Minnesota Credit Union Network

Transcription

1 Minnesota Credit Union Network MnCUN CoMpliaNCe RefeReNCe GUide CFPB Mortgage Rules Summary Ability-to-Repay Rule Qualified Mortgage Rule Loan Originator Rule Home Ownership & Equity Protection Act Appraisals & Valuations (ECOA & HPML) TILA Escrow Rule TILA & RESPA Mortgage Servicing Rules Regulatory Summary 2013 Credit Union Reporting Deadlines 2014 december 2013

2 TABLE OF CONTENTS CFPB Mortgage Rules Summary Ability-to-Repay Rule Overview Application of Ability-to-Repay Rule Underwriting Standards.. 9 Current or reasonably expected income or assets 10 Current employment status.. 10 Monthly payment on the covered transaction 11 Monthly payment on any simultaneous loan 11 Monthly payment for mortgage-related obligations 11 Current debt obligations, alimony and child support 12 Monthly debt-to-income ratios or residual income 12 Credit history..13 Verifying a Borrower's Credit Information Liability Under the ATR Rule Record Retention Additional Educational Resources Attachment A: Comparison Ability-to-Repay with Qualified Mortgages 16 Qualified Mortgage Rule Overview Definitions General Qualified Mortgage.. 17 Temporary Qualified Mortgage Small Creditor Qualified Mortgage Balloon-Payment Qualified Mortgage Points and Fees Limitation Prepayment Penalties Refinancing a Non-Standard Loan into a Standard Loan Rebuttable Presumption Safe Harbor Protection Additional Educational Resources Attachment A: Small Creditor Qualified Mortgages Flowchart. 24 Loan Originator Rule Overview Loans Covered by the Loan Originator Rule Definition of loan originator.. 25 Compensation Definition of compensation.. 27 Third-party charges.. 27

3 Charges for non-loan origination activities 28 Pooled compensation.. 28 Payments Based on a Term of Transaction Overview.. 28 Term of a transaction.. 29 Proxy for a term of a transaction.. 30 Payments by Persons Other Than Consumer Dual compensation.. 30 Prohibition on Steering Contributions to a Defined Contribution Plan or Defined Benefit Plan Contributions to a Non-Deferred Profits-Based Contribution Plan Other Permissible Forms of Compensation Loan Originator Qualification Requirements Individual loan originator Loan origination organizations Training Record Retention Requirements Loan Documents Miscellaneous Restrictions on Lending Practices Prohibition on mandatory arbitration clauses and waivers No waivers of federal statutory causes of actions Prohibition on financing single-premium credit insurances Policies and Procedures Additional Educational Resources Home Ownership and Equity Protection Act Rule Overview Expansion of HOEPA Testing for a High-Cost Mortgage Annual Percentage Rate (APR) Test Points and Fees Test.. 40 Prepayment Penalties Coverage Test.. 40 Special Disclosures Prohibited Acts for High-Cost Mortgages Balloon payments.. 42 Prepayment penalties.. 42 Due-on-demand clauses.. 42 Encouraging or recommending default.. 42 Previous HOEPA Restrictions Still in Effect Home Ownership Counseling High-cost mortgages.. 44 Negative amortization loans for first-time borrowers 45 All other mortgages.. 45 Additional Educational Resources Attachment A: Summary: Homeownership Counseling Organizations List

4 Attachment B: CFPB Bulletin on Homeownership List Requirements Appraisals & Valuations Part I-ECOA Overview of Equal Credit Opportunity Act Loans Covered by the ECOA Valuations Rule Valuation Defined Delivery of Disclosure Sample Disclosure Delivery of the Appraisal and/or Written Valuation Promptly Upon Completion defined More than one applicant Waiver by the applicant Reimbursement Compliance Checklist Additional Educational Resources Exhibit A: Code of Federal Regulations Part 1026, Appendix N Appraisals & Valuations Part II-Higher-Priced Mortgage Loans Key Differences Between ECOA Valuations & Appraisals for HPMLs Loans Covered by HPML Appraisal Rule Exemptions Disclosure required Appraisal Required for HPMLs Additional appraisal may be required Exemptions from second appraisal requirement Applicant to Receive Copy of Appraisal Frequently Asked Questions Additional Educational Resources TILA Escrow Rule Overview Loans Covered by the Escrow Rule Cancellation of an Escrow Account Credit Unions That Serve Rural & Underserved Counties Frequently Asked Questions Additional Educational Resources Atttachment A: Mortgage Rules with "Rural and Underserved" Designation RESPA & TILA Mortgage Servicing Final Rules Overview RESPA (Regulation X) TILA (Regulation Z) Small Servicer Exemption Provisions exempting small servicers Small servicer determination Affiliate defined Master servicer/subservicers If a credit union exceeds the 5,000 mortgage threshold

5 Periodic Statements Exemption for consumer in bankruptcy Timing Form Content and layout of periodic statement Coupon books Interest Rate Adjustment Notices Loans covered by this provision Exemptions Changes to current interest rate adjustment notice rules Prompt Payment Crediting and Payoff Statements Prompt payment crediting Partial payments Non-conforming payments Pyramiding of late fees Payoff statements Force-Placed Insurance Loans covered Definition Notice Requirements Exemption Error Resolution & Information Requests Loans covered Notice of error Specific location for notices of error Acknowledging receipt Response to notice of error Credit union finds additional errors Requesting information from the borrower Timing Copies of documents Alternative compliance Reasons under which a response is not required Prohibitions Requests for Information Specific location for information requests Acknowledging receipt Response to information request Timing & extensions of time Reasons not requiring a response Notice requirement when not responding Prohibitions General Servicing Policies, Procedures & Requirements Application

6 General policies, scope and objectives Servicing transfers Record retention Servicing file requirements Early Intervention Requirements Application Exemptions Continuity of Contact Application Loss Mitigation Requirements Application Complete loss mitigation application definition Review of loss mitigation application Evaluation of complete loss mitigation application Prohibition on foreclosure referral Prohibition on foreclosure sale Appeals process Timing The appeal Small servicer requirements Successors in Interest Additional Educational Resources Attachment A: Federal Regulations Part Attachment B: Mortgage Origination: Transaction Coverage & Exemptions Attachment C: Mortgage Servicing Rules: Coverage Regulatory Summary 2013 Deposit Accounts New ATM Signage Law Signed Regulation D Reserve Requirements/Reporting Adjustments Reserve requirements Compliance dates Internal Revenue Service Treasury/IRS Regulations to Combat Off-Shore Tax Evasion Percentage Method Tables for Income Tax Withholding Lending HUD rule Formalizing Discriminatory Effects on Housing Federal Housing Finance Agency Streamlined modification initiative Community Financial Institution cap increase No lender-placed insurance reimbursements HARP received two-year extensions HMDA Reporting Guide

7 Fannie Mae & Freddie Mac to purchase only QMs NCUA Operational Changes NCUA Amends Troubled Condition Procedures Small Credit Union Threshold Increased Application Deadline for Low-Income Designation Extended Technical Changes to Share Insurance Coverage Approved Higher-Priced Mortgage Appraisal Rules Approved Final Rule Amending Definition of Rural District Final Rule Adding TIPS to List of Permissible Investments Guidance on Biggert-Waters Flood Insurance Reform Act Final Loan Participation Rule Final Emergency Liquidity Rule Qualified Mortgage Fair Lending Risks Guidance Guidance for Troubled Debt Restructurings Final Rule on Credit Union Service Organizations Consumer Financial Protection Bureau Ability-to-Repay Rule CFPB issues rule CFPB small entity compliance guide CFPB amendment to Ability-to-Repay Rule Home Ownership & Equity Protection Act Final rule expanding HOEPA coverage Additional amendments to the 2013 Mortgage Rules Escrow Account Rule CFPB issues final rule for escrow accounts Compliance guide for TILA Escrow Rule CFPB clarifies Escrow Rule Mortgage Originator Rule CFPB issues rule on mortgage origination Mortgage Servicing Rule CFPB issues mortgage servicing rules Mortgage Servicing Rule amended Equal Credit Opportunity Act Valuations Rule Final rule on appraisals and valuations Home Mortgage Disclosure Act CFPB increases HMDA threshold CFPB HMDA Re-submission Guidelines Mortgage Rules Ability-to-Repay, Mortgage Servicing and Loan Originator rules Three Small Entity Compliance Guides released Effective date for Single Credit Premium Insurance Rule delayed Final listing of rural and underserved counties CFPB exam procedures for new mortgage rules Small entity guides for loan originator and mortgage servicing

8 Ability-to-Repay and mortgage servicing rules published Remittance Transfer Rule Rule to goes into effect on Oct CFPB Remittance Transfer Rule Exam Procedures Final TILA/RESPA Mortgage Disclosure Rules Credit card accounts for stay-at-home spouses & partners CFPB bulletin on indirect lending Credit CARD Act Rule finalized Reg E amended for ATM disclosure requirements White paper on payday loans and deposit advance products CFPB Civil Penalty Rule CFPB framework to better coordinate with state regulators Changes Effective in Reporting Interest Paid to Nonresident Aliens in Regulation Z Renumbering New CTR and SAR CFPB Begins Supervising Debt Collectors Credit Union Reporting Deadlines 2014 Internal Revenue Service NCUA Minnesota Department of Commerce Miscellaneous

9 These summaries are provided by the Minnesota Credit Union Network for informational purposes only, and are intended to provide credit unions with the general regulatory requirements and effective dates for the new CFPB Mortgage Rules. It is not a substitute for a credit union s own review of the underlying regulation. These summaries are distributed with the understanding that the Minnesota Credit Union Network is not engaged in rendering legal, accounting, investment or other professional advice, and this guide should not be relied upon or substituted for the same. Such advice should be sought from your attorney, certified public accountant or other appropriate professional. Further, this information has been provided in advance of the effective date of the rules below, and such rules are subject to change and amendment; please consult the CFPB and/or an attorney for any changes that may occur. ABILITY-TO-REPAY RULE OVERVIEW Many experts believe loose underwriting standards and a failure to take into consideration a borrower s ability to repay a mortgage contributed to the mortgage crisis of In response, the Federal Reserve Board in October of 2009 implemented an amendment to the Truth-in-Lending-Act (TILA) requiring lenders to take into consideration a borrower s ability-to-repay prior to making a higher-priced mortgage loan. 1 Under the Board s rule, a lender is presumed to have complied with the ability-torepay requirement if the creditor followed certain underwriting procedures, including verifying the borrower s income, assets and current obligations. 2 In 2010, Congress passed the Dodd-Frank Act which adopted similar ability-to-repay requirements for nearly all closed-end residential mortgage loans. In addition, Congress created a presumption of compliance with the ability-to-repay requirements for certain mortgages called Qualified Mortgages. In January of 2013, the CFPB adopted a final rule implementing the Ability-to-Repay and Qualified Mortgage provisions of Dodd-Frank. Under the CFPB s Ability-to-Repay/Qualified Mortgage rule, mortgage lenders must make a good faith determination that the borrower has a reasonable ability to repay the loan by taking into consideration eight underwriting factors set forth by the CFPB. The Ability-to-Repay/Qualified Mortgage rule is scheduled to become effective on January 10, 2014, and applies to applications (generally for closed-end consumer credit transactions secured by a dwelling) received on or after that date. 3 1 A higher-priced mortgage loan is defined as a mortgage that is secured by a consumer s dwelling with an annual percentage rate (APR) that exceeds the average prime offer rate for a comparable transaction as of the date the interest rate is set by 1.5 or more percentage points for loans secured by a first lien on a dwelling, or 3.5 percentage points for loans secured by a subordinate lien on a dwelling. 12 C.F.R C.F.R (a)(4). 3 Ability-to-Repay and Qualified Mortgage Rule - Small Entity Compliance Guide, Consumer Financial Protection Bureau, (October 17, 2013), p. 6. 8

10 APPLICATION OF THE ABILITY-TO-REPAY RULE Under the Ability-to-Repay rule (ATR rule), a credit union must make a reasonable and good faith determination at or before consummation of a mortgage that the borrower will have a reasonable ability to repay the loan according to its terms. 4 The ATR rule applies to all closed-end consumer credit transactions secured by a dwelling, which includes residential structures with one to four units, including condominiums and co-ops. 5 As the rule applies to all closed-end transactions, the ATR rule also covers subordinate lien loans. 6 However, the ATR rule does not apply to: Open-end credit plans (i.e., home equity lines of credit (HELOCs)); Time-share plans; Reverse mortgages; Temporary or bridge loans with terms of twelve (12) months or less (with possible renewal); Construction phase of twelve (12) months or less of a construction-to-permanent loan (with possible renewal); and Consumer credit transactions secured by vacant land. 7 Additionally, if a loan qualifies as a refinancing, as defined by the Truth-in-Lending-Act (12 C.F.R (a)), it will fall under the ATR rule. On the other hand, if the loan is a modification, and not subject to Truth-in-Lending, it is not subject to the ATR rule. 8 UNDERWRITING STANDARDS In order to comply with the ATR rule, a credit union s ATR evaluation must include eight (8) underwriting factors: Current or reasonably expected income or assets; Current employment status; Monthly mortgage payment on the covered transaction; Monthly payment on any simultaneous loan secured by the same property; Monthly payment for mortgage-related obligations, such as taxes, insurance, and homeowner s association fees; Current debt obligations, including alimony and child support; Monthly debt-to-income ratio or residual income; and Credit history. 9 4 Comment 12 C.F.R (c)(1) 5 12 C.F.R (a). 6 Ability-to-Repay and Qualified Mortgage Rule - Small Entity Compliance Guide, Consumer Financial Protection Bureau, (October 17, 2013), pp Ability-to-Repay and Qualified Mortgage Rule - Small Entity Compliance Guide, Consumer Financial Protection Bureau, (October 17, 2013), p at p C.F.R (c)(2)(i)-(viii). 9

11 The CFPB notes that these eight (8) factors are only the minimum factors a credit union must consider in order to comply with the ATR rule. Credit unions are not precluded from considering other factors in addition to the eight listed above. 10 Current or reasonably expected income or assets A credit union may consider any type of current or reasonably expected income, including salary, wages, self-employment income, dividends, rental income, military or reserve pay, bonus pay, interest payments, retirement benefits, and child support and/or alimony. 11 If a credit union relies on expected income in excess of the borrower s income, such as an annual bonus, the credit union must verify that expectation through third-party records that provide reasonably reliable evidence. 12 Seasonal or irregular income is acceptable, provided the credit union reasonably determines that the borrower s annual income divided equally across 12 months is sufficient to make the monthly loan payments. 13 A credit union may consider any of the borrower s assets, including savings and checking accounts, amounts vested in a retirement account, stocks, bonds, and certificates of deposit. 14 However, the credit union cannot consider the dwelling that secures the covered transaction to be an asset of the borrower. 15 For two or more applicants, a credit union only needs to consider income and/or assets sufficient to support the credit union s repayment ability determination. If the income and/or assets of one applicant are sufficient, the credit union does not need to consider the income and/or assets of the other applicant(s). 16 Current employment status In considering a borrower s employment status, the employment does not need to be full-time, and employment does not need to occur at regular intervals. 17 If a credit union relies upon the borrower s employment as part of its determination, the employment may be full-time, part-time, seasonal, irregular, military, or self-employment. 18 Further, a credit union only has to verify a borrower s employment if the credit union is relying upon that employment income in determining the borrower s repayment ability Ability-to-Repay and Qualified Mortgage Rule - Small Entity Compliance Guide, Consumer Financial Protection Bureau, (October 17, 2013), pp Comment 12 C.F.R (c)(2)(i) Comment 12 C.F.R (c)(2)(ii)

12 In verifying a borrower s employment, a credit union may call the employer and obtain oral verification. However, a credit union must make a written record of the verification and the information received. 20 Also, while you do not have to retain paper copies of documents relied upon, you must be able to reproduce the documentation itself. For example, if the credit union received a W-2 electronically from the member the credit union should retain or otherwise be able to reproduce the record during the three year required retention period. Monthly payment on the covered transaction In order to properly make its repayment ability determination, a credit union must calculate the borrower s monthly payment as set forth in 12 C.F.R (c)(5). Monthly payment on any simultaneous loan In determining a borrower s ability to repay, credit unions must take into consideration any simultaneous loan that the credit union knows or has reason to know will be made, such as home equity lines of credit (HELOC), in addition to the mortgage. 21 Knows or has reason to know is included in the rule to require lenders to take into consideration any piggyback second-lien loan that the lender knows or has reason to know will be used to finance part of the borrower s down payment. In order to comply with this requirement, credit unions must follow policies and procedures that are designed to determine whether the borrower has applied for another credit transaction that is secured by the same dwelling. 22 The CFPB cites as an example instances in which the borrower seeks to borrow less than the full amount of the purchase price. In this instance, credit unions must require the borrower to identify the source of the down payment and provide verification. 23 If the source of the down payment, in full or in part, comes from another loan, the credit union must take into consideration that loan s periodic payment. 24 On the other hand, credit unions do not have to take into consideration credit transactions that occur after consummation of the loan. 25 Monthly payment for mortgage-related obligations Credit unions must take into consideration the borrower s monthly payments for mortgage-related obligations, such as: property taxes; insurance premiums required by lenders; fees or special assessments required by a cooperative, condominium, or homeowners association; ground rent; and leasehold payments. 26 However, credit unions only have to take into consideration payments that occur 20 Ability-to-Repay and Qualified Mortgage Rule - Small Entity Compliance Guide, Consumer Financial Protection Bureau, (October 17, 2013), p C.F.R. 1026(c)(2)(iv). 22 Comment 12 C.F.R (c)(2)(iv) Comment 12 C.F.R (c)(2)(v); see also 12 C.F.R (b)(8) and 12 C.F.R (b)(5), (7), (8), or (10). 11

13 on a regular basis. Payments that are satisfied at the loan s consummation (or closing), or are one-time charges, are excluded from this calculation. 27 Current debt obligations, alimony, and child support Credit unions must consider the borrower s current debt obligations and any alimony or child support the borrower is required to pay. 28 These debts include: student loans; car loans; revolving debt; and existing mortgages. 29 The rule does grant credit unions some latitude when taking into consideration a borrower s debt obligations, particularly if the debt will be paid off soon. 30 On the other hand, credit unions should take into consideration debts that are in forbearance or deferred if they are likely to affect the borrower s ability to repay. 31 Monthly debt-to-income ratio or residual income Credit unions must take into consideration the borrower s debt-to-income (DTI) ratio or residual income. 32 In order to calculate a borrower s DTI ratio, a credit union must consider the ratio of the borrower s monthly debt obligations to the borrower s total monthly income. 33 Credit unions may include all of the borrower s earned income, unearned income, and other regular payments (such as alimony, child support, or government benefits) when determining the borrower s income. 34 When determining the borrower s debt obligations, a credit union should take into consideration the loan being applied for, any simultaneous loans secured by the same property, mortgage-related obligations, and current debt obligations, alimony, or child support. 35 The credit union does not have to consider any debts that have been previously paid off, or will be paid off at consummation of the loan. 36 Residual income, on the other hand, is calculated by taking the borrower s monthly income after subtracting the borrower s total monthly debt obligations from total income. 37 NOTE while the Qualified Mortgage standard has a specific DTI threshold of 43 percent (discussed below), credit unions are only required to consider the borrower s DTI under the ATR rule. The borrower s DTI does not have to meet a specific threshold under the ATR rule Comment 12 C.F.R (c)(2)(v) C.F.R (c)(2)(vi). 29 Comment 12 C.F.R (c)(2)(vi) C.F.R (c)(2)(vii) C.F.R (c)(7)(ii). 34 Ability-to-Repay and Qualified Mortgage Rule - Small Entity Compliance Guide, Consumer Financial Protection Bureau, (October 17, 2013), p at C.F.R (c)(7)(ii)(B). 38 Ability-to-Repay and Qualified Mortgage Rule - Small Entity Compliance Guide, Consumer Financial Protection Bureau, (October 17, 2013), p

14 Credit history While credit unions are required to take into consideration a borrower s credit history, they are not required to obtain or consider a consolidated credit score. 39 Credit history is defined to include factors such as the number and age of credit lines, payment history, and any judgments, collections, or bankruptcies. 40 When two or more borrowers apply for a loan as joint obligors, credit unions must take into consideration the credit history of all applicants. 41 On the other hand, when an applicant is merely a surety or guarantor, a credit union does not have to consider that applicant s credit history. 42 If a credit union obtains a credit report and knows, or has reason to know, information on the credit report is inaccurate, the credit union may ignore the information. 43 VERIFYING A BORROWER S CREDIT INFORMATION For the information obtained and relied upon in making its ATR determination, the credit union must verify that information using reasonably reliable third-party records. 44 Credit unions may rely upon records such as: Records from government organizations such as a tax authority or local government; Federal, state, or local government agency letters detailing the consumer s income, benefits, or entitlements; Statements provided by a cooperative, condominium, or homeowners association; A ground rent or lease agreement; Credit reports; Statements for student loans, auto loans, credit cards, or existing mortgages; Court orders for alimony or child support; Copies of the consumer s federal or state tax returns; W-2 forms or other IRS forms for reporting wages or tax withholding; Payroll statements; Military leave and earnings statements; Financial institution records, such as bank account statements or investment account statements reflecting the value of particular assets; Records from the consumer s employer or a third party that obtained consumer-specific income information from the employer; Check-cashing receipts; and Remittance-transfer receipts Comment 12 C.F.R (c)(2)(viii). 40 Comment 12 C.F.R (c)(2)(viii). 41 Comment 12 C.F.R (c)(2)(viii) Ability-to-Repay and Qualified Mortgage Rule - Small Entity Compliance Guide, Consumer Financial Protection Bureau, (October 17, 2013), p C.F.R (c)(3). 45 Ability-to-Repay and Qualified Mortgage Rule - Small Entity Compliance Guide, Consumer Financial Protection Bureau, (October 17, 2013), pp

15 Again, credit unions are only required to verify the information used in making its ATR determination, and are not required to verify superfluous information provided by the borrower. Credit unions should review its processes, underwriting guidelines, software, contracts, and/or other aspects of its mortgage lending operation to ensure compliance with the ATR rule. While many credit unions are already using the eight ATR factors discussed above in the underwriting process, credit unions should review its policies and procedures to ensure that they state the eight factors are being considered during the underwriting process, and also describe the process by which they are considered. 46 LIABILITY UNDER THE ATR RULE If a borrower has difficulty repaying a loan originated by a credit union based upon the credit union s failure to comply with the ATR rule the borrower could bring a lawsuit under the ATR rule against the credit union. 47 Borrowers will have to prove the credit union failed to make a reasonable, good-faith determination of their ATR prior to the loan s consummation. 48 If the borrower prevails, a credit union may be liable for, among other things, up to three years of finance charges and fees the borrower paid, as well as the borrower s legal fees. 49 Borrowers will have three years to bring an ATR claim against a credit union. Upon expiration of the claims period, the borrower may only bring an ATR claim as setoff/recoupment claims in a defense to foreclosure. 50 However, a credit union should not be held in violation of ATR requirements if consumers cannot repay their mortgage loans solely because they experienced an unexpected job loss after origination. 51 RECORD RETENTION Credit unions must retain records showing compliance with the ATR/QM rule, including the prepayment penalty limitations, for at least three years from the loan s consummation. 52 The CFPB suggests credit unions may want to retain records for longer than three years for business purposes. In addition, while credit unions are not required to keep the actual documentation used during the underwriting process, it must be able to reproduce the records. 53 For example, if a credit union uses a W-2 to verify income, it must be able to produce an electronic copy of the form itself. Being able to produce the information only that was listed on the W-2 would be insufficient at at C.F.R (c)(3). 53 Ability-to-Repay and Qualified Mortgage Rule - Small Entity Compliance Guide, Consumer Financial Protection Bureau, (October 17, 2013), p

16 ADDITIONAL EDUCATIONAL RESOURCES The following are helpful resources available that may assist you in compliance with the new Mortgage Rules. The CFPB s Ability-to-Repay and Qualified Mortgage Rule - Small Entity Compliance Guide The CFPB s Comparison Chart which compares the Ability-to-Repay requirements with the requirements for originating Qualified Mortgage loans (here appended) 15

17 ATTACHMENT A 16

18 Qualified Mortgage Rule OVERVIEW While issued with the Ability-to-Repay (ATR) rule, the Qualified Mortgage (QM) rule is a separate rule that incorporates many of the ATR standards. The rule provides a presumption that credit unions that originate qualified mortgages have complied with the ability-to-repay rule. In terms of liability, if a consumer files a complaint alleging that they could not afford the mortgage under the ATR standards, the credit union will be presumed to have complied with the ATR requirements if they issue QMs. Compliance with QM standards will also depend on whether or not it is considered higher-priced. If a loan that is not higher-priced satisfies the QM criteria, a court will presume a credit union has complied with the ATR rule. 55 The QM standards are intended to protect consumers from unduly risky mortgages, and to also provide a credit union with more certainty concerning its potential liability. For all types of QMs, points and fees generally may not exceed three (3) percent of the total loan amount, but higher thresholds are provided for loans under $100, In light of these anticipated rule changes, Fannie Mae and Freddie Mac announced in May 2013 that they would no longer be purchasing mortgages that did not meet the QM standard after the effective date of the rules, as reported in the Credit Union Times. 57 DEFINITIONS General Qualified Mortgage A General Qualified Mortgage may not have negative amortization, interest only, or balloon payment features; terms that exceed thirty (30) years; or points and fees that exceed certain limits. In addition, the credit union must: Underwrite the loan based on a fully amortizing schedule using the maximum rate permitted during the first five years after the date of the first periodic payment; Consider and verify the income and assets, current debt obligations, alimony and child support obligations of the borrower; Determine that the borrower s total monthly debt-to-income (DTI) ratio is no more than forty-three (43) percent. The requirements for determining the DTI are provided in Appendix Q to the rule Ability-to-Repay and Qualified Mortgage Rule - Small Entity Compliance Guide, Consumer Financial Protection Bureau, (October 17, 2013), p Credit Union Times, Fannie and Freddie to Reject Non-QM Mortgages Starting January 2014, May 6, C.F.R (e)(2). 17

19 If the methods contained in Appendix Q do not resolve how a specific type of debt or income should be treated, a credit union may rely on guidelines of Fannie Mae or Freddie Mac, or FHA, VA, USDA, or Rural Housing Service, to resolve the issue. 59 A General Qualified Mortgage is considered higher-priced if, at the time the interest rate is set: It is a first-lien mortgage that has an APR 1.5 percentage points over the Average Prime Offer Rate (APOR); It is a subordinate-lien mortgage with an APR that exceeds the APOR by 3.5 percentage points or more. Temporary Qualified Mortgage A Temporary Qualified Mortgage may not have negative amortization, interest only, or balloon features; terms that exceed thirty (30) years; or points and fees that exceed certain limits. This QM status is extended to loans originated during a transitional period, if they are eligible for purchase by a government-sponsored enterprise (GSE) or for insurance or guarantee by certain federal agencies. 60 These loans must also be underwritten according to the guidelines of the entities below, but do not have to meet the DTI forty-three (43) percent ratio requirement. The loan must also meet at least one of the following requirements: Eligible for purchase or guarantee by Fannie Mae or Freddie Mac (operating under federal conservatorship or receivership); Eligible for FHA insurance; Eligible to be guaranteed by the U.S. Department of Veteran Affairs; Eligible to be guaranteed by the U.S. Department of Agriculture; or Eligible to be insured by the Rural Housing Service. 61 The loan will retain its QM temporary status as a GSE, until the federal conservatorship expires January 10, If the loan is insured or guaranteed by one of the above listed federal agencies, it will retain its QM temporary status until the agency comes up with its own QM rules, or on January 10, 2021, whichever occurs first. 62 A Temporary Qualified Mortgage is considered higher-priced if, at the time the interest rate is set: It is a first-lien mortgage that has an APR 1.5 percentage points over the Average Prime Offer Rate (APOR); 59 Ability-to-Repay and Qualified Mortgage Rule - Small Entity Compliance Guide, Consumer Financial Protection Bureau, (October 17, 2013), p C.F. R (e)(4). 61 Ability-to-Repay and Qualified Mortgage Rule - Small Entity Compliance Guide, Consumer Financial Protection Bureau, (October 17, 2013), p at

20 It is a subordinate-lien mortgage with an APR that exceeds the APOR by 3.5 percentage points or more. 63 Small Creditor Qualified Mortgage A Small Creditor Qualified Mortgage (SCQM) may not have negative amortization, interest only, or balloon features; terms that exceed 30 years; or points and fees that exceed certain limits. As the definition implies, only those credit unions meeting the definition of small creditor may originate this type of mortgage transaction. In addition, SCQMs will cease meeting the qualification if the loan is sold or transferred less than three (3) years after consummation, unless it is sold to another creditor that meets the small creditor criteria, is required to be sold due to supervisory action, or transferred due to a merger or acquisition. 64 A SCQM must also meet the following conditions: The credit union must underwrite the loan based upon a fully amortizing schedule using the maximum rate permitted during the first five (5) years after the date of the first periodic payment; The loan must not be subject to a forward commitment to sell the loan, other than to a creditor that is itself eligible to make SCQMs; The credit union must consider and verify the member s income or assets, debts, alimony and child support; and The credit union must consider the member s DTI or residual income (but does not have to follow the 43% rule). 65 Small Creditor A credit union qualifies as a small creditor if: It (excluding affiliates 66 ) had assets below $2 billion at the end of the last calendar year (to be adjusted annually); and It (along with its affiliates) originated no more than 500 first-lien, closed-end residential mortgages that are subject to the ATR requirements in the preceding calendar year. 67 An affiliate is considered any company that controls, is controlled by, or is under common control with, the credit union. A small creditor may originate any of the four (4) qualified mortgages described; however, only a small creditor may originate a Small Creditor Qualified Mortgage and a Balloon Payment Qualified Mortgage at C.F.R (e)(5). 65 Ability-to-Repay and Qualified Mortgage Rule - Small Entity Compliance Guide, Consumer Financial Protection Bureau, (October 17, 2013), p at Id at

21 A SCQM is considered higher-priced if, at the time the interest rate is set is a first-lien or subordinatelien mortgage that has an APR 3.5 percentage points over the Average Prime Offer Rate (APOR). Balloon-Payment Qualified Mortgage A Balloon-Payment Qualified Mortgage (BPQM) may not have negative amortization or interest only features, and must comply with the points and fees limitations for qualified mortgages. Only those credit unions meeting the definition of small creditor may originate this type of mortgage transaction. After January 10, 2016, however, only small creditors operating predominantly in rural or underserved areas may continue to make BPQMs. The loan must also meet the following conditions: Have a fixed interest rate and periodic payments that would fully amortize over thirty (30) years, or less; Have a term of five (5) years or longer; Is not being sold under agreement to another creditor, unless the purchaser is also able to make BPQMs; Has been determined that the consumer can make the scheduled periodic payments, other than the balloon payment (even if it is a higher-priced loan); income or assets, and debts, alimony and child support have been verified; and The consumer s debt-to-income ratio or residual income has been taken into consideration, although there is no set threshold under the rule. 69 A BPQM is considered higher-priced if, at the time the interest rate is set is a first-lien or subordinatelien mortgage that has an APR 3.5 percentage points over the Average Prime Offer Rate (APOR). Like SCQMs, a BPQM will generally lose its status if it is sold or transferred less than three (3) years after consummation. However, a BPQM keeps its BPQM status if the loan is sold or transferred less than three (3) years after consummation, unless it is sold to another creditor that meets the small creditor criteria, is required to be sold due to supervisory action, or transferred due to a merger or acquisition. 70 Rural or Underserved Areas As already mentioned, after January 10, 2016, a credit union can continue to originate BPQMs if it meets the asset size and number of originations criteria, as well as the requirement that it operates primarily in rural or underserved areas. Note that more than half of a credit union s first-lien covered transactions during any of the three (3) preceding calendar years must have been secured by properties in rural areas or underserved areas. Underserved areas are considered counties where no more than two creditors extend five or more first-lien covered transactions in a calendar year. The CFPB will publish an annual list of rural or underserved 69 at Ability-to-Repay and Qualified Mortgage Rule - Small Entity Compliance Guide, Consumer Financial Protection Bureau, (October 17, 2013), p

