ECOA & TILA APPRAISAL RULES

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1 ECOA & TILA APPRAISAL RULES Appraisal Customer Access Issues Managing the Dodd-Frank Act Appraisal Process Who owns the appraisal or valuation? For which party or parties is the appraisal performed? Patti Blenden Financial Solutions February 2014 Issue resolution: ECOA stepped in to permit sharing. 1 2 Dodd Frank Act Appraisal Amendments The CFPB must promulgate regulations that implement changes to the Equal Credit Opportunity Act ( ECOA ) The CFPB, federal banking regulators (FRB, FDIC, NCUA and OCC), and the FHFA ( Agencies ) must prescribe regulations to implement the appraisal requirements for higher-risk mortgages The Agencies must establish, by regulation, minimum AMC standards The Agencies, in consultation with the Appraisal Subcommittee and the Appraisal Standards Board of the Appraisal Foundation, must promulgate regulations regarding quality control standards for AVMs The Agencies may issue regulations that ensure the portability of appraisals between lenders for loans secured by the borrower s primary residence The Agencies may issue rules amending section 1110 of FIRREA to change the time period creditors will need to review appraisals Existing ECOA Appraisal Rule Consumer has a right to a copy of appraisal Creditor has two options for compliance 1. Notify the consumer of this right and provide copy only after receiving a consumer s written request OR 2. Automatically provide consumer a copy of appraisal

2 ECOA & TILA APPRAISAL RULES Confusing Existing ECOA Provisions Does the obligation cover other forms of valuations? Do you only have to provide appraisals that the applicant has paid for? Rules on providing appraisal reports (a) Providing appraisals. A creditor shall provide a copy of an appraisal report used in connection with an application for credit that is to be secured by a lien on a dwelling. A creditor shall comply with either paragraph (a)(1) or (a)(2) of this section. (1) Routine delivery. A creditor may routinely provide a copy of an appraisal report to an applicant (whether credit is granted or denied or the application is withdrawn). (2) Upon request. A creditor that does not routinely provide appraisal reports shall provide a copy upon an applicant's written request. Equal Credit Opportunity Act (ECOA) Regulation B Effective January 18, ECOA and Regulation B Fair lending law ECOA prohibits creditors from discriminating against credit applicants on the basis of race, color, religion, national origin, sex, marital status, age (provided the applicant has the capacity to enter into a binding contract); because all or part of the applicant's income derives from any public assistance program; or because the applicant has in good faith exercised any right under the Consumer Credit Protection Act. Law applies to both consumer and commercial transactions Only new requirement in the January 2014 mortgage reform amendments that applies to commercial transactions! The New ECOA Rule Effective for applications received on or after January 18, 2014 Notice of right to a copy Copy of appraisal and other written valuations Only required for 1 st liens Customer service issue: HELOCs and refinances? Timing of delivery Applicants can waive advance copy in some cases

3 ECOA & TILA APPRAISAL RULES Reg B (a) NEW RULE OLD RULE ECOA s Appraisal Rules A creditor shall provide an applicant a copy of all appraisals and other written valuations developed in connection with an application for credit that is to be secured by a first lien on a dwelling. A creditor shall provide a copy of each such appraisal or other written valuation promptly upon completion, or three business days prior to consummation of the transaction (for closed end credit) or account opening (for open end credit), whichever is earlier. 9 A creditor shall provide a copy of an appraisal report used in connection with an application for credit that is to be secured by a lien on a dwelling. A creditor shall comply with either paragraph (a)(1) or (a)(2) of this section. (a)(1) Routine delivery. A creditor may routinely provide a copy of an appraisal report to an applicant (whether credit is granted or denied or the application is withdrawn). OR (a)(2) Upon request. A creditor that does not routinely provide appraisal reports shall provide a copy upon an applicant's written request. 10 Fundamental Issue: Whatever the Creditor uses to establish the collateral property s value and the effect that value has on loan terms is of interest to the borrower Must share with applicant even if you don t use the appraisal or valuation or you only use it for a limited purpose Covered Transactions Business or commercial credit when it is secured by a first lien on a dwelling (as opposed to TILA, business credit is covered by ECOA and Regulation B). Open- or closed-end loans Reverse mortgages Temporary loans (i.e., bridge and construction loans) Loss mitigation activities (to the extent otherwise subject to Reg. B) Renewals (unless using a previously developed valuation)

4 ECOA & TILA APPRAISAL RULES New ECOA Rules Right to Receive a Copy of Appraisals A. Require creditors to notify applicants within three business days of receiving an application of their right to receive a copy of appraisals developed. B. Require creditors to provide applicants a copy of each appraisal and other written valuation promptly upon its completion or three business days before consummation (for closed-end credit) or account opening (for open-end credit), whichever is earlier. C. Permit applicants to waive the timing requirement for providing these copies. Applicants who waive the timing requirement must be provided all required material at or prior to consummation or account opening, or no later than 30 days after the creditor determines the transaction will not be consummated or account will not be opened. D. Prohibit creditors from charging for the copy of appraisals and other written valuations, but permit creditors to charge applicants reasonable fees for the cost of the appraisals or other written valuations unless applicable law provides otherwise. Creditors must notify applicants within 3 business days of receiving an application of their right to receive a copy of all written appraisals developed in connection with the application This provision is generally consistent with the proposed approach to the 3-business-day timing requirements for TILA-RESPA disclosures in the 2012 TILA-RESPA Proposal, and will be linked to that disclosure as the rulemakings are finalized Form C 9 Sample Disclosure of Right to Receive a Copy of Appraisals NEW RULE 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. ALWAYS GIVE NOTICE AND COPY OLD RULE You have the right to a copy of the appraisal report used in connection with your application for credit. If you wish a copy, please write to us at the mailing address we have provided. We must hear from you no later than 90 days after we notify you about the action taken on your credit application or you withdraw your application. [In your letter, give us the following information:] GIVEN ONLY IF NOT ROUTINELY PROVIDING COPY OF APPRAISAL (b)(3) Valuation The term valuation means any estimate of the value of a dwelling developed in connection with an application for credit

