CFPB Regulations. Review & Enforcement

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1 CFPB Regulations Review & Enforcement

2 Agenda Welcome Overview 2014 Regulations Loan Originator Compensation and Training, Certification, and Identifier Disclosure High-Cost/HOEPA Mortgage Loans & Homeownership Counseling Disclosures Mortgage Servicing Requirements Qualified Mortgage & Ability To Repay Appraisals: Disclosure and Delivery Requirements Appraisals: Higher-Priced Mortgage Loans How To Comply Conclusion Questions 2

3 Welcome Presenting today is a panel of experienced mortgage professionals. Tammie Johnson Client Relationship Manager Chris Kuhn Client Relationship Specialist All questions from the webinar will be addressed via , The information provided by Mortgage Compliance Advisors, LLC has been taken from various public resources and does not constitute legal advice. 3

4 Overview Today s webinar will feature information about recently effective CFPB regulations Content will include a review of amendments implemented, requirements issued, and how companies can expect to comply Also includes background information relating to: Rule status Issuance/effective dates History; and Revisions (if any) 4

5 Loan Originator Compensation and Training, Certification, and Identifier Disclosure 5

6 Background Status: Final Rule Issued Date: January 20, 2013 Published Date: February 15, 2013 Revised Date: May 29, 2013 Clarifications in September 2013 Effective Date: January 1, 2014 (and other provisions January 10) Docket No. CFPB CFR Part 12 CFR

7 Background What is the goal of final rule concerning LO Comp? The final rule is designed to protect consumers by reducing incentives for loan originators to steer consumers into loans with particular terms. Restrictions and requirements ensure loan originators are adequately qualified. 7

8 Loan Originator Compensation Requirements Loan Originator Compensation requirements under the Truth In Lending Act (Regulation Z) CFPB Amends Regulation Z to implement amendments to Dodd-Frank Act The Final Rule implements requirements and restrictions imposed by the Dodd-Frank Act concerning loan originator compensation 8

9 Loan Originator Compensation Requirements (cont d.) In addition to requirements and restrictions, Dodd-Frank also implements the following: Qualifications of, and registration or licensing of, loan originators Compliance procedures for depository institutions Mandatory arbitration Financing of single-premium credit insurance Tests to determine when loan originators can be compensated through profits-based compensation arrangements 9

10 Loan Originator Compensation Requirements (cont d.) Amendments to Regulation Z Prohibits compensation based on a term of a transaction or proxy for a term Permits certain contributions to retirement plans or certain profits-based compensation determined based on profits from a mortgage business Prohibits dual compensation from consumer and creditor/other Permits brokerage firms to pay individual broker commissions if not based on terms 10

11 Loan Originator Compensation Requirements (cont d.) Makes loan originator screening and training requirements more consistent between banks and nonbanks Implements requirement to list loan originator ID numbers on certain loan documents The final rule also revises or provides additional commentary on Regulation Z s restrictions on loan originator compensation. 11

12 Compensation Based On Terms Final rule prohibits LO compensation that is based on a term of the transaction or a proxy for a loan term Compensation: defined by rule as salaries, commissions, and any financial or similar incentive. Term of a transaction: Defined as any right or obligation of the parties to a credit transaction, including LO fees, creditor fees, or required-product/service fees Proxy for a term a factor that: Consistently varies with a term of the transaction over a significant number of transactions; and Loan originator has the ability to add, drop, or change the factor when originating the transaction 12

13 Compensation Based On Terms (cont d.) Pricing Concession Designated Plans Non-Designated Plans Allows reductions in LO compensation to defray the costs above those estimated under RESPA Permits designated tax-advantaged plans A defined benefit or contribution plan - qualified under the Internal Revenue Code Employee annuity plans, simple retirement accounts, simple employee pensions, annuity contracts, or eligible deferred compensation plan Permits non-deferred profits-based compensation to LO s if: Non-deferred profits-based compensation does not exceed 10 percent of total compensation 10-percent total compensation limit, or The LO originated 10 or fewer transactions in a 12-month period 13

14 Permissible Bases of LO Compensation The final rule provides a safe harbor for the following bases of compensation, which are not deemed to be compensation based on terms or proxies: Overall dollar volume Long-term loan performance Hourly rate of pay for actual hours worked Existing or new customer Payment fixed in advance for each loan % of applications that result in consummated transactions Quality of loan files 14

15 Dual Compensation General prohibition against dual compensation: Where an LO receives compensation directly from a consumer in connection with a mortgage loan, no LO may receive compensation from another person in connection with the same transaction. Final rule provides exception: If a consumer pays a mortgage broker or other LO organization, the company may pay commissions to LO employees or contractors in connection with the same transaction Employee compensation cannot be based on terms 15