22 counties, which can be found at the CFPB website. 71 Both the 2013 and 2014 lists are now published. Carefully consider the definition of rural or underserved under the CFPB definition, as it differs from the Home Mortgage Disclosure Act definition of rural. 72 POINTS AND FEES LIMITATION For a loan to be a qualified mortgage, the points and fees may not exceed certain limitations. As is demonstrated below, the caps are higher for smaller loans. The initial limitations are as follows: 3% of the total loan amount for a loan greater than or equal to $100,000 $3,000 for a loan greater than or equal to $60,000 but less than $100,000 5% of the total loan amount for a loan greater than or equal to $20,000 but less than $60,000 $1,000 for a loan greater than or equal to $12,500 but less than $20,000 8% of the total loan amount for a loan less than $12,500 The above amounts will be adjusted annually and published each year in the commentary to Regulation Z ( (e)(3)(ii)). Calculation There are eight categories of charges that must be added together to calculate the total points and fees. Generally, these will include most items included in the finance charge, loan originator compensation, real estate related fees, premiums for credit insurance, credit property insurance, other life, accident, health or loss-of-income insurance where the creditor is beneficiary, or debt cancellation or suspension coverage payments, the maximum prepayment penalty, prepayment penalties paid in a refinance, charges paid by third parties, and creditor-paid charges. 73 Include amounts that are known at or before consummation, even if the consumer pays them by rolling them into the loan amount as part of the transaction. Unless otherwise specified, closing costs that are paid by the credit union, but recouped from the member over time through the interest rate, are not counted in points and fees. 74 For additional assistance in determining whether or not a charge should be included in points and fees, see generally the CFPB s Small Entity Compliance Guide at C.F.R (b)(1) and Comment 32(b)(1) Ability-to-Repay and Qualified Mortgage Rule - Small Entity Compliance Guide, Consumer Financial Protection Bureau, (October 17, 2013), p at

23 PREPAYMENT PENALTIES Credit unions permitted by law to charge a prepayment penalty may only do so for fixed-rate or steprate Qualified Mortgages that are not considered higher-priced. Notably, the definition of prepayment penalty does not include certain bona fide third-party charges that were waived at consummation in cases where the member fully prepays the loan within three (3) years and must repay the charges. 76 Prepayment penalties cannot be imposed after the first three (3) years of the loan term, and cannot be greater than: Two (2) percent of the outstanding loan balance prepaid during the first two (2) years of the loan; One (1) percent of the outstanding loan balance prepaid during the third (3 rd ) year of the loan. 77 Credit unions that wish to charge a prepayment fee must also offer the member an alternative transaction that does not include a prepayment penalty for which the credit union believes the member will qualify. The alternative loan must be a fixed-rate or graduated-payment loan, and must otherwise match the rate type from the loan with the prepayment penalty, must have the same term as the mortgage with the prepayment penalty, and cannot have deferred principal, balloon or interest-only payments, or negative amortization. 78 REFINANCING A NON-STANDARD LOAN INTO A STANDARD LOAN Credit unions can refinance a non-standard mortgage it holds or services into a standard mortgage without having to meet the ATR requirements, including the eight (8) underwriting factors. This option may only be used when: The refinance will not cause the member s principal balance to increase; The member uses the proceeds only to pay off the original mortgage and for closing or settlement charges appearing on the HUD-1, i.e., no cash is taken out; The member s monthly payment will materially decrease (i.e., by at least ten (10) percent); The member has only one 30-day late payment in the past twelve (12) months, and no late payments within the preceding six (6) months; The member s written application for the standard mortgage is received no later than two (2) months after the non-standard mortgage has recast; The credit union considered whether the standard mortgage likely will prevent the member from defaulting; and If the non-standard mortgage was consummated on or after January 10, 2014, the non-standard mortgage was made in accordance with the ATR requirements or QM provisions at C.F.R (g). 78 Ability-to-Repay and Qualified Mortgage Rule - Small Entity Compliance Guide, Consumer Financial Protection Bureau, (October 17, 2013), p C.F.R (d)(1)(ii)(A). 22

24 The new loan must also meet certain requirements, including: The loan cannot have deferred principal, negative amortization, or balloon payments; The loan s points and fees must fall within the thresholds for QMs; The loan term cannot exceed forty (40) years; and The loan s interest rate must be fixed for at least the first five (5) years of the loan. 80 Note that the ATR and QM rules do not apply when an existing loan is modified, rather than refinanced, whether or not it is in default. 81 REBUTTABLE PRESUMPTION A credit union that originates a qualified mortgage that is higher-priced has a rebuttable presumption that the credit union complied with the ATR rule. Meaning, if a court finds that a mortgage a credit union originated met the definition of higher-priced, a borrower could argue the credit union violated the ATR rule. However, the borrower would then have to prove that at the time the mortgage was consummated, the borrower did not have available living expenses after paying for the mortgage debt (and other disclosed debts that were owed). 82 Under the rebuttable presumption, a member can argue that the credit union did not follow the ability to repay rule by showing that based upon information available to the credit union at the time of consummation, the member did not have enough residual income to meet living expenses after the costs of the mortgage and other debts. SAFE HARBOR PROTECTION A credit union that originates a qualified mortgage that is not higher-priced has a safe harbor conclusively presuming the credit union complied with the ATR rule. 83 ADDITIONAL EDUCATIONAL RESOURCES The CFPB s Ability-to-Repay and Qualified Mortgage Rule - Small Entity Compliance Guide The CFPB s Small Creditor Qualified Mortgages eligibility chart (here appended) The CFPB s Comparison Chart which compares the Ability-to-Repay requirements with the requirements for originating Qualified Mortgage loans (appended to ATR summary section) 80 Ability-to-Repay and Qualified Mortgage Rule - Small Entity Compliance Guide, Consumer Financial Protection Bureau, (October 17, 2013), p C.F.R (a). 82 Ability-to-Repay and Qualified Mortgage Rule - Small Entity Compliance Guide, Consumer Financial Protection Bureau, (October 17, 2013), p

25 ATTACHMENT A 24

26 LOAN ORIGINATOR RULE OVERVIEW After the mortgage crisis in 2008, attention was placed on the influential role that loan originators play in assisting consumers in choosing their loans. Particularly there was concern regarding incentives for loan originators steering consumers toward more expensive loans to increase loan originator compensation. As a result, a number of new requirements have been imposed concerning loan originators licensing and registration, training, screening, and compensation. The Dodd-Frank Act added new requirements building upon these earlier changes. The CFPB issued regulations implementing this portion of the Dodd- Frank Act in January 2013, - the CFPB Loan Originator Rule. The Loan Originator Rule requires compliance with most of its provisions by January 1, 2014, however, the prohibition on financing credit insurance is effective January 10, 2014, and the prohibition on mandatory arbitration clauses was effective June 1, LOANS COVERED BY THE LOAN ORIGINATOR RULE The following portions of the Loan Originator Rule apply to all closed-end consumer credit transactions secured by a dwelling: Payments based on a term of a transaction; Prohibition on steering; Loan originator qualifications; Name and NMLSR ID loan document requirements; Prohibition on mandatory arbitration and waivers of certain consumer rights; and Prohibition on financing single premium credit insurance. 84 In addition, the portions pertaining to the prohibition of mandatory arbitration clauses, waivers of consumer rights, and the prohibition on financing single premium credit insurance also apply to home equity lines of credit on a consumer s principal dwelling. 85 Definition of Loan Originator Under the new rule, the definition of a loan originator is defined as follows: [T]he term loan originator means a person who, in expectation of direct or indirect compensation or other monetary gain or for direct or indirect compensation or other monetary gain, performs any of the following activities: takes an application, offers, arranges, assists a C.F.R (b)

27 consumer in obtaining or applying to obtain, negotiates, or otherwise obtains or makes an extension of consumer credit for another person; or through advertising or other means of communication represents to the public that such person can or will perform any of these activities. The term loan originator includes an employee, agent, or contractor of the creditor or loan originator organization if the employee, agent, or contractor meets this definition. The term loan originator includes a creditor that engages in loan origination activities if the creditor does not finance the transaction at consummation out of the creditor's own resources, including by drawing on a bona fide warehouse line of credit or out of deposits held by the creditor. All creditors that engage in any of the foregoing loan origination activities are loan originators for purposes of paragraphs (f) and (g) of this section. 86 It is important to note that the above definition is broader than the definition provided for under the SAFE Act. 87 As a result of the expanded definition, an individual or organization may be considered a loan originator if they perform any of the following, among other actions, for monetary gain or compensation: Taking an application; Arranging a credit transaction; Assisting a consumer in applying for credit; Offering or negotiating credit terms; Making an extension of credit; Referring a consumer to a loan originator or creditor; and Advertising or communicating to the public that the person or organization can or will perform any loan origination services. 88 The expanded definition includes employees, agents, and contractors of a creditor as well as employees, agents, and contractors of a mortgage broker that satisfy the definition of a loan originator. 89 Moreover, the expanded definition also includes any creditor that engages in loan origination activities if the creditor does not finance the transaction at consummation out of the creditor s own resources. 90 All creditors are included in the definition of a loan originator for the sections pertaining to loan originator qualifications and the placement of NMLSR ID on loan documents, as discussed below. 91 Despite the expanded definition, the CFPB did exempt certain activities from the definition of a loan originator. Those activities include: A person who does not take a consumer credit application or offer or negotiate credit terms available from a creditor to that consumer selected based on the consumer s financial characteristics, but who performs purely administrative or clerical tasks on behalf of a person who does engage in such activities; C.F.R (a)(1) Loan Originator Rule Small Entity Compliance Guide, Consumer Financial Protection Bureau, (November 8, 2013), p Comment to 12 C.F.R (a)-1(i)(B) C.F.R (a)(1)(i)

28 An employee of a manufactured home retailer who does not take a consumer credit application, offer or negotiate credit terms available from a creditor, or advise a consumer on credit terms (including rates, fees, and other costs) available from a creditor; A person that performs only real estate brokerage activities and is licensed or registered in accordance with applicable State law, unless such person is compensated by a creditor or loan originator or by any agent of such creditor or loan originator for a particular consumer credit transaction subject to this section; A seller financer who meets certain requirements; and A servicer or servicer's employees, agents, and contractors who offer or negotiate terms for purposes of renegotiating, modifying, replacing, or subordinating principal of existing mortgages where consumers are behind in their payments, in default, or have a reasonable likelihood of defaulting or falling behind. This exception does not apply, however, to a servicer or servicer's employees, agents, and contractors who offer or negotiate a transaction that constitutes a refinancing under (a) or obligates a different consumer on the existing debt. 92 Further, under the rule, an individual loan originator is a natural person who meets the definition of loan originator as set forth above. 93 A loan originator organization is defined as any loan originator that does not meet the definition of an individual loan originator. 94 COMPENSATION Definition of Compensation Compensation is defined to include salaries, commissions, and any financial or similar incentive. 95 The CFPB provides examples of compensation to include an annual or other periodic bonus, or awards of merchandise, services, trips, or similar prizes. 96 Further, compensation includes amounts the loan originator retains and is not dependent on the label or name of any fee imposed in connection with the transaction. 97 Third-Party Charges Compensation does not include payments received for bona fide and reasonable charges; these amounts must be passed on to a third party that is not the creditor, its affiliate, or the affiliate of the loan originator. 98 However, if a credit union marks up a third party charge, the difference between the actual charge and the marked up charge is compensation C.F.R (a)(1)(i)(A)-(E) C.F.R (a)(1)(ii) C.F.R (a)(1)(iii) C.F.R (a)(3). 96 Comment 12 C.F.R (a)-5.i. 97 Comment 12 C.F.R (a)-5.ii. 98 Comment 12 C.F.R (a)-5.iii Loan Originator Rule Small Entity Compliance Guide, Consumer Financial Protection Bureau, (November 8, 2013), p

29 Charges for Non-Loan Origination Activities The rule does allow for compensation payments to be paid to loan origination organizations that are for services other than loan origination activities. Under the rule, compensation does not include: A payment received by a loan originator organization for bona fide and reasonable charges for services it performs that are not loan origination activities; A payment received by an affiliate of a loan originator organization for bona fide and reasonable charges for services it performs that are not loan origination activities; or A payment received by a loan originator organization for bona fide and reasonable charges for services that are not loan origination activities where those amounts are not retained by the loan originator but are paid to the creditor, its affiliate, or the affiliate of the loan originator organization. 100 Credit unions should note that the above-listed forms of compensation apply only to loan originator organizations. On the other hand, for individual loan originators, any payment received is considered compensation regardless of how it is labeled or if it was for non-loan origination services. 101 Pooled Compensation The Loan Originator Compensation Rule prohibits the sharing of pooled compensation among loan originators who originate transactions with different terms and are compensated differently. 102 PAYMENTS BASED ON A TERM OF A TRANSACTION Overview Loan originators are barred from receiving, directly or indirectly, compensation in an amount that is based on a term of a transaction, the terms of multiple transactions by an individual loan originator, or the terms of multiple transactions by multiple individual loan originators. 103 Conversely, the rule prohibits anyone from paying a loan originator compensation that is based on a transaction term. 104 Credit unions may not pay their loan originator employees or other loan originators (e.g. brokers) compensation based on the term(s) of a transaction or multiple transactions. 105 Additionally, if a loan originator s compensation is based in whole or in part on a factor that is a proxy for a term of a transaction, the loan originator s compensation is based on a term of a transaction and is therefore barred. 106 Alternatively, if a factor is not itself a term of a transaction it is a proxy for a term of 100 Comment 12 C.F.R (a)-5.iv Loan Originator Rule Small Entity Compliance Guide, Consumer Financial Protection Bureau, (November 8, 2013), p. 25; See also Comment 12 C.F.R (a)-5.iv.B. 102 Comment 12 C.F.R (d)(1)-2(iii) C.F.R (d)(1) Loan Originator Rule Small Entity Compliance Guide, Consumer Financial Protection Bureau, (November 8, 2013), p C.F.R (d)(1). 28

30 the transaction if the factor consistently varies with that term over a significant number of transactions, and the loan originator has the ability, directly or indirectly, to add, drop, or change the factor in originating the loan. 107 Term of a Transaction A term of a transaction is any right or obligation of the parties to a credit transaction. 108 For purposes of this rule, the amount of credit extended is not considered a term of a transaction or a proxy for a term of the transaction, if the compensation paid to the originator, directly or indirectly, is based on a fixed percentage of the amount of credit extended. 109 Generally speaking, the rule prohibits compensation based upon, among other things, the interest rate, annual percentage rate (APR), collateral type, or the existence of a prepayment penalty. 110 Whether compensation is based upon a term of a transaction is determined by an objective review of the facts and circumstances and whether compensation would have been different if a transaction term had been different. 111 If a compensation policy is in place, and the objective facts and circumstances indicate the policy was followed, the determination of whether compensation would have been different if a transaction term had been different is made by analysis of the policy. If no policy is in place, or if the policy was not followed, the determination is made based upon a comparison of transactions originated and the amounts of compensation paid. 112 The CFPB has provided examples of compensation based upon a transaction term: A loan originator receiving higher compensation based on the transaction s interest rate, such as receiving 2 percent of the loan amount if the interest rate is above 6 percent and 1 percent of the loan amount if the interest rate is 6 percent or less. A loan originator receiving higher compensation based on whether the loan contract contains a prepayment penalty. A loan originator receiving higher compensation for closing more than 10 transactions per month with an interest rate higher than 6 percent. An individual loan originator receiving additional compensation if the consumer buys creditor required title insurance from the originator s employer or its affiliate, rather than a third party. 113 All of the above are considered to be prohibited forms of compensation to a loan originator. In addition, the list is not designed to be an exhaustive list of impermissible forms of loan originator compensation C.F.R (d)(1)(ii) Comment 12 C.F.R (d)(1) Comment 12 C.F.R (d)(1)-1(i) C.F.R (d)(1)(ii)

31 Proxy for a Term of a Transaction Compensation to a loan originator is barred if it based in whole or in part on a factor that is a proxy for a term of a transaction. 115 A factor is considered a proxy for a term of a transaction if it consistently varies with a term or terms of the transaction over a significant number of transactions, and the loan originator has the ability to add, drop, or change the factor when originating the transaction. 116 Examples of applying the proxy test for a term include: Portfolio loans vs. loans sold into the secondary market - Compensation based on whether a loan is held in portfolio or sold into the secondary market may be considered compensation based on a proxy for a transaction term if: 1) the terms of the portfolio loans differ from the secondary market loans; and 2) the loan originator has the ability to encourage a consumer to take one set of terms over another. 117 State where property securing the loan is located Compensation based upon whether the property securing the loan is based in one state over another is likely not compensation based upon a proxy as the loan originator cannot influence where the borrower chooses to purchase a home. 118 Low-to-moderate income consumer Compensation based upon whether a consumer is of lowto-moderate income is likely not a proxy for a loan term as the loan originator typically cannot change a consumer s income status. 119 Lastly, the amount of credit extended is not considered a proxy for a transaction term provided the loan originator s compensation is based on a fixed percentage of the amount of credit extended. 120 PAYMENTS BY PERSONS OTHER THAN CONSUMER Dual Compensation If a loan originator receives compensation directly from a borrower for a loan secured by a dwelling: 1) The loan originator is barred from receiving compensation, directly or indirectly, from any person other than the borrower; and 2) No person who knows or has reason to know of the consumer-paid compensation to the loan originator (other than the borrower) shall pay any compensation to a loan originator, directly or indirectly, in connection with the transaction Comment 12 C.F.R (d)(1)-2(ii) Loan Originator Rule Small Entity Compliance Guide, Consumer Financial Protection Bureau, (November 8, 2013), p. 39; See also Comment 12 C.F.R (d)(1)-2(ii)(A). 118 ; See also Comment 12 C.F.R (d)(1)-2(ii)(B) C.F.R (d)(2)(i)(A). 30

32 Compensation received from a borrower includes payments made pursuant to an agreement between the borrower and a person other than the credit union or its affiliates, under which the other person agrees to provide funds towards the borrower s costs of the loan. 122 If a loan origination organization receives compensation from the borrower, it may pay the individual loan originator and the individual loan originator may receive the compensation from the loan origination organization. 123 NOTE this is a change from the existing rule that prohibits a loan originator organization from paying a commission to a loan originator employee when the loan origination organization receives compensation directly from a borrower. 124 PROHIBITION ON STEERING For loans secured by a dwelling, loan originators cannot direct or steer a borrower to consummate a loan simply because the originator will receive greater compensation from a creditor for that particular loan rather than other types of transactions offered or could have been offered to the borrower, unless the selected transaction is in the borrower s interest. 125 The new rule provides a safe harbor for the loan with the lowest total dollar amount of discount points, origination points or origination fees (or, if two or more loans have the same total dollar amount of discount points, origination points or origination fees, the loan with the lowest interest rate that has the lowest total dollar amount of discount points, origination points or origination fees). 126 CONTRIBUTIONS TO A DEFINED CONTRIBUTION PLAN OR DEFINED BENEFIT PLAN The rule allows for an individual loan originator to receive compensation in the form of a contribution to a defined contribution plan that is a designated tax-advantaged plan or a benefit under a defined benefit plan that is a designated tax-advantaged plan. 127 For contributions to a defined contribution plan, the contribution cannot be directly or indirectly based on the terms of that individual loan originator s transactions. 128 CONTRIBUTIONS TO A NON-DEFERRED PROFITS-BASED CONTRIBUTION PLAN The rule allows for an individual loan originator to receive compensation under a non-deferred profitsbased compensation plan (i.e., any arrangement for the payment of non-deferred compensation that is determined with reference to the profits of the person from mortgage-related business), provided the following is met: C.F.R (d)(2)(i)(B) C.F.R (d)(2)(i)(C) Loan Originator Rule Small Entity Compliance Guide, Consumer Financial Protection Bureau, (November 8, 2013), p C.F.R (e)(1) C.F.R (e)(3)(i)(C) C.F.R (d)(1)(iii)

33 The compensation paid to the loan originator is not directly or indirectly based on the terms of that individual loan originator s transactions; and At least one of the following conditions is satisfied: o The compensation paid to the loan originator does not, in the aggregate, exceed 10 percent of the loan originator s total compensation corresponding to the time period for which the compensation under the non-deferred profits-based compensation plan is paid; or o The loan originator was a loan originator for ten (10) or fewer transactions consummated during the 12-month period preceding the date of the compensation determination. 129 OTHER PERMISSIBLE FORMS OF COMPENSATION The Loan Originator Rule sets forth seven permissible compensation methods in regard to salary, commissions, and other compensation. These methods include: The loan originator s overall dollar volume (i.e. total dollar amount of credit extended or total number of transactions originated), delivered to the creditor; The long-term performance of the originator s loans; An hourly rate of pay to compensate the originator for the actual number of hours worked; Whether the consumer is an existing customer or a new customer; A payment that is fixed in advance for every loan the originator arranges for the creditor; The percentage of applications submitted by the loan originator to the creditor that results in consummated transactions; and The quality of the loan originator s loan files. 130 Credit unions may consider the seven methods listed above to be safe harbors under the rule. 131 However, the above list is not intended to be exhaustive. Credit unions can use other forms of compensation, provided the methods comply with the rule. 132 LOAN ORIGINATOR QUALIFICATION REQUIREMENTS Individual Loan Originator Individual loan originators must comply with applicable state and federal laws governing registration and licensing, including the SAFE Act and its implementing regulations C.F.R (d)(1)(iv). 130 Comment 12 C.F.R (d)(1)-2(i) Loan Originator Rule Small Entity Compliance Guide, Consumer Financial Protection Bureau, (November 8, 2013), p , ,

34 Loan Origination Organizations Loan origination organizations must comply with all applicable state law requirements for legal existence and foreign qualification. 134 Further, loan origination organizations must ensure that each individual loan originator who works for the organization is licensed or registered under the SAFE Act before the individual engages in loan origination activities. 135 Since an individual loan originator employee of a credit union is not required to be licensed under the SAFE Act, the credit union must obtain: A criminal background check through the NMLSR, or in the case of an individual who is not registered as a loan originator, a criminal background check from a law enforcement agency or commercial service; A credit report from a consumer reporting agency; and Information from the NMLSR about any administrative, civil, or criminal findings by any government jurisdiction, or in the case where the individual is not registered as a loan originator, from the individual loan originator. 136 The above must be obtained for all loan originator employees hired on or after January 1, 2014, and for any loan originator employee hired before January 1, 2014, but for whom no applicable statutory or regulatory background standards were in effect at the time of hire to screen that individual, or the applicable standards were not used to screen that individual. 137 The information must be obtained before the employee acts as a loan originator for the credit union. 138 Once the above-listed information is obtained, the credit union must analyze the information and determine the following: The employee has not been convicted of, or pleaded guilty or nolo contendere to, a felony in a domestic or military court during the preceding seven-year period, or in the case of a felony involving an act of fraud, dishonesty, a breach of trust, or money laundering, at any time; and The employee has demonstrated financial responsibility, character, and general fitness such as to warrant a determination that the individual loan originator will operate honestly, fairly, and efficiently. 139 In making its assessment of financial responsibility, a credit union should consider the following relevant factors: The existence of current outstanding judgments, tax liens, or other government liens; Nonpayment of child support; and A pattern of bankruptcies, foreclosures, or delinquent accounts C.F.R (f)(1) C.F.R (f)(2) C.F.R (f)(3)(i) C.F.R (f) C.F.R (f)(3)(ii)(A)-(B) Loan Originator Rule Small Entity Compliance Guide, Consumer Financial Protection Bureau, (November 8, 2013), p

35 The credit union does not need to consider debts arising from medical expenses. 141 For character and general fitness, a credit union should consider the following factors: Acts of unfairness or dishonesty; Dishonesty in the course of seeking employment; Dishonesty concerning qualifications; and Disciplinary actions by regulatory or professional licensing agencies. 142 After the initial assessment is performed, the credit union only has to perform a subsequent review if it knows of reliable information indicating the employee likely does not meet the standards of the Loan Originator Rule. 143 In order to ensure compliance with this requirement, credit unions should establish and follow written procedures for determining whether individuals meet the financial responsibility, character, and general fitness standards. 144 A credit union s procedures may provide for the credit union to consider bankruptcies and foreclosure only if they occurred within a recent time frame established in the procedures. 145 Further, a credit union s procedures do not have to include a review of a credit score. 146 Training A credit union must provide periodic training covering federal and state law requirements that apply to an individual s loan origination activities. 147 This requirement applies to all loan origination employees regardless of when they were hired. 148 The periodic training must be sufficient in frequency, timing, duration, and content to ensure that the individual loan originator has the knowledge of State and Federal legal requirements that apply to the individual loan originator s loan origination activities. 149 Individual loan originators are not required to receive training on requirements and standards that apply to types of loans they do not originate, or on subjects they already have sufficient knowledge Loan Originator Rule Small Entity Compliance Guide, Consumer Financial Protection Bureau, (November 8, 2013), p Id, , C.F.R (f)(3)(iii) Loan Originator Rule Small Entity Compliance Guide, Consumer Financial Protection Bureau, (November 8, 2013), p Comment 12 C.F.R (f)(3)(iii) Loan Originator Rule Small Entity Compliance Guide, Consumer Financial Protection Bureau, (November 8, 2013), p

36 RECORD RETENTION REQUIREMENTS Creditors must maintain records sufficient to evidence all compensation it pays to a loan originator, and the compensation agreement that governs those payments for three years after the date of payment. 151 Loan originator organizations must maintain records sufficient to evidence all compensation it receives from a creditor, consumer, or another person, and for all compensation it pays to any individual loan originator. In addition, a loan origination organization must maintain records for the compensation agreement(s) that governs each receipt or payment for three years after the date of each receipt or payment. 152 Records will be considered sufficient to evidence payment and receipt of compensation if they demonstrate the following: Nature and amount of the compensation; That the compensation was paid, and by whom; That the compensation was received, and by whom; and When the payment and receipt of compensation occurred. Examples of records a credit union may consider keeping include: Salary o Copies of required Internal Revenue Code filings Contributions to or a benefit under designated tax-advantaged retirement plan o Copies of required Internal Revenue Code filings o Names of any loan originators who participate in the plan o Determination letters from the Internal Revenue Service regarding the plan Pricing concessions to cover unexpected (or omitted) settlement costs o When a credit union decreases compensation to defray the cost, in whole or in part, of an unforeseen increase in an actual settlement cost over an estimated settlement cost disclosed to the consumer pursuant to section 5(c) of RESPA (or omitted from that disclosure), the credit union should retain records to document the decrease in compensation and reasons for it Commissions or bonuses o Settlement agent flow of funds worksheets or other records o Closing instruction letters directing disbursement of fees at consummation Mortgage broker o If a credit union is a loan originator organization that is a mortgage broker, the disclosure of compensation or broker agreement required by applicable state law typically recites the broker s total compensation for a transaction. Such a state law disclosure will be sufficient to evidence compensation under this rule, unless the actual compensation was different from the amount listed in the disclosure agreement C.F.R (c)(2)(i) C.F.R (c)(2)(ii) Loan Originator Rule Small Entity Compliance Guide, Consumer Financial Protection Bureau, (November 8, 2013), p

37 LOAN DOCUMENTS The Loan Originator Rule sets forth specific instances in which the loan originator s name and NMLSR ID 154 must appear on loan documents. Under the rule, a loan originator must place his/her name and NMLSR ID number on any loan document that is presented to an applicant for their signature. 155 For instances in which there is more than one loan originator involved in the transaction, the individual loan originator with primary responsibility for the origination should place their name and NMLSR ID number on the document. 156 The loan documents subject to this rule include: the credit application; the note or loan contract; and the security instrument. 157 MISCELLANEOUS RESTRICTIONS ON LENDING PRACTICES Prohibition on Mandatory Arbitration Clauses and Waivers of Consumer Rights For all loans secured by a dwelling (including home equity lines of credit), credit unions are barred from including clauses requiring the borrower to participate in arbitration or other non-judicial procedure to resolve any controversy or claim arising out of the transaction. 158 The borrower may agree to arbitration or other non-judicial procedure after a dispute or claim arises. 159 No Waivers of Federal Statutory Causes of Action For almost all closed-end loans secured by a dwelling and home equity line of credit secured by a consumer s principal dwelling, credit unions are barred from including clauses that bar a borrower from bringing a claim alleging violation of Federal law. 160 Prohibition on Financing Single-Premium Credit Insurance Credit unions cannot finance, directly or indirectly, premiums or fees for credit insurance in connection with a closed-end loan secured by a dwelling or a home equity lines of credit secured by a consumer s principal dwelling. Credit unions may, however, charge premiums or fees that are calculated and paid in full on a monthly basis See 12 C.F.R (g)(3) ( NMLSR ID means a number assigned by the Nationwide Mortgage Licensing System and Registry to facilitate electronic tracking and uniform identification of loan originators and public access to the employment history of, and the publicly adjudicated disciplinary and enforcement actions against, loan originators ) C.F.R (g) C.F.R (g)(1)(ii) C.F.R (g)(2)(i-iv) C.F.R (h) C.F.R (i) C.F.R (i)(1). 36

38 Credit insurance is defined to include credit life, credit disability, credit unemployment, or credit property insurance, or any accident, loss-of-life income, life, or health insurance, or any payments directly or indirectly for any debt cancellation or suspension agreement or contract. 162 However, credit unemployment insurance is permissible where the premiums are reasonable, the credit union receives no direct or indirect compensation in connection with the premium, and the premiums are paid pursuant to a separate insurance contract. 163 POLICIES AND PROCEDURES Credit unions must establish and maintain written policies and procedures reasonably designed to ensure and monitor the compliance of the [credit union], its employees, its subsidiaries, and its subsidiaries employees with the requirements set forth in the Loan Originator Rule. 164 Credit unions must have written policies and procedures for the provisions of this rule pertaining to compensation, steering, qualification, and identification. 165 ADDITIONAL EDUCATIONAL RESOURCES The following are helpful resources available that may assist you in compliance with the new Mortgage Rules. The CFPB s 2013 Loan Originator Rule - Small Entity Compliance Guide The CFPB s Loan Originator Rule Summary Page C.F.R (i)(2) C.F.R (i)(2)(ii) C.F.R (j) Loan Originator Rule Small Entity Compliance Guide, Consumer Financial Protection Bureau, (November 8, 2013), p