5 ECOA & TILA APPRAISAL RULES (b)(3) Valuation Examples Commentary Examples of valuations include but are not limited to: i. A report prepared by an appraiser (whether or not licensed or certified) including the appraiser's estimate or opinion of the property s value. ii. A document prepared by the creditor s staff that assigns value to the property. iii. A report approved by a government-sponsored enterprise for describing to the applicant the estimate of the property s value developed pursuant to the proprietary methodology or mechanism of the government-sponsored enterprise. iv. A report generated by use of an automated valuation model to estimate the property s value. v. A broker price opinion prepared by a real estate broker, agent, or sales person to estimate the property s value. Attachments and exhibits. The term valuation includes any attachments and exhibits that are an integrated part of the valuation (b)(3) NOT Valuations Commentary Other documentation. Not all documents that discuss or restate a valuation constitute a valuation Examples of documents that discuss the valuation or may reflect its value but are not valuations include, but are not limited to: i. Internal documents that merely restate the estimated value of the dwelling contained in an appraisal or written valuation being provided to applicant. ii. Governmental agency statements of appraised value that are publically available. iii. Publicly-available lists of valuations (such as published sales prices or mortgage amounts, tax assessments, and retail price ranges). iv. Manufacturers invoices for manufactured homes Existing (f) Application Application means an oral or written request for an extension of credit that is made in accordance with procedures used by a creditor for the type of credit requested. The term application does not include the use of an account or line of credit to obtain an amount of credit that is within a previously established credit limit. A completed application means an application in connection with which a creditor has received all the information that the creditor regularly obtains and considers in evaluating applications for the amount and type of credit requested (including, but not limited to, credit reports, any additional information requested from the applicant, and any approvals or reports by governmental agencies or other persons that are necessary to guarantee, insure, or provide security for the credit or collateral). The creditor shall exercise reasonable diligence in obtaining such information. 20 Renewals and Modifications? Requirements also apply to any application for renewal of an existing extension of credit to the extent that the creditor develops appraisals in connection with the renewal. Commentary Renewals. New rule to provide copy applies when applicant requests renewal of an existing extension of credit and the creditor develops a new appraisal or other written valuation. New rule to provide copy does not apply if creditor uses appraisals and other written valuations previously developed for prior extension of credit. Best Practice: Consider delivering copy anyway beginning in January

6 ECOA & TILA APPRAISAL RULES Developed in Connection With (b)(2) Dwelling Specific to the current application for credit Applies whether credit is approved or denied or if the application is incomplete or withdrawn Even if a creditor does not use a valuation, the creditor must still provide the valuation to the borrower if it was prepared in connection with this credit application For example: Use a prior transaction s appraisal to complete an evaluation for a non- HPML transaction after January 18, 2014 HPML transactions require an appraisal after January 18, 2014 Use a prior transaction s appraisal without any adjustments The term dwelling means 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 Does not include motor vehicles Provide a Copy Promptly upon Completion Provide in this context means Deliver Delivery occurs 3 business days AFTER mailing or transmission to the applicant s last known address or when indicated by evidence of actual receipt (e.g. receipt, signed delivery receipt, etc.), whichever is earlier Delivery may be electronic if it complies with E-Sign Act Creditor allowed to review and possibly request revisions or corrections to the appraisal Completion occurs the later of When creditor receives last version of appraisal, or When creditor has reviewed and accepted the appraisal or other written valuation with any required changes or corrections If more than one applicant, copies need only be given to one applicant (who must be the primary applicant) DO send revised copies DON T send early drafts

7 ECOA & TILA APPRAISAL RULES Clerical Errors Examples: Promptly upon Completion If after providing applicant a copy, you later identify a clerical error, you may ask the applicant to waive delivery before settlement if: Applicant has already received original appraisal or valuation Changes are only clerical errors with no impact on estimated value Changes do not alter value estimation calculation or methodology Revised copy is delivered no later than closing or account opening Sending a copy within a week of completion with sufficient time before consummation or account opening Sending a copy of a revised appraisal within a week after completion and with sufficient time before consummation or account opening Sending a copy of an AVM report within a week after its receipt and with sufficient time before consummation or account opening Sufficient time: Use received 3 business days before closing as your targeted delivery! Examples: NOT Promptly Provided Delay in sending an appraisal Creditor reviews and accepts appraisal on Day 12 Copy of appraisal sent to applicant(s) on Day 42 Loan consummation or account opening on Day 50 Delay in sending an AVM report while waiting for completion of a second valuation Creditor receives and reviews AVM on Day 5 Creditor orders and rejects first appraisal Revised appraisal received on Day 35 Creditor provides copy of AVM and appraisal on Day 35 Appraisal is prompt, AVM is not promptly provided Multiple Valuations and/or Applicants Multiple Valuations: A copy of each valuation must be provided to applicant New rule: developed in connection with Multiple Applicants: Allowed to send notice and copy of appraisals or valuations only to primary applicant One applicant may waive early delivery, but it must be primary applicant if readily apparent which is the primary Best Practice: Designate in your procedures which applicant is to be considered the primary applicant e.g., first one listed on application

8 ECOA & TILA APPRAISAL RULES Prior to Consummation Waiver of Advance Copy The term consummation means the time that a consumer becomes contractually obligated on a closedend credit transaction [ (b)(1) ] Look to state law to determine when contractually obligated Credit vs. Sale Consummation does not occur when the consumer becomes contractually committed to a sale transaction, unless the consumer also becomes legally obligated to accept a particular credit arrangement. Reg B allows applicants to waive the right to early copy, but requires copy at or before closing Reg Z (HPML regulations) does NOT provide for any waiver If loan will be HPML, may not allow applicant to waive advance delivery If creditor realizes after application loan will be a HPML, then you must not allow any waiver of advance copy Two Types of Timing Waivers Applicant can provide an affirmative oral or written waiver of timing requirement 1. At least 3 business days prior to consummation (closed- end) or account opening (open-end) 2. Within 3 business days of consummation or account opening for waivers that pertain solely to applicant s receipt of a copy of valuation that contains only clerical changes from a prior version previously provided to the applicant Timing Waiver by Applicants Permitted to waive timing requirement earlier of Promptly upon completion or 3 business days prior to consummation or account opening) and agree to receive copies at or before consummation or account opening, except where otherwise prohibited by law Best Practice: Are you willing to accept any consent forms orally????