16 Qualification Requirements Individual loan originators must be qualified Registered or licensed as required under State and Federal Law LO s employed by depositories: subject to qualification requirements Criminal background checks Financing responsibility and character and fitness checks Training LO s employed by non-depositories: still subject to State licensing requirements (rule does not change these requirements) Loan originator organizations Must endure that their employees are licensed or registered to the extent required under the SAFE Act or State law; and LO s must provide their and their ILO s unique identifiers under the Nationwide Mortgage Licensing System and Registry (NMLSR) on loan documents Creditors are LO s 16

17 17 Home Ownership and Equity Protection Act

18 Background Status: Final Rule Issued Date: January 10, 2013 Published Date: January 31, 2013 Effective Date: January 10, 2014 Docket No. CFPB CFR Part 12 CFR CFR 1026 Federal Registry Entry 78 FR

19 HOEPA The final rule amends Regulation Z (Truth in Lending) by expanding the types of mortgage loans that are subject to the protections of the Home Ownership and Equity Protections Act of 1994 (HOEPA) revising and expanding the tests for coverage under HOEPA; and imposing additional restrictions on mortgages that are covered by HOEPA, including a pre-loan counseling requirement. Regulation Z TILA Amendments: High-Cost Mortgage and Homeownership Regulation X RESPA Amendments: Homeownership Counseling 19

20 HOEPA: Who Must Comply? Any person who originates more than one high cost mortgage in any twelve month period or originates one or more high cost mortgages through a mortgage broker is deemed a creditor and must comply with the requirements of HOEPA 20

21 High Cost Mortgage Regulation Z Amendments High Cost Mortgage and Homeownership Counseling What is a High Cost Mortgage? Defined as a loan secured by a consumer s principal dwelling primarily for consumer, family, or household purpose Including first and subordinate lien purchase money and refinancings, open-end HELOCS and closed-end home equity loans (tests must be met) Accordingly, there is de minimis exemption of up to one high cost mortgage each twelve months 21

22 Revised HOEPA Coverage Tests The final rule implements the Dodd-Frank Act's revisions to HOEPA's coverage tests by providing that a transaction is a highcost mortgage if any of the following tests are met: The transaction s annual percentage rate ( APR ) exceeds the applicable average prime offer rate ( APOR ) by more than 6.5 percentage points for most first-lien mortgages; or by more than 8.5 percentage points for a first mortgage if the dwelling is personal property and the transaction is less than $50,000; The transaction s APR exceeds the applicable APOR by more than 8.5 percentage points for subordinate lien mortgages; 22

23 Revised HOEPA Coverage Tests (cont d.) The transaction s points and fees exceed 5% of the total transaction amount or for loans below $20,000, the lesser of 8 percent of the total transaction amount or $1,000 (with the dollar figures also adjusted annually for inflation); or The credit transaction documents permit the creditor to charge or collect a prepayment penalty more than 36 months after transaction closing or permit such fees or penalties to exceed, in the aggregate, more than 2% of the amount prepaid. 23

24 Restrictions on Loan Terms The final rule also implements new Dodd-Frank Act restrictions and requirements concerning loan terms and origination practices for mortgages that fall within HOEPA's coverage test. For example: Balloon payments are generally banned, unless they are to account for the seasonal or irregular income of the borrower, they are part of a short-term bridge loan, or they are made by creditors meeting specified criteria, including operating predominantly in rural or underserved areas. Creditors are prohibited from charging prepayment penalties and financing points and fees. Late fees are restricted to four percent of the payment that is past due, fees for providing payoff statements are restricted, and fees for loan modification or payment deferral are banned. 24

25 Restrictions on Loan Terms (cont d.) Creditors originating HELOCs are required to assess consumers' ability to repay. (Creditors originating high-cost, closed-end credit transactions already are required to assess consumers' ability to repay under the Bureau's 2013 Ability-to-repay (ATR) Final Rule addressing a Dodd-Frank Act requirement that creditors determine that a consumer is able to repay a mortgage loan.) Creditors and mortgage brokers are prohibited from recommending or encouraging a consumer to default on a loan or debt to be refinanced by a high-cost mortgage. 25

26 Restrictions on Loan Terms (cont d.) Before making a high-cost mortgage, creditors are required to obtain confirmation from a federally certified or approved homeownership counselor that the consumer has received counseling on the advisability of the mortgage. 26

27 Counseling-Related Requirements The final rule implements two additional Dodd-Frank Act homeownership counseling-related provisions that are not amendments to HOEPA. The final rule requires lenders to provide a list of homeownership counseling organizations to consumers within three business days after they apply for a mortgage loan, with the exclusion of reverse mortgages and mortgage loans secured by a timeshare. The final rule requires the lender to obtain the list from either a Web site that will be developed by the Bureau or data that will made available by the Bureau or the Department of Housing and Urban Development (HUD) for compliance with this requirement. 27