39 Home Ownership and Equity Protection Act Rule OVERVIEW The Home Ownership and Equity Protection Act (HOEPA) was enacted in 1994 as an amendment to the Truth-in-Lending Act (TILA) in order to combat abusive practices involving refinancing and closed-end home equity loans with high interest rates or fees. 166 Since its enactment, loans meeting HOEPA s highcost coverage tests have been subject to certain disclosure requirements and certain limits on loan terms. 167 As a result of the Great Recession and the accompanying meltdown of the mortgage industry, the Dodd- Frank Act expanded HOEPA s coverage to include purchase-money mortgages and open-end credit plans. 168 In addition, Dodd-Frank added certain homeownership counseling requirements that apply to most mortgages, in addition to high-cost mortgages. 169 The CFPB in January 2013, issued its final rule (2013 HOEPA Rule) implementing the HOEPA changes under Dodd-Frank, and the final rule is scheduled to go into effect on January 10, 2014, for all applications received on or after that date. 170 EXPANSION OF HOEPA As mentioned above, the CFPB s HOEPA Rule expands HOEPA coverage to include purchase-money mortgages and open-end credit plans, including Home Equity Lines of Credit (HELOC). Additionally, mortgages secured by manufactured housing and other types of personal property are included under HOEPA provided the property serves as the borrower s primary residence. 171 On the other hand, HOEPA only applies to a borrower s principal dwelling. Second homes, such as cabins and vacation homes, do not fall under the 2013 HOEPA Rule. 172 Reverse mortgages and initial construction-only loans 173, loans originated under a Housing Finance Agency (HFA) or by the USDA (not loans they guarantee or insure), are exempt transactions under the 2013 HOEPA Rule. 174 However, these transactions may still be subject to the counseling rules further described below. 175 The 2013 HOEPA Rule provides additional protections for high-cost mortgages. These protections include: Home Ownership and Equity Protection Act (HOEPA) Rule - Small Entity Compliance Guide, Consumer Financial Protection Bureau, (May 2, 2013), p , , , , Note that there are qualifying exemptions for construction to permanent loans; See 2013 Home Ownership and Equity Protection Act (HOEPA) Rule - Small Entity Compliance Guide, Consumer Financial Protection Bureau, (May 2, 2013), p CFR (a)(2) Home Ownership and Equity Protection Act (HOEPA) Rule - Small Entity Compliance Guide, Consumer Financial Protection Bureau, (May 2, 2013), p

40 Specific disclosure requirements; Restrictions on loan terms; Restrictions on fees and practices; Ability-to-repay requirements; and A pre-loan counseling requirement. 176 Each of these protections will be discussed below. TESTING FOR A HIGH-COST MORTGAGE Even if a credit union does not currently offer high-cost mortgage loans, the credit union should have policies and procedures in place to test for HOEPA coverage in order to ensure compliance with the new rule. The expansion of HOEPA provides for three areas in which a mortgage may qualify as a high-cost mortgage: annual percentage rate (APR); points and fees charged by the credit union; and prepayment penalties. 177 If a credit union s mortgage meets any one of the three criterion set forth below, it will be classified as a high-cost mortgage and subject to this section. First, the consumer credit transaction generally must be secured by the consumer s principal dwelling. The 2013 HOEPA Rule exempts the following types of transactions: A reverse mortgage; A construction loan (unless such financing will be permanently financed by the same creditor); A loan originated and directly financed by a Housing Finance Agency (HFA), as defined by 24 C.F.R ; or A loan originated under the U.S. Department of Agriculture s (USDA s) Rural Development Section 502 Direct Loan Program. 178 Mortgages secured by manufactured housing and other types of personal property are subject to HOEPA coverage if the dwelling is the consumer s primary residence. 179 Annual Percentage Rate (APR) Test Second, the annual percentage rate (APR) must exceed the average prime offer rate (APOR) for a comparable transaction on that date by more than: 6.5 percentage points for a first-lien transaction; Home Ownership and Equity Protection Act (HOEPA) Rule - Small Entity Compliance Guide, Consumer Financial Protection Bureau, (May 2, 2013), p at CFR (a)(1)-(2); See also 2013 Home Ownership and Equity Protection Act (HOEPA) Rule - Small Entity Compliance Guide, Consumer Financial Protection Bureau, (May 2, 2013), p at

41 8.5 percentage points for a first-lien transaction for less than $50,000 and secured by personal property; or 8.5 percentage points for a subordinate-lien transaction. In order to compare the APR against the APOR on the same date (i.e. the date the interest rate is locked), credit unions can visit the Federal Financial Institutions Examination Council s website ( 180 Creditors originating a Home Equity Line of Credit (HELOC) should compare the APR to the most comparable closed-end transaction. 181 Points and Fees Test Even if the credit union s mortgage does not qualify as a high-cost mortgage based upon the mortgage s APR, the mortgage may still be a high-cost mortgage based upon any points and fees paid under the transaction. The mortgage will be classified as a high-cost mortgage if the points and fees exceed: Five (5) percent of the total loan amount for a loan amount greater than or equal to $20,000; or Eight (8) percent of the total loan amount or $1,000 (whichever is less) for a loan amount less than $20, The $20,000 and $1,000 thresholds will be adjusted annually on January 1 st based upon the Consumer Price Index that was reported on the preceding June The updated figures will be published each year in the commentary to Regulation Z. 184 Points and fees are defined more specifically beginning on page 2 of C.F.R (b)(1). See also the 2013 Home Ownership and Equity Protection Act (HOEPA) Rule - Small Entity Compliance Guide, Consumer Financial Protection Bureau, (May 2, 2013) p Prepayment Penalties Coverage Test The third and final test for a high-cost mortgage is based upon the mortgage s prepayment penalty. If the credit union charges a prepayment penalty more than 36 months after consummation or account opening or if the prepayment penalty exceeds more than two (2) percent of the amount prepaid, the mortgage will be classified as a high-cost mortgage at CFR (a)(1)(ii) Home Ownership and Equity Protection Act (HOEPA) Rule - Small Entity Compliance Guide, Consumer Financial Protection Bureau, (May 2, 2013), p CFR (a)(1)(iii). 40

42 For closed-end credit transactions, a prepayment penalty is defined as: [A] charge imposed for paying all or part of the transaction s principal before the date on which the principal is due, other than a waived, bona fide third-party charge that the creditor imposes if the consumer prepays all of the transaction s principal sooner than 36 months after the consummation 186 For open-end credit plans, a prepayment penalty is defined as: [A] charge imposed by the creditor if the consumer terminates the open-end credit plan prior to the end of its term, other than a waived bona fide third-party charge that the creditor imposes if the consumer terminates the open-end credit plan sooner than 36 months after account opening. 187 Prepayment penalties must also be included in a credit union s points-and-fees calculation, which should include the maximum prepayment penalty it may charge on the transaction. 188 If the mortgage is a high-cost mortgage then prepayment penalties are generally banned altogether for these loans. 189 See the narrow exceptions referenced in 12 C.F.R (d)(7). SPECIAL DISCLOSURES The HOEPA Rule continues the requirement that a credit union that makes high-cost mortgages must provide a disclosure to the consumer at least three (3) business days prior to consummation or account opening of a high-cost mortgage. 190 The disclosure must be in writing, in a form the consumer may keep, and must: Inform the consumer that the loan will not be effective until consummation or account opening; Explain the consequences of default; Disclose loan terms such as APR, amount borrowed and monthly payment; and In the case of a variable rate loan, explain the maximum monthly payment that may be required under the terms of the loan or credit plan. 191 In addition, the disclosure must include the following statement: You are not required to complete this agreement merely because you have received these disclosures or have signed a loan application. If you obtain this loan, the lender will have a mortgage on your home. You could CFR (b)(6)(i) CFR (b)(6)(ii) Home Ownership and Equity Protection Act (HOEPA) Rule - Small Entity Compliance Guide, Consumer Financial Protection Bureau, (May 2, 2013), p CFR (d)(6)) CFR (c)(1) Home Ownership and Equity Protection Act (HOEPA) Rule - Small Entity Compliance Guide, Consumer Financial Protection Bureau, (May 2, 2013), p

43 lose your home, and any money you have put into it, if you do not meet your obligations under the loan. 192 PROHIBITED ACTS FOR HIGH-COST MORTGAGES The expansion of HOEPA under Dodd-Frank placed additional limitations and restriction on certain lending practices, both in regards to loan terms and lending practices. Specifically, the HOEPA expansion places the following restrictions on loans terms: Balloon payments Generally speaking, balloon payments are banned from being included in the terms of a high-cost mortgage. The mortgage rule, however, carves out three circumstances in which they are allowed: The payment schedule is adjusted to accommodate a borrower s seasonal or irregular income; The loan is a bridge loan connected with the acquisition or construction of a dwelling intended to become the consumer s principal dwelling, and has a maturity of 12 months or less; or The creditor meets the criteria for serving a predominantly rural or underserved area, and the loan meets the specific criteria in the Ability-to-Repay and Qualified Mortgage Rule. 193 Prepayment penalties As already described above, prepayment penalties are banned for high cost mortgages. 194 Due-on-demand clauses Due-on-demand clauses are generally prohibited for high-cost mortgages. However, the clauses are acceptable in the limited cases of: The borrower commits fraud or material misrepresentation in connection with the loan or credit agreement; The borrower defaults on payment; or The borrower s action or inaction threatens the credit union s security CFR (c)(1) CFR (d)(1)(A)-(C), and 12 CFR (f); See also 2013 Home Ownership and Equity Protection Act (HOEPA) Rule - Small Entity Compliance Guide, Consumer Financial Protection Bureau, (May 2, 2013), p CFR (d)(6) CFR (d)(8). 42

44 Encouraging or recommending default The HOEPA Rule also includes the following restrictions and prohibitions on high-cost mortgages. Credit unions, and their mortgage brokers, are prohibited from recommending or encouraging default on an existing loan to be refinanced by a high-cost mortgage. 196 Credit unions, or an agent of a credit union, cannot charge a fee to modify, defer, renew, extend, or amend a high-cost mortgage; 197 Late fees are only permitted if specifically allowed by the terms of the contract, and are limited to 4 percent of the past due payment. No late fee may be imposed more than once for a single late payment. 198 Generally speaking, credit unions may not charge a fee for providing a payoff statement. 199 Points and fees cannot be financed. Closing charges, on the other hand, that are excluded from the definition of points and fees by virtue of being a bona fide third-party charge, can be financed. 200 Structuring a transaction to evade HOEPA coverage is prohibited. 201 PREVIOUS HOEPA RESTRICTIONS STILL IN EFFECT While HOEPA was expanded under the CFPB s new mortgage rules, credit unions should keep in mind the regulation s initial prohibitions on loan terms that remain in place for high-cost mortgages, which include: Negative amortization 202 ; A payment schedule that consolidates more than two periodic payments and pays them in advance from loan proceeds 203 ; An increase in the interest rate after default 204 ; In the case of acceleration as a result of default in payment, a refund of interest calculated in a manner less favorable to the consumer than the actuarial method 205 ; Paying a contractor under a home-improvement contract from the proceeds of a high-cost mortgage 206 ; CFR (a)(6) CFR (a)(7) CFR (a)(8)(i) CFR (a)(9)(i); But see 12 CFR 1026(a)(9)(iv) ( Fees permitted after multiple requests. A creditor or servicer that has provided a payoff statement, as described in paragraph (a)(9)(i) of this section, to a consumer, or a person authorized by the consumer to obtain such information, without charge, other than the processing fee permitted under paragraph (a)(9)(ii) of this section, four times during a calendar year, may thereafter charge a reasonable fee for providing such statements during the remainder of the calendar year. ) CFR (a)(10); 2013 Home Ownership and Equity Protection Act (HOEPA) Rule - Small Entity Compliance Guide, Consumer Financial Protection Bureau, (May 2, 2013), p CFR (b) CFR (d)(2) CFR (d)(3) CFR (d)(4) CFR (d)(5) CFR (a)(1). 43

45 Selling a high-cost mortgage in the secondary market without providing a high-cost mortgage notice to the assignee 207 ; and Refinancing any high-cost mortgage into another high-cost mortgage within one year after having extended credit, unless the refinancing is in the borrower s interest 208. HOMEOWNERSHIP COUNSELING As discussed below, the CFPB s new mortgage rules add requirements for mortgage lenders to provide applicants with a listing of organizations that offer homeownership counseling services. While this section primarily discusses high-cost mortgages, the requirement to provide the counseling list applies to all federally-related mortgages. The difference, as discussed below, is that while high-cost mortgage borrowers must participate in counseling and provide proof to the credit union, borrowers of non-highcost mortgages may participate voluntarily. High-Cost Mortgages Under the CFPB s new mortgage rules, high-cost mortgage borrowers must complete homeownership counseling prior to closing. 209 A credit union is prohibited from extending a high-cost mortgage to a borrower until it receives written certification that the borrower has completed counseling on the advisability of the mortgage from a HUD-approved counselor or state housing finance authority, if permitted by HUD. 210 Furthermore, the counseling must take place after the borrower receives the Good Faith Estimate (GFE), or the HELOC disclosures required under 12 C.F.R , from the credit union so that the counselor can discuss the terms of these documents with the borrower. 211 The cost of the counseling service can be financed in the transaction by the credit union, provided it is a bona fide third-party charge under (a)(5)(vii). 212 The homeownership counselor cannot be affiliated with the credit union, nor can the credit union steer the borrower to a particular counseling agency. 213 Credit unions, however, are permitted to provide the borrower with objective information related to counselors or counseling organizations in response to a borrower s inquiry. 214 Finally, the counseling certification should contain the following information: The name(s) of the consumer(s) who obtained counseling; The date(s) of counseling; The name and address of the counselor; A statement that the borrower(s) received counseling on the advisability of the high-cost mortgage based on the terms provided in the GFE or the HELOC disclosures under ; CFR (a)(2) CFR (a)(3) CFR (a)(5)(i) CFR (a)(5)(ii). 212 Comment 12 CFR (a)(5)(v) CFR (a)(5)(iii) & (vi). 214 Comment 12 CFR (a)(5)(vi). 44

46 A statement that the counselor has verified that the borrower(s) received the disclosures required by either (c) or RESPA with the respect to the transaction. 215 The initial rule failed to account for a very narrow category of closed-end transactions that are neither covered by RESPA nor subject the disclosures for open-end credit under Regulation Z. These other high cost loans are typically secured by manufactured housing, but do not involve residential real property. 216 As a result, an interim final rule amended the counseling requirements to require that counseling for high-cost loans that are not covered by either RESPA or section must occur after the consumer receives the HOEPA disclosure required under (c). 217 Negative Amortization Loans for First-Time Borrowers Prior to making a closed-end, dwelling-secured loan that permits negative amortization to a first-time borrower, a credit union must first verify that the borrower has participated in homeownership counseling (similar to the counseling received for high-cost mortgages). 218 Negative amortization is defined under TILA as a payment schedule with regular periodic payments that cause the principal balance to increase. 219 As noted, this requirement only applies to first-time borrowers, and does not apply to borrowers who have previously taken out a loan secured by a dwelling (either closed-end or open-end). 220 Finally, similar to the counseling requirement for high-cost mortgages, the counselor must be approved by HUD. 221 All Other Mortgages The new mortgage rules also amend RESPA to require mortgage lenders to provide a list of homeownership counseling organizations to all mortgage applicants. 222 The list must provide a listing of relevant counseling services in the applicant s area, and be provided to the applicant within three (3) business days of the credit union receiving the application. Credit unions may obtain a list of these counseling organizations from the website maintained by the CFPB or through data provided by the CFPB or HUD. 223 As mentioned above, unlike pre-loan counseling for high-cost mortgages, borrowers of non-high-cost mortgages do not have to participate in counseling. They can, however, elect to do so CFR (a)(5)(iv). 216 Federal Register, Vol. 78, No. 205, pp (October 23, 2013). 217 Id; See also 12 CFR (a)(5), interim rule out for comment until November 22, 2013 (eff. Jan. 10, 2014) CFR (k) CFR (k)(2)(ii) CFR (k)(2)(i) Home Ownership and Equity Protection Act (HOEPA) Rule - Small Entity Compliance Guide, Consumer Financial Protection Bureau, (May 2, 2013), p CFR (a); But see 12 CFR (c) (Lenders do not have to provide a list of homeownership counselors to borrows of reverse mortgages and timeshare plans) CFR (a)(1) Home Ownership and Equity Protection Act (HOEPA) Rule - Small Entity Compliance Guide, Consumer Financial Protection Bureau, (May 2, 2013), p

47 In addition, the credit union does not have to provide the list of counseling organizations before the end of the three day period if the loan application is denied or the borrower withdraws the application. 225 See the CFPB list (at or the Minnesota HUD list of homeownership counselors ( and counseling organizations, and the HUD toll-free telephone number is (800) to access contact information for homeownership counselors or counseling organizations. ADDITIONAL EDUCATIONAL RESOURCES The following are helpful resources available that may assist you in compliance with the new Mortgage Rules. The CFPB s Summary of Interpretive Rule on Provision of Homeownership Counseling Organizations Lists, and Related Requirements (here appended) CFPB Bulletin , Homeownership Counseling List Requirements (here appended) The CFPB s 2013 Home Ownership and Equity Protection Act (HOEPA) Rule - Small Entity Compliance Guide The CFPB s HOEPA Summary Page CFR (6). 46

48 Attachment A 47

49 48

50 ATTACHMENT B CFPB Bulletin Date: November 8, 2013 Subject: Homeownership Counseling list requirements The Consumer Financial Protection Bureau (CFPB) is issuing this bulletin to provide guidance to lenders regarding the homeownership counseling list requirement finalized in the High-Cost Mortgage and Homeownership Counseling Amendments to the Truth in Lending Act (Regulation Z) and Homeownership Counseling Amendments to the Real Estate Settlement Procedures Act (RESPA Housing Counselor Amendments) Final Rule (2013 HOEPA Final Rule) 1. Pursuant to the Dodd-Frank Act, the CFPB issued the RESPA Homeownership Counselor Amendments in January 2013, effective on January 10, The 2013 HOEPA Final Rule requires lenders to provide applicants for federally-related mortgages with a written list of HUD-approved housing counseling agencies. A lender may fulfill the requirement in one of two ways: the lender may obtain the lists through the Bureau s website, or, in the alternative, the lender may generate lists by independently using the same HUD data that the Bureau uses on HUD-approved counseling agencies, in accordance with Bureau s list instructions. 2 The Bureau published an interpretative rule on November 8, 2013, which provides the list instructions and clarifies how lenders may generate their own lists. 3 The Bureau s website is available for lenders who opt to use the first alternative means of providing the lists to consumers on the January 10, 2014 effective date. However, lenders who prefer to adopt the second alternative have informed the Bureau that they must undertake significant development of compliance systems to ensure that lists are generated in compliance with the RESPA Homeownership Counseling Amendments and the November interpretive rule. The Bureau understands that the systems development may take approximately six months. Thus, these lenders appear unable to provide the lists under the second alternative approach in time for the rule s January 10, 2014 effective date. Accordingly, while lenders are incorporating (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, 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: 1 78 FR 6856 (Jan. 31, 2013) (a) 3 See interpretive rule, 49

51 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, and enter your zip code. You can also access HUD s housing counseling agency website via For additional assistance with locating a housing counseling agency, call the CFPB at CFPB (2372). 50

52 Appraisals & Valuations Part I - ECOA OVERVIEW The Equal Credit Opportunity Act (ECOA) was enacted in 1974 in order to prohibit creditors from discriminating on the basis of, among other things, race, color, religion, national origin, sex, marital status, age, because all of or part of an applicant s income derives from public assistance, or because the applicant has in good faith exercised rights under certain credit laws, including the Truth-in-Lending Act. 226 The Dodd-Frank Act amended ECOA section 701(e) (contained in Regulation B) to require creditors to provide applicants with important information regarding their home value estimates. 227 In general, the revisions require creditors to provide applicants with free copies of all appraisals and other written valuations, and require notice to applicants in writing that such copies will be provided to them promptly. The CFPB, in January 2013, issued its final rule (ECOA Valuations Rule) implementing the amendments as set forth in the Dodd-Frank Act. A final rule implementing certain provisions was issued on September 13, 2013, based on a proposed rule issued in June The ECOA Valuations Rule has five important changes for credit unions: Within three (3) business days of receiving a mortgage application, credit unions must notify applicants of their right to receive a copy of the appraisal or valuation; Credit unions must promptly share copies of appraisals and valuations with the applicant (at least three (3) business days prior to consummation for closed-end loans or account opening for open-end loans, or promptly after the reports are completed, whichever is earlier); While applicants can waive the right to receive the appraisal or valuation prior to closing, credit unions must provide the appraisal/valuation at consummation or account opening; and If a credit union does not consummate a loan or open the account and the applicant has provided a waiver, the credit union has thirty (30) days after its determination to send a copy of the appraisal or other written valuation to the applicant. 228 Credit unions cannot charge a fee for copies of the appraisal or written valuation, but they can charge the applicant a fee to reimburse the credit union for the cost of preparing the appraisal or valuation. 229 As noted, the ECOA Valuations Rule applies not only to appraisals, but to any valuation developed in connection with the transaction. 230 The ECOA Valuations Rule is effective for applications received on or after January 18, Equal Credit Opportunity Act (ECOA) Valuations Rule Small Entity Compliance Guide, Consumer Financial Protection Bureau, (October 3, 2013), p at at at at 9. 51

53 LOANS COVERED BY THE ECOA VALUATIONS RULE As mentioned above, credit unions must provide an applicant with a copy of all appraisals and other written valuations in connection with an application for credit that is secured by a first lien on a dwelling. 232 A dwelling is defined as a residential structure that contains one to four units whether or not that structure is attached to real property. The term includes, but is not limited to, an individual condominium or cooperative unit, and a mobile or other manufactured home. 233 This would include loans such as: Loans for business purposes, investment or leisure purposes, or consumer purposes; Loss-mitigation transactions, such as loan modifications, short sales, and deed-in-lieu transactions, provided the transaction is covered by ECOA; Loans secured by mobile or manufactured homes; Reverse mortgages; and Time-share loans if they are covered by ECOA. 234 The ECOA Valuations Rule does not apply to subordinate lien loans and also does not apply to loans that are not secured by a dwelling. 235 VALUATION DEFINED In addition to any appraisal, a credit union must also provide the applicant with any valuation developed in connection with an application for credit. Most credit unions already provide a copy of the appraisal to the applicant; however, credit unions should review their procedures to ensure that all valuations are delivered to the applicant as well. Credit unions should also review their application and underwriting process to identify any and all valuations that may be developed in connection with first mortgage applications. 236 Additionally, credit unions must share with applicants all valuations that secondary market partners develop and share with the credit union during the application process. 237 A valuation could include, among other items, the following: An appraiser s report (whether or not the appraiser is licensed or certified), including the estimate or opinion of the property s value; A document that the credit union s staff prepared that assigns value to the property; A report approved by a government-sponsored enterprise (GSE) for describing to the applicant an estimate developed by the enterprise s proprietary methodology or mechanism; Automated valuation model reports used to estimate the property s value; C.F.R (a)(1) C.F.R (b)(2). 234 Equal Credit Opportunity Act (ECOA) Valuations Rule - Small Entity Compliance Guide, Consumer Financial Protection Bureau, (October 3, 2013), p at at at

54 A broker price opinion (BPO) prepared by a real estate broker, agent, or salesperson to estimate the property s value. 238 On the other hand, the following documents are not considered a valuation under the rule: Internal documents that merely re-state the estimated value of the dwelling contained in an appraisal or written valuation being provided to the applicant; Governmental agency statement of appraised value that are publicly available; Publicly-available lists of valuations (such as published sales prices or mortgage amounts, tax assessments, and retail price ranges); Manufacturers invoices for manufactured homes; Reports reflecting property inspections that do not provide an estimate or opinion of the value of the property and are not used to develop an estimate or opinion of the value of the property; Appraisal reviews that do not include the appraiser s estimate of the property s value or opinion of value. 239 DELIVERY OF THE DISCLOSURE Upon receipt of an application for a loan that is secured by a first lien on a dwelling, a credit union has three (3) business days to mail or deliver to the applicant a written disclosure stating the applicant s right to receive a copy of all written appraisals or valuations developed in connection with the application. 240 If a loan application initially is not secured by a first lien on a dwelling, but later becomes secured by a first lien, the credit union has three (3) business days from the time it determines the loan is secured by a first lien on a dwelling to mail or deliver the disclosure. 241 SAMPLE DISCLOSURE In providing its disclosure to applicants, a credit union can use the sample language provided by the CFPB under ECOA. The sample language is found in Appendix C to ECOA under Sample Form C-9 (as amended). That language reads as follows: We may order an appraisal to determine the property s value and charge you for this appraisal. We will promptly give you a copy of any appraisal, even if your loan does not close. You can pay for an additional appraisal for your own use at your own cost. 242 Credit unions should replace its current disclosures that state an applicant has a right to a copy of the appraisal report with the above language. 238 at 11-12; See also Comment 12 C.F.R (b)(3). 239, 12; See also Comment 12 C.F.R (b)(3) C.F.R (a)(2) Appendix C to Part 1002, Form C-9. 53

55 DELIVERY OF THE APPRAISAL AND/OR WRITTEN VALUATION Delivery Credit unions must provide copies of any appraisal or valuation to an applicant promptly upon completion or no later than three (3) business days before consummation, whichever is earlier. 243 Credit unions must deliver the appraisal or valuation to the applicant s last known physical or electronic address. If a credit union delivers the appraisal or valuation to the applicant s electronic address, the credit union should obtain the applicant s consent under the Electronic Signatures in Global and National Commerce Act (E-Sign Act). 244 Delivery is considered to have been completed three (3) business days after mailing or delivering the copies has occurred, or when evidence indicates actual receipt by the applicant, whichever is earlier. 245 Note that if an application is withdrawn, denied, or incomplete, a credit union must still comply with this rule. 246 Promptly Upon Completion In defining the promptly upon completion standard, the CFPB looks to the facts and circumstances of the transaction, including when the credit union receives the appraisal or valuation, and the extent of any review or revision by the credit union upon its receipt. 247 Completion occurs when the last version of the appraisal/valuation is received by the credit union, or when the credit union has reviewed and accepted any changes or corrections to the appraisal/valuation. 248 For multiple versions of an appraisal or valuation, a credit union does not need to send all versions of the same appraisal or valuation, only the latest version received. 249 However, if a credit union has already delivered a copy of an appraisal/valuation to the applicant, and then receives an updated version of the same document, it must provide a copy of the updated version to the applicant in order to comply with the rule. 250 If a credit union has multiple appraisals and/or valuations completed for a property, it may wait to send all of the appraisals and/or valuations to the applicant at once; however, in doing so, the credit union runs the risk of not sending the appraisals/valuations promptly to meet the rule. 251 The credit union should obtain a waiver from the applicant if at all possible so that it has up until the closing date to deliver the documents to the applicant C.F.R Equal Credit Opportunity Act (ECOA) Valuations Rule - Small Entity Compliance Guide, Consumer Financial Protection Bureau, (October 3, 2013), p Comment 12 C.F.R (a)(1) C.F.R (a)(4). 247 Comment 12 C.F.R (a)(1)-4(ii). 248 Comment 12 C.F.R (a)(1)-4(iii). 249 Comment 12 C.F.R (a)(1) Equal Credit Opportunity Act (ECOA) Valuations Rule - Small Entity Compliance Guide, Consumer Financial Protection Bureau, (October 3, 2013), p

56 More than One Applicant If there is more than one applicant, credit unions may give the disclosure and a copy of the appraisal or valuation to one applicant, unless the primary applicant is apparent, in which case the credit union must give the disclosure and copy to the primary applicant. 253 Waiver by the Applicant An applicant can waive his/her right to receive a copy of the appraisal or valuation and agree to receive the copy at consummation or account opening. 254 The waiver must be obtained three (3) business days prior to consummation or account opening. 255 The waiver can be in writing or oral. 256 If there is more than one applicant, one applicant can provide a waiver; however, if it is apparent who the primary applicant is, then the primary applicant must provide the waiver. 257 Reimbursement A credit union cannot charge an applicant for providing a copy of the appraisal(s) or valuation; however, it may require applicants to pay a reasonable fee to reimburse the credit union for the cost of the appraisal and/or valuation. 258 NOTE As discussed below, if the transaction is for a higher-priced mortgage loan, the credit union must provide copies of written appraisals at least three (3) business days before consummation. An applicant cannot waive their right to a copy for this type of transaction. 259 COMPLIANCE CHECKLIST To assist financial institutions in complying with the ECOA Valuations Rule, the CFPB has offered the following checklist summarizing the ECOA Valuations Rule: Credit unions must notify the applicant in writing within three (3) business days of application of his/her right to receive a copy of any appraisal developed in connection with the application. If a loan application switches from being unsecured to secured by a first lien on a dwelling, the credit union will have three (3) business days after the change has been determined to notify the applicant of his/her right to receive a copy of the appraisal or valuation. For closed-end loans, the appraisal or valuation must be provided promptly upon completion, or on or before three (3) business days before consummation, whichever is earlier. 253, p , 19; See also Comment 12 C.F.R (a)(1) Comment 12 C.F.R (a)(1) C.F.R (a)(3). 259 Equal Credit Opportunity Act (ECOA) Valuations Rule - Small Entity Compliance Guide, Consumer Financial Protection Bureau, (October 3, 2013), p

57 For open-ended loans, the appraisal or valuation must be provided promptly upon completion, or three (3) business days before account opening, whichever is earlier. A credit union cannot charge the applicant for copies of any appraisal or valuation it provides. However, credit unions can charge a reasonable fee to reimburse for the cost of the appraisal or valuation, if not otherwise prohibited by law. If an applicant waives the right to receive a copy of the appraisal or valuation, the credit union must still provide the copy either at, or prior to, consummation or account opening. 260 If a loan does not close, or a line of credit is not opened, a credit union must provide the applicant with a copy of the appraisal and other written valuation promptly upon completion. If the applicant waived his/her right to receive a copy, the credit union must provide a copy of the appraisal or valuation to the applicant within 30 days after the credit union determines the transaction will not close. 261 ADDITIONAL EDUCATIONAL RESOURCES The following are helpful resources available that may assist you in compliance with the new Mortgage Rules. The CFPB s 2013 Equal Credit Opportunity Act (ECOA) Valuations Rule - Small Entity Compliance Guide - The CFPB s ECOA (Regulation B) Summary Page 260, , 15; See also Comment 12 C.F.R (a)(1)-4(v). 56

58 ATTACHMENT A ELECTRONIC CODE OF FEDERAL REGULATIONS e-cfr Data is current as of December 2, 2013 Amendment from February 13, CFR--PART 1026 View Printed Federal Register page 78 FR in PDF format. Amendment(s) published February 13, 2013, in 78 FR EFFECTIVE DATES: January 18, Appendix N to Part 1026 is added to read as follows: Appendix N to Part 1026 Higher-Priced Mortgage Loan Appraisal Safe Harbor Review To qualify for the safe harbor provided in (c)(3)(ii), a creditor must confirm that the written appraisal: 1. Identifies the creditor who ordered the appraisal and the property and the interest being appraised. 2. Indicates whether the contract price was analyzed. 3. Addresses conditions in the property's neighborhood. 4. Addresses the condition of the property and any improvements to the property. 5. Indicates which valuation approaches were used, and includes a reconciliation if more than one valuation approach was used. 6. Provides an opinion of the property's market value and an effective date for the opinion. 7. Indicates that a physical property visit of the interior of the property was performed. 8. Includes a certification signed by the appraiser that the appraisal was prepared in accordance with the requirements of the Uniform Standards of Professional Appraisal Practice. 9. Includes a certification signed by the appraiser that the appraisal was prepared in accordance with the requirements of title XI of the Financial Institutions Reform, Recovery and Enforcement Act of 1989, as amended (12 U.S.C. 3331et seq.), and any implementing regulations. For questions or comments regarding e-cfr editorial content, features, or design, [email protected]. For questions concerning e-cfr programming and delivery issues, [email protected]. 57