9 ECOA & TILA APPRAISAL RULES Delivery of Copy After Waiver No Reg B Definition If waived, must receive copy at or prior to consummation (closed-end loan) or account opening (open-end loan) If a waiver is provided and the transaction is not consummated, provide copies no later than 30 calendar days after determining consummation will not occur 30 Business Days Best Practice: Use TILA Regulation Z s business day definition (6) Business day means a day on which the creditor's offices are open to the public for carrying on substantially all of its business functions For purposes of rescission, etil submission, HPML s, HOEPA loans, reverse mortgages, PELs, etc., the term means all calendar days except Sundays and the legal public holidays CFPB s Consumer Guide to New Rule Notice above included in the CFPB s What the new ECOA appraisal and other valuations rule means for consumers dated January 18, 2013, page 3 Fees and Costs A creditor cannot charge fees (including photocopy, postage, or other costs) for copies or delivery costs A creditor may: ECOA and RESPA allow recovery of cost of the appraisal or valuation, with no upcharge Request up-front payment after applicant has expressed intent to proceed (RESPA) Recover Appraisal Management Company (AMC) fees

10 ECOA & TILA APPRAISAL RULES Fees and Costs Points of Vulnerability Creditors are allowed to charge admin costs for requests for duplicate or additional copies May charge for duplicate or additional copies of appraisal report itself Must deliver copy regardless of whether application is approved, denied or withdrawn, even if customer Commercial Lending: Many commercial purpose dwellingsecured loans are not 1 st liens. Implement a process to identify when and when not covered by new rule. Changes in pricing during application could transform the transaction into a HPML after initial application. Implement a process to comply with stricter HPML requirements. Multiple valuations will create more compliance challenges. Do your contracts with third parties restrict your use and sharing of appraisals or valuations that hinder compliance? HPML Coverage Truth in Lending Act (TILA) Regulation Z Closed-end consumer credit transactions secured by the consumer s principal dwelling with an APR that exceeds the average prime offer rate (APOR) for a comparable transaction as of the date the interest rate is set Best Practice: Carefully and consistently determine the date the interest rate is set! The HPML test includes different thresholds for 1 st liens, jumbo loans and subordinate lien loans NOTE HPML rules are included in Reg Z Reg Z does not cover business loans!

11 ECOA & TILA APPRAISAL RULES Additional HPML Disclosures Unless exempt, disclose in writing to HPML applicant: 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. Compliance with the appraisal notice disclosure requirement in Reg B satisfies this HPML requirement Reg B version almost identical with one difference promptly Because all first-lien HPMLs are subject to ECOA, creditors using a single notice should use ECOA version w/ promptly Remember the Reg B notice doesn t apply to subordinate liens Use the Reg B version for all 1 st lien loans and all HPMLs which could be 1 st lien or subordinate lien loans Copy of Appraisals Creditor must provide the consumer a copy of each written appraisal: No later than 3 business days prior to consummation of the loan; -OR - In the case of a loan that is not consummated, no later than 30 days after the creditor determines that the loan will not be consummated Proposed Business Day Definition Appraisal Final Rule uses business day for 3 new requirements: Provide applicant a Notice of Right to Receive Copy of Appraisal that must be delivered or placed in the mail not later than the 3rd business day after the creditor receives the consumer s application for a HPML Final Appraisal Rule also requires the creditor to provide the consumer a copy of each written appraisal obtained under the Final Rule no later than 3 business days prior to consummation of the loan Transactions secured solely by a manufactured home and not land that are consummated on or after July 18, 2015 will be exempt from the HPML appraisal rules if the creditor obtains and gives to the consumer a copy of one of 3 types of valuation information no later than 3 business days prior to consummation. Propose to define business day to mean all calendar days except Sundays and the legal public holidays such as New Year s Day, the Birthday of Martin Luther King, Jr., Washington s Birthday, Memorial Day, Independence Day, Labor Day, Columbus Day, Veterans Day, Thanksgiving Day, and Christmas Day. Failed Alignment of Business Day Definitions Under existing Reg Z, early disclosures must be delivered or placed in the mail not later than the 7 th business day before consummation of the transaction; if the disclosures need to be corrected, the consumer must receive corrected disclosures no later than 3 business days before consummation The consumer is deemed to have received the corrected disclosures 3 business days after they are mailed or delivered For these purposes, business day is defined as quoted previously. The Agencies proposed to align the definition of business day under the Final Rule with the definition of business day for these disclosures is to avoid the creditor having to provide the appraisal under the HPML rules and corrected Regulation Z disclosures at different times because of different definitions of business day 43 Consistent with Reg Z mortgage disclosures Consistent with proposed consolidated Reg Z and Reg X early disclosures Consistent with proposed consolidated Reg Z and Reg X final disclosures

