ability to provide input that CFPB will need before the comment periods close.'

I don't think it is too much to ask that the CFPB provide a complete version of the proposed Regulation Z.  Only with a complete version will credit unions be able to analyze and review the all the proposed changes together and provide substantive comments to the CFPB about how the proposals will impact their mortgage operations."  

The CFPB never did provide a full Regulation Z or Regulation X of the proposed rules.  

Now, that the rules are finalized - the CFPB needs to take steps to help credit unions understand the new regulations.  Considering there are seven inter-related new regulations, it would be extremely helpful if the CFPB put together a full Regulation Z and Regulation X - as they will look in January 2014 - so that credit unions can see the total picture rather than having to review the requirements piecemeal through each of the final rules.  Hopefully the CFPB is listening this time.

***

NAFCU Webcast on Final Rules.  The first webcast of our Mortgage Reform Series will be Wednesday, February 13 on The CFPB's Final Mortgage Regulations.  Registration is still open and, as always, you don't have to be a NAFCU member to participate.  In fact, you don't even have to be a credit union.  Our conferences and webcasts are open to everyone.

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

Written by Steve Van Beek

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

Published in Federal Register

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

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

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

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

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

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

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

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

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

***

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

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

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

***

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

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

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

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

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

                     

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

Written by Steve Van Beek

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

***

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

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

• Mortgage Periodic Statements - Eligible for Small Servicer Exemption

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

• Prompt Crediting of Payments & Payoff Statements- Not Eligible 

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

• Error Resolution Procedures & Information Requests - Not Eligible

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

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

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

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

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

***

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

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

***

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

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

Written by Steve Van Beek

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

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

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

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

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

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

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

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

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

***

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

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

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

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

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

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

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

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

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

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!  

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

Written by Steve Van Beek

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

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

"Dodd-Frank and More

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

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

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

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

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

***

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

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

Have a great weekend!

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

Written by Shari R. Pogach, Regulatory Paralegal

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

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

September 21, 2012:  Definition of Finance Charge;

October 9, 2012:  Mortgage Servicing Proposals;

October 15, 2012:  Higher-Risk Appraisal Proposal;

October 15, 2012:  Regulation B Appraisal Proposal; and

October 16, 2012:  Mortgage Loan Originator Proposal.

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

****

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

Tracking the Comment Deadlines for the CFPB's Mortgage Proposals

Written by Steve Van Beek

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

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

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

• October 9, 2012:  Mortgage Servicing Proposals

• October 15, 2012:  Mortgage Loan Originator Proposal

• October 15, 2012:  Higher-Risk Appraisal Proposal

• October 15, 2012:  Regulation B Appraisal Proposal

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

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

***

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

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

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

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

• 12-EA-24: CFPB: Mortgage Servicing

• 12-EA-28: CFPB: MLO Compensation

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

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

***

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

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

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

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

The CFPB's Mortgage Servicing Proposals: 20 New Notices

Written by Steve Van Beek

20 Notices.  If you are looking for an example of increased regulatory burden, you need not look any further than the CFPB's mortgage servicing proposed rules. The proposals, taken together, will require at least 20 notices by credit unions.  Below I've included a listing of these proposed notices along with the proposed section number.  Oh, and a majority of these notices have their own unique timing requirements.  

Of course, this is an unofficial number but it does give you an idea of the CFPB's mortgage proposal changes.  

Regulation Z

• Rate Adjustment Notice - 1026.20(c)
• Initial Rate Adjustment Notice - 1026.20(d)
• Periodic Statement Requirement - 1026.41

Regulation X

• Written Acknowledgment of Member's Notice of Error - 1024.35(d)
• Response to Member's Notice of Error - 1024.35(e)
• Notification to Member if Error is Excludable from Error Resolution Process - 1024.35(g)(2)
• Written Acknowledgment of Member's Request for Information - 1024.36(c)
• Response to Member's Request for Information - 1024.36(d)
• Notification to Member if Information Request is Unreasonable - 1024.36(f)(2)
• First Notice for Force-Placed Insurance - 1024.37(c)(2)
• Version 1 - Reminder Notice for Force-Placed Insurance - 1024.37(d)(2)(i) 
• Version 2 - Reminder Notice for Force-Placed Insurance - 1024.37(d)(2)(ii) 
• Renewal Notices for Force-Placed Insurance - 1024.37(e) 
• Provision of Member's Servicing File Upon Request - 1024.38(c)(2)
• Oral Notice to Delinquent Borrowers - 1024.39(a)
• Written Notice to Delinquent Borrowers - 1024.39(b) 
• Notice to Member of Incomplete Loss Mitigation Application - 1024.41(b)(2)(ii)
• Notice of the Decision on a Member's Loss Mitigation Application - 1024.41(c)(2)
• Notice of the Decision on a Member's Appeal of the Initial Loss Mitigation Application - 1024.41(h)(4)
• Notification to Other Servicers Holding Liens - 1024.41(j)