59 APPRAISALS & VALUATIONS PART II HIGHER-PRICED MORTGAGE LOANS In addition to amending the appraisal requirements under ECOA, the Dodd-Frank Act also amended the Truth-in-Lending Act (TILA) to add certain appraisal requirements for higher-priced mortgage loans (HPMLs). In January of 2013, the NCUA, along with five other federal financial institution regulators, issued the HPML Appraisal Rule, which implements the Dodd-Frank Act amendments and sets forth appraisal requirements for those financial institutions that make HPMLs. 262 The HPML Appraisal Rule requires credit unions to provide free copies of the appraisal to the applicant, and provide the applicant with a statement that any appraisals prepared for the loan are for the sole use of the credit union, and that the applicant may obtained a separate appraisal at their own expense. 263 In addition, credit unions are required to provide the applicant with a disclosure, within three (3) business days of receiving an application that the credit union will provide the applicant with a copy of any appraisal report. 264 The HPML Appraisal Rule is effective on January 18, 2014, for applications received on or after that date. 265 KEY DIFFERENCES BETWEEN ECOA VALUATIONS RULE AND APPRAISALS FOR HPMLS There are several key differences credit unions should keep in mind for HPMLs with respect to appraisals that are not covered by the ECOA Valuations Rule. Those differences are: The HPML Appraisal Rule applies to subordinate lien loans, while the ECOA Valuations Rule only applies to first lien loans. The HPML Appraisal Rule only applies to loans with a consumer purpose and that are secured by a principal dwelling. On the other hand, the ECOA Valuations Rule covers any transaction secured by a dwelling for any purpose. The HPML Appraisal Rule exempts several types of transactions that are secured by a first lien on a dwelling, while the ECOA Valuations Rule does not. The HPML Appraisal Rule requires credit unions to perform interior-inspection appraisals that comply with the Uniform Standards of Professional Appraisal Practice (USPAP) and the Financial Institutions Reform Recovery and Enforcement Act (FIRREA). Credit unions are required to provide free copies of the appraisals for certain HPMLs. Credit unions are required to make certain disclosures at application for certain HPMLs NCUA Regulatory Alert No. 13-RA-07, CFPB s New Rule on Real Estate Appraisals and Other Written Valuations under the Equal Credit Opportunity Act (July 2013); NCUA Regulatory Alert No. 13- RA-08, TILA Appraisals for Higher-Priced Mortgage Loans Rule Small Entity Compliance Guide (September 2013) Equal Credit Opportunity Act (ECOA) Valuations Rule - Small Entity Compliance Guide, Consumer Financial Protection Bureau, (October 3, 2013), p

60 LOANS COVERED BY HPML APPRAISAL RULE As its name suggests, the HPML Appraisal Rule applies to most higher-priced mortgage loans made by a credit union. The definition of a HPML remains the same as it does in other parts of the new mortgage rules. Specifically, a HPML is a closed-end consumer credit transaction secured by the borrower s principal dwelling with an annual percentage rate (APR) that exceeds the average prime offer rate (APOR) for a comparable transaction as of the date the interest rate is set: (i) By 1.5 or more percentage points, for a loan secured by a first lien with a principal obligation at consummation that does not exceed the limit in effect as of the date the transaction's interest rate is set for the maximum principal obligation eligible for purchase by Freddie Mac; (ii) By 2.5 or more percentage points, for a loan secured by a first lien with a principal obligation at consummation that exceeds the limit in effect as of the date the transaction's interest rate is set for the maximum principal obligation eligible for purchase by Freddie Mac; or (iii) By 3.5 or more percentage points, for a loan secured by a subordinate lien. 267 Unlike the ECOA Valuations Rule, the HPML Appraisal Rule only applies to closed-end loans that are secured by the borrower s principal dwelling. As discussed below, the rule does allow for a few exceptions. Exemptions The HPML Appraisal Rule does exempt certain HPMLs from its appraisal requirements. Credit unions do not have to follow the appraisal requirements for a HPML if it meets one of the following types of transactions: HPMLs which meet the definition of a Qualified Mortgage; Loans secured by a new manufactured home; Loans secured by a mobile home, boat, or trailer; Loans to finance the initial construction of a dwelling; Loans with a maturity of 12 months or less, if the purpose of the loan is a bridge loan connected with the acquisition of a dwelling intended to become the borrower s principal dwelling; Reverse mortgages. 268 Disclosure Required Within three (3) business days of receiving an application for a HPML, a credit union must provide the applicant with a written disclosure that states the following: C.F.R (a)(1) C.F.R (c)(2). 59

61 We may order an appraisal to determine the property s value and charge you for this appraisal. We will give you a copy of any appraisal, even if your loan does not close. You can pay for an additional appraisal for your own use at your own cost. 269 In the alternative, credit unions may use the ECOA disclosure for the ECOA Valuations Rule to satisfy the disclosure requirement for the HPML Appraisal Rule. 270 APPRAISAL REQUIRED FOR HPMLS Credit unions must obtain a written appraisal prior to consummation for all higher-priced mortgage loans. 271 The appraisal must be performed by a certified or licensed appraiser who conducts a physical visit of the interior of the property secured by the loan. 272 A certified or licensed appraiser is defined as a person who is certified or licensed by the State agency in the State in which the property securing the transaction is located 273 In addition, the appraiser must perform the appraisal in accordance with the Uniform Standards of Professional Appraisal Practice and the requirements applicable to appraisers in Title XI of the Financial Institutions Reform, Recovery, and Enforcement Act of The CFPB has provided a safe harbor for financial institutions that obtain appraisals in accordance with the HPML Appraisal Rule. In order to obtain an appraisal that meets the requirements of this rule, credit unions should do the following: 1) Order an appraisal to conform with the Uniform Standards of Professional Appraisal Practice and Title XI of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989, as amended (12 U.S.C et seq.), and any implementing regulations in effect at the time the appraiser signs the appraiser s certification; 2) Verify 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 located as of the date the appraiser signed the appraiser s certification; 3) Confirm that the appraisal addresses the following: a. Identifies the credit union who ordered the appraisal and the property and the interest being appraised; b. Indicates whether the contract price was analyzed; c. Addresses the conditions in the property s neighborhood; d. Addresses the condition of the property and any improvements to the property; e. Indicates which valuation approaches were used, and includes a reconciliation if more than one valuation approach was used; f. Provides an opinion of the property s market value and an effective date for the opinion; g. Indicates that a physical property visit of the interior of the property was performed; h. Includes a certification signed by the appraiser that the appraisal was prepared in accordance with the requirements of the Uniform Standards of Professional Appraisal C.F.R (c)(5)(i) C.F.R (c)(3) C.F.R (c)(1)(i)

62 Practice and Title XI of the Financial Institutions Reform, Recovery and Enforcement Act of 1989, as amended (12 U.S.C et seq. ), and any implementing regulations. 4) Have no actual knowledge contrary to the facts or certifications contained in the written appraisal. 275 To confirm qualification for the safe harbor, see Appendix N to 12 C.F.R (here appended). Credit unions are encouraged to review their policies and procedures to ensure they meet the requirements set forth above. Additional Appraisal May Be Required Credit unions will be required to obtain two (2) written appraisals if any of the following apply: The seller acquired the property 90 or fewer days prior to the date of the consumer s agreement to acquire the property and the price in the consumer s agreement to acquire the property exceeds the seller s acquisition price by more than 10 percent; or The seller acquired the property 91 to 180 days prior to the date of the consumer s agreement to acquire the property and the price in the consumer s agreement to acquire the property exceeds the seller s acquisition price by more than 20 percent. 276 If a second appraisal is required, the credit union must use different appraisers for each appraisal. 277 Each appraisal must meet the same standards set forth above, 278 and at least one of the appraisals must include an analysis of the following: The difference between the price at which the seller acquired the property and the price that the consumer is obligated to pay to acquire the property, as specified in the consumer s agreement to acquire the property from the seller; Changes in market conditions between the date the seller acquired the property and the date of the consumer s agreement to acquire the property; and Any improvements made to the property between the date the seller acquired the property and the date of the consumer s agreement to acquire the property. 279 Finally, if a second appraisal is required, the credit union can only charge the borrower for one of the appraisals C.F.R (c)(3)(ii); See also Appendix N to Part C.F.R (c)(4)(i) C.F.R (c)(4)(ii) C.F.R (c)(4)(iii) C.F.R (c)(4)(iv) C.F.R (c)(4)(v). 61

63 Exemptions from Second Appraisal Requirement The new rule does allow certain types of transactions to be exempt from the second appraisal requirement. The second appraisal requirement does not apply to extensions of credit that finance a borrower s acquisition of property: From a local, state, or federal government agency; From a person who acquired title through foreclosure, deed-in-lieu of foreclosure, or other similar judicial or non-judicial procedure; From a non-profit entity as part of a local, state, or federal government program under which the non-profit is entitled to acquire title to single-family properties for resale from a seller who acquired title to the property through the process of foreclosure, deed-in-lieu of foreclosure, or other similar judicial or non-judicial procedure; From a person who acquired title by inheritance or pursuant to court order of dissolution of marriage, civil union, or domestic partnership, or of partition of joint or marital assets to which the seller was a party; From an employer or relocation agency in connection with the relocation of an employee; From a service member, as defined by 50 U.S.C. App. 511(1), who received a deployment or permanent change of station order after the service member purchased the property; Located in an area designated by the President of the United States as a federal disaster area, if and for as long as the Federal financial institutions regulatory agencies, as defined in 12 U.S.C. 3350(6), waive the requirements in Title XI of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989, as amended (12 U.S.C et seq.), and any implementing regulations in that area; or Located in a rural county, as defined in 12 C.F.R (b)(2)(iv)(A) (a list of the rural counties will be provided by the CFPB). 281 APPLICANT TO RECEIVE COPY OF APPRAISAL Similar to the ECOA Valuations Rule, credit unions must provide applicants for HPMLs with a copy of any written appraisal performed in connection with the loan. 282 The copy must be provided to the applicant no later than three (3) business days prior to consummation of the loan. 283 In the event the loan is not consummated, the credit union must provide the applicant with a copy of the appraisal no more than 30 days after it determines the loan will not be consummated. 284 In addition, the copy of the appraisal must be provided to the applicant free of charge. 285 Credit unions may provide the copy of the appraisal to the applicant via electronic format; however, if they choose to do so, they must do so in compliance with the Electronic Signatures in Global and National Commerce Act (E-Sign Act) C.F.R (c)(3)(vii) C.F.R (c)(6)(i) C.F.R (c)(6)(ii)(A) C.F.R (c)(6)(ii)(B) C.F.R (c)(6)(iv) C.F.R (c)(6)(iii). 62

64 FAQs What disclosure should I use if both the ECOA Valuation Rule and the HPML Appraisal Rule Apply? If both the ECOA Valuations Rule and the HPML Appraisal Rule apply to a loan, credit unions should use the ECOA Valuations Rule disclosure to satisfy both the ECOA and HPML Rule. 287 What timing requirements should I follow if both the ECOA Valuation Rule and HPML Appraisal Rule Apply? If both the ECOA Valuations Rule and the HPML Appraisal Rule apply to a loan, credit unions should follow the rule that provides the earlier deadline for delivering appraisal copies while keeping in mind that the waiver option is not available under the HPML Appraisal Rule. 288 ADDITIONAL EDUCATIONAL RESOURCES The following are helpful resources available that may assist you in compliance with the new Mortgage Rules. The CFPB s 2013 Equal Credit Opportunity Act (ECOA) Valuations Rule - Small Entity Compliance Guide - The CFPB s ECOA (Regulation B) Summary Page Equal Credit Opportunity Act (ECOA) Valuations Rule - Small Entity Compliance Guide, Consumer Financial Protection Bureau, (October 3, 2013), p

65 TILA ESCROW RULE OVERVIEW The CFPB s Truth-in-Lending Act (TILA) Escrow Rule (Escrow Rule) went into effect on June 1, The Escrow Rule itself does not expand the types of transactions that require an escrow account, but rather, expands the current requirements under Truth-in-Lending regarding the length in which escrow accounts must remain in place. Moreover, the Escrow Rule created a new exemption for certain loans made by certain creditors. Given the minimal compliance changes involved, the CFPB had the Escrow Rule go into effect in June 2013, several months before the other newly-released mortgage rules. 289 The CFPB notes the Escrow Rule serves three elements. First, for higher-priced mortgage loans (HPMLs) secured by a first lien on a principal dwelling, credit unions must now maintain an escrow account for at least five years following origination, regardless of the loan-to-value (LTV) ratio. 290 Second, credit unions do not have to escrow for insurance premiums for properties located in condominiums, planned unit developments, and other common interest communities where owners must participate in governing associations that are required to purchase master insurance policies. 291 Note, however, that this is a limited exemption that still requires establishing an escrow account for property taxes only. 292 Third, credit unions that operate predominantly in rural or underserved areas may be eligible for an exemption from the Escrow Rule for certain loans held in its portfolio. 293 LOANS COVERED BY THE ESCROW RULE Credit unions must establish and maintain an escrow account for first-lien HPMLs for at least five years. For purposes of the Escrow Rule, the definition of a HPML follows the definition set forth in Truth-in- Lending, which is: [C]losed-end consumer credit transaction[s] secured by the consumer s principal dwelling with an annual percentage rate that exceeds the average prime offer rate (APOR) for a comparable transaction as of the date the interest rate is set: 1) By 1.5 or more percentage points for loans secured by a first lien with a principal obligation at consummation that does not exceed the limit in effect as of the date the transaction s interest rate is set for the maximum principal obligation eligible for purchase by Freddie Mac; 2) By 2.5 or more percentage points for loans secured by a first lien with a principal obligation at consummation that exceeds the limit in effect as of the date the transaction s interest rate is set for the maximum principal obligation eligible for purchase by Freddie Mac TILA Escrow Rule - Small Entity Compliance Guide, Consumer Financial Protection Bureau, (April 18, 2013), p at at CFPB Consumer Laws and Regulations - Examination Handbook, August 2013, TILA C.F.R (a)(1). 64

66 Principal dwelling may include other structures such as a manufactured home, boat or trailer used as the borrower s principal dwelling. 295 The APOR is published on the FFIEC web site at: The Escrow Rule does not include other loans, such as: A transaction secured by shares in a cooperative; 296 A transaction to finance the initial construction of a dwelling; 297 A temporary or bridge loan with a term of twelve months or less, such as a loan to purchase a new dwelling where the consumer plans to sell a current dwelling within twelve months; 298 A reverse mortgage transaction; 299 Subordinate liens; 300 Open-end credit (e.g. HELOCs); 301 Insurance premiums the consumer purchases that are not required by the credit union; 302 Loans consummated by credit unions meeting the rural and underserved standard and meeting certain size and operational criteria, as discussed below. 303 In addition, credit unions are prohibited from structuring a loan secured by a borrower s principal dwelling as an open-end plan in order to evade the requirements of the Escrow Rule. 304 CANCELLATION OF AN ESCROW ACCOUNT Once an escrow account is established for a HPML, the account will remain in place until either of the following occurs: 1) The underlying debt is terminated; or 2) After the five-year period, the borrower requests that the escrow account be canceled. 305 If a borrower requests that the account be cancelled after five years, the loan s principal balance must be less than 80 percent of the original value of the property securing the underlying debt obligation, and the borrower cannot be delinquent or in default on the loan at the time of the request for removal Comments 12 C.F.R (b) C.F.R (b)(2)(i)(A) C.F.R (b)(2)(i)(B) C.F.R (b)(2)(i)(C) C.F.R (b)(2)(i)(D) C.F.R (b) C.F.R (a)(1) C.F.R (b)(2)(ii) C.F.R (b)(iii) C.F.R (d) C.F.R (b)(3) C.F.R (b)(3)(ii). 65

67 CREDIT UNIONS THAT SERVE RURAL AND UNDERSERVED COUNTIES Credit unions that predominantly serve rural and/or underserved areas may be exempt from the Escrow Rule (and other portions of the CFPB s new mortgage rules). 307 To qualify for the exemption, a credit union must meet the following criteria: 1) During any of the preceding three calendar years, the credit union extended more than 50 percent of its first-lien mortgages on properties that are located in counties designated either rural or underserved by the CFPB; 308 2) During the preceding calendar year, the credit union and its affiliates together originated 500 or fewer mortgages secured by a first lien; 309 3) As of the preceding calendar year, the credit union (excluding its affiliates) had total assets of less than $2 billion, 310 and 4) The credit union and its affiliates do not maintain escrow accounts on or beyond the second installment due date for any loans they service, except for: a. Existing escrow accounts the credit union or its affiliates maintain to comply with the Federal Reserve Board s 2008 final rule implementing changes to Regulation Z (escrow accounts established for first-lien higher-priced mortgage loans on or after April 1, 2010, and before January 1, b. Escrow accounts established by the credit union or its affiliate after the consummation of the loan for distressed borrowers in order to avoid default or foreclosure. 311 If at the time of consummation the HPML is subject to a commitment to be acquired by a non-exempt company, an escrow account must be established for that HPML. 312 Thereafter, if a credit union intends to keep its exemption under this rule, neither the credit union nor its affiliates can continue to service the loan to be transferred on or beyond the second periodic payment under the terms of the loan. 313 The CFPB has published a listing of rural and underserved counties on its website. As of the final listing published by the CPFB in May of 2013, 44 Minnesota counties were designated as either rural or underserved for the year As of the final listing published by the CFPB in July 2013, 49 Minnesota 307 TILA Escrow Rule - Small Entity Compliance Guide, Consumer Financial Protection Bureau, (April 18, 2013), pp C.F.R (b)(2)(iii)(A). Note that this requirement was originally during any preceding year ; was amended October 1, 2013, to become effective January C.F.R (b)(2)(iii)(B) C.F.R (b)(2)(iii)(C) (NOTE [T]his asset threshold shall adjust automatically each year, based on the year-to-year change in the average of the Consumer Price Index for Urban Wage Earners and Clerical Workers, not seasonally adjusted, for each 12-month period ending in November, with rounding to the nearest million dollars. See also Ability to Repay and Qualified Mortgage Rule - Small Entity Compliance Guide, Consumer Financial Protection Bureau, (October 17, 2013), p C.F.R (b)(2)(iii)(D)(1) and (2) (As amended October 1, 2013, 78 FR 60441) C.F.R (b)(2)(v). 313 CFPB Consumer Laws and Regulations - Examination Handbook, August 2013, TILA CFPB releases final listing of rural and underserved counties. The Pulse [Minnesota Credit Union Network], 22 May 2013, Vol. 02, Issue 20, 28 May 2013 < 66

68 counties have been designated as either rural or underserved for the year Credit unions may rely upon the CFPB s listing as a safe harbor for compliance with the exemption. 316 Furthermore, in order to qualify for and maintain the exemption, credit unions must have stopped escrowing for all applications received on or after January 1, That being said, the CFPB has indicated that a credit union (and its affiliates) are permitted to continue offering an escrow account to accommodate distressed borrowers and were permitted to continue to maintain escrow accounts established to comply with the rule for applications received before January 1, 2014 without losing the exemption. 318 The CFPB has noted that any creditor that is able to escrow for any other lending transaction is not in need of the small-servicer exemption. 319 Finally, credit unions are prohibited from structuring a closed-end loan as an open-end loan in order to evade the Escrow Rule. 320 FAQs Which loans are covered by the Escrow Rule? The Escrow Rule only applies to first-lien, higher-priced mortgage loans secured by a consumer s principal dwelling. The Rule does not apply to open-end mortgages, subordinate liens, and other types of loans. Can my credit union cancel an escrow account after five years if a borrower requests that it be cancelled? Yes, but only if the loan s principal balance is less than 80 percent of the original value of the property securing the underlying debt obligation, and the borrower is not delinquent or in default on the loan. How do I determine if my credit union predominantly serves a county that is either rural or undeserved? The CFPB publishes a listing of rural and underserved counties. For the 2013 and 2014 listings of rural and underserved counties in Minnesota, as well as for additional implementation support material, see the CFPB web site at: Also see the attached chart, Mortgage Rules with Rural and Underserved Designation. 315 see Consumer Financial Protection Bureau. TILA Escrow Rule. YouTube. 14 May Web. 24 May C.F.R (b)(2)(iii)(D)(1) (As amended October 1,2013, 78 FR 60441) 318 CFPB Consumer Laws and Regulations - Examination Handbook, August 2013, TILA Consumer Financial Protection Bureau. TILA Escrow Rule. YouTube. 14 May Web. 24 May TILA Escrow Rule - Small Entity Compliance Guide, Consumer Financial Protection Bureau, (April 18, 2013), p

69 ADDITIONAL EDUCATIONAL RESOURCES The following are helpful resources available that may assist you in compliance with the new Mortgage Rules. Mortgage Rules with Rural and Underserved Designation Chart (here appended) The CFPB s Consumer Laws and Regulations - Examination Handbook, August 2013, TILA The CFPB s 2013 Escrow Requirements under the Truth in Lending Act (Regulation Z) - Small Entity Compliance Guide The CFPB s Escrow Requirements under TILA (Regulation Z) Summary Page 68

70 ATTACHMENT A Mortgage Rules with Rural and Underserved Designation (d)(1)(ii)(C) (b)(1) (b)(2)(iii) (b)(2)(iii)(A) (b)(2)(iv) (c)(4)(i) (c)(4)(vii)(H) (f) (f)(1)(vi) 35(b)(2)(iii)-1.i, 35(b)(2)(iv)-1, 35(c)(4)(vii) (H)-1, and 43(f)(1)(vi)-1.i Requirements creditor must meet to obtain exemption from balloon-payment restrictions for high-cost mortgages Requirement for escrow account for an HPML loan Requirements creditor must meet to be exempt from (b)(1) Requirement that creditor operate predominantly in rural/underserved areas to qualify for exemption Provides definitions of the terms rural and underserved Requirement for second appraisal for certain HPMLs Exemption from second appraisal requirement for properties located in rural counties Requirements creditor must meet in order to originate balloon-payment mortgage that can qualify for QM status Requires the creditor to meet the rural/underserved test in (b)(2)(iii)(A) in order to originate a balloon-payment mortgage that can qualify for QM status Commentary 69

71 RESPA AND TILA MORTGAGE SERVICING FINAL RULES OVERVIEW In 2010, the Dodd-Frank Act amended the Real Estate Settlement Procedures Act (RESPA) and the Truth in Lending Act (TILA) with regard to the servicing of certain residential mortgages. The CFPB issued the RESPA and TILA Mortgage Servicing Final Rules (referred to here as the Mortgage Servicing Rules) in January 2013 to implement these Dodd-Frank Act amendments to RESPA and TILA. The Mortgage Servicing Rules become effective on January 10, However, the new regulations apply to adjustable rate mortgages (ARMs) originated both prior to and after the January 10, 2014, effective date. RESPA (REGULATION X) The Mortgage Servicing Rules address servicing of mortgage loans. The RESPA portion addresses the following: Error resolution and information requests; Force-placed insurance; General servicing policies, procedures, and requirements; Early intervention with delinquent consumers; Continuity of contact with delinquent consumers; and Loss mitigation. TILA (REGULATION Z) The Mortgage Servicing Rules address servicing of mortgage loans. The TILA portion addresses the following: Interest rate adjustment notices for ARMs; Prompt crediting of mortgage payments and responses to requests for payoff amounts; and Periodic statements for mortgage loans. SMALL SERVICER EXEMPTION The Mortgage Servicing Rules provide for a Small Servicer exemption for several portions of the rules. Under the rules, a credit union is a small servicer if it services, together with its affiliates, 5,000 or fewer mortgage loans in any given year to which it is the creditor or assignee C.F.R (e). 70

72 Provisions Exempting Small Servicers Small servicers are exempt from the following provisions of the Mortgage Servicing Rules: Provision of periodic statements; Prohibition on purchasing force-placed insurance where a servicer could continue the borrower s existing hazard insurance coverage by advancing funds to escrow under certain circumstances (when the cost of force-placed insurance is less than the cost of advancing for hazard insurance); General servicing policies, procedures, and requirements; Early intervention communication requirements; Continuity of contact; and Some of the loss mitigation provisions. 322 On the other hand, small servicers must comply with the following provisions of the Mortgage Servicing Rules: ARMs disclosures; Prompt crediting and payoff statements; Force-placed insurance provisions; Error resolution and information requests; and Some of the loss mitigation provisions. 323 Small Servicer Determination The small servicer exemption is based upon the number of mortgage loans serviced by the credit union, and any of its affiliates, as of January 1 st for the remainder of the calendar year. 324 For purposes of this rule, a credit union should only consider all closed-end consumer credit transactions secured by a dwelling. 325 If a credit union services any mortgage loans for which the credit union or any affiliate is not the original creditor or an assignee, it is not considered a small servicer for purposes of this exemption. 326 However, mortgage loans for which the credit union is not the creditor or assignee, AND for which the credit union does not receive any compensation or fees, are exempt from the small servicer determination. 327 For example, charitably serviced loans are specifically excluded from determining whether a servicer qualifies as a small servicer Real Estate Settlement Procedures Act (Regulation X) and Truth in Lending Act (Regulation Z) Mortgage Servicing Final Rules Small Entity Compliance Guide, Consumer Financial Protection Bureau, (June 7, 2013), p , C.F.R (e)(4)(iii) C.F.R (a)(1). 326 Comment 12 C.F.R (e)(4)(ii) C.F.R (e)(iii)(A). 328 CFPB commentary in Proposed Rule Amendment dated July 10, 2013, p

73 Affiliate Affiliate means any company that controls, is controlled by, or is under common control with another company, as set forth in the Bank Holding Company Act of 1956 (12 U.S.C 1841 et seq.). The Bank Holding Company Act describes control as: Any company has control over a bank or over any company if - the company directly or indirectly or acting through one or more other persons owns, controls, or has power to vote 25 per centum or more of any class of voting securities of the bank or company; the company controls in any manner the election of a majority of the directors or trustees of the bank or company; or the Board determines, after notice and opportunity for hearing, that the company directly or indirectly exercises a controlling influence over the management or policies of the bank or company. Master Servicer/Subservicers Where a loan is subserviced, both the master servicer and the subservicer must meet the requirements of a small servicer in order to qualify for the exemption. 329 However, if a subservicing entity does not qualify, a master servicer still may qualify for loans it services in-house. If a Credit Union Exceeds the 5,000 Mortgage Threshold If a credit union exceeds the 5,000 mortgage loan threshold, it will have six (6) months after crossing the threshold, or until the next January 1 st, whichever is later, to comply with any requirements for which it will no longer be exempt under the small servicer exemption. 330 PERIODIC STATEMENTS ** This provision does not apply to small servicers. 331 The Mortgage Servicing Rules sets forth certain requirements pertaining to timing, form and content for all periodic statements. These requirements pertain to any closed-end consumer credit transaction secured by a dwelling. 332 The periodic statement requirement does not apply to open-end transactions, reverse mortgages, and timeshare loans Comment 12 C.F.R (e)(4)(ii) C.F.R (e)(4)(iii) C.F.R (a)(1) Real Estate Settlement Procedures Act (Regulation X) and Truth in Lending Act (Regulation Z) Mortgage Servicing Final Rules Small Entity Compliance Guide, Consumer Financial Protection Bureau, (June 7, 2013), p Id; See also 12 C.F.R (e). 72

74 Exemption for Consumer in Bankruptcy A servicer is exempted from the periodic statement requirements for a mortgage loan while the consumer is a debtor in bankruptcy. 334 The exemption begins once a petition has been filed commencing a bankruptcy case under Title 11 of the United States Code (the bankruptcy code) in which the consumer is a debtor. 335 With respect to any portion of the mortgage debt that is not discharged by virtue of the bankruptcy, a servicer must resume sending periodic statements in compliance with the rules, within a reasonably prompt time, after the case is: 1) dismissed; 2) closed; or 3) the consumer receives a discharge. 336 Lastly, this exemption applies when any one consumer, who is among the joint obligors with primary liability on the transaction, is a debtor in bankruptcy. 337 Timing A periodic statement must be delivered or placed in the mail within a reasonably prompt time after the pay due date or the end of any courtesy period for the previous billing cycle. 338 Form The periodic statements must make the disclosures, discussed below, in a manner that is clearly and conspicuously in writing, or electronically if the borrower agrees, and in a form that the borrower may keep. The CFPB has issued sample forms of periodic statements that are available in Appendix H-30 (here appended) to the Truth-in-Lending Act. 339 Proper use of these forms complies with the form requirements for periodic statements C.F.R (e)(5); Note that this is an interim final rule out for comment until November 22, 2013, to be effective January 10, 2014 (Federal Register, Vol. 78, No. 205, p (Oct. 23, 2013) C.F.R (e)(5), Comments 41(3)(5)-1; Note that this is an interim final rule out for comment until November 22, 2013, to be effective January 10, 2014 (Federal Register, Vol. 78, No. 205, p (Oct. 23, 2013) C.F.R (e)(5), Comments 41(3)(5)-2; Note that this is an interim final rule out for comment until November 22, 2013, to be effective January 10, 2014 (Federal Register, Vol. 78, No. 205, p (Oct. 23, 2013) C.F.R (e)(5), Comment 41(3)(5)-3; Note that this is an interim final rule out for comment until November 22, 2013, to be effective January 10, 2014 (Federal Register, Vol. 78, No. 205, p (Oct. 23, 2013) C.F.R (b) C.F.R (c). H-30(A) shows a sample form of periodic statement; H-30(B) shows a sample form of periodic statement with delinquency box; H-30(C) shows a sample form of periodic statement for a payment-options loan

75 Content and Layout of Periodic Statement Each periodic statement must include the following: Amount Due grouped together in close proximity to each other and located at the top of the first page of the statement: o The payment due date; o The amount of any late payment fee, and the date on which that fee will be imposed if payment has not been received; and o The amount due, shown more prominently than any other disclosures on the page and, if the transaction has multiple payment options, the amount due under each of the payment options. 341 Explanation of Amount Due grouped together in close proximity to each other and located on the first page of the statement, should contain the following: o Monthly payment amount, including a breakdown showing how much, if any, will be applied to principal, interest, and escrow; o If a mortgage loan has multiple payment options, a breakdown of each of the payment options along with information on whether the principal balance will increase, decrease, or stay the same, for each option listed; o The total sum of any fees or charges imposed since the last statement; and o Any payment amount past due. 342 Past Payment Breakdown grouped together in close proximity to each other, and located on the first page of the statement, should contain the following: o Total of all payments received since the last statement, including a breakdown showing the amount, if any, that was applied to principal, interest, escrow, fees and charges, and the amount, if any, sent to any suspense or unapplied funds account; and o Total of all payments received since the beginning of the current calendar year, including a breakdown of that total showing the amount, if any, that was applied to principal, interest, escrow, fees and charges, and the amount, if any, currently held in any suspense or unapplied funds account. 343 Transaction Activity a list of all transaction activity that occurred since the last statement. Transaction activity is defined as any activity that causes a credit or debit to the amount currently due. The list must include the date of the transaction, a brief description of the transaction, and the amount of the transaction for each activity on the list. 344 Partial Payment Information If the statement reflects a partial payment that was placed in a suspense or unapplied funds account, the credit union should include information explaining what must be done for the funds to be applied. This information must be on the front page of C.F.R (d)(1) C.F.R (d)(2) C.F.R (d)(3) C.F.R (d)(4). 74

