1/22/2013. Mortgage U, Inc. Copyright 2012 Mortgage U, Inc. Copyright 2012 Mortgage U, Inc. Copyright 2012 Mortgage U, Inc.

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1 Mortgage U, Inc Compliance Is A New World Consumer Financial Protection Bureau Qualified Mortgage QM final rule Points and fees amendment High Cost Mortgage Rules High Cost Appraisal Rules ECOA & HMDA Changes 1

2 Process matters its not just that the loan closed looking like it was in compliance Its not just about disclosures being given to customers The Consumer Financial Protection Bureau (CFPB) is focused on fair lending throughout the loan process Between June 21, 2011 and June 1, 2012 CFPB received approximately 45,630 complaints. 19,250 were mortgage complaints and most were about servicing issues No evidence of disparate impact or disparate treatment 16,250 (84%) of mortgage complaints were sent to companies for review and response. 7% were referred to regulators. Once the company responds, the consumer is given the chance to review and have 30 days to dispute the response. The median amount of monetary relief reported was approximately $410 for nearly 600 mortgage complaints. 2

3 Banks can still be impacted by the CFPB. Bureau may participate in examinations with other regulators CFPB announced it has denied the petition to modify or set aside the Civil Investigative Demand (CID) of a non bank mortgage lender The CID was for 21 interrogatories with multiple subparts and 33 documentation requests referencing all Documents dated back to 1/1/2001 and in some cases 1995 The lender petitioned that the CFPB failed to state the nature of the claim in detail and the statute of limitations under RESPA had run out CFPB stated these rules do not apply to investigative inquiries Qualified Mortgage Final Rule effective 1/10/14 Amendment to QM covering the points and fees test. Comment period open until 2/25/13 High Cost Mortgage Rules effective 1/10/13 High cost appraisal rules also Loan originator compensation restricted in order to prevent unfair pricing practices under Reg Z. DFA Final Rule issued 1/22/13. Effective 6/1/13 Escrow account requirement extended on HPML loans effective 6/1/13 National Servicing Standards final rule effective 1/14/13 Mortgage Acts and Practices Advertising 2012 Unfair, Deceptive and AbusiveActs or Practices (UDAAP)

4 RESPA proposed rule: New GFE and HUD1 Add three day waiting period once borrower receives final HUD1 HMDA Data fields to be added ECOA appraisal rule 3 FHA Disclosures a Full documentation No qualifying on teaser/introductory rates No excess upfront points and fees: limits points and fees (3%) including those used to compensate loan originators, such as loan officers and brokers No toxic features: >30 yr term; IO; Neg. Am, No balloons except for small creditors, rural or underserved markets The final rule does NOT require disclosure of a no cost loan option For a temporary, transitional period, loans that have an AUS approval will meet the DTI test. The DTI guide in manual underwriting is 43% FHA underwriting standards are used to determine income and debts Temporary exemption expires

5 Non QM HPML but QM QM Qualified Mortgages that have a safe harbor status, are generally lower-priced loans. They will also offer lenders the greatest legal certainty that they are complying with the new Ability-to-Repay rule. Consumers can legally challenge their lender if they believe the loan does not meet the definition of a Qualified Mortgage. These are higher-priced loans typically for consumers with insufficient or weak credit history. If the loan goes south, the consumer can rebut the presumption that the creditor properly took into account their ability to repay the loan. They would have to prove the creditor did not consider their living expenses after their mortgage and other debts. This does not affect the rights of a consumer to challenge a lender for violating any other federal consumer protection laws. 5

6 Creditors refinancing a borrower from a risky mortgage such as an adjustable-rate mortgage, an interest-only loan, or a negative-amortization loan to a more stable, standard loan can do so without undertaking the full underwriting process required by the new rules. Exemptions for nonprofit creditors that work to help low-to moderate-income consumers obtain affordable housing; Exemptions for housing finance agencies and lenders participating in housing finance agency programs intended to foster community development; Exemptions for homeownership stabilization programs that work to prevent foreclosures, such as programs operating in conjunction with the Making Home Affordable program; A provision to give Qualified Mortgage status to small creditors, such as community banks and credit unions that make and hold loans in their own portfolios. Seeking comment on how best to calculate the loan origination compensation that will be part of the limitation on points and fees for Qualified Mortgages 6

