Dodd Frank Act Mortgage Regulations Implementation Gap Analysis

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1 POLICY CHANGES POL1 POL2 POL3 POL4 POL5 POL7 POL8 HPML & Reg B Appraisals HPML Appraisals Consumer (MH) Commercial & other consumer lenders compensation Tellers/Retail referral program Policy and/or SAFE Act Policy ) lending Residential, consumer and commercial lending (and existing manufactured homes); 1 st and junior liens Verify that income received from originated loans portfolio and secondary market complies with general comp and bonus rules. Determine whether commercial & other lenders will be considered LOs under the test. If so, review compensation program (including bonus if they do >10 per year) and address in policy. Determine whether tellers and other retail personnel lenders will be considered LOs under the test. If so, review compensation program (including bonus if they do >10 per year) and address in policy. State the Bank s policy on allowing non MLOs to become LOs (by soliciting mortgage loans or otherwise meeting the definition). Determine how to identify LO with primary responsibility over a loan. Consider implementing policy to require applicant pay for appraisal prior to ordering (but after GFE and intent to proceed on consumer purpose residential loans). For higher priced mortgage loans, revise policy to provide disclosure & copy of appraisal, as well as 2 nd appraisal if property price No Yes all staff needs training on what is and is not acceptable. Yes all staff needs training on what is and is not acceptable. Yes if policy adopted prohibit solicitation Yes 1

2 POLICY CHANGES POL9 POL10 POL11 POL12 POL13 POL14 HOEPA HOEPA & ATR QM & Residential lending Residential Lending increases (refer to procedures), and to follow Appendix N (consider a checklist). Determine if policy will be to allow high cost mortgage loans (if so, need Procedures to verify preclosing counseling and that loans do not have prohibited terms).. Determine if policy will be to require prepayment penalties as allowed (only) for fixed rate QM loans. If so, need procedures and disclosure revisions to ensure compliance. Determine if the Bank will generate non QM loans. If so, ensure underwriting procedures are in place to obtain documentation for the 8 General Rule requirements. Establish a pricing policy on offering discount points that meets the TPF requirements for exclusion. Ensure record retention policy retains records of compliance with at least 3 years after consummation. Establish policy for receipt of loan payments, including how to handle less than full payment and if single address will be identified as conforming. 2

3 POLICY CHANGES POL15 POL16 POL17 POL18 POL19 Establish policy for handling force placement insurance (other than NFIP) including whether borrower will be charged retroactively and whether a fee will be charged for services actually performed (and reasonably related to the cost of providing the service). Foreclosure policy must require at least 120 days delinquency before filing notice of action and lis pendens and shall prohibit if borrower is performing pursuant to modification agreement. Large servicer Ensure that loss mitigations policy/options is clear and able to be communicated by single points of contact Large servicer review existing policies and gather into General Policy (& related procedures) as required by POL20 3

4 PROCEDURES CHANGES PRO1 PRO2 PRO3 PRO4, SAFE Act, and Human Resources Record Retention ( & HR) Consumer dwelling file reviews Consumer dwelling file reviews PRO5 ECOA Appraisals Commercial loan internal review PRO6 ECOA Residential, consumer Appraisals and commercial: (a) disclosures; (b) appraisals/internal evaluations/appraisal reviews; and (c) loss mitigation (Once policy on who can be a LO has been defined) establish procedures to ensure LO compensation & qualifications comply with requirements. Retain records of LO compensation paid and received for 3 years (was two) from the payment (portfolio and secondary market) Revise procedures and file checklists/monitoring to ensure the Bank s (and any LO Organization/broker) name and primary NMLS# appears on the application, Note and Mortgage. Ensure that compensation is not received from the consumer and another source. Revise form as necessary so that can be provided to applicants. Revise procedures to ensure that (a) notice is provided within 3 days of application, and (b) appraisals, evaluations and reviews, are provided promptly upon completion (including establishing a process for when that is), or at least 3 days prior to closing, unless a waiver for bona fide financial emergency is obtained (including a process for documenting oral waivers and for providing at closing). 4 Yes, for all employees & for LOs (specific) No Yes Yes Yes