76 the statement, included on a separate page enclosed with the periodic statement, or in a separate letter. 345 Contact Information the credit union must include a toll-free telephone number and, if applicable, an address that may be used by the borrower to obtain information about the borrower s account. This information must appear on the front page of the statement. 346 Account Information the following account information must appear on the statement: o Amount of the outstanding principal balance; o Current interest rate in effect for the mortgage loan; o Date after which the next interest rate may next change; o Existence of any prepayment penalty that may be charged; o The website to access either the CFPB list at or the Minnesota HUD list of homeownership counselors at and counseling organizations, and the HUD toll-free telephone number ((800) ) to access contact information for homeownership counselors or counseling organizations. 347 Delinquency Information if the borrower is more than forty-five (45) days delinquent, the following, grouped together in close proximity to each other and located on the first page of the statement, or, on a separate page enclosed with the periodic statement or in a separate letter, must be provided: o Date on which the borrower first became delinquent; o A notification of possible risks, such as foreclosure, and expenses, that may be incurred if the delinquency is not cured; o An account history showing, for the previous six (6) months or the period since the last time the account was current (whichever is shorter), the amount remaining past due from each billing cycle, or, if any such payment was fully paid, the date on which it was credited as fully paid; o A notice indicating any loss mitigation program to which the borrower has agreed, if applicable; o A notice of whether the servicer has made the first notice or filing required by applicable law for any judicial or non-judicial foreclosure process, if applicable; o o The total payment amount needed to bring the account current; and A reference to the homeownership counseling organizations discussed under Account Information above C.F.R (d)(5) C.F.R (d)(6) C.F.R (d)(7) C.F.R (d)(8). 75

77 Coupon Books Credit unions may send a coupon book instead of a periodic statement to borrowers of fixed-rate loans. 349 If a credit union chooses to do so, the coupon and/or coupon book must meet the following requirements: Each coupon has the required information set forth under Amount Due, referenced above, including: o Payment due date; o Amount of any late payment fee, and the date on which that fee will be imposed if payment has not been received; and o Amount due, shown more prominently than any other disclosure. 350 The coupon book, located anywhere within the book, has the required information set forth under Account Information, discussed above, including: o Outstanding principal balance; o Current interest rate in effect for the mortgage loan; o Date after which the interest rate may next change; and o Existence of any prepayment that may be charged. 351 The coupon book, located anywhere within the book, has the required information set forth under Contact Information, referenced above, including the servicer s telephone number and, if applicable, an address. 352 Information on how the borrower may obtain from the servicer the information discussed in Explanation of Amount Due, Past Payment Breakdown, Transaction Activity, and Partial Payment Information, as referenced above. 353 The credit union must make available, upon request by the borrower, by telephone, in writing, in person, or electronically if the borrower consents, the information discussed in Explanation of Amount Due, Past Payment Breakdown, Transaction Activity, and Partial Payment Information, as referenced above. 354 Provide the borrower the information set forth under Delinquency Information, as discussed above, typically in a separate writing, for any billing cycle during which the borrower is more than 45 days delinquent C.F.R (e)(3) C.F.R (e)(3)(i); See also 12 C.F.R (d)(1) C.F.R (e)(3)(ii)(A); See also 12 C.F.R (d)(7) C.F.R (e)(3)(ii)(B); See also 12 C.F.R (d)(6) C.F.R (e)(3)(ii)(C); See also 12 C.F.R (e)(3)(iii) C.F.R (e)(3)(iii) C.F.R (e)(3)(iv). 76

78 While a credit union may send a coupon book to borrowers of adjustable-rate mortgages (ARMs), the credit union must still provide the borrower with a periodic statement. 356 INTEREST RATE ADJUSTMENT NOTICES ** This provision does apply to small servicers. Loans Covered By This Provision The provision for interest rate adjustment notices applies to all closed-end consumer credit transactions secured by the borrower s principal dwelling in which the annual percentage rate (APR) may increase after consummation (i.e. adjustable rate mortgages (ARMs)). 357 Exemptions The interest rate adjustment notice provision does not apply to ARMs of one year or less, or for the first interest rate adjustment to an ARM if the first payment at the adjusted level is due within two hundred and ten (210) days after consummation, and the new interest rate disclosed at consummation was not an estimate. 358 Servicers, creditors, and assignees on an ARM are also exempt from the notice requirements when the servicer meets the definition of a debt collector under the Fair Debt Collection Practices Act (FDCPA) and the consumer has exercised its right to request a cease in communications under the FDCPA with the servicer. 359 Changes to Current Interest Rate Adjustment Notice Rules The new rule modifies the timing and content of the existing 20(c) interest adjustment notice sent to disclose rate adjustments that cause payment changes. The new rule also eliminates the 20(c) annual notice. Under the new rule, a new 20(d) initial interest rate adjustment disclosure notice was created (d) Notice Initial Rate Adjustment The 20(d) Notice is sent in connection with the initial interest rate adjustment pursuant to the loan contract. 361 The 20(d) Notice is required for all ARMs which are closed-end and secured by the Real Estate Settlement Procedures Act (Regulation X) and Truth in Lending Act (Regulation Z) Mortgage Servicing Final Rules Small Entity Compliance Guide, Consumer Financial Protection Bureau, (June 7, 2013), p C.F.R (c)(1)(i) C.F.R (c)(1)(ii) C.F.R (c)(1)(ii)(c); Note that this is an interim final rule out for comment until November 22, 2013, to be effective January 10, 2014 (Federal Register, Vol. 78, No. 205, p (Oct. 23, 2013) Real Estate Settlement Procedures Act (Regulation X) and Truth in Lending Act (Regulation Z) Mortgage Servicing Final Rules Small Entity Compliance Guide, Consumer Financial Protection Bureau, (June 7, 2013), p C.F.R (d). 77

79 borrower s principal dwelling. 362 However, the 20(d) Notice does not have to be sent for ARMs with terms of one year or less. 363 The 20(d) Notice must be provided as a separate document from other documents provided by the creditor, servicer, or assignee. 364 Of the creditor, assignee, and servicer, only one of the three has to send the borrower a notice. 365 A creditor or assignee that no longer owns the loan does not have to send the ARM notice. 366 Timing The 20(d) Notice must be sent at least two hundred and ten (210) days, but no more than two hundred and forty days (240) days, before the first payment at the adjusted level is due. 367 In instances where the first payment at the adjusted level is due within the first two hundred and ten (210) days after the loan s consummation, the credit union must provide the disclosure at the time the loan is finalized (c) Notice Subsequent Notice of Rate Adjustment The 20(c) Notice must be sent by a creditor, assignee, or servicer of an ARM in connection with the adjustment of an interest rate pursuant to the terms of the loan contract that results in an adjustment to the payment amount. 369 Of the creditor, assignee, and servicer, only one of the three has to send the borrower a notice. 370 A creditor or assignee that no longer owns the loan does not have to send the ARM notice. 371 The 20(c) Notice must also be sent when an interest rate adjusts as a result of a conversion from an ARM to a fixed-rate transaction, provided the interest rate adjustment results in a payment change. 372 The 20(c) Notice does not have to be sent for ARMs with terms of one year or less C.F.R (d)(1)(i) C.F.R (d)(1)(ii) C.F.R (d) Real Estate Settlement Procedures Act (Regulation X) and Truth in Lending Act (Regulation Z) Mortgage Servicing Final Rules Small Entity Compliance Guide, Consumer Financial Protection Bureau, (June 7, 2013), p C.F.R (d) C.F.R (c) Real Estate Settlement Procedures Act (Regulation X) and Truth in Lending Act (Regulation Z) Mortgage Servicing Final Rules Small Entity Compliance Guide, Consumer Financial Protection Bureau, (June 7, 2013), p C.F.R (c) C.F.R (c)(1)(ii). 78

80 Timing The 20(c) Notice must be provided to borrowers at least 60, but no more than 120, days before the first payment at the adjust level is due. 374 For ARMs with uniformly scheduled interest rate adjustments occurring every 60 days or more frequently, the 20(c) Notice must be provided to borrowers at least 25, but no more than 120, days before the first payment at the adjusted level is due. 375 For ARMs originated prior to January 10, 2015, in which the loan contract requires the adjusted interest rate and payment to be calculated based on the index figure available as of a date that is less than 45 days to the adjustment, the 20(c) Notice must be proved to borrowers at least 25, but no more than 120, days before the first payment at the adjusted level is due. 376 Content The disclosure must include: A statement providing: o An explanation that under the terms of the borrower s ARM, the specific time period in which the current interest rate has been in effect is ending and the interest rate and mortgage payment will change; o The effective date of the interest rate adjustment and when additional future interest rate adjustments are scheduled to occur; and o Any other changes to loan terms, features, or options taking effect on the same date as the interest rate adjustment, such as the expiration of interest-only or paymentoption features. 377 A table containing the following: o Current and new interest rates; o Current and new payments and the due date for first new payment; and o For interest-only or negatively-amortizing payments, the amount of the current and new payment allocated to principal, interest, and taxes and insurance in escrow, as applicable. The current payment allocation disclosed shall be the payment allocation for the last payment prior to the date of the disclosure. The new payment allocation disclosed shall be the expected payment allocation for the first payment for which the new interest rate will apply. 378 An explanation of how the new payment is determined, including: o The specific index or formula used in making interest rate adjustments and a source of information about the index or formula; and o The type and amount of any adjustment to the index, including any margin and an explanation that the margin is the addition of a certain number of percentage points C.F.R (c)(2) C.F.R (c)(2)(i) C.F.R (c)(2)(ii). 79

81 to the index, and any application of previously foregone interest rate increases from past interest rate adjustments. 379 Any limits on the interest rate or payment increases at each interest rate adjustment and over the life of the loan, as applicable, including the extent to which such limits result in the creditor, assignee, or servicer foregoing any increase in the interest rate and the earliest date that such foregone interest rate increases may apply to future interest rate adjustments, subject to those limits. 380 An explanation of how the new payment is determined, including: o The index or formula used; o Any adjustment to the index or formula, such as the addition of a margin or the application of any previously foregone interest rate increases from past interest rate adjustments; o The loan balance expected on the date of the interest rate adjustment; and o The length of the remaining loan term expected on the date of the interest rate adjustment and any change in the term of the loan caused by the adjustment. 381 If applicable, a statement that the new payment will not be allocated to pay loan principal and will not reduce the loan balance. If the new payment will result in negative amortization, a statement that the new payment will not be allocated to pay loan principal and will pay only part of the loan interest, thereby adding to the balance of the loan. If the new payment will result in negative amortization as a result of the interest rate adjustment, the statement shall set forth the payment required to amortize fully the remaining balance at the new interest rate over the remainder of the loan term. 382 The circumstances under which any prepayment penalty may be imposed, such as when paying the loan in full or selling or refinancing the principal dwelling; the time period during which such a penalty may be imposed; and a statement that the consumer may contact the servicer for additional information, including the maximum amount of the penalty. 383 Prepayment penalty is defined as a charge imposed for paying all or part of a closed-end transaction's principal before the date on which the principal is due, other than a waived, bona fide third-party charge that the creditor imposes if the consumer prepays all of the transaction's principal sooner than 36 months after consummation C.F.R (c)(2)(iii) C.F.R (c)(2)(iv) C.F.R (c)(2(v) C.F.R (c)(2)(vi) C.F.R (c)(2)(vii) C.F.R (b)(6)(i). 80

82 Format Credit unions should provide the information described in a substantially similar format as the forms provided by the CFPB in Appendix H to regulations implementing the Truth-in-Lending Act. The forms can be found in Forms H-4(D)(1) and (2) in Appendix H. 385 Content If the new interest rate (or new payment calculated from the new interest rate) is not known as of the date of the 20(d) Notice), an estimate shall be disclosed, labeled as an estimate, and provided to the borrower. 386 The disclosure must also include: The date of the disclosure 387 ; A statement, providing: o An explanation that under the terms of the ARM, the specific time period in which the current interest rate has been in effect is ending and that any change in the interest rate may result in a change in the mortgage payment; o The effective date of the interest rate adjustment and when additional future interest rate adjustments are scheduled to occur; and o Any other changes to loan terms, features, or options taking effect on the same date as the interest rate adjustment, such as the expiration of the interest-only or payment-option features. 388 A table, containing the following: o Current and new interest rates; o Current and new payments and the date the first new payment is due; and o For interest-only or negatively-amortizing payments, the amount of the current and new payment allocated to principal, interest, and taxes and insurance in escrow, as applicable. The current payment allocation disclosed shall be the payment allocation for the last payment prior to the date of the disclosure. The new payment allocation disclosed shall be the expected payment allocation for the first payment for which the new interest rate will apply. 389 An explanation of how the interest rate is determined, including: o The specific index or formula used in making interest rate adjustments and a source of information about the index or formula; and o The type and amount of any adjustment to the index, including any margin and an explanation that the margin is the addition of a certain number of percentage points to the index C.F.R (c)(3) C.F.R (d)(2) C.F.R (d)(2)(i) C.F.R (d)(2)(ii) C.F.R (d)(2)(iii) C.F.R (d)(2)(iv). 81

83 Any limits on the interest rate or payment increases at each interest rate adjustment and over the life of the loan, as applicable, including the extent to which such limits result in the creditor, assignee, or servicer foregoing any increase in the interest rate and the earliest date that such foregone interest rate increases may apply to future interest rate adjustments, subject to those limits. 391 An explanation of how the new payment is determined, including: o The index or formula used; o Any adjustment to the index or formula; o Loan balance as of the date of the adjustment; o Length of the remaining loan term expected on the date of the interest rate adjustment, and any change in the term of the loan caused by the adjustment; and o If the new interest rate or new payment provided is an estimate, a statement that another disclosure containing the actual new interest rate and new payment will be provided to the consumer between two and four months before the first payment at the adjusted level is due for interest rate adjustments, that result in a corresponding payment change. 392 If applicable, a statement that the new payment will not be allocated to pay loan principal, and will not reduce the loan balance. If the new payment will result in negative amortization, a statement that the new payment will not be allocated to pay loan principal and will pay only part of the loan interest, thereby adding to the balance of the loan. If the new payment will result in negative amortization as a result of the interest rate adjustment, the statement shall set forth the payment required to amortize fully the remaining balance at the new interest rate over the remainder of the loan term. 393 The circumstances under which any prepayment penalty may be imposed, such as when paying the loan in full, or selling or refinancing the principal dwelling; the time period during which such a penalty may be imposed; and a statement that the consumer may contact the servicer for additional information, including the maximum amount of the penalty. 394 Prepayment penalty is defined as a charge imposed for paying all or part of a closed-end transaction's principal before the date on which the principal is due, other than a waived, bona fide third-party charge that the creditor imposes if the consumer prepays all of the transaction's principal sooner than thirty-six (36) months after consummation. 395 A telephone number of the creditor, assignee, or servicer which a borrower may call in the event the borrower anticipates not being able to make the new payment C.F.R (d)(2)(v) C.F.R (d)(2)(vi) C.F.R (d)(2)(vii) C.F.R (d)(2)(viii) C.F.R (b)(6)(i) C.F.R (d)(2)(ix). 82

84 Alternatives to paying at the new rate, and a brief explanation of each alternative in brief and concise terms, including: o Refinancing the loan with the current or another creditor or assignee; o Selling the property and using the proceeds to pay the loan in full; o Modifying the terms of the loan with the creditor, assignee, or servicer; and o Arranging payment forbearance with the creditor, assignee, or servicer. 397 The website to access the CFPB s list or the HUD list of homeownership counselors and counseling organizations, the HUD toll-free telephone number to access the HUD list of homeownership counselors, and the CFPB website to access contact information for state housing finance authorities. 398 o The website to access the CFPB list of homeownership counselors and state housing finance authorities can be accessed at: o The HUD toll-free telephone number to access its list of homeownership counselors is: (800) Format In drafting its own 20(d) Notice and the required tables, a credit union should substantially follow the forms provided by the CFPB in Appendix H to the Truth-in-Lending Act (Forms H- 4(D)(3) and (4)). 400 The Small Entity Compliance Guide also contains a helpful table referencing the content of the ARM disclosures. 401 PROMPT PAYMENT CREDITING AND PAYOFF STATEMENTS ** This provision does apply to small servicers. Prompt Payment Crediting Credit unions must promptly credit a borrower s account the same day it receives a periodic payment from the borrower. 402 Credit unions can delay crediting the borrower s account, but only if the delay does not result in any charge to the borrower or in the reporting of negative information to a consumer reporting agency. 403 A periodic payment is defined as an amount sufficient to cover principal, interest, C.F.R (d)(2)(x) C.F.R (d)(2)(xi) Real Estate Settlement Procedures Act (Regulation X) and Truth in Lending Act (Regulation Z) Mortgage Servicing Final Rules Small Entity Compliance Guide, Consumer Financial Protection Bureau, (June 7, 2013), p C.F.R (d)(3). 401 See generally 2013 Real Estate Settlement Procedures Act (Regulation X) and Truth in Lending Act (Regulation Z) Mortgage Servicing Final Rules Small Entity Compliance Guide, Consumer Financial Protection Bureau, (June 7, 2013), p ) C.F.R (c)(1)(i)

85 and escrow (if applicable) for a given billing cycle. 404 A payment qualifies as a periodic payment even if the payment is insufficient to include late fees, other fees, or non-escrow payments a servicer has advanced on the borrower s behalf. 405 Partial Payments A partial payment is anything less than a periodic payment (i.e. an insufficient amount to cover principal, interest, and escrow for a given billing cycle). 406 If a credit union receives a partial payment, it has three options: Credit the partial payment upon receipt; Return the partial payment to the borrower; or Hold the payment in a suspense account or unapplied funds account. 407 If the credit union chooses to hold the payment in a suspense or unapplied funds account, it must: Disclose to the borrower the total amount of funds held in such suspense or unapplied funds account on the periodic statement; and Once the credit union accumulates enough funds to cover a periodic payment in any suspense or unapplied funds account, treat such funds as a periodic payment received in accordance with the prompt payment crediting requirement. 408 Non-Conforming Payments A non-conforming payment is a payment from a borrower that does not follow the reasonable requirements set in advance by a credit union in writing. 409 If a credit union accepts a payment that does not conform to its written requirements, it has up to five (5) days after receipt of the nonconforming payment to credit the borrower s account. 410 Pyramiding of Late Fees In connection to mortgages secured by a borrower s principal dwelling, credit unions are prohibited from charging a late fee or delinquency charge for a payment if: Real Estate Settlement Procedures Act (Regulation X) and Truth in Lending Act (Regulation Z) Mortgage Servicing Final Rules Small Entity Compliance Guide, Consumer Financial Protection Bureau, (June 7, 2013), p C.F.R (c)(1)(ii) Real Estate Settlement Procedures Act (Regulation X) and Truth in Lending Act (Regulation Z) Mortgage Servicing Final Rules Small Entity Compliance Guide, Consumer Financial Protection Bureau, (June 7, 2013), p C.F.R (c)(1)(iii). 84

86 Such a fee or charge is attributable solely to failure of the borrower to pay a late fee or delinquency charge on an earlier payment; and The payment is otherwise a periodic payment received on the due date, or within any applicable courtesy period. 411 Payoff Statements Upon receipt of a written request for a payoff statement from a borrower (or someone acting on behalf of the borrower), a credit union must provide an accurate statement of the total outstanding balance that would be required to pay the [borrower s] obligation in full as of a specified date. 412 The statement must be sent by the credit union no more than seven (7) business days after receipt of the request. 413 When a credit union is not able to provide the statement within seven (7) business days of receiving the request, due to the loan being in bankruptcy or foreclosure, because the loan is a reverse mortgage or shared appreciation mortgage, or because of natural disasters or other similar circumstances, the payoff statement must then be provided within a reasonable time. 414 This requirement applies to all loans secured by a dwelling. 415 FORCE-PLACED INSURANCE ** Generally speaking, this section does apply to small servicers. There is a limited small servicer exemption on the prohibition on the purchase of force-placed insurance for consumers with escrow accounts in limited circumstances, which is discussed in detail below. 416 Loans Covered This section applies to all federally related mortgage loans, as defined by 12 C.F.R (b), but does not include open-end lines of credit. 417 Further, all loans exempt under 12 C.F.R (b) and 12 C.F.R (k)(5)(iii) are exempt from this requirement as well. 418 To determine whether a credit union meets the definition of one of these exemptions, you should review the regulations in detail C.F.R (c)(2) C.F.R (c)(3) Real Estate Settlement Procedures Act (Regulation X) and Truth in Lending Act (Regulation Z) Mortgage Servicing Final Rules Small Entity Compliance Guide, Consumer Financial Protection Bureau, (June 7, 2013), p C.F.R

87 Definition Force-placed insurance is defined as hazard insurance obtained by a servicer on behalf of the owner or assignee of a mortgage loan that insures the property securing such loan. 419 Force-placed insurance does not include the following: Hazard insurance required by the Flood Disaster Protection Act of 1973; Hazard insurance originally obtained by a borrower, but renewed by the borrower s servicer as described by (k)(1), (2), or (5); Hazard insurance originally obtained by a borrower, but renewed by the borrower s servicer, at its discretion, if the borrower agrees. 420 Notice Requirements Credit unions must have a reasonable basis to believe a borrower has failed to maintain required hazard insurance before it can charge the borrower for force-placed insurance. 421 As part of proving that reasonable basis, the credit union must send the borrower two (2) notices before a premium or fee related to force-placed insurance can be charged. 422 Each notice must be delivered to the borrower or placed in the mail and sent via first-class mail. 423 In response to these notices, and before a premium or fee for force-placed insurance is charged, the credit union cannot receive evidence that the borrower had in place, continuously, required hazard insurance. 424 A credit union may charge a borrower for insurance coverage that was in place before the notices were sent if it does not receive evidence that the borrower had in place, continuously, required hazard insurance during these periods, but it cannot impose that charge until after the notice periods have elapsed. 425 First Notice A first notice must be delivered or mailed via first-class mail to the borrower at least forty-five (45) days before a credit union assesses the premium or fee. 426 The first notice must contain the following information: (1) The date of the notice; (2) The servicer s name and mailing address; C.F.R (a)(1) C.F.R (a)(2)(i)-(iii) Real Estate Settlement Procedures Act (Regulation X) and Truth in Lending Act (Regulation Z) Mortgage Servicing Final Rules Small Entity Compliance Guide, Consumer Financial Protection Bureau, (June 7, 2013), p , 44-45; See also 12 C.F.R (f). 424, C.F.R (c)(1)(i). 86

88 (3) The borrower s name and mailing address; (4) A statement that requests the borrower to provide hazard insurance information for the borrower s property and identifies the property by its physical address; (5) A statement that the borrower's hazard insurance is expiring or has expired, as applicable, and that the servicer does not have evidence that the borrower has hazard insurance coverage past the expiration date, and that, if applicable, identifies the type of hazard insurance for which the servicer lacks evidence of coverage; (6) A statement that hazard insurance is required on the borrower's property, and that the servicer has purchased or will purchase, as applicable, such insurance at the borrower's expense; (7) A statement requesting the borrower to promptly provide the servicer with insurance information; (8) A description of the requested insurance information and how the borrower may provide such information, and if applicable, a statement that the requested information must be in writing; (9) A statement that insurance the servicer has purchased or purchases: o May cost significantly more than hazard insurance purchased by the borrower; o May not provide as much coverage as hazard insurance purchased by the borrower; (10) The servicer's telephone number for borrower inquiries; and (11) If applicable, a statement advising the borrower to review additional information provided in the same transmittal. 427 Paragraphs (4), (6), and (9) must appear in bold text, except the information about the physical address in Paragraph (4) may be set in regular text. 428 The CFPB has published sample forms which credit unions may use to comply with these requirements. The model forms available are located in Appendix MS-3 to the regulations implementing the Real Estate Settlement Procedures Act, and labeled as Form MS-3A (here appended). 429 Finally, a credit union may include additional information with this notice, but it must be provided on a separate sheet within the same mailing. 430 Second Notice Reminder Notice A second, reminder notice must be sent to the borrower at least thirty (30) days after delivering to the borrower, or placing in mail, the first notice. 431 The credit union must wait at least fifteen (15) days following delivery or mailing before it can charge the borrower a premium or fee for force-placed insurance. 432 The second notice must contain the following information: (1) The date of the notice; (2) A statement that the notice is the second and final notice; C.F.R (c)(2)(i)-(xi) C.F.R (c)(3) C.F.R (c)(4) C.F.R (d)(1)

89 (3) The information required in Paragraphs two (2) through six (6) referenced above for the first notice listed above; (4) The cost of the force-placed insurance, stated as an annual premium, except if a servicer does not know the cost of force-placed insurance, a reasonable estimate shall be disclosed and identified as an estimate. 433 Exemption Small servicers may purchase force-placed insurance and charge the costs to the borrower if the cost to the borrower of the force-placed insurance is less than the amount the small servicer would need to disburse from the borrower s escrow account to ensure that the borrower s hazard insurance premium charges were timely paid. 434 What requirements apply to borrowers with escrow accounts for payment of hazard insurance? If a borrower has an escrow account to pay hazard insurance, a credit union may not obtain force-placed insurance unless the credit union is unable to maintain the existing hazard insurance coverage. A credit union is considered unable to disburse funds from an escrow account in such circumstances, only if the credit union has a reasonable basis to believe either the borrower s hazard insurance has been canceled or not renewed, for reasons other than nonpayment of premium charges, or that the property is vacant. 435 ERROR RESOLUTION AND INFORMATION REQUESTS ** Small servicers are NOT exempt from the error resolution and information request rules. Loans Covered The error resolution and information request requirements of the Mortgage Servicing Rules apply to all federally related mortgage loans, as defined in 12 C.F.R (b), except for the exemptions in 12 C.F.R (b) and open-end lines of credit. To determine whether a credit union meets the definition of one of these exemptions, you should review the regulations in detail. Notice of Error A notice of error is defined as, a written notice from a borrower that asserts an error that includes: The name of the borrower; Information that allows the credit union to identify the borrower s mortgage loan; and The error the borrower believes has occurred C.F.R (d)(2)(i) C.F.R (k)(5). 88

90 A notice on a payment coupon or other payment form supplied by a credit union need not be treated as a notice of error. 436 Error When dealing with a notice of error, an error refers to the following categories of errors: 1. Failure to accept a payment that conforms to the credit union s written requirements for the borrower to follow in making payments; 2. Failure to apply an accepted payment to principal, interest, escrow, or other charges under the terms of the mortgage loan and applicable law; 3. Failure to credit a payment to a borrower s mortgage loan as of the date of receipt; 4. Failure to pay taxes, insurance premiums or other charges including charges that the borrower and credit union have voluntarily agreed that the service should collect and pay in a timely manner, or to refund an escrow account balance when required; 5. Imposing a fee or charge that the credit union lacks a reasonable basis to impose; 6. Failure to provide an accurate payoff balance amount upon a borrower s request; 7. Failure to provide accurate information to a borrower regarding loss mitigation options and foreclosure; 8. Failure to transfer accurately and timely information relating to the servicing of a borrower s mortgage loan account to a transferee; 9. Making the first notice or filing required by applicable law for any judicial or non-judicial foreclosure process in violation of law; 10. Moving for foreclosure judgment or order of sale, or conducting a foreclosure sale, in violation of law; 11. Any other error relating to the servicing of a mortgage loan. 437 Specific Location for Notices of Error A credit union may, by written notice to a borrower, establish an address that must be used to submit a notice of error. The credit union s notice must include a specific statement that the borrower must use the address stated. In addition, if a credit union designates a specific address for receiving a notice of error, the credit union shall also designate the same address for receiving information requests C.F.R (a) C.F.R (b) Real Estate Settlement Procedures Act (Regulation X) and Truth in Lending Act (Regulation Z) Mortgage Servicing Final Rules Small Entity Compliance Guide, Consumer Financial Protection Bureau, (June 7, 2013), p

91 Acknowledging Receipt Within five (5) days of receiving a notice of error from a borrower, the credit union must provide the borrower a written response acknowledging receipt of the notice of error. 439 Response to Notice of Error In general, a credit union must respond to a notice of error by either: correcting the error or errors identified by the borrower, providing the borrower with a written notification of the correction, the effective date of the correction, and contact information, including a telephone number, for further assistance; or conduct a reasonable investigation, and provide the borrower with a written notification that includes a statement that the servicer has determined that no error occurred, a statement of the reason or reasons for this determination, a statement of the borrower's right to request documents relied upon by the servicer in reaching its determination, information regarding how the borrower can request such documents, and contact information, including a telephone number, for further assistance. 440 Credit Union Finds Additional Errors During the investigation, if the credit union concludes that errors occurred other than or in addition to the error or errors reported by the borrower, the credit union must correct these errors and provide the borrower with written notification describing the errors, the actions taken to correct the errors, the effective date of correction and contact information, including telephone number, for further assistance. 441 Requesting Information from the Borrower A credit union may request documentation from the borrower in connection with the investigation of an asserted error. However, the credit union may not require the borrower to provide the information as a condition of investigating the error, or determine that no error occurred, because the borrower failed to provide any requested information, without also conducting a reasonable investigation C.F.R (d) C.F.R (e) C.F.R (e)(1)(ii) C.F.R (e)(2). 90

92 Timing A credit union must respond no later than seven (7) days after the servicer receives notice of error for errors related to failure to provide an accurate payoff balance. 443 A credit union must respond prior to the date of foreclosure sale or within thirty (30) days after the credit union receives notice of the error, whichever is earlier, for errors related to making the first notice or filing required by applicable law for any judicial or non-judicial foreclosure or related to moving for foreclosure judgment or order of sale, or conducting a foreclosure sale in violation of law. 444 A credit union must respond not later than thirty (30) days after the credit union receives a notice of error for all other above listed errors. 445 A credit union may extend the time period for responding by an additional fifteen (15) days if, before the end of the thirty (30) day period, the credit union notifies the borrower, in writing, of the extension and the reasons for the extension. This extension does not apply to notices of error asserted under 12 C.F.R (b)(6), (9) or (10). 446 For purposes of the timing requirements, days excludes legal public holidays, Saturdays and Sundays. 447 Copies of Documents Within fifteen (15) days of receiving a borrower s request, a credit union must provide, at no charge, copies of documents and information relied upon in making a determination that no error occurred. Credit unions do not have to provide confidential, proprietary or privileged information; however, the credit union must still notify the borrower of this determination within the relevant time frame. 448 Alternative Compliance Early Correction Credit unions are not required to follow the acknowledgement of receipt or response to notices of errors requirements, if the credit union corrects the error or errors and notifies the borrower of the correction in writing within five (5) days of receiving the notice of error. 449 Error Asserted Prior to Foreclosure Sale Credit unions are not required to follow the acknowledgement or receipt or response to notice of errors requirements for errors asserted under 12 C.F.R (b)(9) or (10), if the credit Real Estate Settlement Procedures Act (Regulation X) and Truth in Lending Act (Regulation Z) Mortgage Servicing Final Rules Small Entity Compliance Guide, Consumer Financial Protection Bureau, (June 7, 2013),p C.F.R (e)(3) C.F.R (e)(3)(ii) C.F.R (d) and (e) C.F.R (e)(4) C.F.R (f)(1). 91