28 Counseling-Related Requirements (cont d.) The final rule implements a new requirement under TILA that creditors must obtain confirmation that a first-time borrower has received homeownership counseling from a federally certified or approved homeownership counselor or counseling organization before making a loan that provides for or permits negative amortization to the borrower. 28

29 Appraisals for Higher-Priced Mortgage Loans 29

30 Background Status: Final Rule Issued Date: January 18, 2013 Published Date: February 13, 2013 Effective Date: January 18, 2014 Docket No. CFPB CFR Part 12 CFR

31 Appraisals for Higher-Priced Mortgage Loans CFPB issued a final rule to amend Regulation Z jointly with the Federal Reserve Board, FDIC, FHFA, NCUA, and OCC. This rule implements the Truth in Lending Act (TILA), and the official interpretation to the regulation. 31

32 Requirements The revisions to Regulation Z implement a new provision requiring appraisals for higher-risk mortgages that was added to TILA by the Dodd-Frank Act. For mortgages with an annual percentage rate that exceeds the average prime offer rate by a specified percentage, the final rule requires creditors to: Obtain an appraisal or appraisals meeting certain specified standards, Provide applicants with a notification regarding the use of the appraisals; and Give applicants a copy of the written appraisals used. 32

33 Requirements (cont d.) Appraisals Required Generally, a creditor may not extend a higher-priced mortgage loan to a consumer without obtaining, prior to consummation, a written appraisal of the property to be mortgaged. The appraisal must be performed by a certified or licensed appraiser who conducts a physical visit of the interior of the property that will secure the transaction. 33

34 Requirements (cont d.) Appraisal Requirements do not apply to a: Qualified mortgage (as defined in Section ); Transaction secured by a new manufactured home; Transaction secured by a mobile home, boat or trailer; Transaction to finance the initial construction of a dwelling; and Loan with a maturity of 12 months or less, if the purpose of the loan is a bridge loan connection with the acquisition of a dwelling intended to become the consumer s principal dwelling; or Reverse mortgage. 34

35 What This Means For Creditors Safe Harbor. A creditor has obtained an appraisal that meets the above requirement if the creditor: Orders that the appraiser perform the appraisal in conformity with the Uniform Standards of Professional Appraisal Practice and Title XI of FIRREA Verifies through the National Registry that the appraiser who signed the appraiser s certification was a certified or licensed appraiser in the state in which the appraised property is locates as of the date the appraiser signed the appraiser s certification; Confirms that the elements in Appendix N are addressed in the appraisal; and Has no actual knowledge contrary to the facts or certifications contained in the appraisal. 35

36 What This Means For Creditors (cont d.) Second appraisal The rule requires a HPML mortgage loan creditor to obtain a second written appraisal based on an interior inspection of the property, at no cost to the borrower, in connection with certain flipped properties. Subject to certain exemptions, the second appraisal would be required where: The seller acquired the home within 180 days prior to the date of the consumer s purchase agreement; and The consumer is acquiring the home for a price that exceeds the seller s acquisition price by 10% (if the seller acquired the property within the past 90 days) or 20% (if the seller acquired the property between 91 and 180 days earlier). 36

37 37 Disclosure and Delivery of Free Copies of Appraisals

38 Background Status: Final Rule Issued Date: January 18, 2013 Published Date: January 31, 2013 Effective Date: January 18, 2014 Docket No. CFPB CFR Part 12 CFR

39 Appraisals: Disclosure and Delivery Requirements CFPB amends Regulation B Which implements the Equal Credit Opportunity Act (ECOA), and the Bureau s official interpretations of the regulation, which interpret and clarify the requirements of Regulation B. The final rule revises Regulation B to implement an ECOA amendment concerning appraisals and other valuations that were enacted as part of the Dodd-Frank Act. 39

40 Requirements In general, the revisions to Regulation B require creditors to provide to applicants free copies of all appraisals and other written valuations developed in connection with an application for a loan to be secured by a first lien on a dwelling; and Require creditors to notify applicants in writing that copies of appraisals will be provided to them promptly. 40

41 Requirements (cont d.) Requirement to Provide Copy of Appraisals Withdrawn, Denied and Incomplete Applications. This requirement applies even if the applicant withdraws or fails to complete the application or the creditor denies the request Electronic. Creditors may provide copies electronically consistent with ESIGN. 41