Wow - that is quite a few proposed notices for financial institutions who did not cause the financial crisis and who did not use servicing practices that lead to the National Mortgage Settlement.  

What About Small Servicers?  The CFPB's own analysis in their discussion of the proposed periodic statement exemption indicates that small servicers have a completely different business model:

"Where small servicers already have incentives to provide high levels of customer contact and information, the Bureau believes that the circumstances may warrant exempting those servicers from complying with the periodic statement requirement. In particular, small servicers that make loans in their local communities and then either hold their loans in portfolio or retain the servicing rights have incentives to maintain “high-touch” customer service models. Affirmative communications with consumers help such servicers (and their affiliates) to ensure loan performance, protect their reputations in their communities, and market other consumer financial products and services.  Because those servicers have a long-term relationship with the borrowers, their incentives with regard to charging fees and other servicing practices may be more aligned with borrower interests. These motivations to ensure a good relationship incentivize good customer service, including making information about upcoming payments, fees charged and payment history, and information for distressed borrowers easily available to consumers by other means." (underlining added, italics in original).

It would seem reasonable that the same rationale would apply to the other new notices proposed by the CFPB to correct the errors of large servicers.  

Comments Needed.  If you are wondering what action your credit union can take, consider commenting on the proposed rules and letting the CFPB know how difficult it will be to comply with 20 new notice requirements.  NAFCU members can view our Regulatory Alert here (12-EA-24), comments are due to NAFCU by September 18, 2012.  If you comment directly to the CFPB, comments are due October 9, 2012.  

Tracking the CFPB's Mortgage Proposals - Federal Register

Written by Steve Van Beek

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

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

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

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

***

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

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

***

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

Have a great weekend!

A Recap of Recent Mortgage Servicing Blog Posts

Written by Steve Van Beek

We've been blogging on the CFPB's mortgage servicing proposals quite a bit recently.  And, naturally, quite a few of those blog posts have been lengthy.  I wanted to take a bit to consolidate some of those blog posts in a central location (with links) to help keep everyone organized.

CFPB Issues Mortgage Servicing Proposal.  This blog post announces the CFPB's mortgage servicing proposals, links to the actual proposals, summaries and additional resources.  

Summaries of Three TILA Proposed Changes.  This blog post includes the summaries of the CFPB's three main proposed changes to Regulation Z (TILA).  The post includes links to the preambles, regulatory text, official staff commentary and any model forms.  

Summaries of the First Three RESPA Proposed Changes.  This blog post includes the summaries of the CFPB's first three main proposed changes to Regulation X (RESPA).  The post also includes links to the preambles, regulatory text, official staff commentary and any model forms.

Summaries of the Last Three RESPA Proposed Changes.  This blog post includes the summaries of the CFPB's last three main proposed changes to Regulation X (RESPA).  The post also includes links to the preambles, regulatory text, official staff commentary and any model forms.

Proposed Exemption for Credit Unions that Service 1000 of Fewer Mortgages.  This blog post reviews the CFPB's proposal to exempt - from the mortgage periodic statement requirement - credit unions that service 1000 or fewer mortgage loans.  

Proposed Coupon Book Exemption.  This blog post reviews the CFPB's proposed implementation of the "coupon book exemption" which would allow credit unions to send coupon books in lieu of periodic statements for their fixed-rate mortgage loans if they followed the proposed requirements.      

***

Just the Beginning.  Don't worry - there will be plenty of additional issues that come out of the CFPB's proposed mortgage rules.  We'll do our best to keep everyone up to date on these issues.  If you are interested, we'll be covering the CFPB's proposed mortgage rules in depth during our September 5th webcast as well as our Regulatory Compliance Seminar in Seattle, Washington (October 23-26).  