93 union receives the notice seven (7) or fewer days before a foreclosure sale. For any such notice, a credit union must make a good faith attempt to respond to the borrower and correct the error, or state the reason the credit union has determined no error has occurred. 450 Reasons under Which a Response is Not Required There are a number of scenarios under which a credit union is not required to respond, that are detailed below. Duplicate Notice A credit union does not have to comply with the notice of error requirements if the asserted error is substantially the same as an error previously asserted by the borrower, unless the borrower provides new and material information to support the asserted error. New and material information means information that was not reviewed by the credit union regarding a prior notice of the same error and is reasonably likely to change the credit union s determination. 451 Overbroad Notice A credit union does not have to comply with the notice of error requirements if the asserted error is overbroad. It is considered overbroad if the credit union cannot reasonably determine from the borrower s notice of error the specific error that is being asserted. 452 To the extent a credit union can reasonably identify a valid assertion of error in a notice that is otherwise overbroad, the credit union must comply with the requirements. Examples of overbroad notices of error include: An assertion that errors were made in all aspects of the loan including origination, servicing, and foreclosure; An assertion in the form of a judicial action complaint, subpoena, or discovery request; An assertion that is incomprehensible. 453 Untimely Notice A credit union does not have to comply with the notice of error requirements, if a notice of error is delivered to the credit union more than one year after servicing of the mortgage loan subject to the assertion was transferred from the credit union to a transferee, or more than one year after the mortgage loan was paid in full C.F.R (f)(2) C.F.R (g)(1)(i) C.F.R (g)(1)(ii). 453 Comment 12 C.F.R (g)(1)(ii) C.F.R (g)(1)(iii). 92

94 Notice Requirement if Credit Union Not Responding If a credit union determines that it does not have to respond to a notice of error, the credit union must notify the borrower of its determination, in writing, not later than five (5) days after making such determination. The response must set forth the basis for such non-response to the asserted error(s). 455 Prohibitions A credit union cannot charge a fee or require a borrower to make a payment that may be owed as a condition of responding to a notice of error. In addition, a credit union cannot furnish adverse information to a consumer reporting agency regarding any payment that is subject to a notice of error for sixty (60) days after receipt of the notice of error. 456 REQUESTS FOR INFORMATION An information request is any written request for information from a borrower that includes: The name of the borrower; Information that allows the credit union to identify the borrower s mortgage loan; and A statement of the information being requested with respect to the borrower s mortgage loan. 457 An information request on a payment coupon or other payment form supplied by the credit union need not be treated by the credit union as a request for information. In addition, a request for a payoff balance does not require treatment as a request for information. 458 Specific Location for Information Requests A credit union may, by written notice to a borrower, establish an address that must be used to request information in accordance with this rule. The notice must include a statement that the borrower must use the address stated. In addition, if a credit union designates a specific address for receiving information requests, the credit union shall also designate the same address for receiving notices of error C.F.R (g)(2) C.F.R (h) C.F.R (a) C.F.R (a) Real Estate Settlement Procedures Act (Regulation X) and Truth in Lending Act (Regulation Z) Mortgage Servicing Final Rules Small Entity Compliance Guide, Consumer Financial Protection Bureau, (June 7, 2013), p

95 Acknowledging Receipt Within five (5) days of receiving an information request from a borrower, the credit union must provide the borrower with a written response acknowledging receipt. 460 A credit union does not have to provide the acknowledgment of receipt if it provides to the borrower, in writing, the information requested, as well as provides contact information, including telephone number, for further assistance within five (5) days of receiving an information request. 461 Response to Information Request A credit union must respond, in writing, to an information request by providing the borrower with the requested information and a credit union s contact information, including a telephone number, for further assistance. Alternatively, a credit union must conduct a reasonable search for the requested information, and provide the borrower with a written notification stating that the credit union has determined the requested information is not available, and must provide the credit union s contact information, including a telephone number, for further assistance. 462 Timing and Extensions of Time A credit union must comply with the response requirements, not later than ten (10) days after the credit union receives an information request, for the identity of, and address or other relevant contact information for, the owner or assignee of a mortgage loan. 463 A credit union must comply with the response requirement not later than thirty (30) days after receipt of all other information requests. 464 A credit union may extend the time for responding by an additional fifteen (15) days if, before the end of the thirty (30) day period, the credit union notifies the borrower in writing of the extension and the reasons for the extension. 465 Reasons Not Requiring a Response A credit union does not need to follow the response requirements, if the information request is: Substantially the same as the information requested for which the credit union has previously complied; Confidential, proprietary or privileged; Not directly related to the borrower s mortgage loan account; Overbroad or unduly burdensome; C.F.R (c) C.F.R (e) C.F.R (d) C.F.R (d)(2)(i)(A) C.F.R (d)(2)(i)(B) C.F.R (d)(2)(ii). 94

96 o A request is overbroad if it requests an unreasonable volume of documents or information. A request is unduly burdensome: if a diligent credit union could not respond without either exceeding the maximum time limits for responding, or incurring costs that would be unreasonable in light of the circumstances. To the extent a credit union can reasonably identify a valid information request in a submission that is otherwise overbroad or unduly burdensome, the credit union must comply with the response requirements. Delivered to the credit union more than one year after servicing for the mortgage loan was transferred to a transferee, or more than one year after the mortgage loan was paid in full. 466 Notice Requirement When Not Responding If a credit union is not required to comply with the response requirements as described above, the credit union must notify the borrower in writing no later than five (5) days after making the determination and state the basis for the determination. 467 Prohibitions A credit union cannot charge a fee or require a borrower to make a payment that may be owed as a condition of responding to an information request. GENERAL SERVICING POLICIES, PROCEDURES AND REQUIREMENTS **This rule does not apply to small servicers. Application These rules apply to federally related mortgage loans except for the exemptions in existing and newly amended 12 C.F.R (b), the newly created regulation 12 C.F. R (b), and open-end lines of credit. To determine whether a credit union meets the definition of one of these exemptions, you should review the regulations in detail. General Policies, Scope and Objectives The Mortgage Servicing Rules requires credit union to maintain policies and procedures that are reasonably designed to ensure that the credit union can: Provide accurate and timely disclosures to a borrower as required by law; Investigate, respond to, and, as appropriate, make corrections in response to complaints asserted by a borrower; C.F.R (f)(1)(i),(ii),(iii),(iv) and (v) C.F.R (f)(2). 95

97 Provide a borrower with accurate and timely information and documents in response to requests for information; Provide owners or assignees of mortgage loans with accurate and current information and documents about mortgages they own; Submit documents or filings as required for a foreclosure process; and Upon notification of the death of a borrower, promptly identify and communicate with the successor in interest with respect to the property secured by the deceased borrower s mortgage. 468 Additional information concerning successors in interest is further detailed below. In addition, the policies and procedures must be reasonably designed to ensure that the credit union can: Provide accurate information regarding loss mitigation options available to a borrower from the owner or assignee of the borrower s mortgage; Identify all loss mitigation options for which borrowers may be eligible; Provide prompt access to all documents and information submitted by a borrower in connection with a loss mitigation option to credit union personnel assigned to assist; Identify documentation and information a borrower is required to submit to complete a loss mitigation application, and facilitate compliance with the notice requirements; Properly evaluate a borrower who submits an application for a loss mitigation option for all loss mitigation options for which the borrower may be eligible. 469 The policies and procedures must also be reasonably designed to ensure that the credit union can: Provide appropriate staff with access to accurate and current documents and information reflecting actions performed by the credit union; Facilitate periodic review of credit union including by providing appropriate personnel with documents and information necessary to audit compliance with the contractual obligations; Facilitate sharing of accurate and current information regarding the status of any evaluation of a borrower s loss mitigation application and the status of any foreclosure proceeding amount personnel. The policies and procedures must be reasonably be designed to ensure that the credit union can: As a transferor credit union, timely transfer all information and documents in the possession or control of the servicer relating to a transferred mortgage loan to a transferee servicer in a form and manner that ensures the accuracy of information and documents transferred; OR C.F.R (b) Real Estate Settlement Procedures Act (Regulation X) and Truth in Lending Act (Regulation Z) Mortgage Servicing Final Rules Small Entity Compliance Guide, Consumer Financial Protection Bureau, (June 7, 2013), p

98 As a transferee credit union, identify necessary documents or information that may not have been transferred by a transferor and obtain such documents. 470 Finally, the policies and procedures must ensure that the credit union informs the borrower(s) of procedures for submitting written notices of error and information requests. 471 Servicing Transfers A credit union s policies and procedures must be designed to ensure with reasonable certainty that when transferring a mortgage loan, all information and documents related to such loan in its possession and control are timely moved to the transferee institution. The transfer must be done in a manner that allows for the new servicer to comply with any legal obligations it may have to the borrower. If the credit union is receiving a transfer, it must also have procedures in place to assure receipt of all necessary documents or information. 472 If the transferring loan was a loan in loss mitigation, the transfer must also include information regarding the status of any discussions with the borrower, any agreements between the credit union and the borrower, and the credit union s analysis of any potential recovery from the mortgage as appropriate. 473 If any documentation appears to be missing, a credit union must make efforts to retrieve the information and any missing loss mitigation documents from the transferring servicer prior to requesting such information from the borrower. 474 Electronic transfer of such information is permitted so long as the policies and procedures are followed which provide for timely and accurate transfer. 475 Sample language to provide in a Servicing Disclosure Notice is located in Appendix MS-1 to 1024 (here appended). Record Retention A credit union must retain records that document actions taken with respect to a borrower s mortgage until one year after the date a mortgage loan is discharged or servicing is transferred. 476 Servicing File Requirements For each mortgage loan serviced, a credit union must maintain certain data and documents that allows for the creation of a servicing file within a five (5) day compliance period. While the rule is not explicit, it implies that the file s creation is not required to be reduced to a physical paper file, but rather that C.F.R (b) C.F.R (b)(4). 473 Comment to 12 C.F.R. 38(b)(4)(i) Comment to 12 C.F.R. 38(b)(4)(ii) Real Estate Settlement Procedures Act (Regulation X) and Truth in Lending Act (Regulation Z) Mortgage Servicing Final Rules Small Entity Compliance Guide, Consumer Financial Protection Bureau, (June 7, 2013), p C.F.R (c). 97

99 electronic documents, so long as they are easily accessible, would be sufficient. The list of such information required to be contained within a servicing file is as follows: A schedule of all transactions credited or debited to the loan, including any escrow or suspense account; A copy of the security agreement; Any notes created by the servicer reflecting communications with the borrower; As applicable, a report of the data fields relating to the borrower s mortgage loan created by the servicer s electronic systems in connection with the servicing; and Copies of any information or documents provided by the borrower regarding notices of error or loss mitigation applications. 477 EARLY INTERVENTION REQUIREMENTS **This rule does not apply small servicers. Application These rules apply to all federally related mortgage loans, except for the exemptions in 12 C.F.R (b) and 12 C.F.R (b) and (c) and open-end lines of credit. To determine whether a credit union meets the definition of one of these exemptions, you should review the regulations in detail. A credit union must establish or make good faith efforts to establish live contact with a delinquent borrower not later than the thirty-sixth (36 th ) day of the borrower s delinquency and, after establishing live contact, inform the borrower of available loss mitigation options. 478 A credit union must provide a delinquent borrower a written notice with the information detailed below, not later than the forty-fifth (45 th ) day of the borrower s delinquency. A credit union is not required to provide the notice more than once during any one hundred and eighty (180) day period. A statement encouraging the borrower to contact the credit union; The telephone number to access appropriate credit union staff and the credit union s mailing address; If applicable, a statement providing a brief description of examples of loss mitigation options that may be available; If applicable, either application instructions or a statement informing the borrower how to obtain more information on loss mitigation options; and The website to access either the CFPB list or the Minnesota HUD list of homeownership counselors and counseling organizations, and the HUD toll-free telephone number ((800) C.F.R (c)(2) C.F.R (a). 98

100 4287) to access contact information for homeownership counselors or counseling organizations. 479 Appendix MS-4 (here appended) to the rule has a list of model clauses that may be used to comply with the requirements. 480 Exemptions A servicer is exempt from the early intervention requirements when a borrower is a debtor in bankruptcy 481, or when a borrower has revoked the cease communication provisions under the Fair Debt Collection Practices Act (FDCPA) 482. Regarding the bankruptcy exemption, the exemption begins once a petition has been filed commencing a bankruptcy case under Title 11 of the United States Code (the bankruptcy code) in which the consumer is a debtor. 483 With respect to any portion of the mortgage debt that is not discharged by virtue of the bankruptcy, a servicer must resume sending periodic statements in compliance with the rules within a reasonably prompt time after the case is: 1) dismissed; 2) closed; or 3) the consumer receives a discharge under the bankruptcy code. 484 Lastly, this exemption applies when any one consumer, who is among the joint obligors with primary liability on the transaction, is a debtor in bankruptcy. 485 In addition, if a servicer is a debt collector as defined under the FDCPA, and after a borrower has exercised his/her cease communication right, the servicer is exempt from further communication requirements of the early intervention rules C.F.R (b)(2). 480 See Appendix MS-4 of 12 C.F.R (RESPA, Regulation X) C.F.R (d)(1); Note that this is an interim final rule out for comment until November 22, 2013, to be effective January 10, 2014 (Federal Register, Vol. 78, No. 205, p (Oct. 23, 2013) C.F.R (d)(2); Note that this is an interim final rule out for comment until November 22, 2013, to be effective January 10, 2014 (Federal Register, Vol. 78, No. 205, p (Oct. 23, 2013) C.F.R (d)(1), Comments 39(d)(1)-1; Note that this is an interim final rule out for comment until November 22, 2013, to be effective January 10, 2014 (Federal Register, Vol. 78, No. 205, p (Oct. 23, 2013) C.F.R (d)(1), Comments 39(d)(1)-2 ; Note that this is an interim final rule out for comment until November 22, 2013, to be effective January 10, 2014 (Federal Register, Vol. 78, No. 205, p (Oct. 23, 2013) C.F.R (d)(1), Comments 39(d)(1)-3 ; Note that this is an interim final rule out for comment until November 22, 2013, to be effective January 10, 2014 (Federal Register, Vol. 78, No. 205, p (Oct. 23, 2013) C.F.R (d)(2); Comments 39(d)(1)-2 ; Note that this is an interim final rule out for comment until November 22, 2013, to be effective January 10, 2014 (Federal Register, Vol. 78, No. 205, p (Oct. 23, 2013). 99

101 CONTINUITY OF CONTACT **This rule does not apply to small servicers. Application These rules apply to all federally related mortgage loans, except for the exemptions in 12 C.F.R (b) and 12 C.F.R (b) and (c) and open-end lines of credit. To determine whether a credit union meets the definition of one of these exemptions, you should review the regulations in detail. A credit union must maintain policies and procedures that are reasonably designed to achieve the following: Assign staff to a delinquent borrower by the time the servicer provides the borrower with the written notice as required above (the early intervention notice), but in any event, not later than the forty-fifth (45 th ) day of delinquency. Make available to a delinquent borrower, via telephone, personnel assigned to the borrower to respond to the borrower s inquiries, and assist the borrower with available loss mitigation options until the borrower has made, without incurring a late charge, two consecutive mortgage payments in accordance with the terms of a permanent loss mitigation agreement; If a borrower contacts the staff assigned to the borrower and does not immediately receive a live response from the staff, ensure that the credit union can provide a live response in a timely manner. 487 LOSS MITIGATION REQUIREMENTS **While most of this rule does not apply to small servicers, certain parts of this rule do apply to small servicers. Application These rules apply to all federally related mortgage loans, except for the exemptions in 12 C.F.R (b) and 12 C.F.R (b) and (c) and open-end lines of credit. To determine whether a credit union meets the definition of one of these exemptions, you should review the regulations in detail. Note that in addition to these rules, credit unions are also subject to the state law requirements regarding foreclosure under Minn. Stat Complete Loss Mitigation Application Definition A complete loss mitigation application is an application received by the credit union which has all information the credit union requires in evaluating loss mitigation options available to a borrower C.F.R (a)(1)-(3) 100

102 Credit unions must exercise reasonable diligence in obtaining documents and information to complete a loss mitigation application. 488 When a borrower sends everything a credit union asks for other than information that is not in their control, such as a credit report, the credit union must consider this a complete loss mitigation application. 489 Review of Loss Mitigation Application If a credit union receives a loss mitigation application forty-five (45) days or more before a foreclosure sale, the credit union must, first, promptly review the application to determine if it is a complete loss mitigation application; and second, notify the borrower in writing within five (5) days after receipt whether the application is complete or not. If the application is incomplete, the notice must state: the additional documents or information the borrower must submit to complete the loss mitigation application; that the borrower should consider contacting servicers of any other mortgage loans secured by the same property to discuss available loss mitigation options; the date by which any document or information will be considered stale or invalid; the date that is the 120 th day of the borrower s delinquency, that is 90 days before a foreclosure sale, or the date that is 38 days before a foreclosure sale. 490 Evaluation of Complete Loss Mitigation Application If a credit union receives a complete loss mitigation application more than thirty-seven (37) days before a foreclosures sale, then within thirty (30) days of receipt a credit union must: Evaluate the borrower for all loss mitigation options available to the borrower; and Provide the borrower with a notice in writing state the credit union s determination of which loss mitigation options, if any, it will offer to the borrower on behalf of the owner or assignee of the mortgage. If a credit union denies a complete loss mitigation application for any trial or permanent loan modification option available to the borrower, the credit union must state in the notice sent to the borrower: the specific reasons for the credit union s determination for each such trial or permanent loan modification option; and if applicable, that the borrower may appeal the determination, the deadline for making an appeal and any requirements for making an appeal C.F.R (b)(1). 489 Comment 12 C.F.R (b)(1)-(5) C.F.R (b)(2). 101

103 If a complete loss mitigation application is received ninety (90) days or more before a foreclosure sale, a credit union may require the borrower to accept or reject an offer of a loss mitigation option no earlier than fourteen (14) days after the servicer provides the offer of a loss mitigation option to the borrower. If a complete loss mitigation application is received less than ninety (90) days before a foreclosure sale, but more than thirty-seven (37) days before a foreclosure sale, a credit union may require that a borrower accept or reject an offer of a loss mitigation option no earlier than seven (7) days after the servicer provides the offer of a loss mitigation option to the borrower. 491 If a borrower fails to accept an offer of loss mitigation within the deadline established, a credit union may deem the offer rejected. 492 However, if a borrower submits the payments that would be owed under the loss mitigation option within the deadline, the borrower shall be provided a reasonable time to fulfill any remaining requirements for accepting the trial loan modification plan. If a borrower appeals a determination in line with a credit union s appeal process, if any, the deadline for accepting a loss mitigation option shall be extended until fourteen (14) days after the credit union provides the notice required regarding an appeal as discussed below. Note: If a credit union has four loan modification options and only offers a borrower one of those options, the credit union has denied the borrower for three of the options and must provide the notice for those denials. 493 Prohibition on Foreclosure Referral **This portion of the rule does apply to small servicers. A credit union may not make the first notice or filing as required by law for the foreclosure process until the borrower s mortgage loan is more than one hundred and twenty (120) days delinquent. 494 If a borrower submits a complete loss mitigation application prior to the borrower being more than one hundred and twenty (120) days delinquent, or before the credit union has made the first notice or filing for foreclosure, a credit union may not make the first notice or filing unless: The credit union has sent the borrower the required notice that they are not eligible for any loss mitigation option and the appeals process is not applicable, the borrower has not appealed the decision, or the borrower s appeal has been denied; The borrower rejects all loss mitigation options offered; or The borrower fails to perform under an agreement on a loss mitigation option C.F.R (e)(1) C.F.R (e)(2) C.F.R (d)(1)-(4) C.F.R (f)(1) C.F.R (f)(2). 102

104 Prohibition on Foreclosure Sale If a borrower submits a complete loss mitigation application after a credit union has made the first notice or filing required for foreclosure but more than thirty-seven (37) days before a foreclosure sale, a servicer shall not move for foreclosure or conduct a foreclosures sale unless: The credit union has sent the borrower the required notice that they are not eligible for any loss mitigation option and the appeals process is not applicable, the borrower has not appealed the decision, or the borrower s appeal has been denied; The borrower rejects all loss mitigation options offered; or The borrower fails to perform under an agreement on a loss mitigation option. 496 Appeals Process If a credit union receives a complete loss mitigation application ninety (90) days or more before a foreclosure sale or during the period that the borrower is one hundred and twenty (120) days or less delinquent, a credit union must permit a borrower to appeal the determination to deny a loss mitigation application for any modification program available to the borrower. 497 Timing A credit union shall permit a borrower to make an appeal within fourteen (14) days after the credit union provides the offer of a loss mitigation option to the borrower. 498 The Appeal Appeals must be reviewed by different staff than those responsible for evaluating the borrower s complete loss mitigation application. Within thirty (30) days of a borrower making an appeal, the credit union must provide notice to the borrower stating the credit union s determination of whether it will offer the borrower a loss mitigation option based upon the appeal. A credit union may require that a borrower accept or reject an offer of a loss mitigation option after an appeal no earlier than fourteen (14) days after the credit union provides the notice to the borrower C.F.R (g) Real Estate Settlement Procedures Act (Regulation X) and Truth in Lending Act (Regulation Z) Mortgage Servicing Final Rules Small Entity Compliance Guide, Consumer Financial Protection Bureau, (June 7, 2013), p Real Estate Settlement Procedures Act (Regulation X) and Truth in Lending Act (Regulation Z) Mortgage Servicing Final Rules Small Entity Compliance Guide, Consumer Financial Protection Bureau, (June 7, 2013), p

105 Small Servicer Requirements A small servicer shall not make the first notice or filing for foreclosure unless a borrower s mortgage is more than one hundred and twenty (120) days delinquent. In addition, a small servicer shall not make the first notice or filing for foreclosure and shall not move for foreclosure or conduct a sale if a borrower is performing pursuant to the terms of an agreement on a loss mitigation option. 500 SUCCESSORS IN INTEREST Upon notification of the death of a borrower, the credit union is expected to promptly identify and facilitate communication with a successor in interest with respect to the deceased borrower s mortgage loan. A successor in interest is considered a spouse, child or heir of a deceased borrower, or other party that may have an interest in the mortgaged property. This communication includes promptly informing the party claiming to be a successor in interest with the list of documentation he/she is required to provide in order to establish the death of the borrower, as well as the identity and legal interest he/she may have as successor. 501 The credit union must also review the status of the mortgage loan and determine what information can be provided to the successor. This information may include the following: Reviewing the successor s identity and proof of legal interest in the property; Reviewing the current status of the mortgage for whether it is current or delinquent; Determining whether the successor is eligible to continue making payments, and/or assume the mortgage loan; Determining whether a loan modification or other loss mitigation option was in place at the time of the borrower s death, and if the successor is eligible for loss mitigation options; Determine whether there is a pending of planned foreclosure. 502 The credit union is also expected to provide a successor with the above information, so long as it does not conflict with federal or state law restricting disclosure of the deceased borrower s non-public personal information. Employees are also expected to have been provided with information and training regarding the effect of the laws and the investor requirements. 503 The credit union may also be subject to specific investor requirements with respect to a successor in interest s rights. For example, Freddie Mac requires servicers to refer to it any case, where the servicer is unsure as to whether a purported transferee has a legal or beneficial interest in the property, but that person is willing to assume the mortgage obligation. 504 Both Freddie Mac and Fannie Mae require servicers to submit recommendations to them for approval of a simultaneous mortgage assumption and loss mitigation option C.F.R (j). 501 CFPB Bulletin , p. 2 (October 15, 2013). 502 at CFPB Bulletin , p. 4 (October 15, 2013). 504 Freddie Mac Bulletin No (Feb. 14, 2013). 505 at

106 ADDITIONAL EDUCATIONAL RESOURCES The following are helpful resources available that may assist you in compliance with the new Mortgage Rules. The CFPB s 2013 Real Estate Settlement Procedures Act (Regulation X) and Truth in Lending Act (Regulation Z) Mortgage Servicing Final Rules Small Entity Compliance Guide Appendices MS-1 to MS 4 (here appended) The CFPB s Mortgage Servicing Rules Coverage Chart (here appended) The CFPB s Mortgage Origination Rules: Transaction Coverage and Exemptions (here appended) 105

107 ATTACHMENT A ELECTRONIC CODE OF FEDERAL REGULATIONS e-cfr Data is current as of December 2, 2013 Amendment from February 14, CFR--PART 1024 View Printed Federal Register page 78 FR in PDF format. Amendment(s) published February 14, 2013, in 78 FR EFFECTIVE DATES: January 10, Appendix MS-2 to part 1024 is revised to read as follows: Appendix MS-2 to Part 1024 NOTICE OF SERVICING TRANSFER The servicing of your mortgage loan is being transferred, effective [Date]. This means that after this date, a new servicer will be collecting your mortgage loan payments from you. Nothing else about your mortgage loan will change. [Name of present servicer] is now collecting your payments. [Name of present servicer] will stop accepting payments received from you after [Date]. [Name of new servicer] will collect your payments going forward. Your new servicer will start accepting payments received from you on [Date]. SEND ALL PAYMENTS DUE ON OR AFTER [DATE] TO [NAME OF NEW SERVICER] AT THIS ADDRESS: [NEW SERVICER ADDRESS]. If you have any questions for either your present servicer, [Name of present servicer] or your new servicer [Name of new servicer], about your mortgage loan or this transfer, please contact them using the information below: Current Servicer: New Servicer: [Name of present servicer] [Name of new servicer] [Individual or Department] [Individual or Department] [Telephone Number] [Telephone Number] [Address] [Address]

108 [Use this paragraph if appropriate; otherwise omit.] Important note about insurance: If you have mortgage life or disability insurance or any other type of optional insurance, the transfer of servicing rights may affect your insurance in the following way: You should do the following to maintain coverage: Under Federal law, during the 60-day period following the effective date of the transfer of the loan servicing, a loan payment received by your old servicer on or before its due date may not be treated by the new servicer as late, and a late fee may not be imposed on you. [NAME OF PRESENT SERVICER] Date [and] [or] [NAME OF NEW SERVICER] Date For questions or comments regarding e-cfr editorial content, features, or design, [email protected]. For questions concerning e-cfr programming and delivery issues, [email protected]. 107

109 ATTACHMENT B 108

110 ATTACHMENT C 109

111 110

112 Minnesota Credit Union Network Regulatory Summary

113 DEPOSIT ACCOUNTS NEW ATM SIGNAGE LAW SIGNED President Barack Obama signed a bill into law that revised the Regulation E requirements related to ATM fee disclosures. The new law requires ATM fee disclosures be presented on the ATM s screen only and eliminates the requirement to have the disclosure also posted on the ATM itself. REGULATION D RESERVE REQUIREMENTS/REPORTING ADJUSTMENTS The Federal Reserve Board (Fed) amended Regulation D, which determines how much depository institutions must keep on hand either in vault cash, deposits at the Federal Reserve Banks, or in passthrough accounts at correspondent institutions. The Fed bases its reserve requirements on net transaction accounts. Reserve Requirements For net transaction accounts in 2014, the first $13.3 million, up from $12.4 million in 2013, will be exempt from reserve requirements (i.e., the reserveable liabilities exemptions adjustment). Amounts over $13.3 million, and up to and including $89.0 million (up from $79.5 million in 2013), will have a 3 percent reserve requirement. Amounts in excess of $89.0 million will have a 10 percent reserve requirement. Compliance Dates For credit unions that report deposit data weekly, the new low reserve tranche adjustment and reserve requirement exemption amount will apply to the 14-day reserve computation period that begins Tuesday, December 24, For credit unions that report deposit data quarterly, the new low reserve tranche and reserve requirement exemption amount will apply to the 7-day reserve computation period that begins Tuesday, December 17, The Fed also changed the nonexempt deposit cutoff level and the reduced reporting limit. The Fed is increasing the nonexempt deposit cutoff level to $306.7 million in 2014 (up from $290.5 million in 2013), and the reporting limit to $1.719 billion for 2014 (up from $1.628 billion in 2013). 112

114 INTERNAL REVENUE SERVICE TREASURY AND IRS ISSUED REGULATIONS TO COMBAT OFF-SHORE TAX EVASION The U.S. Department of Treasury (Treasury) and the Internal Revenue Service (IRS) issued final regulations implementing the information reporting and withholding tax provisions known as the Foreign Account Tax Compliance Act (FATCA). The regulations were intended to target non-compliance by U.S. taxpayers using foreign accounts. The IRS and Treasury identified several goals of these regulations, including: Build on intergovernmental agreements that foster international cooperation; Phase in the timelines for due diligence, reporting and withholding and align them with the intergovernmental agreements; Expand and clarify the scope of payments not subject to withholding; Refine and clarify the treatment of investment entities; and Clarify the compliance and verification obligations of foreign financial institutions. IRS ISSUES EARLY COPIES OF 2013 PERCENTAGE METHOD TABLES FOR INCOME TAX WITHHOLDING The Internal Revenue Service (IRS) issued early release copies of the 2013 Percentage Method Tables for Income Tax Withholding (Tables). The IRS directed employers to implement the new tax rates as soon as possible, but no later than Feb. 15, The 2012 tables were to be used until the 2013 rates are implemented. Most notably, the employee tax rate for social security has increased to 6.2 percent in 2013, and the social security wage limit has increased to $113,700. Once the new 6.2 percent rate was implemented, employers should have made an adjustment by no later than March 31, 2013 for any under-withholding that may have occurred so far in

115 LENDING HUD RULE FORMALIZING DISCRIMINATORY EFFECTS ON HOUSING The Department of Housing & Urban Development (HUD) issued a final rule to formalize a national standard to determining whether a housing practice is discriminatory. The rule established a three-part, burden-shifting test to determine whether a violation of the Fair Housing Act (FHA) is present. HUD believed this final rule provides clarity and consistency for individuals, businesses and government entities subject to the FHA. FEDERAL HOUSING FINANCE AGENCY FHFA ANNOUNCED STREAMLINED MODIFICATION INITIATIVE The Federal Housing Finance Agency (FHFA) announced that Fannie Mae and Freddie Mac began offering a new, simplified loan modification initiative called the Streamlined Modification Initiative (SMI) beginning July 1, Servicers are required to offer eligible borrowers who are at least 90 days delinquent on their mortgage an opportunity to modify their mortgage through SMI. In order to qualify for the FHFA s new initiative, homeowners must: Be between nine and 24 months behind on their mortgage payments; Owned their home for at least one year; and Have a mortgage loan-to-value ratio equal to or greater than 80%, In addition, loans that have been modified at least twice previously will not be eligible for the program. FHFA INCREASED COMMUNITY FINANCIAL INSTITUTION CAP The Federal Housing Finance Agency (FHFA) published a notice stating it had adjusted the cap on average total assets that defines a Community Financial Institution which went into effect on January 1, The asset cap has increased 1.8 percent from $1.076 billion to $1.095 billion. FHFA ANNOUNCES NO LENDER PLACED INSURANCE REIMBURSEMENTS The Federal Housing Finance Agency (FHFA), as conservator for both Fannie Mae and Freddie Mac, directed both entities to prohibit servicer s reimbursement of forced-placed insurance costs. Effective Date Nov. 5, 2013 HARP RECEIVED TWO-YEAR EXTENSION The Federal Housing Finance Agency (FHFA) extended the Home Affordable Refinance Program (HARP) by two years to Dec. 21, HARP was scheduled to expire on December 31,