42 Application Disclosure General Requirement A creditor must mail or deliver notice of the applicant s right to receive a copy of all written appraisals developed in connection with the application for a loan secured by a first lien on a dwelling. Timing Mail or deliver not later than the third business day after the creditor receives the application. If a creditor determines that the loan will be secured by a first lien, then it must provide the notice not later than three business days after it determines the loan will be secured by a first lien on a dwelling. 42

43 Application Disclosure (cont d.) Fees. The creditor may not charge for providing the copy of the appraisal or other written valuation required by this rule, except that applicants may be required to pay a reasonable fee to reimburse the creditor for the cost unless otherwise prohibited by law. Prohibited fees include charges for photocopies, postage, or other costs. Cost may include an administration fee charged by an AVM 43

44 44 Mortgage Servicing Requirements

45 Background Status: Final Rule Issued Date: January 17, 2013 Published Date: February 14, 2013 Effective Date: January 10, 2014 Docket No. CFPB CFPB CFR Part 12 CFR CFR

46 Requirements CFPB Amends Regulation X Which implements the Real Estate Settlement Procedures Act of 1974 Implementation of commentary that sets forth an official interpretation to the regulation. CFPB amends Regulation Z Which implements the Truth in Lending Act and the official interpretation to the regulation, which interprets the requirements of Regulation Z These final rules implement provisions of the Dodd-Frank Act regarding mortgage loan servicing. 46

47 Servicer Obligations Specifically, the Regulation X final rule implements Dodd- Frank Act sections addressing servicers obligations: To correct errors asserted by mortgage loan borrowers To provide certain information requested by such borrowers; and To provide protections to such borrowers in connection with force-placed insurance. Additionally, this final rule addresses servicers obligations: To establish reasonable policies and procedures to achieve certain delineated objectives To provide information about mortgage loss mitigation options to delinquent borrowers 47

48 Servicer Obligations (cont d.) [continued] servicer obligations of final rule: To establish policies and procedures for providing delinquent borrowers with continuity of contact with servicer personnel capable of performing certain functions; and To evaluate borrowers applications for available loss mitigation options. Further, this final rule modifies and streamlines certain existing servicing-related provisions of Regulation X. 48

49 Notices & Other Requirements The Regulation Z final rule implements Dodd-Frank Act sections addressing: Initial rate adjustment notices for adjustable-rate mortgages Periodic statements for residential mortgage loans Prompt crediting of mortgage payments; and Responses to requests for payoff amounts This final rule also amends current rules governing the scope, timing, content, and format of disclosures to consumers regarding the interest rate adjustments of their variable-rate transactions. 49

50 50 Qualified Mortgage and Ability To Repay Requirements

51 Background Status: Final Rule Issued Date: January 10, 2013 Published Date: January 30, 2013 Effective Date: January 10, 2014 Docket No. CFPB CFPB CFR Part 12 CFR

52 Qualified Mortgage & Ability To Repay Applicability All consumer-purpose mortgages, except: Home Equity Lines Of Credit Timeshare Plans Reverse Mortgages Temporary Loans 52

53 Qualified Mortgage & Ability To Repay ATR requirement does not apply (but prepayment penalty restrictions do apply) for the following: Reverse Mortgages Temporary Loans, of 12 months or less Construction-to-Permanent loan, with a construction phase of 12 months or less Loans made pursuant to Housing Finance Agency programs and Emergency Economic Stabilization Act / Troubled Asset Relief Program Certain loans to low-to-moderate income consumers: Non-profits that extend credit no more than 200x per year. Creditors designated by Treasury as a Community Financial Development Institution or Down-Payment Assistance Provider of Secondary Financing. 53

54 Qualified Mortgage & Ability To Repay Beginning January 10, 2014, creditors must make an Ability To Repay determination in compliance with the CFPB s Rule. Creditors can comply in any of four ways. Options are: 1. General ATR must meet 8 general underwriting factors. 2. Originating QM 3. Originating Rural Balloon Payment QM 4. Refinancing a Non-Standard Mortgage into a Standard Mortgage For more information, download a copy of our recent QM webinar using the provided link: ATR and QM Webinar 54

55 CFPB Regulations: How To Comply Partner with a QC provider that understands your business. MCA offers a comprehensive suite of mortgage compliance solutions. Products and services include: QM Reviews Servicing Reviews MERS QC Reviews Plans & Policies 4506-T Income Verification And More 55

56 Thank You MCA is proud to offer unpaid webinars, and hopes that by doing so we will be fortunate enough to earn your business. For more information about what we offer, visit For questions, or to get started, contact our sales department at To live chat with MCA professionals, click the following link. 56

57 Questions? Please submit any questions concerning today s webinar to 57

58 Resources The information provided by Mortgage Compliance Advisors, LLC has been taken from various public resources and does not constitute legal advice. Consumer Financial Protection Bureau Mortgage Bankers Association 58

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