12 ECOA & TILA APPRAISAL RULES FINAL Business Day Definition Delivery of Appraisal Copies The Agencies adopted the definition of business day referring to days on which the creditor's offices are open to the public for the timing requirement for the new consolidated TILA and RESPA disclosures. As a result, the Final TILA Appraisal definition of business day adopted in the December 2013 Final Rule is a day on which the creditor's offices are open to the public for carrying on substantially all of its business functions. Creditor may only charge applicant for one appraisal Copy of written appraisals may be provided to applicant in electronic form, subject to compliance with the consumer consent and other applicable provisions of the E-Sign Act or mailed to the last known address Delivery occurs 3 business days after you mail or transmit, unless you have earlier evidence of receipt Required to send one copy to primary applicant HPML Thresholds A HPML is a closed-end consumer credit transaction secured by the consumer s principal dwelling with an APR in excess of the APOR for a comparable transaction as of the date the interest rate is set by: 1.5% points or more for a 1st lien conforming mortgage loan 2.5% points or more for a 1st lien jumbo residential mortgage loan 3.5% points for a loan secured by a subordinate lien Creditor should use the last date the interest rate for the mortgage loan is set before closing HPML rules do not include HELOCs, second home, investment property or any commercial transactions Test effective June 1, Construction Loan HPML Test When the creditor discloses the 2 phases as separate transactions, the APR for the permanent phase must be compared to the APOR for a transaction that is comparable to the permanent financing. When the creditor discloses the 2 phases as a single transaction, a single APR, reflecting the appropriate charges from both phases, must be calculated for the transaction in accordance with 12 CFR (a)(1)) and Appendix D to 12 CFR part The APR must be compared to the APOR for a transaction that is comparable to the permanent financing. If the transaction is determined to be a non-exempt HPML, only the permanent phase is subject to the HPML appraisal requirements. 120

13 ECOA & TILA APPRAISAL RULES HPML Appraisal Requirements TILA prohibits creditor from extending HPML credit without first: 1. Providing disclosure at application regarding the appraisal s sole use by the creditor and applicant s right to purchase a separate appraisal at his or her own expense 2. Obtaining a written appraisal by a certified or licensed appraiser that includes a physical interior inspection of the property, regardless of transaction amount (no evaluations allowed!) prior to consummation 3. Obtaining an additional appraisal from a separate certified or licensed appraiser if properties are resold within specified time periods at specified profit thresholds 4. Providing the applicant a free copy of any appraisal conducted in accordance with TILA 129H, at least three (3) days prior to the transaction closing date No advance appraisal copy waiver allowed for HPMLs! HPML Exemptions 1. Qualified mortgages (QM) 2. Reverse mortgages 3. Bridge loans of 12 months or less used to acquire a new principal dwelling 4. New manufactured home loan, with or without land 5. Loans secured by boats, mobile homes or trailers 6. Transaction to finance initial construction of a dwelling Dec 2013 Final HPML Appraisal Changes The Agencies exempted from the rules: HPMLs secured by new or existing manufactured homes with and without land (subject to changes and conditions that take effect July 18, 2015 ) Certain HPML streamlined refinancings; and HPML transactions of $25,000 or less. Amount will be indexed annually! HPML Appraisal Rule Exemptions 1. Qualified mortgages (QM) per Reg Z, HUD, USDA, VA, etc. 2. Reverse mortgages 3. Bridge loans of <12 months to acquire new principal dwelling 4. Loan to finance initial construction of a dwelling NOT limited to just 12 months construction period 5. Loans secured by boats, mobile homes or trailers 6. Loans for $25,000 or less, indexed every year for inflation 7. Certain streamlined refinancings at same bank or government Agency 8. NEW manufactured home loans, with or without land, until (7/18/15)

14 ECOA & TILA APPRAISAL RULES 53 Streamlined Refinancings The Agencies exempted an extension of credit that is a refinancing where the resulting loan has the following characteristics: The owner or guarantor of the refinanced loan is the current owner or guarantor of the existing obligation Periodic payments under the refinanced loan must not result in negative amortization, interest-only payments or a balloon payment. Proceeds from the refinance loan may only be used to pay off the outstanding principal balance on the existing obligation and to pay closing or settlement charges. 54 HPML Written Appraisal A creditor shall not extend a HPML to a consumer unless prior to consummation: Creditor obtains a written appraisal Appraisal is performed by a certified or licensed appraiser Appraiser conducts a physical property visit of the interior of the property This rule supersedes FIRREA appraisal exemptions for certain real estate related financial transactions of $250,000 or less, and requires appraisers to conduct onsite interior visit not required by USPAP or Title XI of FIRREA A creditor will be deemed to satisfy this requirement if the creditor satisfies the safe harbor conditions; failure to satisfy the safe harbor is not a per se violation but will be harder to prove compliance 55 HPML Safe Harbor Requirements Order that the appraiser conform with USPAP and Title XI of FIRREA Verify through the appraiser s state certificate or license via the FFIEC s National Registry in the state in which the appraised property is located before ordering appraisal Confirm the written appraisal contains the following 9 items by viewing the face of the appraisal and the appraiser's certification: 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 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 USPAP 9. Includes a certification signed by the appraiser that the appraisal was prepared in accordance with FIRREA and any implementing regulations Document that creditor has no actual knowledge contrary to the facts or certification found in the written appraisal after you have received and reviewed appraisal before closing! 56 Appraiser (a)(1) Certified or licensed appraiser means a person who is certified or licensed by the State agency in the State in which the property that secures the transaction is located at the time appraiser signs certification, and who performs the appraisal in conformity with Uniform Standards of Professional Appraisal Practice (USPAP) and FIRREA requirements [Title XI of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989] (a)(1) National Registry means the database of information about State certified and licensed appraisers maintained by the Appraisal Subcommittee of the Federal Financial Institutions Examination Council (FFIEC) Verify registry listing BEFORE ordering appraisal! 122

15 ECOA & TILA APPRAISAL RULES HPML Flipped Property Tests Sold within 90 Days A. Seller s acquisition price excluding costs of financing B. Consumer Buyer s cost to acquire from Seller excluding costs of financing If B/A > 10 % Obtain additional appraisal Sold within Days C. Seller s acquisition price excluding costs of financing D. Consumer Buyer s cost to acquire from Seller excluding costs of financing If D/C > 20 % Obtain additional appraisal Potential Flipping Time Period Test Date of Current Seller s Acquisition Day 0 The date on which the seller became the legal owner of the property in accordance with state law Date of Current Buyer s Purchase Up to and including the day the consumer agreed in writing to acquire the property (real estate purchase agreement) The date(s) the consumer and the seller signed the agreement might not be the date on which the consumer became contractually obligated under state law The creditor is not obligated to determine whether and to what extent the agreement is legally binding on seller and buyer If dates on which consumer and seller signed agreement differ, use later of the two dates evidencing when both were obligated