116 FFIEC RELEASED 2013 HMDA REPORTING GUIDE The Federal Financial Institutions Examination Council (FFIEC) released the 2013 edition of A Guide to HMDA Reporting: Getting It Right (the Guide), designed to assist financial institutions in better understanding the Home Mortgage Disclosure Act (HMDA). FANNIE MAE AND FREDDIE MAC TO PURCHASE ONLY QUALIFIED MORTGAGES The Federal Housing Finance Agency (FHFA) directed Fannie Mae and Freddie Mac to limit future acquisitions to loans that are: Qualified Mortgages under the Ability-to-Repay Rule (ATR Rule), including those meeting the special or temporary qualified mortgage requirements; or Exempt from the ATR Rule requirements, such as investor transactions. Beginning Jan. 10, 2014, Fannie Mae will not be allowed to purchase loans that are subject to ATR Rule requirements and are either: Loans that are not fully amortizing (e.g. no negative amortization or interest-only loans); Loans with terms in excess of 30 years; or Loans with points and fees in excess of 3 percent of the total loan amount or such other limits for low balance loans as set forth in the final ATR Rule. For loans with application dates on or after January 10, 2014, Fannie Mae will rely upon lender selling representations and warranties that the loans are qualified mortgages. 115

117 NCUA OPERATIONAL CHANGES NCUA AMENDED TROUBLED CONDITION PROCEDURES The NCUA approved a final rule allowing either the NCUA or a state regulator to designate a federally insured, state-chartered credit union (SCCU) to be in troubled condition. Previously, only a state regulator could assign the troubled condition designation for a SCCU, even if the NCUA assigned the SCCU a lower rating prior to designating a SCCU as in troubled condition. The NCUA must first make an onsite contact with the credit union and consult with the appropriate state regulator prior to designating the SCCU as in troubled condition. Effective date Feb. 19, 2013 NCUA INCREASED SMALL CREDIT UNION THRESHOLD The NCUA issued a final rule increasing the asset-level threshold under its definition of a small credit union from $10 million to $50 million. Credit unions that meet the definition of a small definition are afforded additional flexibility under the NCUA s rules. Effective date Feb. 19, 2013 APPLICATION DEADLINE FOR LOW-INCOME DESIGNATION EXTENDED The NCUA issued a final rule extending the application deadline for a federal credit union (FCU) to apply for a low-income designation from 30 days to 90 days. Previously, under Section , a FCU must apply for the low-income designation within 30 days of being notified of its qualification from the NCUA. Effective date Feb. 19, 2013 NCUA APPROVED TECHNICAL CHANGES TO SHARE INSURANCE COVERAGE The NCUA approved a final rule amending its regulations pertaining to maximum share insurance coverage on various kinds of Treasury accounts. The Dodd-Frank Act amended the Federal Credit Union Act to permanently increase the standard maximum share insurance amount from $100,000 to $250,000. The final rule raised the maximum share insurance for Treasury accounts to the current level. Effective date Feb. 19, 2013 NCUA APPROVED HIGHER-PRICED MORTGAGE APPRAISAL RULES The NCUA, along with the other federal banking regulatory agencies, approved a joint final rule implementing new appraisal requirements for higher-priced mortgage loans (HPML), as required by the Dodd-Frank Act. The final rule regulates all closed-end residential mortgage loans that are not a qualified mortgage (QM), secured by a principal dwelling, and have an APR that exceeds the average prime offer rate (APOR) for a comparable transaction by any of the following thresholds: 1.5 percent for non-jumbo mortgage loans; 2.5 percent for loans over the jumbo limit; or 3.5 percent above comparative rates for junior liens. 116

118 However, the final rule does have a legal safe harbor for creditors that follow certain appraisal guidelines and provides exemptions for some loans, including qualified mortgages, reverse mortgages that are not QMs, initial construction loans, bridge loans and mobile home loans. Under the final rule, a creditor is only allowed to originate a non-exempt HPML if the following conditions are met: The creditor obtains a written appraisal; The appraisal is performed by a certified or licensed appraiser; and The appraiser conducts a physical property visit of the interior of the property. In addition, the following requirements also apply to HPMLs subject to the final rule: Upon application, the consumer must be provided with a statement regarding the purpose of the appraisal, that the creditor will provide the applicant with a copy of the appraisal, and that the applicant may choose to have a separate appraisal conducted for the applicant s own use at his or her expense; and The consumer must be provided with a copy of any written appraisal, free of charge, within three (3) business days before consummation. Furthermore, creditors will be required to obtain an additional appraisal, at no cost to the consumer, for an HPML if either: The seller is reselling the property within 90 days of acquiring it, and the resale price exceeds the seller s acquisition price by more than 10 percent; or The seller is reselling the property within 91 to 180 days of acquiring it, and the resale price exceeds the seller s acquisition price by more than 20 percent. The additional appraisal must be from a different appraiser and include information pertaining to the difference in sale prices, changes in market conditions, and any improvements to the property between the date of the previous sale and the current sale. Finally, the agencies have noted that they intend to publish a supplemental proposal and request for comment on possible exemptions to this rule for streamlined refinance programs and small dollar loans, and whether the HPML appraisal rule should apply to loans secured by other property types, such as manufactured homes. Effective date Jan. 18, 2014 NCUA APPROVED FINAL RULE AMENDING DEFINITION OF RURAL DISTRICT The NCUA approved a final rule amending its definition of a rural district in its Chartering and Field of Membership Manual. Under the final rule, an area will qualify as a rural district if its population does not exceed the greater of 250,000 people or 3 percent of the population of the state in which the majority of the district is located. 117

119 The final rule continued to include two alternative sets of criteria a credit union may use to establish a rural district. Under either criterion, the district cannot exceed the population limits noted above. Those criteria are as follows: The first set requires that the district have well-defined, contiguous boundaries and more than 50 percent of its population must reside in rural areas as designated by the U.S. Census Bureau. The second set requires the district to have well-defined, contiguous boundaries and a population density of no more than 100 people per square mile. Effective date April 1, 2013 NCUA APPROVED FINAL RULE ADDING TIPS TO ITS LIST OF PERMISSIBLE INVESTMENTS The NCUA approved a final rule adding Treasury Inflation Protected Securities (TIPS) to its list of permissible investments under its Investment and Deposit Activities rule. Effective date March 29, 2013 AGENCIES RELEASE GUIDANCE ON BIGGERT-WATERS FLOOD INSURANCE REFORM ACT The NCUA, along with other federal regulatory agencies, issued an interagency statement of guidance to address confusion surrounding the effective dates in the Biggert-Waters Flood Insurance Reform Act of 2012 (Biggert-Waters). The guidance listed the sections of Biggert-Waters that went into effect upon enactment on July 6, 2012 and those that will not go into effect until various regulations are issued. NCUA APPROVED FINAL LOAN PARTICIPATION RULE The NCUA approved its final loan participation rule which raised the limit on loans for one originator to 100 percent of a credit union s net worth or $5 million, whichever is greater. This was an increase from the NCUA s originally proposed limit of 25 percent of net worth. As required by the Federal Credit Union Act, federal credit unions (FCUs) that originate loans must retain 10 percent of the loan. State-chartered credit unions, CUSOs, and banks that originate loans must retain at least 5 percent of the loan, which is required by the Dodd-Frank Act. The final rule provided a grandfather provision for credit unions that are pushed over the limit by the new rule, so that those credit unions could move those loans into line. In addition, the NCUA included an extended waiver process for the single-originator limit and limits to one borrower. Effective date Sept. 23,

120 FINAL EMERGENCY LIQUIDITY RULE NCUA issued a final rule regarding emergency liquidity and contingency funding plan for credit unions. Under the final rule, credit unions with less than $50 million in assets need to maintain a basic written emergency liquidity policy. Credit unions with assets of $50 million or more are required to develop contingency funding plans describing how their credit union would address liquidity shortfalls in emergency situations. Finally, credit unions with assets of $250 million (up from the $100 million as previously proposed) or more are required to have access to a backup federal liquidity source. The final rule did not include the Federal Home Loan Banks as an acceptable emergency liquidity source. Effective date March 31, 2014 QUALIFIED MORTGAGE FAIR LENDING RISKS GUIDANCE Five federal regulators, including NCUA, issued guidance addressing questions regarding fair lending risks associated with offering only Qualified Mortgages. Financial institutions had been asking whether the disparate impact doctrine of the Equal Credit Opportunity Act (ECOA) allows them to originate only Qualified Mortgages. Qualified Mortgages are mortgages meeting certain requirements that either are presumed to have complied with the CFPB s Ability-to-Repay Rule or have a safe harbor under the Rule. The agencies all noted that the decisions of creditors about product offerings in response to the Abilityto-Repay Rule are similar to the decisions previously made regarding other significant regulatory changes affecting particular loan types. The agencies further stated that they did not anticipate a creditor s decision to offer only Qualified Mortgages would elevate a supervised institution s fair lending risk. NCUA PROVIDES ADDITIONAL GUIDANCE FOR TROUBLED DEBT RESTRUCTURINGS The Federal Reserve (along with the FDIC, NCUA, and the OCC) issued additional supervisory guidance addressing certain issues related to the accounting treatment and regulatory credit risk grade or classification of commercial and residential real estate loans that have undergone troubled debt restructurings (TDRs). The guidance discussed the definition of collateral-dependent loans, and the circumstances under which a charge-off is required of TDRs. The guidance applies to all financial institutions, including those with $10 billion or less in consolidated assets. Generally, the guidance addresses how a loan that is modified and determined to be a TDR in accordance with GAAP can be either in accrual or non-accrual status at the time of the loan s modification. A loan modified in a TDR that is on non-accrual at the time of the loan s modification can be restored to accrual status if certain return-to-accrual conditions are met under 12 CFR 741.3(b)(2) and Appendix C to part 741 (for credit unions). A TDR designation means the loan is impaired for accounting purposes, but does not automatically result in an adverse classification or credit risk grade. At the time of modification, an assessment of the credit risk grade or classification should be made. 119

121 NCUA FINAL RULE ON CREDIT UNION SERVICE ORGANIZATIONS The NCUA Board issued a final rule that expanded certain credit union service organization (CUSO) requirements that previously only applied to federally chartered credit unions to federally-insured state chartered credit unions (FISCUs). These requirements addressed accounting, financial statements, and audits. They also expanded CUSO reporting requirements and limit the ability of less than adequately capitalized FISCUs to recapitalize their CUSOs. All CUSOs will be required to annually provide profile information to NCUA and, for FISCUs, the appropriate state regulator. The final rule required CUSOs that engage in what NCUA considers complex or high-risk activities to report more detailed information, including audited financial statements and general customer information. The final rule also required all subsidiary CUSOs to follow applicable laws and regulations, and applies all of the regulation s requirements to subsidiary CUSOs. NCUA detailed what it considered complex or high risk activities along with special requirements that appear to apply to lending CUSOs. Complex or high risk activities include: Credit and lending: business loan origination; consumer mortgage loan origination; loan support services, including servicing; student loan origination; and credit card loan origination. Information technology: electronic transaction services; record retention, security, and disaster recovery services; and payroll processing services. Custody, safekeeping, and investment management services for credit unions. The special requirements for a credit union investing in, lending to, or receiving services from the CUSO included: Services provided to each credit union; The investment amount, loan amount, or level of activity of each credit union; and The CUSO s most recent year-end audited financial statements. In addition, CUSOs engaging in credit and lending services were required to report the following activity by loan type: The total dollar amount of loans outstanding; The total number of loans outstanding; The total dollar amount of loans granted year-to-date; and The total number of loans granted year-to-date. NCUA acknowledged that all federally-insured credit unions with loans to or investments in CUSOs will be required under the final rule to make changes in the agreements they currently have with their CUSOs. CUSOs will begin submitting reports to NCUA under new section 712.3(d)(4) when the agency s reporting system is fully operational, which will be by Dec. 31, Effective date June 30,

122 CONSUMER FINANCIAL PROTECTION BUREAU ABILITY-TO-REPAY RULE CFPB ISSUED ABILITY-TO-REPAY RULE The Consumer Financial Protection Bureau (CPFB) issued its final rule requiring mortgage lenders to consider a borrower s ability to repay the loan prior to final approval. As set forth in the Dodd-Frank Act, the CFPB was required to extend the current ability-to-repay requirements for high-cost mortgages to nearly all residential mortgage loans. Ability-to-Repay Requirements The Ability-to-Repay rule requires lenders to, at a minimum, take into consideration eight underwriting factors prior to approving a mortgage. Those factors are: 1) current or reasonably expected income or assets; 2) current employment status; 3) the monthly payment on the covered transaction; 4) the monthly payment on any simultaneous loan; 5) the monthly payment for mortgage-related obligations; 6) current debt obligations; 7) the monthly debt-to-income ratio or residual income; and 8) credit history. In evaluating these eight factors, lenders must use reliable third-party records to verify the applicant s information. Qualified Mortgages As a safe harbor from the criteria set forth above, the CFPB has created a safe harbor for certain qualified mortgages. In order to qualify as a qualified mortgage, the monthly payments must be calculated based on the highest payment that will apply in the first five years of the loan and the consumer must have a debt-to-income ratio that is less than or equal to 43 percent. Loans with negative amortization, interest-only payments, balloon payments, or terms exceeding 30 years are excluded from being considered a qualified mortgage. In addition, loans where the lender does not verify income or assets, or if the points and fees paid by the consumer exceed three percent of the total loan amount are also excluded. While the final rule generally prohibits balloon-payment loans as qualified mortgages, it does allow small creditors operating in predominantly rural or underserved areas to make balloon-payment mortgages, provided the mortgage is held in the creditor s portfolio. Furthermore, the small creditor must meet the following three requirements: 1) 50 percent or more of their first-lien mortgages must be originated in rural or underserved counties; 2) the creditor must have less than $2 billion in assets; and 3) the creditor must originate no more than 500 first-lien mortgages per year. Proposed Exemption for Certain Creditors Along with its final rule, the CFPB has released a proposed amendment to the final rule that would grant qualified mortgage status to certain small creditors such as credit unions and community banks provided the creditors make and hold the mortgages in their own portfolios. The CFPB anticipates it will finalize this proposed exemption sometime this spring. Effective date Jan. 10,

123 CFPB SMALL ENTITY COMPLIANCE GUIDE FOR ABILITY-TO-REPAY RULE The CFPB released a compliance guide for small entities designed to assist them in understanding its new Ability-to-Repay rule (ATR rule) set to go into effect on January 10, The guide provides a comprehensive summary of the ATR rule in a plain language, FAQ format. Specifically, the guide will assist financial institutions in determining whether their loans meet the Qualified Mortgage requirements, and, if so, whether they will receive a safe harbor or rebuttable presumption of compliance with the ATR rule requirements. In addition to the guide, the CFPB released a chart designed to provide financial institutions with an overview of the ATR rule. CFPB AMENDMENT TO ABILITY-TO-REPAY RULE The CFPB issued a final rule making amendments to the Ability-to-Repay Rule (ATR Rule). Under the final rule, the CFPB has eased restrictions under the ATR Rule for certain small lenders, including most credit unions, and nonprofit and community-based lenders. The CFPB has also modified how loan originator compensation is calculated under its new mortgage rules. Small Lenders Credit unions with less than $2 billion in assets, and that originate 500 or fewer mortgages, are allowed to classify mortgages with debt-to-income (DTI) ratios of over 43 percent as qualified mortgages, provided however the credit union keeps those mortgages in its portfolio for at least three years. These mortgages, while having a DTI ratio over 43 percent, must meet the CFPB s other general restrictions on qualified mortgages with regard to loan features and points and fees. Further, a borrower s DTI ratio must still be analyzed. Qualifying credit unions have also been granted a brief, two-year transition period which will allow them to make certain balloon mortgages and still meet the Qualified Mortgage definition. Currently, this exemption has already been extended to credit unions falling under the rural and underserved exemption. The CFPB has noted that during this two-year transition period, it will work with small creditors to transition them to other products, such as adjustable-rate mortgages, that meet the Qualified Mortgage definition. The CFPB will also study whether to adjust the rural and underserved definitions. Nonprofit and Community-Based Lenders The CFPB has also created an exemption for certain nonprofit and community-based lenders that work to help low- and moderate-income borrowers in obtaining affordable housing. Among other conditions, the exemptions generally apply to designated categories of community development lenders and to nonprofits that make no more than 200 loans per year and lend only to low- and moderate-income borrowers. The CFPB has also exempted loans made through housing finance agencies or through home stabilization and foreclosure prevention programs from the ATR Rule. Calculation of Loan Origination Compensation Under this final rule, the CFPB has excluded compensation paid by a mortgage broker to a loan originator employee or paid by a lender to a loan originator employee from counting towards the points and fees threshold. However, compensation paid by a creditor to a mortgage broker must be included in points and fees, in addition to any origination charges paid by a borrower to a creditor. 122

124 HOME OWNERSHIP AND EQUITY PROTECTION ACT CFPB ISSUED A FINAL RULE EXPANDING HOEPA COVERAGE The CFPB issued its final rule expanding the consumer protections under the Home Ownership and Equity Protection Act (HOEPA) for high-cost mortgages and to require applicants for high-cost mortgages to receive homeownership counseling prior to entering into the mortgage. The final rule expanded HOEPA to include most types of mortgage loans secured by a consumer s dwelling, including purchase-money mortgages, refinances, closed-end home-equity loans, and openend credit plans (i.e. HELOCs). Reverse mortgages, however, remain exempt from HOEPA. In addition, the final rule did not include construction loans, loans originated by Housing Finance Agencies, and loans through the U.S. Department of Agriculture (USDA) Rural Housing Service 502 Direct Loan Program. Revised HOEPA Coverage Tests Under the final rule, a mortgage is classified as a high-cost mortgage and falls under HOEPA coverage if any of the following tests are met: The transaction s annual percentage rate (APR) exceeds the applicable average prime offer rate 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 for less than $50,000. The transaction s APR exceeds the applicable average prime offer rate by more than 8.5 percentage points for subordinate and junior mortgages; The transaction s points and fees exceed 5 percent of the total transaction amount or, for loans below $20,000, the lesser of 8 percent of the total transaction amount or $1,000; 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 percent of the amount prepaid. Restrictions on Loan Terms The final rule also places additional restrictions and requirements on loan terms, including: Balloon payments are generally banned, unless they are to account for the seasonal or irregular income of the borrower, part of a short-term bridge loan, or are made by certain creditors (i.e. those serving rural or underserved areas). Creditors are prohibited from charging prepayment penalties and financing points and fees. Late fees are restricted to 4 percent of the payment that is past due. Fees for payoff statements are restricted. Fees for loan modification or payment deferral are banned. Creditors originating HELOCs are required to assess consumer s ability to repay. 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. 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. 123

125 Counseling Requirements Finally, the final rule requires lender to provide a list of homeownership counseling organizations to consumer within three business days of application for the mortgage loan. As listed above, consumers must receive counseling on the advisability of the mortgage before it is made. Effective date Jan. 14, 2014 CFPB ANNOUNCES ADDITIONAL AMENDMENTS TO THE 2013 MORTGAGE RULES The Consumer Financial Protection Bureau (CFPB) amended the 2013 Mortgage Rules on October 23, This rule amends provisions in Regulations B, X and Z and final rules issued by the CFPB in The amendments clarify the specific disclosures to be provided to mortgage borrowers before they can seek housing counseling for a high-cost mortgage, and additional guidance concerning compliance with servicing requirements for borrowers in bankruptcy, or who have sent a cease communication request under the Fair Debt Collections Practices Act (FDCPA). The Rule amends the 2013 Home Ownership and Equity Protection Act (HOEPA) final rule by clarifying which federally required disclosures must be used in counseling for a closed-end HOEPA loan not subject to The Real Estate Settlement Procedures Act (RESPA).These other high-cost loans are typically secured by manufactured housing, but do not involve residential real property. The amended Rule provides that counseling will still be required for borrowers obtaining high-cost loans after the consumer receives the required HOEPA disclosure. The Rule also exempts servicers from the early intervention requirements, and from the periodic statement requirements, for borrowers while they are in bankruptcy. Some requirements become effective once a borrower is no longer in bankruptcy. Finally, the Rule provides a safe harbor from liability under the FDCPA with regard to a servicer s communication requirements under the Dodd-Frank Act, specifically when a borrower has exercised his/her request to cease communications sent to the servicer. The Rule also provides exemptions for servicing communications for a notice of rate change for adjustable-rate mortgages (ARMs) and the early intervention requirements, when a borrower has properly invoked the FDCPA s cease communication protections. Effective date Jan. 14, 2014 ESCROW ACCOUNT RULE CFPB ISSUED FINAL RULE FOR ESCROW ACCOUNTS The CFPB released its final rule pertaining to escrow accounts. For all higher-priced mortgages, a creditor must now maintain an escrow account for at least five years following origination. Currently, mortgage lenders are only required to maintain an escrow account for one year following origination. The final rule does create an exemption for small creditors that operate predominantly in rural or underserved areas. Those creditors must meet the following criteria in order to be eligible: 1) make more than half of its first-lien mortgages in rural or underserved areas; 2) have an asset size that is less 124

126 than $2 billion; 3) together with its affiliates, originate 500 or fewer first-lien mortgages during the preceding calendar year; and 4) together with its affiliates, not escrow for any mortgage it or its affiliates currently services, except in limited instances. Effective date June 1, 2013 CFPB RELEASES COMPLIANCE GUIDE FOR TILA ESCROW RULE The Consumer Financial Protection Bureau (CFPB) has released its small entity compliance guide for its Truth-in-Lending Act (TILA) Escrow Rule (Escrow Rule) set to go into effect on June 1, Similar to the CFPB s guide for the Ability-to-Repay Rule this guide provides a comprehensive summary of the Escrow Rule in a plain language, FAQ format. In general, the Escrow Rule lengthens the period in which creditors must maintain an escrow account for first-lien, higher-priced mortgages from one year to a minimum of five years. The CFPB points out, however, the Escrow Rule does not expand the number of transactions to which the current escrow requirements apply. In fact, the Escrow Rule creates an exemption for certain loans made by lenders in rural or underserved counties. It also does not apply to certain other loans, such as subordinate liens, open-end credit loans (e.g. HELOCs), or transactions to finance the initial construction of a dwelling. In addition, creditors do not have to escrow for property insurance premiums for mortgages on properties in planned unit developments or other common interest communities where the homeowners are required to participate in a governing association that is required to purchase a master policy insuring all dwellings. Most importantly, the guide further clarifies the CFPB s exemption for small creditors under this rule. In order to qualify for the exemption, credit unions must meet the following criteria: 1) The credit union, together with its affiliates, originates 500 or less first-lien covered transactions during the preceding calendar year; 2) The credit union has less than $2 billion in assets; 3) The credit union must operate in a predominantly rural and/or underserved county (or counties), which means more than one-half of its first-lien mortgages must have originated in a rural and/or underserved county. (The CFPB has previously released a preliminary list of rural and underserved counties); and 4) The loans must not be subject to forward commitments for sale to nonexempt creditors. Credit unions were allowed to continue to escrow for higher-priced mortgages originated after April 1, 2010 and before June 1, 2013 past the effective date and until the escrow accounts terminate. However, if a credit union currently escrows for higher-priced mortgages, and any other mortgage obligation, the CFPB recommended that the credit union wind down this operation by June 1 st in order to qualify for the exemption. Finally, if a mortgage is subject to the Escrow Rule, the credit union cannot cancel the escrow account prior to the fifth year after consummation unless the mortgage has been terminated. Furthermore, a borrower cannot cancel the escrow account within five years after consummation; and the borrower 125

127 can only cancel the escrow account after five years provided the following two conditions are met: The unpaid principal balance is less than 80 percent of the original value of the property securing the underlying debt obligation; and The consumer currently is nether delinquent nor in default on the debt. If both of these conditions are not met, the creditor must maintain the escrow account for a period longer than five years. CFPB CLARIFIES ESCROW RULE The Consumer Financial Protection Bureau (CFPB) has issued a final rule clarifying and making technical changes to its Escrow Rule. The final rule serves two purposes: 1) maintaining consumer protections already in place; and 2) clarifying how to determine whether a county is considered rural or underserved. The CFPB notes the new Escrow Rule could be read to cut off old protections pertaining to higher-priced mortgage loans (HPMLs) before all of its new mortgage rules go into effect next January. As a result, this final rule creates a temporary provision to ensure existing protections remain in place for HPMLs until all rules become effective. In addition, the CFPB is clarifying how to determine whether a county qualifies as rural or underserved. Based upon this explanation, the CFPB was able to compile its final listing of qualifying counties. The final list of rural and underserved counties, which will apply to mortgage closed from June 1, 2013 through December 31, 2013, was released by the CFPB last week. MORTGAGE ORIGINATOR RULE CFPB ISSUES RULE ON MORTGAGE ORIGINATION The CFPB issued its final rule overhauling the loan origination process and the method by which mortgage loan originators (MLOs) are compensated. The final rule implements several amendments made to the Truth in Lending Act (TILA) by the Dodd-Frank Act, which sought to regulate industry compensation practices and strengthen loan origination qualification requirements. Key elements of the final rule include: Prohibition against compensation based on a term of a transaction or proxy for a term of a transaction The CFPB noted Regulation Z already prohibited a loan originator s compensation on any of the transaction s terms or conditions. To clarify the scope of Regulation Z, the final rule included the following: 1) Defined a term of transaction as any right or obligation of the parties to a credit transaction. 2) To prevent evasion, the final rule prohibits compensation based on a proxy for a term of a transaction. 3) The final rule generally prohibits loan originator compensation from being reduced to offset the cost of a change in transaction terms. 126

128 4) To prevent incentives to up-charge consumers on their loans, the final rule generally prohibits loan originator compensation based upon the profitability of a transaction or a pool of transactions. The final rule does, however, clarify the application of this rule to various kinds of retirement and profit-sharing plans. Prohibition against dual compensation The final rule prohibits MLOs from receiving compensation from both the consumer and the creditor. However, the rule does allow an exception for mortgage brokers to pay their employees commissions, provided the commissions are not based upon the terms of the loans the MLOs originate. No prohibition on consumer payment of upfront points and fees In August, for loans that included discount points or fees, the CFPB issued a proposed rule requiring mortgage originators to provide a loan option to borrowers that included an option with no upfront discount points or origination fees. At this time, the CFPB has chosen not to finalize this proposed rule, but will re-evaluate the need for this rule at a later date and time. Loan originator qualifications and identifier requirements The final rule requires loan originator organizations to ensure their loan originators are licensed or registered as required under the Secure & Fair Enforcement for Mortgage Licensing Act (SAFE Act) and other applicable laws. For employers whose employees are not required to be licensed, including credit unions, the final rule requires them to: 1) Ensure that their loan originator employees meet character, fitness and criminal background standards similar to existing SAFE Act standards; and 2) Provide training to their loan originator employees that are appropriate and consistent with those employee s origination activities. Additionally, the final rule requires loan originators to list their Nationwide Mortgage Licensing System & Registry (NMLSR) identifier on loan documents. Prohibition on mandatory arbitration clauses and single premium credit insurance The final rule prohibits arbitration clauses that bind the consumer to mandatory arbitration arising from disputes concerning a residential mortgage loan or HELOC. Furthermore, MLOs are prohibited from including clauses that bar a consumer from bringing any claim in court based upon a violation of Federal law. Secondly, the final rule prohibits the financing of premiums or fees for credit insurance (i.e. credit life insurance) in connection with transactions involving dwellings. However, the final rule allows credit insurance to be paid on a monthly basis. Effective date regarding arbitration clauses and credit insurance is June 1, The remaining provisions of this final rule are effective Jan. 10,

129 MORTGAGE SERVICING RULE CFPB ISSUES MORTGAGE SERVICING RULES The CFPB published its final rule relating to mortgage servicing. The final rule amended the Truth-in- Lending Act (TILA) and Real Estate Settlement Procedures Act (RESPA). It is important to note that the final rule provides several exemptions and adjustments for small servicers, which is defined as servicers that service 5,000 or fewer mortgage loans per year and will exclude nearly all credit unions. However, the small servicer exemptions do not apply to the rule in its entirety and portions of this final rule remain applicable to all mortgage servicers. The final rule covers nine major topics, including: Periodic billing statements Servicers must provide a periodic statement for each billing cycle containing information on payments currently due and previously made, fees imposed, transaction activity, application of past payments, contact information for the servicer and housing counselors regarding delinquencies. This rule includes an exemption for small servicers, as defined above. Interest-rate adjustment notices for ARMs Servicers must provide a notice to consumers with adjustable rate mortgages between 210 and 240 days prior to the first payment due after the rate first adjusts. In addition, lenders must provide a notice between 60 and 120 days before payment at a new level is due when a rate adjustment causes the payment to change. The rule contains model and sample forms that servicers may use. Prompt payment crediting and payoff statements Servicers must promptly credit periodic payments from borrowers as of the day of receipt. If a servicer receives a payment that is less than the amount due for a periodic payment, the payment may be held in a suspense account. When the amount in the suspense account covers a periodic payment, the servicer must apply the funds to the consumer s account. In addition, lenders must provide an accurate payoff balance to a consumer no later than seven (7) business days after receipt of a written request from the borrower for such information. Force-placed insurance Servicers are prohibited from charging 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 been provided with the required notices. An initial notice must be sent to the borrower at least 45 days before charging the borrower for forcedplaced insurance coverage, and a second reminder notice must be sent no earlier than 30 days after the first notice and at least 15 days before charging the borrower for force-placed insurance coverage. The final rule contains model forms for servicers to use. 128

130 If the servicer receives evidence that insurance coverage is not needed, it must terminate the coverage within 15 days and refund any applicable premiums. Error resolution and information requests Servicers must meet certain procedural requirements for responding to written information requests and complaints and must acknowledge receipt of those complaints and requests within five (5) days. Servicers must investigate the complaint, or respond to the information request, within 30 to 45 days. General servicing policies, procedures and requirements Servicers are required to establish policies and procedures designed to meet certain objectives, including: accessing and providing accurate and timely information to borrowers, investors, and courts; properly evaluating loss mitigation applications in accordance with the eligibility rules established by investors; facilitating oversight of, and compliance by, service providers; facilitating transfer of information during servicing transfers; and informing borrowers of the availability of written error resolution and information request procedures. This section includes an exemption for small servicers as defined above. Early intervention with delinquent borrowers Servicers must establish or make good faith efforts to establish live contact with borrowers by the 36 th day of their delinquency and promptly inform the borrower, where applicable, that loss mitigation options may be available. Additionally, a servicer must provide a borrower written notice with information about loss mitigation options by the 45 th day of a borrower s delinquency. This section includes an exemption for small servicers as defined above. Continuity of contact with delinquent borrowers Servicers are required to maintain reasonable policies and procedures with respect to providing delinquent borrowers with access to personnel to assist them with loss mitigation options where applicable. Servicers must assign personnel to a delinquent borrower by the time a servicer provides the borrower with its written notice of loss mitigation options which is to be provided by the 45 th day of the borrower s delinquency. This section includes an exemption for small servicers as defined above. Loss mitigation procedures Servicers are required to follow specific loss mitigation procedures for a mortgage loan secured by the borrower s principal residence. If a borrower submits an application for a loss mitigation option, the servicer is required to acknowledge receipt of the application in writing within five (5) days and inform the borrower whether the application is complete, and if not, what information is still needed. For applications received 37 days before a foreclosure sale, the servicer is required to evaluate the borrower within 30 days for all loss mitigation options for which the borrower may be eligible, including options to keep the home (i.e. loan modification) or to surrender the home (i.e. short sale). 129