Note:  The early-bird pricing for both of these events is rapidly approaching (Wednesday, August 29th for the webcast and Friday, August 31st for Seminar).  Additionally, the main hotel for Seminar is completely booked - although there are numerous other hotels within short walking distance.  

Is this What a Level Playing Field Looks Like?; 2996 Pages in Six Weeks

Written by Steve Van Beek

Proponents of Dodd-Frank and the Consumer Financial Protection Bureau tried to tell credit unions that Dodd-Frank and the CFPB would be good for credit unions.  The playing field would be leveled and the regulatory burden would be lowered on small institutions.

Here is a snippet from Elizabeth Warren's testimony before the House on May 24, 2011:

"A significant part of our mission will also be to help level the playing field for smaller lenders, such as community banks and credit unions. We recognize that the regulatory pressures on banks have increased substantially over time. While regulatory costs may be manageable on a per-account basis for the largest financial institutions, for smaller businesses, all the complicated rules, extensive paperwork, and expensive compliance reviews can be daunting. If we continue on our current regulatory trajectory, traditional banks and credit unions will be put at a further disadvantage that could push many out of business.

American consumers are best served by a strong and diversified financial services industry. Many community banks and credit unions embrace relationship lending, and they often work in partnership with the families they serve. Some smaller institutions provide a banking presence in otherwise-underserved communities, both in our cities and in rural areas. If community banks and credit unions continue to face competitive pressures triggered by a complex regulatory system, then those institutions will not be as able to serve American families. In that case, not only do the banks lose, but families lose as well.

The CFPB is committed to working with smaller institutions to reduce regulatory costs. We have already begun that work, and we are pleased to report to Congress that the spirit of openness and cooperation expressed by community banks and credit unions has been extraordinary. The mortgage disclosure integration project is one area in which we are seeking to reduce regulatory burdens, and we expect that it will serve as an excellent test case as we design our ongoing processes for how the consumer bureau and smaller institutions can work together to increase the ability of these institutions to spend less time on regulations and more time serving America’s families."  (Emphasis added).

Now, I want to ask a question to credit unions:  Does what is stated above match what the CFPB has done in the past 6 weeks as indicated below?  

• TILA/RESPA Proposed Rule (1099 Pages)
• HOEPA/High-Cost Mortgage Proposed Rule (293 Pages)
• August Final Rule on Remittances (168 Pages) which Amends the February Final Rule (417 pages)
• Mortgage Servicing Proposed Rules - TILA (313 Pages) - RESPA (442 Pages)
• Higher-Risk Appraisals Proposed Rule (211 Pages) - New!
• Regulation B Proposed Rule - Free Copies of Appraisals (53 Pages) - New!

So, here is my question to the CFPB:  Is proposing 2996 pages of new regulations - within a six week period - how you envisioned "working with smaller institutions to reduce regulatory costs"?

And now a question for proponents of Dodd-Frank and the CFPB:  Is this what a level playing field looks like? 

More on the CFPB's Mortgage Servicing Proposals - RESPA (Part 2 of 2)

Written by Steve Van Beek

Today's blog post continues our series of looking at the "nine proposed changes" under the CFPB's mortgage servicing proposals.  

Past mortgage servicing blog posts are available here:

• CFPB Issues Mortgage Servicing Proposals - Friday, August 10th.
• More on the CFPB's Mortgage Servicing Proposals - TILA - Tuesday, August 14th.
• More on the CFPB's Mortgage Servicing Proposals - RESPA (Part 1 of 2) - Wednesday, August 15th.

Below are the final three "proposed changes" under RESPA followed by the preamble, regulatory text, official staff commentary and any model forms. 

Regulation X (RESPA)

(7) Early intervention with delinquent borrowers (RESPA proposal): Servicers would be required to make good faith efforts to notify delinquent borrowers of loss mitigation options.  If a borrower is 30 days late, the proposal would require servicers to make a good faith effort to notify the borrower orally and to let the borrower know that loss mitigations options may be available.  If the borrower is 40 days late, the servicer would be required to provide the borrower with a written notice with certain specific information, including examples of loss mitigation options available, if applicable, and information on how to obtain more information about loss mitigation options.  The notice would also provide information to the borrower about the foreclosure process.  The rule contains model language servicers could use for these notices.