16 ECOA & TILA APPRAISAL RULES 61 Safe Harbor for Appraisal Compliance Requires ALL of the 4 criteria below! A creditor must: i. Obtain a written appraisal that meets the requirements for an HPML appraisal by ordering that the appraisal be in conformity with USPAP and FIRREA and any implementing regulations in effect at time appraiser signs the appraiser s certification; ii. iii. iv. 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; Confirm that the elements set forth in Appendix Appraisals for Higher- Priced Mortgage Loans are addressed in the written appraisal; and Certify no actual knowledge contrary to the facts or certifications contained in the written appraisal. 62 HPML Anti-Flipping Restriction Final rule does not prohibit HPML financing within 180 days, it imposes the condition that creditor must obtain an additional appraisal for the creditor's use in considering the loan application A creditor cannot originate a HPML to finance the acquisition of the consumer's principal dwelling without obtaining (prior to consummation) two written appraisals if the flipping time and price differential tests are met HPML Flipping Exemptions Additional appraisal requirement does not apply to acquisitions: From a local, state or federal government agency From a person that acquired property through foreclosure, deed in lieu (DIL) or other similar judicial or non-judicial procedure From a 501(c)(3) non-profit entity authorized to acquire property through foreclosure, DIL or other similar judicial or non-judicial procedure From a person who acquired property by inheritance or court order of dissolution of marriage, civil union or domestic partnership or a partition of joint or marital assets From an employer or relocation agency when relocating employee From a servicemember who received deployment or permanent change of station (PCS) order after purchase of the property Located in declared federal disaster area if Agencies waive it Located in a rural county (contained in published CFPB listing) Creditor s Determination of Sales Price and Date Reasonable diligence A creditor must obtain 2 written appraisals for potentially flipped loans unless the creditor can demonstrate by exercising reasonable diligence that the requirement to obtain 2 appraisals does not apply. A creditor acts with reasonable diligence if the creditor bases its determination on information contained in written source documents, such as the documents listed in the Appendix: Illustrative Written Source Documents for Higher-Priced Mortgage Loan Appraisal Rules

17 ECOA & TILA APPRAISAL RULES 65 Two Appraisals if Potential Flipping Each appraisal must be performed by a certified or licensed appraiser and may not be performed by the same appraiser Each appraiser must conduct a physical inspection of property s interior One of the two appraisals must contain an analysis of: The difference between the seller s acquisition price and the consumer s acquisition price 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 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 Required two appraisals cannot be performed by the same appraiser. If two appraisers are affiliated (i.e., with same firm or Appraisal Management Company), then appraisals must be independently prepared. Determination will be made on a case-by-case basis. 66 Two Separate Appraisals The creditor may only charge the consumer for one of the appraisals An appraisal obtained in connection with the seller's acquisition or the financing of the seller's acquisition does not satisfy the two appraisal requirement The two appraisals can be ordered simultaneously Creditor is to rely on the most credible valuation HPML vs. Flipped HPML Rules HPML Obtain written appraisal performed by certified or licensed appraiser regardless of amount Appraiser must conduct a physical inspection of the property as part of the appraisal Qualifying HPML Flipped Acquisition Transaction Obtain written appraisal performed by a certified or licensed appraiser regardless of transaction amount Appraiser must conduct a physical interior inspection of the property as part of the appraisal Obtain a second separate appraisal and one of the appraisals must analyze: a. Difference between seller s acquisition price and the buyer s acquisition price, b. Changes in market condition, and c. Improvements to the property since seller s acquisition of the property HPML Flipping Exemptions Additional appraisal requirement does not apply to these consumer acquisition of property: From a local, state or federal government agency From a person that acquired property through foreclosure, deed in lieu (DIL) or other similar judicial or non-judicial procedure From a 501(c)(3) non-profit entity authorized to acquire property through foreclosure, DIL or other similar judicial or non-judicial procedure From a person who acquired property by inheritance or court order of dissolution of marriage, civil union or domestic partnership or a partition of joint or marital assets From an employer or relocation agency when relocating employee From a servicemember who received deployment or permanent change of station (PCS) order after purchase of the property Located in declared federal disaster area if Agencies waive it Located in a rural county (contained in published CFPB listing)

18 ECOA & TILA APPRAISAL RULES Permanent Change of Station (PCS) Guidance June 2012, prudential Agencies issued guidance to address mortgage servicer practices that may pose risks to homeowners who are serving in the military and to ensure compliance with applicable consumer laws and regulations. Specifically, to address risks related to military homeowners who have informed the servicer that they have received military Permanent Change of Station (PCS) orders. PCS orders are non-negotiable and operate under short, strict timelines. Homeowners with PCS orders remain obligated to honor their financial obligations, including their mortgages, and can be subjected to financial harm in this tough housing economic market. Rural County (b)(2)(iv)(a) A county is rural during a calendar year if it is neither in an MSA nor in a micropolitan statistical area that is adjacent to an MSA, as those terms are defined by the U.S. Office of Management and Budget and as they are applied under currently applicable Urban Influence Codes (UICs), established by the United States Department of Agriculture's Economic Research Service (USDA-ERS). A creditor may rely as a safe harbor on the list of counties published by the Bureau to determine whether a county qualifies as rural for a particular calendar year. NOTE: Rural ONLY, not rural and underserved! Regulatory Citations OCC 12 CFR Part 34 FRB 12 CFR Part 226 FDIC Refersto 1026 CFPB 12 CFR Part 1026 Appendix A to Subpart G Appraisals for Higher Priced Mortgage Loans Appendix B to Subpart G Illustrative Written Source Documents for Higher Priced Mortgage Loan Appraisal Rules Appendix N Appraisals for Higher Priced Mortgage Loans Appendix O Illustrative Written Source Documents for Higher Priced Mortgage Loan Appraisal Rules Appendix N Appraisals for Higher Priced Mortgage Loans Appendix O Illustrative Written Source Documents for Higher Priced Mortgage Loan Appraisal Rules