5 PROCEDURES CHANGES PRO7 PRO8 PRO9 PRO10 PRO11 PRO12 PRO13 HPML Appraisal HPML Appraisal HPML Appraisal ECOA & HPML Appraisals Homeownership HOEPA & ATR QM HOEPA manufactured home loans Appraisal review manufactured home loans Residential, business and consumer: CHECKLISTS Pre & post closing checklists originated & non originated applications and HELOCs loans and HELOCs Establish process to check for HPML within 3 days of application, and each time the rate is set thereafter, and to provide the required appraisal disclosures if triggered. If HPML, revise appraisal review procedures to check requirements (Appendix N), including a second appraisal if loan is a flip and not exempt. Ensure process to provide copy of appraisal to applicant at least 3 days prior to closing. Revise to verify disclosures and appraisal/valuation provided for all 1 st lien dwelling secured loans, and covered junior lien HPML loans. Ensure homeownership counseling disclosure obtained within prior 30 days from CFPB website portal is provided within 3 days of application, unless denied within 3 days. Establish process (checklist) for calculating Total Points and Fees (TPF) for HOEPA & Ensure there is a process to determine if a loan is high cost mortgage at each time the rate is set, total points and fees are 5

6 PROCEDURES CHANGES PRO14 PRO15 PRO16 PRO17 PRO18 PRO19 HOEPA loans and HELOCs Underwriting Underwriting Underwriting increased, or a prepayment penalty clause is (will be) imposed. If loan is a high cost mortgage loan, ensure procedures address HOEPA requirements, including pre and post closing checklists (and, how to cure a failure) and HELOC ability to repay underwriting requirements Establish a process to annually determine that the Bank meets the small creditor test. For covered loans that are not QM, ensure procedures are in place to obtain third party records to verify the 8 items are in file and use ( consider ) them for underwriting. For non QMs, ensure that the general rules in are adhered to (i.e. calculating payment on ARM or balloon loans, etc) To obtain and document Agency Loan QM, implement process to retain AUS recommendation at application and again prior to closing showing all requirements cleared and still eligible. If Bank is not a small creditor: for loans without GSE eligibility but seeking QM status, ensure that Appendix Q is complied with for calculating DTI (consider 6

7 PROCEDURES CHANGES PRO20 PRO21 PRO22 PRO22 PRO23 & & Underwriting implementing a checklist) and that DTI is 43% or less. For small creditors, ensure that DTI or residual income is considered and calculated according to the exemption rules. If applicable, establish process to periodically assess subservicer s ability to comply with requirements. Establish procedures to comply with requirements (large and small servicers) Ensure force placement procedures are detailed and comply with requirements, including paying premiums from escrow if required. PRO24 7

8 DISCLOSURES / DISCLOSURE SYSTEMS CHANGES DIS1 All Regs Residential, consumer & commercial loans DIS2 ECOA Appraisals Residential, consumer & commercial Ensure E SIGN is adhered to as required, including appraisals (i.e., commercial & consumer) Ensure appraisal copy disclosure (model) is generated within 3 days of application for all 1 st lien dwelling secured loans. DIS3 DIS4 DIS5 DIS6 DIS7 HPML Appraisal & ECOA Appraisals Homeownership HOEPA ATR manufactured home loans Residential, consumer & commercial loans and HELOCs loans and HELOCs loans and HELOCs If HPML, ensure appraisal copy disclosure is provided within 3 days of application (unless 1 st lien and was already provided one under ECOA). Consider implementing a legal agreement to reimburse for cost of appraisal if appraisals are ordered prior to receipt of funds. For any dwelling secured loan, ensure current homeownership counseling disclosure obtained from the CFPB portal within the prior 30 days is generated and provided within 3 days of application, unless denied within 3 days (i.e. with the GFE). Upon discovery that a loan will be a high cost mortgage loan., generate required disclosures (including new HELOC format) at least 3 business days prior to consummation; ensure changed terms get new disclosures If applicable, System upgrades to calculate new high cost mortgage 8