131 The final rule restricts dual tracking where a servicer simultaneously evaluates a consumer for a loan modification or other alternative at the same time that it prepares to foreclose the property. While this section does include an exemption for small servicers, they are required to comply with two requirements: 1) a small servicer may not make the first notice or filing required for a foreclosure process unless a borrower is more than 120 days delinquent; and 2) a small servicer may not proceed to foreclosure judgment or order of sale, or conduct a foreclosure sale, if a borrower is performing pursuant to the terms of the loss mitigation agreement. Effective date Jan. 10, 2014 CFPB AMENDED MORTGAGE SERVICING RULE The Consumer Financial Protection Bureau (CFPB) issued a bulletin and interim final rule clarifying the mortgage servicing rule effective January The clarifications were in regard to three issues. The first issue was when a borrower dies and the servicer must have policies and procedures in place to promptly identify and communicate with family members, heirs, or other parties with a legal interest in the home. The bulletin provided examples of policies and procedures including allowing for continued payments as well as evaluating an heir for assumption of the mortgage. The second issue was regarding early intervention requirements for delinquent borrowers. The rule requires servicers to attempt to contact borrowers each time they miss a payment. The bulletin clarifies that this requirement may be met through other contacts, such as when evaluating loss mitigation options or during collection efforts. The third issue was regarding the servicing rules and the interaction with the bankruptcy code protections and the Fair Debt Collection Practices Act (FDCPA). The bulletin clarifies that if a borrower has instructed a servicer to stop communicating under the FDCPA certain notices required under the servicing rules, are still required, such as the requests for loss mitigation, information requests, error resolution, force-placed insurance, initial interest rate adjustment of adjustable-rate mortgages, and periodic statements. Servicers will not be required to provide early intervention contacts or notices of ongoing interest rate adjustments for those borrowers who have instructed them not to be contacted. Servicers also will not be required to sending period statements and early intervention contacts with borrowers who are in bankruptcy. EQUAL CREDIT OPPORTUNITY ACT VALUATIONS RULE CFPB ISSUES FINAL RULE ON APPRAISALS AND VALUATIONS The CFPB has issued its final rule amending the Equal Credit Opportunity Act (ECOA) regarding appraisals and other written valuations for applicants of first lien mortgages. The final rule requires lenders of firstlien mortgages to do the following: Require creditors to notify applicants within three (3) business days of receiving an application of the applicant s right to receive a copy of the appraisal. 130

132 Require creditors to provide applicants a copy of each appraisal and other written valuation promptly upon their completion or within three (3) business days. Permit applicants to waive the timing requirements to receive a copy of the appraisal. Prohibit creditors from charging for a copy of the appraisal or other written valuation, but permit creditors to charge applicants a reasonable fee for the cost of the appraisal or other written valuation unless applicable law provides otherwise. Effective date Jan. 18, 2014 HOME MORTGAGE DISCLOSURE ACT CFPB INCREASES HMDA THRESHOLD The Consumer Financial Protection Bureau (CFPB) issued a final rule increasing the Home Mortgage Disclosure Act (HMDA) asset-size exemption threshold for financial institutions. The exemption threshold was increased from $41 million to $42 million. Credit unions with assets of $42 million or less as of Dec. 31, 2012, were exempt from HMDA reporting requirements in CFPB HMDA RE-SUBMISSION GUIDELINES The CFPB released its new Home Mortgage Disclosure Act (HMDA) Resubmission Schedules and Guidelines to provide guidance on complying with HMDA and Regulation C requirements. The Schedule and Guidelines provide information on when examiners may ask institutions to correct and resubmit HMDA data depending on whether or not the institution has 100,000 or more HMDA entries. The Schedule and Guidelines apply to reviews conducted on or after Jan. 18, The Schedule and Guidelines also discuss factors that the CFPB may consider when evaluating whether to pursue a public enforcement action. MORTGAGE RULES CFPB FINAL RULE AMENDS ABILITY-TO-REPAY, MORTGAGE SERVICING & LOAN ORIGINATOR RULES The CFPB issued a final rule amending the Ability-to-Repay, Mortgage Servicing and Mortgage Loan Originator Rules. Under the amendments to the Mortgage Servicing rule, a servicer must follow specific procedures if they fail to identify and inform a borrower that certain information is missing for a loss mitigation application. The amendments also allows servicers more flexibility in providing short-term payment forbearance plans for borrowers needing only temporary relief. In addition, the amendments explain what constitutes the first notice or filing for purposes of the ban on foreclosure proceedings before a borrower is 120 days delinquent and provides certain exemptions from the 120-day prohibition. Mortgage servicers also may send certain early delinquency notices required under state law to provide legal aid, counseling and other resources to borrowers. 131

133 Under the Ability-to-Repay and Home Ownership and Equity Protection Act rules, the CFPB revised the definition of points and fees for the qualified mortgage points and fees cap and high-cost mortgage points and fees threshold. Specifically the CFPB clarified what compensation applies toward loan originator compensation for retailers of manufactured homes and their employees. In addition, the CFPB clarified the treatment of charges paid by parties other than the consumer for purposes of the points and fees threshold. Under the Ability-to-Repay and Qualified Mortgage rules, the CFPB is allowing all small creditors, regardless of whether they operate in rural or underserved areas, to continue originating balloon highcost mortgages if the loans meet the qualified mortgage requirements. In addition, the exemption from the escrow requirement for higher-priced mortgages for small creditors that extend more than 50 percent of their covered transaction in rural or underserved counties is amended to allow creditors to qualify if they extend more than 50 percent in any of the previous three calendar years. Under the Loan Originator Compensation rule, certain definitional revisions as well as provisions addressing when employees of a creditor or loan originator may become subject to the rule were amended. The CFPB also clarified what constitutes financing of credit insurance premiums and when the premiums are considered to be calculated and paid on a monthly basis. Finally, the CFPB amended the effective date for certain provisions of the Loan Originator Compensation Rule to January 1, 2014, instead of January 10, The amended effective date applies to provisions of the rule regarding record retention, definitions, compensation, anti-steering, qualifications and compliance policies and procedures. Effective date Jan. 1, 2014 CFPB RELEASED THREE ADDITIONAL SMALL ENTITY COMPLIANCE GUIDES FOR MORTGAGE RULES The CFPB published its Small Entity Compliance Guides for its 2013 Home Ownership and Equity Protection Act (HOEPA) Rule, the Equal Credit Opportunity Act (ECOA) Valuations Rule, and the Truth-in- Lending Act (TILA) Higher-Priced Mortgage Loans (HPML) Appraisal Rule. Similar to the other Small Entity Compliance Guides released for the CFPB s other mortgage rules, each guide provides an overview of the rules in plain language and FAQ format. In January, the CFPB released several final rules overhauling the mortgage lending system. Among those rules were the three cited above. The HOEPA Rule will expand HOEPA consumer protections for highcost mortgages and will require applicants to receive homeownership counseling prior to entering into a mortgage. The ECOA Valuations Rule will, among other things, require creditors to notify applicants within three (3) business days of receiving an application of the applicant s right to receive a copy of the appraisal and provide the appraisal to the applicant within three (3) days of its completion. The TILA HPML Appraisal Rule is a joint rule issued by the federal financial regulatory agencies, including the NCUA. The rule will require creditors to obtain an appraisal for all non-exempt HPMLs. CFPB DELAYED EFFECTIVE DATE FOR SINGLE CREDIT PREMIUM INSURANCE RULE The CFPB temporarily delayed the June 1, 2013, effective date for its single credit premium insurance rule. The CFPB cites concerns in regard to creditors facing uncertainty about whether and under what circumstances credit insurance premiums may be charged periodically in connection with covered credit 132

134 transactions. The CFPB has received comments from the credit insurance industry seeking clarification as to when the new rule applies. Effective date Jan. 10, 2014 CFPB RELEASED FINAL LISTING OF RURAL AND UNDERSERVED COUNTIES The Consumer Financial Protection Bureau (CFPB) has published its final listing of counties that fall within its definitions of rural and/or underserved. The final listing is identical to the preliminary listing released in March. As a result, 44 Minnesota counties meet the definition of rural and underserved. However, that number may change once the 2010 census data is released. If a credit union primarily serves a rural or underserved county, it may qualify for an exemption from a portion of the CFPB s new mortgage rules. Most of the CFPB s new rules are scheduled to go into effect in January of 2014, however, the CFPB s escrow account rule is scheduled to begin on June 1, Under the escrow account rule, credit unions meeting the rural and underserved definition will be exemption from having to maintain an escrow account for higher-priced mortgage loans (HPMLs) for a period of five years. CFPB EXAM PROCEDURES FOR NEW MORTGAGE RULES The CFPB announced it had begun to update its exam procedures to incorporate the new mortgage regulations. The CFPB noted the exam procedures would provide financial institutions with insight into what the CFPB would be looking for once the rules were effective. The applicable portions of the Truth in Lending Act (TILA) and the Equal Credit Opportunity Act (ECOA) were the first two sections of the CFPB s Supervision and Examination Manual to be updated by the CFPB. The CFPB notes these two updates are the first of several updates it will be issuing in the near future. Once the CFPB finalizes all of the mortgage rule updates to its exam procedures, it will incorporate the amendments into its general supervision and examination manual. CFPB SMALL ENTITY COMPLIANCE GUIDES FOR LOAN ORIGINATOR AND MORTGAGE SERVICING RULES The Consumer Financial Protection Bureau (CFPB) has released the Small Entity Compliance Guides for its mortgage loan originator (MLO) and mortgage servicing rules. Under the loan originator rule, the CFPB seeks to regulate industry compensation practices and strengthen loan origination qualification requirements. Under the CFPB s mortgage servicing rules, the CFPB amended portions of the Truth-in-Lending Act (TILA) and the Real Estate Settlement Procedures Act (RESPA), to regulate nine major areas: Periodic billing statements; Interest-rate adjustment notices for ARMs; Prompt payment crediting and payoff statements; Force-placed insurance; Error resolution and information requests; General servicing policies, procedures and requirements; 133

135 Early intervention with delinquent borrowers; Continuity of contact with delinquent borrowers; and Loss mitigation procedures. CFPB PUBLISHED ABILITY-TO-REPAY AND MORTGAGE SERVICING RULES The Consumer Financial Protection Bureau (CFPB) has published a rule making corrections, clarifications and amendments to its Ability-to-Repay and mortgage servicing rules. Among other things, the final rule seeks to: Clarify and amend how several factors can be used to calculate a borrower s debt-to-income (DTI) ratio; Explain how the Real Estate Settlement Procedures Act (RESPA) does not preempt the field of servicing regulation by states; Establish which mortgage loans are considered in determining small servicer status; Clarify the eligibility standard of the temporary QM provision. Specifically, the rule clarifies the standards that a loan must meet if the creditor is underwriting it based on government sponsored enterprises (GSE) or agency guidelines. Effective date Jan. 10, 2014 REMITTANCE TRANSFER RULE REMITTANCE TRANSFER RULE TO GO INTO EFFECT ON OCT. 28 After months of deliberation, the Consumer Financial Protection Bureau (CFPB) has issued its revised remittances transfer rule (the remittance rule), which will amend Regulation E. Under the remittance rule, financial institutions will be required to disclose certain fees, including the institution s own fees and the fees of its agent or intermediary institution. In addition, the institution will have to disclose all applicable foreign taxes that may apply to the transfer, as well as the exchange rate that will apply. Furthermore, the CFPB notes that when funds are deposited into the wrong account because the consumer/sender provided an incorrect account number or routing number, the institution is required to attempt to recover the funds but does not bear the cost of funds that cannot be recovered. As previously noted, the final rule exempts financial institutions that provide 100 or fewer remittance transfers each year. In addition, transfers of $15 or less are excluded from the rule s coverage. Effective date Oct. 28, 2013 CFPB REMITTANCE TRANSFER RULE EXAM PROCEDURES The Consumer Financial Protection Bureau (CFPB) published the procedures it will use when examining institutions making remittance transfers for consumers. According to the CFPB, examiners will focus on: 134

136 Assessing the quality of the entity s compliance risk management systems; Identifying acts or practices that materially increase the risk of violations of law and associated harm to consumers; Gathering facts to determine whether an entity engages in acts or practices that are likely to violate the law; and Determining whether a violation of the law has occurred and whether further supervisory or enforcement action is appropriate. Attention will also be given toward checking for weaknesses or other risks in an entity s remittance business model and whether the entity s audits address all provisions of Regulation E. CFPB ISSUES FINAL TILA/RESPA MORTGAGE DISCLOSURE RULES The CFPB issued final rules related to disclosure requirements contained in both Truth in Lending Act (TILA) and the Real Estate Settlement Procedures Act (RESPA). The Dodd-Frank Act required the current disclosures to be combined and improved. Highlights of the new rules include: They will apply to most closed-end consumer credit transactions secured by real property. Exclusion of home equity lines of credit (HELOCs), reverse mortgages, mortgages on mobile homes, and mortgages on manufactured homes not attached to real property. Will replace existing disclosures with new disclosures entitled, Loan Estimate, to be given within three (3) days of application, and The Closing Disclosure, which must be given at least three (3) days before closing. Additional information, including compliance guidance, can be found at the CFPB s website. Effective date Aug. 1, 2015 CFPB MAKES IT EASIER FOR STAY-AT-HOME SPOUSES AND PARTNERS TO GET CREDIT CARD ACCOUNTS The CFPB issued a final rule amending Regulation Z to make it easier for stay-at-home spouses and partners to gain access to credit card accounts. The final rule allows card issuers to consider third-party income if the applicant is 21 years or older and has a reasonable expectation of access to those funds. Card issuers will have six months from the final rule s publication to comply with the final rule. Effective date Nov. 4, 2013 CFPB BULLETIN ON INDIRECT LENDING The CFPB issued a bulletin reminding indirect auto lenders of their responsibilities under the Equal Credit Opportunity Act (ECOA). The CFPB expressed concern in certain practices by indirect auto lenders and dealers. Specifically, the CFPB is concerned with indirect auto lenders allowing auto dealers to charge the consumer an interest rate that is costlier for the consumer than the rate the lender gave the dealer, which is often referred to as the dealer markup. The indirect lender will sometimes share part of the revenue from the increased rate with the dealer. The CFPB noted this type of lending practice may lead to price disparities among a consumer based on race, national origin, and potentially other prohibited bases. 135

137 In order to ensure compliance with the ECOA and limit fair lending risk, the CFPB s bulletin recommended indirect auto lenders take steps to ensure they are operating in compliance with fair lending laws as applied to dealer markup and compensation policies. These steps may include: Imposing controls on dealer markup, or otherwise revising dealer markup policies; Monitoring and addressing the effects of markup policies as part of a robust fair lending compliance program; and Eliminating dealer discretion to markup buy rates, and fairly compensating dealers using a different mechanism that does not result in discrimination, such as flat fees per transaction. CFPB FINALIZED CREDIT CARD ACT RULE The CFPB finalized a revision to the 2009 Credit CARD Act (CARD Act) based upon a federal court ruling issued last year. At issue in the lawsuit was the total amount of fees that a credit card issuer may require a consumer to pay with respect to a credit card account prior to opening the account. Regulation Z (Reg Z) generally limits the total amount of fees that a credit card issuer may require a consumer to pay with respect to the account to 25 percent of the credit limit in effect when the account is opened. The CFPB s final rule amends Reg Z to apply the limitation to only during the first year after account opening. Effective date March 28, 2013 CFPB AMENDED REG E TO REFLECT CHANGES TO ATM DISCLOSURE REQUIREMENTS The CFPB issued a final rule amending Regulation E to reflect changes to the Electronic Fund Transfer Act (EFTA) made by Congress. Last December, Congress amended the EFTA to remove the requirement for a fee disclosure to be placed on the outside of all ATMs that require a fee. A disclosure must still appear on the ATM screen or on paper issued from the machine. Effective date March 26, 2013 CFPB ISSUES WHITE PAPER ON PAYDAY LOANS AND DEPOSIT ADVANCE PRODUCTS The CFPB published a white paper on payday loans and deposit advance products. The white paper summarized the CFPB s findings over the last year relating to its investigation into these industries, and, as a result, the CFPB had expressed concern for the potential for consumer abuse and the need for future regulation over these industries. CFPB CIVIL PENALTY RULE The CFPB issued its Civil Penalty Rule, which outlines the way the CFPB will allocate the funds it collects for violations of a federal consumer financial protection law. Along with the final rule, the CFPB issued a notice of proposed rulemaking (NPR) asking the public to comment on the final rule. In general, the CFPB will be providing compensation to consumers who are victims to these violations. The amount of compensation will depend on the amount of compensation victims received from other sources and the circumstances of each case. Additional information on the Civil Penalty Fund is available through the CFPB s website. 136

138 CFPB FRAMEWORK TO BETTER COORDINATE WITH STATE REGULATORS In a joint effort with the Conference of State Bank Supervisors, the CFPB announced a new framework that established a process for coordination on supervision and enforcement matters between the CFPB and state regulators. The framework, however, will only apply to non-depository institutions and depository institutions with $10 billion or more in assets. The framework provides processes for: Coordinating exam schedules; Developing comprehensive supervisory plans for particular institutions; Streamlining information sharing; and Providing advance notice of corrective actions CHANGES EFFECTIVE IN 2013 REPORTING INTEREST PAID TO NONRESIDENT ALIENS IN 2013 The IRS issued IRS Revenue Procedure , which required credit unions to begin reporting interest (dividend) payments made in 2013 on share accounts of nonresident aliens. The new IRS revenue procedure requires credit unions to report all interest payments made on or after Jan. 1, Effective Date: Jan. 1, 2013 REGULATION Z RENUMBERING The Consumer Financial Protection Bureau (CFPB) renumbered Regulation Z from through to through The CFPB also revised the open-end model forms to refer to the CFPB instead of the Federal Reserve (Fed). Compliance Date: Jan. 1, 2013 NEW CTR AND SAR The Financial Crimes Enforcement Network (FinCEN) extended the deadline for credit unions to begin using its new Currency Transaction Report (CTR) and Suspicious Activity Report (SAR) for reporting purposes from June 30, 2012 to March 31, The extension was due in part to allow financial institutions sufficient time to transition their internal processes and/or IT systems. Compliance Date: March 31, 2013 CFPB BEGAN SUPERVISING DEBT COLLECTORS The CFPB issued a final rule announcing it will supervise consumer debt collection agencies with more than $10 million in annual receipts including those entities that purchase defaulted debt and attorneys who engage in debt collection activities through litigation. Among other related issues, the CFPB will evaluate debt collectors to ensure they have the following procedures in place: Provide required disclosures; Provide accurate information; Have a consumer complaint and dispute resolution process; and Communicate civilly and honestly with consumers. 137

139 The CFPB notes that its supervision will cover nearly 175 debt collectors, which account for nearly 60 percent of the industry. Effective Date: Jan. 2,

140 Minnesota Credit Union Network Credit Union Reporting Deadlines 2014 (BY CATEGORY) A Comparison of Rules, Regulations 139

141 This guidance is provided by the Minnesota Credit Union Network for informational purposes only and should not be relied upon as a legal opinion or advice. Consult your own attorney, accountant or tax professional. This guidance may not provide all reporting deadlines applicable to your credit union. Reporting deadlines and requirements may be subject to change. I. THE INTERNAL REVENUE SERVICE FORM WHO MUST FILE INFORMATION REPORTABLE WHERE FILED 2014 DUE DATE W-2 Employer required to withhold Employee name, wages, tips, other compensation, certain fringe benefits, withheld income and FICA taxes, and advance earned income credit (EIC) payments Social Security Administration and State, City or Local Tax Dept. Feb. 28 or Mar. 31 if filed electronically. Statements must be furnished to employee by Jan. 31 W-3 Employer required to withhold W-9 Taxpayers furnish correct TIN and clarify back-up withholding status Reconciliation of income tax withheld Social Security Administration Taxpayer Identification Number (TIN) Credit union All credit unions Employer's annual federal unemployment tax (FUTA) return 941 All credit unions Employer's quarterly report of wages paid and payroll withholding taxes Internal Revenue Service Internal Revenue Service Feb. 28 or Mar. 31 if filed electronically Jan. 31 (if $0 balance due, then file by Feb. 10) Jan. 31, April 30, July 31 and Oct. 31 (or the next business day if Saturday/Sunday or legal holiday) 945 All credit unions Income tax withheld from non-payroll payments, such as pensions, annuities, IRAs, back-up withholding, and voluntary withholding on certain government payments Internal Revenue Service 945-A All credit unions Semi-weekly depositors are required to Internal Revenue complete and file Form 945-A with Service Form 945 and CT-1. This form is used by the IRS to match tax liability reported with your deposits Jan. 31 (if deposits were made on time in full payment of the taxes for the year, returns may be filed by Feb. 10) (Same as 945) 140

142 990 State-chartered credit unions Return of organization exempt from federal income tax. NOTE: Substantial fines apply for failing to file or incomplete returns Internal Revenue Service May 15 for calendar year organizations. Fiscal year organizations must file by 15th day of the 5th month after the close of the fiscal year (or the next business day if Saturday/Sunday or legal holiday). Entities filing at least 250 returns during the calendar year and with total assets of $10 million or more must file electronically All withholding agents Taxes withheld at the source from nonresident aliens, foreign corporations, foreign partnerships, and foreign fiduciaries of trusts or estates Internal Revenue Service Approx. March Payers, brokers, trustees of IRAs, mortgage interest recipients Annual summary and transmittals of Forms W-2G, 1097, 1098, 1099, 3921, 3922 and Mortgagees Lenders who receive at least $600 in interest (which includes points) with respect to the borrower's mortgage Internal Revenue Service Internal Revenue Service Feb. 28 (if filing with Forms 1099, 1098, or W-2G). June 2 (if filing with Form 5498) Feb. 28 or March 31 if filed electronically (to mortgagor by Jan. 31) 1099-A Lenders Information about the acquisition or Internal Revenue abandonment of property that is security Service for a debt (e.g. credit union repossesses a vehicle being held for investment or being used in a trade or business) Feb. 28 or Mar. 31 if filed electronically (to recipient by Jan. 31) 1099-C All credit unions Qualified discharges of indebtedness of $600 or more 1099-INT Credit unions, corporations Payments of interest/dividends not including interest on an IRA or SEP, generally aggregating $10 or more Internal Revenue Service Internal Revenue Service Feb. 28 or Mar. 31 if filed electronically (to recipient by Jan. 31) Feb. 28 or Mar. 31 if filed electronically (to recipient by Jan. 31) 1099-MISC 1099-OID Businesses, including non-profit organizations Issuers of certificates of deposits if the term is more than one year Rent or other business payments or prizes and awards exceeding $600 Original issue discount aggregating $10 or more Internal Revenue Service Internal Revenue Service Feb. 28 or Mar. 31 if filed electronically (to recipient by Jan. 31) Feb. 28 or Mar. 31 if filed electronically (to recipient by Jan. 31) 1099-R All credit unions (or external plan provider) Distributions from profit sharing, retirement plans, insurance contracts, IRAs, etc. (all amounts) Internal Revenue Service Feb. 28 or Mar. 31 if filed electronically (to recipient by Jan. 31) 141

143 1099-S All credit unions Proceeds from certain real estate transactions 5498 Trustees of individual retirement accounts (IRAs) or simplified employee pensions (SEP) Participant's name and address, social security number, account balance, IRA or SEP contributions Internal Revenue Service Internal Revenue Service Feb. 28 or Mar. 31 if file electronically (to recipient by Feb. 18) June 2 ( to participant by June 2, but furnish fair market value and required minimum distribution, if applicable, by Jan. 31) 5500 Pension plan administrators and sponsors that maintain General information on the plan employee benefit plans subject to Title I or II of ERISA Internal Revenue Service Center or office of plan sponsor or administrator July 31 for calendar year organizations. Fiscal year organizations must file by the last day of the 7th month after the close of the fiscal year (or the next business day if Saturday/Sunday or legal holiday) 972CG Credit unions that receive a notice from the IRS Information to show why penalties, Internal Revenue which apply to information returns in the Service 1099 series, 1098, W-2 and W-3, should not be assessed Notice should specify when the response is due (generally 45 days from date of notice) 1120 U.S. corporations 2013 income tax returns Internal Revenue Service March 15 for calendar year U.S. corporations. Fiscal year organizations must file by the 15th day of the 3rd month after the close of the tax year (or the next business day if Saturday/Sunday or legal holiday) 142

144 II. NCUA FORM WHO MUST FILE INFORMATION REPORTABLE WHERE FILED 2014 DUE DATE 5300 (Call Report) All credit unions Quarterly financial and statistical report NCUA Jan. 24, April 25, July 25 and Oct (Share Insurance Statement) All credit unions (state charters file Form 1304) Calculations of amount of insurance deposit due. Form 1305 also includes the annual operating fee for federal credit unions NCUA Approx. April 15 (credit unions with assets of $50 million or more also may have a share insurance adjustment and payment due approx. Oct. 15) Annual Audit Report Federal credit unions Supervisory Committee's annual report to credit union board Credit Union All credit unions Current year's officers and shall Profile include annual statement certifying compliance with Part 748 of the NCUA rules and Regulations NCUA NCUA (please provide officer information to MnCUN office) Upon completion if requested Within 10 days after election or appointment of management or officials or within 30 days of any change in the information previously submitted (online on NCUA Credit Union Profile or in writing if unable to do so online on NCUA Form 4501A) III. MINNESOTA DEPARTMENT OF COMMERCE FORM WHO MUST FILE INFORMATION REPORTABLE WHERE FILED 2014 DUE DATE 5300 (Call Report) Report of Annual Meeting Review of Examination State-chartered credit unions State-chartered credit unions State-chartered credit unions Quaterly financial and statistical report. Commerce may also request supplemental information Current year's officials Examination Reply Department of Commerce Department of Commerce and MnCUN office Department of Commerce Same dates as required by NCUA Within 10 days after Annual Meeting (i.e. election of officials) Within 60 days of receipt of report 143

145 Semi-Annual Report of the Supervisory Committee State-chartered credit unions Audit report of the Supervisory Committee Department of Commerce Jan. 31, July 31 IV. MISCELLANEOUS FORM WHO MUST FILE INFORMATION REPORTABLE WHERE FILED 2014 DUE DATE Safe Act Audit All credit unions with mortgage loan originators ACH Audit Each participating credit union Annual audit Dec. 31 Annual audit Credit union retains records Dec. 31 Dues All credit unions MnCUN office Jan. 31 Currency All credit unions Currency Transaction Reports on FinCEN Within 15 calendar days Transaction currency transactions of more than of the event Report $10,000 FR2910a Credit unions with net transaction accounts less than or equal to $13.3 million and total deposits greater than $13.3 million and with the sum of total transaction accounts, savings deposits, and small time deposits less than $1.628* billion Annual Report of Deposits and Liabilities Federal Reserve Approx. July 1 144

146 FR2900 Credit unions with net transaction accounts greater than $13.3 million or with the sum of total transaction accounts, savings deposits, and small time deposits greater than or equal to $1.628* billion and the sum of total transaction accounts, savings deposits, and small time deposits greater than or equal to $290.5** million Reg D transaction accounts, other deposits and vault cash Federal Reserve File weekly (due by Thursday following the Tuesday through Monday reporting week) FR2900 Credit unions with net Reg D transaction accounts, other transaction accounts deposits and vault cash greater than $13.3 million or with the sum of total transaction accounts, savings deposits, and small time deposits greater than or equal to $1.628* billion and the sum of total transaction accounts, savings deposits, and small time deposits less than $290.5** million Federal Reserve File quarterly on approx. March 27 (as of March 24), June 26 (as of June 23), Sept. 25 (as of Sept. 22) and Dec. 25 (as of Dec. 22) Loan Application Register (LAR) Credit unions who must comply with the Home Mortgage Disclosure Act (HMDA) Covered credit unions must maintain registers collecting specific information on all home purchase and improvement loans for all completed loan applications and certain preapprovals requested NCUA March 1. Minnesota Credit Card Disclosure Report Form Financial institutions who distribute their own credit card applications in Minnesota Credit card program information Minnesota Department of Management and Budget, Treasury Division (651) Dec

147 Minnesota Income Tax With-holding All credit unions Employers report of Minnesota income tax withheld and W-2 reconciliation Minnesota Department of Revenue (651) Must file electronically or by telephone at (800) Annual filers by Feb. 28, quarterly filers by Feb. 28 (for combined fourth quarter/year-end return) April 30, July 31, and Oct. 31 (or the next business day if Saturday/Sunday or legal holiday) MW-R All credit unions employing residents from North Dakota or Michigan Reciprocity Exemption/Affidavit of Residency for employees that do not want the credit union to withhold Minnesota income tax from wages Minnesota Department of Revenue March 31 for each year or within 30 days after receiving Form MW-R from employee, whichever is later Privacy All credit unions Credit union must send privacy policy N/A Must be sent annually by date selected by credit union Sales & Use Tax All credit unions State sales tax collected and use tax due. Federal credit unions are exempt from sales and use tax on purchases, but still have sales and use tax for sales or leases Minnesota Department of Revenue (651) Must file electronically or by telephone at (800) For monthly filers by the 20th day of the month following the end of the reporting period. For quarterly filers by Jan. 20, April 20, July 20, and Oct. 20. For annual filers by Feb. 5 (or the next business day if Saturday/Sunday or legal holiday) Certificate of Rent Paid (CRP) Tax & Wage Detail Report All credit unions All credit unions Credit unions that own rental property and rent living space to people Quarterly tax report for Minnesota Unemployment Compensation Fund Minnesota Department of Revenue Department of Employment & Economic Development (651) Must provide to renters by Jan. 31 Jan. 31, April 30, July 31, Oct. 31, (or the next business day if Saturday/Sunday or legal holiday) TDF Credit unions who have blocked property because of OFAC requirements Annual report of blocked property Office of Foreign Asset Control (OFAC) Sept

148 Unclaimed Property Reports UP-S, UP-C, UP-SD All credit unions Report of unclaimed property pursuant to unclaimed property law Department of Commerce Unclaimed Property Section (651) Oct. 31 for property held as of June 30, 2011 Credit Card Agreements All card issuers with 10,000 or more credit card accounts Quarterly submission or agreements to Consumer Financial Protection Bureau Consumer Financial Protection Bureau * Effective as of the September 2014 report the $1.628 billion reduced reporting limit will increase to $1.719 billion. Jan. 31, April 30, July 31, and October 31 ** Effective as of the September 2014 report the $290.5 million nonexempt deposit cutoff level will increase to $306.7 million. This information has been prepared only for the benefit of our members, and may not be provided to third parties without the express permission of the Minnesota Credit Union Network Minnesota Credit Union Network 147

149 Minnesota Credit Union Network 555 Wabasha Street North, Suite #200 St. Paul, MN 55102