19 ECOA & TILA APPRAISAL RULES HPML Appraisal Safe Harbor Review 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 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 property s market value and an effective date for opinion. 7. Indicates a physical property visit of the property interior was performed. 8. Includes a certification signed by the appraiser that the appraisal was prepared in accordance with the requirements of the USPAP. 9. Includes a certification signed by the appraiser that the appraisal was prepared in accordance with FIRREA Title XI. Illustrative Written Source Documents for HPMLs A creditor acts with reasonable diligence for transactions of potentially flipped property if the creditor bases its determination on information contained in written source documents, such as: 1. A copy of the recorded deed from the seller. 2. A copy of a property tax bill. 3. A copy of any owner s title insurance policy obtained by the seller. 4. A copy of the RESPA settlement statement from the seller s acquisition (i.e., the HUD-1 or any successor equivalent form). 5. A property sales history report or title report from a third-party reporting service. 6. Sales price data recorded in multiple listing services. 7. Tax assessment records or transfer tax records obtained from local governments. 8. A written HPML-compliant appraisal for the same transaction. 9. A copy of a title commitment report detailing the seller s ownership of the property, the date it was acquired, or the price at which the seller acquired the property. 10. A property abstract Points of Vulnerability Changes in pricing during application could transform the transaction into a HPML after initial application. Implement a process to comply with stricter HPML requirements. Multiple valuations will create more compliance challenges. Reconciliation of change in appraised value from first and second appraisal (when required) must be scrutinized carefully to identify potential flipping! Do your contracts with third parties restrict your use and sharing of appraisals or valuations that hinder compliance? Patti Blenden Financial Solutions [email protected] Drop us a line sometime! 127

20 ECOA (REG B) VALUATION RULES & TILA (REG Z) HPML APPRAISAL RULES (Effective for Applications Taken on or after January 18, 2014) A. ECOA Valuations Rules (Note 1) 1. Within 3 business days of application, disclose in writing the right to promptly receive copy of appraisal or evaluations developed in connection with 1 st lien application for credit secured by a 1 4 family dwelling. 2. Perform appraisals or evaluations (valuations) per bank policies in compliance with USPAP and FIRREA. Creditor is allowed to charge applicant for cost of the valuation developed in connection with the credit application. 3. Provide a free copy of the appraisal or evaluation promptly upon completion, by the earlier of a few days following review and approval of the appraisal, or 3 business days before closing (closed-end credit) or account opening (open-end credit). MUST be delivered at or before closing. 4. Non-HPML Applicant may waive receipt of advance copy, but must waive right 3 business days before closing. Copy to be provided at or prior to closing. 5. If application is denied, withdrawn, or otherwise not closed, and waiver was executed before closing, provide copy within 30 days following determination. B. TILA HPML Appraisal Rules (c)(1) (6) (Note 2) 1. Within 3 business days of application, disclose right to receive appraisal copy and consumer s option to obtain additional appraisals at their own expense. 2. Certified or licensed appraisers must perform interior-inspection appraisals that comply with USPAP and FIRREA guidelines. Evaluations not allowed. 3. Provide consumers free copy of the appraisal developed in connection with the credit application no later than 3 business days prior to closing. No waivers allowed for advance HPML closing appraisal copies! C. TILA HPML Flipped Property Appraisal Rules (c)(4) (6) (Note 3) 1. Obtain an additional appraisal at Creditor s sole expense if property s seller acquired the dwelling within 90 days and is reselling it for a price > 110% of seller s acquisition cost (excluding cost of financing). If seller acquired it within 91 to 180 days and is reselling it for a price > 120% of seller s acquisition price (excluding cost of financing), obtain additional appraisal reconciling increase in sales price, changes in market condition and property improvements. 2. Provide consumers free copy of each of the appraisals developed in connection with the HPML credit application. Consumer Purpose Closed-End 1 st Lien Principal Dwelling Secured Consumer Purpose Closed-End Subordinate Lien Principal Dwelling Secured Consumer Purpose Closed-End 1 st Lien Non-Principal 1-4 Family Dwelling Secured Consumer Purpose Closed-End Subordinate Lien Non-Principal 1-4 Family Dwelling Secured Consumer Purpose Open-End 1 st Lien Only Any 1-4 Family Dwelling Secured Commercial Purpose Open- or Closed-End 1 st Lien Only Any 1-4 Family Dwelling Secured X X X X X Non-QM Only! X Non-QM Only! X Non-QM Only! X Non-QM Only! Financial Solutions Patti Blenden Draft 4 January 2,