7 The points and fees test is modified from what we know today to include all fees that the lender should have known at or before consummation: Exclude PMI and credit insurance payable after closing Exclude MIP/FF Added loan originator compensation Added fees paid to affiliates Added prepayment penalties (FHA has until 1/21/15 to get their 30 days of interest added) LLPA s are NOT a third party charge and are included Up to two bona fide discount points can be excluded The definition of loan originator compensation in the 2013 ATR rule is: All compensation paid directly or indirectly by a consumer or creditor to a loan originator, that can be attributed to thattransaction at the time the interest rate is set; How should LO compensation be included? The rule requires LO compensation to be included in the points and fees test. 1) Define wholesale differently from retail and require the compensation to the broker and the originator to be included 2) Define wholesale and retail the same and require LO compensation to be included 3) Allow a credit for consumer paid compensation 7

8 Changes Section 32 Expands coverage to include principal residence, purchase money, refinance, closed and open end HELOCs. (reverse mortgage exempt still) APR compared to APOR: 6.5% for first liens 8.5% for manufactured homes &subordinate liens Points and Fees Test: <$20,000, the lesser of 8 percent of the total transaction amount or $1,000 (will adjust annually) >$20,000 5% Prepayment fees and penalties: imposed for more than 36 months after closing or exceed in aggregate more than 2% of the amount prepaid Generally prohibits balloon loans Prohibits prepayment penalties Prohibits financing points and fees Late fee capped at 4% of payment that is past due Restricts payoff statement fees Prohibits fees to modify or defer a loan Must verify ability to repay Prohibited from recommending or encouraging a consumer to default on a loan in order to refinance into a high cost mortgage Homeownership counseling required 8

9 High Risk Loan Appraisal Rules Uses current HPML definition for a trigger (1.5%/2.5% Jumbo/3.5% 2nds) If triggered would require a certified or licensed appraiser with an interior inspection If property owned by the seller less than 180 days and the seller paid less for the house than the new sale price, a second appraisal is required at no cost to the borrower. 10% increase if 90 days; 20% for days Would exclude QM loans Regulation X would be amended to required lenders to provide a list of federally certified or approved homeownership counselors or organization to the consumer within 3 business days of application. Regulation Z would be amended to require first time homebuyers receive homeownership counseling from a federally certified or approved homeownership counselor or organization before making a negative amortization loan to the borrower. The GFE will become the Loan Estimate. Forms used during prequalification can t use the term loan estimate 9

10 Proposes to change section B fees to a zero tolerance! (CIC would still be allowed) Fees paid to an affiliate will also have a zero tolerance, subject to some exceptions TIL Information More details appear for ARM s, IO Closing Disclosure Must be provided to the borrower at least three business days in advance of closing 10

11 5 columns Back to itemization of seller paid costs Cash to close totals compared, with loan estimate Summary still similar There are several versions. It will have different looks based on the type of financing. 11

12 Other disclosures present the need for more discussions with the borrowers Both new proposals will change the definition of an application to the basic six items: Name Address Credit Score LTV Estimated Value Loan Amount The option to include a seventh item will be eliminated Potential creation of a Transaction Coverage Rate to be used as information for consumers There will be a brighter line between finance charge and non finance charges. The definition will align with whether a fee may be incurred in a cash transaction For example: all recording fees today are excluded. Proposal: deed transfers would be excluded but mortgage document recordings would be included 12

13 The CFPB is proposing two alternative comparisons to the APOR #1 use the APR #2 use the new Transaction Coverage Rate (TCR) as proposed in the RESPA/TILA combined rule In addition, for HELOCs, the APOR would be determined based on the APOR for the most closely comparable closed-end mortgage loan. On closed loans Total points and fees Difference, on all loans, between APR and a benchmark rate Term of prepayment penalty On all applications Value of collateral Length of initial ARM period Indicator if not fullyamortizing Term of loan Channel (e.g., broker v. retail) Credit score Age of applicant 13

14 Alice Alvey, Master CMB President Mortgage U, Inc. Farmington Hills, MI