• Preamble for Early Intervention with Delinquent Borrowers
• Proposed Regulatory Text for Early Intervention with Delinquent Borrowers
• Proposed Official Staff Commentary for Early Intervention with Delinquent Borrowers
• Proposed Model Forms for Early Intervention with Delinquent Borrowers 

(8) Continuity of contact with delinquent borrowers (RESPA proposal):  Servicers would be required to provide delinquent borrowers with access to personnel to assist them with loss mitigation options where applicable.  The proposal would require servicers to assign dedicated contact personnel for a borrower no later than five days after providing the early intervention notice.  Servicers would be required to establish reasonable policies and procedures designed to ensure that the servicer personnel perform certain specified functions where applicable, such as 6access the borrower’s records and provide the borrower with information about how and when to apply for a loss mitigation option and about the status of the application.

• Preamble for Continuity of Contact with Delinquent Borrowers
• Proposed Regulatory Text for Continuity of Contact with Delinquent Borrowers
• Proposed Official Staff Commentary for Continuity of Contact with Delinquent Borrowers 

(9) Loss mitigation procedures (RESPA proposal):  Servicers that offer loss mitigation options to borrowers would be required to implement procedures to ensure that complete loss mitigation applications are reasonably evaluated before proceeding with a scheduled foreclosure sale.  The proposal would require servicers to exercise reasonable diligence to secure information or documents required to make an incomplete loss mitigation application complete.  In certain circumstances, this could include notifying the borrower within five days of receiving an incomplete application.  Within 30 days of receiving a borrower’s complete application, the servicer would be required to evaluate the borrower for all available options, and, if the denial pertains to a requested loan modification, notify the borrower of the reasons for the servicer’s decision, and provide the borrower with at least a 14-day period within which to appeal the decision. 

The proposal would require that appeals be decided within 30 days by different personnel than those responsible for the initial decision.  A servicer that receives a complete application for a loss mitigation option could not proceed with a foreclosure sale unless (i) the servicer had denied the borrower’s application and the time for any appeal had expired; (ii) the servicer had offered a loss mitigation option which the borrower declined or failed to accept within 14 days of the offer; or (iii) the borrower failed to comply with the terms of a loss mitigation agreement.  The proposal would require that deadlines for submitting an application for a loss mitigation option be no earlier than 90 days before a scheduled foreclosure sale.

• Preamble for Loss Mitigation Procedures
• Proposed Regulatory Text for Loss Mitigation Procedures
• Proposed Official Staff Commentary for Loss Mitigation Procedures

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Remember:  The CFPB intends to issue final rules on the mortgage servicing requirements by January 21, 2013.  And, the indications are there will only be 12 months for implementation after that date (the CFPB can provide longer timeframe for new requirements that are not mandated by Dodd-Frank).  Now is the time to start reviewing these proposed requirements and how they will impact your credit union's mortgage lending operations.

To get a more depth understanding, consider attending NAFCU's 3-hour webcast covering the CFPB's Mortgage Proposals.  Additionally, NCCOs will earn 3 CEUs for attending.    

More on the CFPB's Mortgage Servicing Proposals - RESPA (Part 1 of 2)

Written by Steve Van Beek

Yesterday, we looked at the first three proposed changes coming from the CFPB's mortgage servicing proposals.  Those three changes will amend Regulation Z (TILA).  There are also six proposed changes that will change Regulation X (RESPA).  This blog post will cover those first three RESPA changes and includes links to the preamble, regulatory text, official staff commentary and any model forms.

Note:  Of course, when we say "nine proposed changes" it is with regard to the major issues.  As with any proposed regulation, there will be numerous "smaller", technical changes that credit unions will need to review, analyze and implement.  As I like to say, the regulatory burden is in the details.  

Regulation X (RESPA)

(4) Force-placed insurance (RESPA proposal):  As required by the Dodd-Frank Act, servicers would not be permitted to charge a borrower for force-placed insurance coverage unless the servicer has a reasonable basis to believe the borrower has failed to maintain hazard insurance and has provided required notices.  One notice to the borrower would be required at least 45 days before charging for forced-place insurance coverage, and a second notice would be required no earlier than 30 days after the first notice.  The proposal contains model forms that servicers could use.  If a borrower provides proof of hazard insurance coverage, then the servicer would be required to cancel any force-placed insurance policy and refund any premiums paid for periods in which the borrower’s policy was in place. In addition, if a servicer makes payments for hazard insurance from a borrower’s escrow account, a servicer would be required to continue those payments rather than force-placing a separate policy, even if there is insufficient money in the escrow account.  The rule would also provide that charges related to forced place insurance (other than those subject to State regulation as the business of insurance or authorized by federal law for flood insurance) must relate to a service that was actually performed.  Additionally, such charges would have to bear a reasonable relationship to the servicer’s cost of providing the service.