21 ECOA (REG B) VALUATION RULES & TILA (REG Z) HPML APPRAISAL RULES (Effective for Applications Taken on or after January 18, 2014) Note 1: The ECOA Valuations Rules apply to all closed-end or open-end 1-4 family dwelling 1 st lien secured loans, regardless of whether consumer or commercial purpose. A dwelling is defined as a residential structure that contains 1-4 units whether or not that structure is attached to real property. The rule applies to: Consumer purpose or commercial purpose loans secured by a principal dwelling, vacation home, second home, rental house, individual condo units, mobile homes, or manufactured homes; Loss-mitigation transactions, such as loan modifications, short sales, and deed-in-lieu transactions, if they are credit transactions covered by Regulation B Reverse mortgages and time-share loans if they are 1 st lien credit transactions. Before the new ECOA Valuations Rules, Reg B required only that creditors notify applicants of their right to request a copy of appraisal, and if requested to provide copy. Optionally, Creditors were allowed to forego notice of the right to receive a copy of appraisal and always provide an appraisal copy. The new ECOA Valuations Rules require Creditors to always disclose to applicants within 3 business days of application of the right to receive free copies of appraisals and/or written evaluations (all valuations, not just appraisals) developed in connection with the application. The new rules also require timely delivery of copies of valuations promptly after they are completed, regardless of whether credit is extended, denied, incomplete, or withdrawn and regardless of whether the applicant paid for the valuation. Promptly means providing a copy of each valuation no later than 3 business days prior to consummation of the transaction (for closed-end credit) or account opening (for open-end credit), whichever is earlier. If the appraisal is completed early in the application process, then the promptly upon completion deadline will come first, since it will be earlier than the 3 business-days-before-closing deadline. For example, if a loan will close on Friday, April 4, you must deliver the valuation no later than Tuesday, April 1, assuming no banking holidays. Currently, Reg B does not define business days. Refer to Commentary (a)(5) for examples of promptly upon completion timing. The primary applicant may waive the pre-closing requirement and agree to receive any copy at or before consummation or account opening, unless the loan is an HPML. The waiver must be obtained at least 3 business days prior to closing or account opening, unless the waiver pertains solely to receipt of a valuation copy containing only clerical changes from a previous version provided 3 or more business days prior to closing or account opening. If primary applicant provides a waiver and transaction is not closed or account not opened, provide copies no later than 30 days after determining closing or account opening will not occur. If an application was not originally to be secured by a 1st lien on a dwelling and it is later determined that it will, you have 3 business days after change has occurred to disclose the right to receive valuation copies. Note 2: The TILA HPML Appraisal Rules are more narrowly applicable only to consumer purpose higher-priced mortgage loans (HPML) secured by the applicant s primary residence. HPMLs that meet the Qualified Mortgage standards in section (e) of Regulation Z are exempted from the TILA HPML Appraisal Rules. Therefore, you need to comply with the new Rules only if you originate HPMLs that are not Qualified Mortgages or otherwise exempt. For delivering the initial disclosure on appraisals and also for delivering an appraisal, a business day is defined as when the creditor s offices are open to the public for carrying on substantially all of its business functions. Follow same delivery of copy timing rules as for ECOA for denied, withdrawn, incomplete or loans otherwise not closed. The following are exempt from HPML Appraisal Rules per (c)(2): Qualified Mortgages, as defined in Regulation Z and as defined by other agencies specified in the QM regulations (i.e., USDA, FHA, VA, etc.); Loans secured by new manufactured homes, with or without land (until 7/18/15) Loans secured by boat, mobile homes or trailer; Loans for initial construction of a dwelling (not limited to loans of 12 months or less); Loan with maturity of 12 months or less, if the loan purpose is a bridge loan and intended to be used to acquire the consumer s principal dwelling; Streamlined refinancings if the same creditor or government Agency held the existing credit or guarantee and refinance proceeds are used ONLY to payoff old loan plus any settlement or closing costs; Reverse mortgages subject to 12 CFR (a). Note 3: The TILA HPML Flipped Property Appraisal Rules exempt these property transfers from coverage: Acquisitions from a local, state or federal government agency or from a person that acquired property through foreclosure, deed in lieu (DIL) or similar procedure; acquired from a 501(c)(3) non profit entity authorized to acquire property through foreclosure, DIL or other similar procedure; or from person who acquired property by inheritance or court order of dissolution of marriage, civil union or domestic partnership or a partition of joint or marital assets; acquired from an employer or relocation agency when relocating employee or from a Servicemember receiving deployment or permanent change of station (PCS) order after property purchase; or a property located in declared federal disaster areas waived by Agencies or located in a rural county contained in published CFPB listing. Transactions Covered by Both the ECOA Valuations Rule and the TILA HPML Appraisal Rule: Use the ECOA Valuations Rules disclosure (includes promptly ) to satisfy both TILA and ECOA. Timing rules for delivering appraisal copies and the waiver rules differ between the rules. When both apply, follow the rule providing the earlier deadline for appraisal copy delivery. Remember, you may not allow waiver of pre-closing appraisal copy for a HPML, even if otherwise allowed under ECOA! When both rules apply and there are multiple applicants, Creditor may use ECOA rules for delivering disclosure and valuation copies only to primary applicant when one is apparent. Financial Solutions Patti Blenden Draft 4 January 2,

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24 HCML & Homeownership Counseling HCML ( 32) & Homeownership Counseling Homeownership Counseling February 2014 Patti Blenden Financial Solutions Effective January 10, 2014 HCML rules apply to principal residence loans When you originate a highcost mortgage, you must give additional HCML disclosures, avoid certain loan terms, and ensure the consumer receives additional protections, including homeownership counseling 2 One and the Same Expansion of the HOEPA Coverage Removes the previous exclusion for residential mortgage transactions (RML) [purchase money transactions] (See (a)(24)) Reverse Mortgages are still exempt (with no recourse!) Construction only loans are still exempt HOEPA Loans Section 32 Loans High Cost Mortgages RML: A loan primarily for personal, family, or household use, secured by a mortgage, deed of trust, or equivalent security interest on a dwelling or residential real estate upon which is constructed or is intended to be constructed a dwelling, and includes refinancing, reverse mortgages, home equity lines of credit and other first and additional lien loans that qualify under this definition

25 HCML & Homeownership Counseling Covered Loans Mortgages secured by consumer s principal dwelling, including purchase money mortgages, refinances, closed end homeequity loans, and open end home equity lines of credit (HELOCs) are potentially subject to HOEPA rules. The final rule retains the exemption from HOEPA coverage for reverse mortgages. In addition, the final rule adds exemptions from HOEPA coverage for 3 types of loans that the CFPB believes do not present the same risk of abuse as other mortgage loans: 1. Loans to finance the initial construction of a dwelling 2. Loans originated and financed by Housing Finance Agencies 3. Loans originated through the US Department of Agriculture s (USDA) Rural Housing Service 502 Direct Loan Program Construction to Perm Loans The HOEPA exemption is far more straightforward for construction only loans, more complicated for constructionto permanent loans When you make a construction to permanent loan as two separate transactions, the construction loan transaction is exempt, but the permanent financing transaction is not. (Comment 32(b) 1) For a construction to permanent loan originated as a single transaction, coverage must be determined in accordance with appendix D to Regulation Z. (Comment 32(b) 1 and Appendix D) Exclusions for HFA and USDA loans apply only to loans that they directly finance, not loans they guarantee or insure 5 6 HOEPA TRIGGERS HOEPA / HCML Triggers Section 32 Loans 7 8 ANY of the three HOEPA triggers MAKES the transaction subject to HOEPA rules APR vs. APOR Trigger Points and Fees Trigger Prepayment Penalty Trigger 133