9 DISCLOSURES / DISCLOSURE SYSTEMS CHANGES DIS8 DIS9 DIS10 DIS11 & & & & DIS12 DIS13 DIS14 consumer (MH) testing, including new Total Points and Fees, and new categories of loans subject to testing (i.e., purchases, HELOCs) Ensure new ARM program (at application re: # days to notices) & rate change disclosures (initial and thereafter) in accordance with Ensure annual escrow statement is provided within 90 days of a delinquent borrower becoming current, and within 60 days of receiving loan payoff funds. Implement standard error resolution notices (similar to Reg E) and request for information responses. Large servicer on primary home establish model form of written notice within 45 days of delinquency Implement model insurance notices (consider for flood insurance, as well). Large servicers work with vendor to ensure periodic statement disclosure revised. Ensure NMLS# of bank and individual LO is on notes, mortgages, and applications. 9

10 CORE PROCESSING / SYSTEMS CHANGES COR1 COR2 COR3 COR4 COR5 HOEPA loans and HELOCs If applicable, System upgrades to calculate new high cost mortgage testing, including new Total Points and Fees, and new categories of loans subject to testing (i.e., purchases, HELOCs). Including second APR for ARM loans that are not fully indexed (i.e. discount or premium) Implement system to ID QM loans (and category) on management loan reports. Work with vendor as needed on ARM loan input to ensure proper time and information on initial and subsequent ARM changes (including prepayment penalty or interest only loans) Establish process to turn off credit bureau reporting for any payment with pending Error Resolution dispute. Large servicers work with vendor If necessary to revise periodic statement format. No 10

11 VENDOR MANAGEMENT/SERVICE PROVIDER/CONTRACT ISSUES VEN1 VEN2 VEN3 VEN4 VEN5 ECOA Appraisals HOEPA & Residential/Mobile Home lending investor and LO compensation agreements consumer loan documents consumer loan documents Residential/Mobile Home lending investor agreements Residential loans and HELOCs Review compensation agreement with LOs and investors. Ensure base and bonus pay complies with rules. If Bank is not funding the loan, review agreements to see if they call for comp to be received by investor (origination points) AND paid by investor to Bank or LO (if so, ensure that loan P&P are updated to count both comps for the TPF test). Verify that our consumer loan agreements for (a) loans secured by a dwelling (mortgage or mobile home/trailer), and (b) HELOCs secured by primary home, do not include any language requiring arbitration or other non judicial procedure. For third parties preparing our residential and consumer dwelling Notes and Mortgages, make sure they put the Bank s and individual s NMLS# (if applicable). Determine whether special form is needed to provide GSE valuations to consumers. If loans with prepayment penalties are offered (whether by the Bank as broker or by brokers from whom the Bank purchases loans) make sure the broker agreement requires the creditor to provide, NO NO NO NO 11

12 VENDOR MANAGEMENT/SERVICE PROVIDER/CONTRACT ISSUES VEN6 VEN7 & Agreements with investors or brokers VEN8 VEN9 VEN10 and the broker to present, loan alternatives without prepayment penalties. If Bank acts as a broker (wholesale), or accepts applications from a broker, determine whether compensation structure will cause double counting under TPF test. Review subservicing arrangements to (a) ensure the small servicer definition exempts them or (b) they will comply with the servicing rules. Discuss force placement options with Bank s insurer(s) (i.e. ensure coverage can be cancelled retroactive to date borrower had coverage, at no cost to bank). If servicer performs any of these functions, discuss procedures with them. Large servicers Review third party agreements for servicing, loss mitigation, resolving errors, etc. to ensure compliance with requirements and our General Policies 12

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