• Preamble to Force-Placed Insurance
• Proposed Regulatory Text for Force-Placed Insurance
• Proposed Official Staff Commentary for Force-Placed Insurance 
• Proposed Model Forms for Force-Placed Insurance

(5) Error resolution and information requests (RESPA proposal):  Pursuant to the Dodd-Frank Act, servicers would be required to meet certain procedural requirements for responding to information requests or complaints of errors.  The proposal defines specific types of claims which constitute an error, such as a claim that the servicer misapplied a payment or assessed an improper fee.  A borrower could assert an error either orally or in writing.  Servicers could designate a specific phone number and address for borrowers to use.  Servicers would be required to acknowledge the request or complaint within five days.  They would have to correct or respond to the borrower with the results of the investigation, generally within 30 to 45 days.  Further, servicers generally would be required to acknowledge borrower requests for information and either provide the information or explain why the information is not available within a similar amount of time.  A servicer would not be required to delay a scheduled foreclosure sale to consider a notice of error unless the error relates to the servicer’s improperly proceeding with a foreclosure sale during a borrower’s evaluation for alternatives to foreclosure.  

• Preamble for Error Resolution and Information Requests
• Proposed Regulatory Text for Error Resolution and Information Requests
• Official Staff Commentary for Error Resolution and Information Requests

(6) Information management policies and procedures (RESPA proposal):  Servicers would be required to establish reasonable information management policies and procedures.  The reasonableness of a servicer’s policies and procedures would take into account the servicer’s size, scope, and nature of its operations.  A servicer’s policies and procedures would satisfy the rule if the servicer regularly achieves the document retention and servicing file requirements, as well as certain objectives specified in the rule.  Examples of such objectives include providing accurate and timely information to borrowers and the courts or enabling service personnel to have prompt access to documents and information submitted in connection with loss mitigation applications.  In addition, a servicer must retain records relating to each mortgage until one year after the mortgage is discharged or servicing is transferred and must create a mortgage servicing file for each loan containing certain specified documents and information.

• Preamble for Information Management Policies & Procedures
• Proposed Regulatory Text for Information Management Policies & Procedures
• Proposed Official Staff Commentary for Information Management Policies & Procedures

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CFPB Issues Mortgage Servicing Proposals

Written by Steve Van Beek

Editor's Note:  Today's regularly scheduled post was bumped to Monday to provide the latest from the CFPB.  

The Good News.  The CFPB has added a search bar to their website.  

The Bad News.  The CFPB issued two mortgage servicing proposed rules today - one under Regulation Z (TILA) and the other under Regulation X (RESPA).  The comment period will end October 9, 2012 and the CFPB intends to finalize these rules by January 21, 2013.  

The Reg Z (TILA) proposal clocks in at 178-pages and the Reg X (RESPA) proposal clocks in at 250-pages.  Small in comparison, you might say.  Well, the CFPB seems to be feeling the heat for their massive proposals as they stopped using double-spacing. 

The CFPB also released additional documents:

• A 7-page Summary of the Proposals;
• A 4-page Fact Sheet;
• Report of the SBREFA Panel; and
• Summary of Design and Testing Findings.

And, NAFCU's Regulatory Affairs team will be drafting Regulatory Alerts on both proposals for NAFCU members.  

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You may be banging your head on your desk scratching your head wondering how you can keep up.  We'll do our best to help - including two upcoming education events.  

Seminar.  Our Compliance Seminar - October 23-26 in Seattle - will have sessions on the TILA/RESPA proposal, the remittances final rule and these latest mortgage servicing proposals.  Sign up by August 31st and Save $100.

September 5th Mortgage Webcast.  Additionally, on September 5th I'll be doing a NAFCU webcast titled "Inside the CFPB's Mortgage Proposals."  I'll dive into the details of the TILA/RESPA proposal (including the potential change to finance charges and the APR), the HOEPA/high-cost proposal as well as the new mortgage servicing proposal.  Sign up by August 29th to Save $100.  Also, the webcast is currently slated for 1.5 hours but we'll definitely going much longer than that given the amount of material to cover.   

Have a great weekend everyone!   

TILA/RESPA Forms Under Review; 1099 Pages to Propose a Three-Page Disclosure?

Written by JiJi Bahhur, Regulatory Compliance Counsel

TILA/RESPA Forms Under Review.  Last Wednesday, the CFPB’s Director, Richard Cordray, attended the House Small Business Committee hearing as the sole witness.  The purpose of the hearing was to examine the impact of the CFPB’s mortgage disclosure rules on small businesses, including credit unions.  Due to concerns raised by small entities, including credit unions, the CFPB is inviting comments and seeking input on issues about proposed combined disclosures under the TILA/RESPA proposal.  Cordray's written testimony can be found here. 

Based off of concerns received from small entities, here are some of the issues the CFPB is soliciting comment on:

• The CFPB incorporated extensive commentary in the proposal which provides detailed guidance on how to complete the integrated forms.  The guidance also provides samples of completed forms for a variety of loan transactions.

• TILA and RESPA provide differing timing requirements.  The CFPB proposal allows certain specific changes to be made following the settlement disclosure (i.e., require disclosure three days prior to settlement) and seeks comment on whether more exceptions are appropriate. 

• Some small entities believe that certain statutory disclosures would be difficult to calculate and would not help consumers.  The CFPB seeks comment on whether it should use its authorities to remove the disclosures from the integrated forms.

NAFCU published two Regulatory Alerts on the TILA/RESPA proposal – 12-EA-19 and 12-EA-20 – which are available to members only.  Comments are due back to NAFCU by August 20 for 12-EA-19 (regarding the potential changes to the definition of finance charges) and September 21 for 12-EA-20 which reviews the remaining disclosure changes.  

 ***

1099 Pages to Propose a Three-Page Disclosure?  The CFPB recently blogged on an inquiry as to why the TILA/RESPA proposal is 1099 pages in length when the outcome of it was a three-page mortgage disclosure.  In summary, the CFPB explains:

“We are not proposing 1,099 pages of new regulations. That page count is for the notice of the proposed rule, not the rule. Like notices of proposed rulemaking issued by other agencies (particularly the Federal Reserve Board), our proposal consists of three basic parts: (1) the preamble explaining the proposal; (2) the text of the proposed regulations; and (3) guidance on how to comply with those regulations.

In terms of pages, the new regulations are only a small part. Most of the pages explain what we are doing and why we are doing it. As required by law, we analyze the costs and benefits of the proposal for consumers and industry. We also provide thorough guidance on how to comply including samples of completed forms, which the industry requested during our outreach and Small Business Review Panel process. Because of the variability of mortgage loan and real estate transactions, industry wanted specific guidance for many different potential scenarios. This added to the page count.”

If you’d like to view the CFPB’s blog post in its entirety, go here.  The CFPB also posted two brief summaries of the proposal - one for consumers and one that is more technical in detail.   

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Happy Friday to you all! 

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

Written by Steve Van Beek

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

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

Prerule Stage:

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

Proposed Stage:

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

Final Rule Stage:

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

Long-Term Actions:

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

Completed Actions: 

• Disclosure Rules for Remittance Transactions (Regulation E)

***

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

***

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

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

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

Mortgage Periodic Statement Requirement; NAFCU Video Contest

Written By JiJi Bahhur, Regulatory Compliance Counsel

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

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

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

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

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

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

Keeping Track of the CFPB's Mortgage Initiatives

Written by Steve Van Beek

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

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

***

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

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

***

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

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

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

***

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

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

***

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

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

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

Written by Steve Van Beek

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

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

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

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

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

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

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

***

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

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

Consumer Compliance Outlook: Common Compliance Violations

Written by Steve Van Beek

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

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

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

The Commonly Cited Compliance Violations include:

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

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

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

Finding the CFPB's Regulations

Written by Steve Van Beek

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

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

***

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

***

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

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

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

***

A couple of other items to keep in mind:

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

CFPB's Latest on Closing Disclosures

Written by Steve Van Beek

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

From the blog post:

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

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

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

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The two prototypes for this round are available below:

• Settlement Disclosure - Mimosa Bank

• Settlement Disclosure - Sassafras Bank

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

Know Before You Owe - Round 3; Servicemember Information

Written by Steve Van Beek

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

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

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

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

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