26 HCML & Homeownership Counseling 9 10 Three HOEPA Triggers The specially calculated APR exceeds the applicable APOR by > 6.5 percentage points for most 1 st lien mortgages, or > 8.5 percentage points for a 1 st lien mortgage personal property and the transaction is < $50,000; > 8.5 percentage points for subordinate or junior mortgages. The Points and Fees Test For loans > $20,000 or more, > 5 % of total transaction amount For loans < $20,000, the lesser of 8 % of the transaction amount OR $1,000 (with the $$$ also adjusted annually for inflation) The Prepayment Penalty Trigger Loans with a prepayment penalty of: A penalty > 2% of the amount prepaid; or Imposed > 36 months after consummation. Prepayment penalties are generally banned except in fixed rate, prime qualified mortgages (Non HPCT QMs)

27 HCML & Homeownership Counseling HOEPA APOR Triggers APR is determined based on the interest rate as of the date rate is set for fixed rate mortgages; For indexed adjustable rate transactions, greater of The interest rate that results from adding the maximum margin permitted during the loan term or credit plan to the index rate in effect as of the date the interest rate is set, or The introductory interest rate; or For adjustable rate transactions that allow the interest rate to vary other than based on an index, the maximum interest rate that may be imposed during the term of the loan or credit plan HELOC s Comparable APOR To identify the most closely comparable closed end transaction, first determine if the HELOC is fixed or variable rate. If the HELOC has a variable rate and an optional, fixed rate feature, the HELOC is a variable rate transaction for purposes of the APR coverage test. For a variable rate HELOC, the most closely comparable closed end transaction will be a variable rate transaction with an initial, fixedrate period that lasts approximately as long the introductory period, if any, on the HELOC. (If the HELOC has no initial, fixed rate period, assume an initial, fixed rate period of one year.) For a fixed rate HELOC, the most closely comparable closed end transaction will be a fixed rate transaction with the same loan term (in years) as the term of the HELOC to maturity. (If the HELOC has no definite plan length, assume a 30 year term until maturity.) Average Prime Offer Rate (APOR) An APR that is derived from average interest rates, points and other loan pricing terms currently offered to consumers by a representative sample of creditors for mortgage transactions that have low risk pricing characteristics The FFIEC rate spread calculator generates the spread between the APR and a survey based estimate of APRs currently offered on prime mortgage loans of a comparable type utilizing the APORs Fixed and APORs Adjustable tables, action taken, amortization type, lock in date, APR, fixed term (loan maturity) or variable term (initial fixed rate period), and lien status. Rate spread is a calculated field and is NOT simply the APR on the loan application. Changes to APR Test Lower Thresholds Drop from 8 % to 6.5 % for most first lien loans and Drop from 10 % to 8.5 % for subordinate lien loans and loans under $50,000 secured by dwellings that are personal property. New APR Comparison Changes the APR threshold from the yield on comparable Treasury securities to the Average Prime Offer Rate (APOR) Comparable Loans Open end APRs compared against closed end APORs Trigger Timing Compare cost at time rate is set, not at consummation or account opening (last date the rate is locked)

28 HCML & Homeownership Counseling HELOC APR Compare the HELOC s APR (calculated according to the special rules for HOEPA coverage) to the APOR for the most closely comparable closed end transaction To identify the comparable closed end transaction, determine if HELOC is fixed or variable rate. A variable rate product along with an optional, fixed rate feature, the HELOC is a variable rate transaction for purposes of the APR coverage test. For a variable rate HELOC, the most closely comparable closed end transaction will be a variable rate transaction with an initial, fixed rate period that lasts approximately as long the introductory period, if any, on the HELOC. If HELOC has no initial, fixed rate period, assume initial, fixed rate period of 1 year For a fixed rate HELOC, the most closely comparable closed end transaction will be a fixed rate transaction with the same loan term (in years). If HELOC has no definite plan length, assume a 30 year term Calculating HELOC APR for HOEPA Test For fixed rate transactions, calculate the APR by using the interest rate in effect on the date you set the interest rate for the transaction. For transactions where the interest rate varies with an index, use the greater of the introductory interest rate (if any) or the fullyindexed rate (i.e., the interest rate that results from adding the maximum margin permitted at any time during the term of the transaction to the value of the index rate in effect on the date you set the interest rate for the transaction). If the interest rate for the transaction may or will vary other than in accordance with an index, such as in a step rate loan, use the maximum rate that the applicant may pay during the term of the transaction. ( (a)(3) and comments 32(a)(3)-1 through 5) APR Guidelines For a fixed rate transaction, APR must be based on interest rate in effect as of date the interest rate for the transaction is set; For an indexed variable rate, APR must be based on >: i. The interest rate determined by adding the maximum margin permitted at any time during the loan agreement to the index rate in effect as of the date the interest rate for the transaction is set; or ii. The introductory interest rate; and For any other variable rate the APR must be based on the maximum interest rate that may be charged during the term of the loan

29 HCML & Homeownership Counseling High Cost Substantive Rules Requirements Limitations Prohibitions Consumer Notice Requirement Timing: Three (3) business days (rescission definition) prior to consummation Change in Terms: If a disclosure becomes inaccurate before consummation/account opening, provide new disclosures consistent with 3 day period. Telephone disclosure permissible if writing provided at closing. Waiver: Consumer may waive the three day waiting period for a bona fide personal financial emergency (printed forms prohibited) Right of Rescission Business Days Regulation Z "normal" business day definition is "a day on which the creditor's offices are open to the public for carrying on substantially all of its business functions." For most banks, Saturday is not a business day because even if a bank's drive through is open, its back room functions are typically not operational on Saturday. Regulation Z right of rescission: For purposes of calculating the rescission period uses a DIFFERENT definition. Saturday IS a business day for rescission purposes. The regulation states that, for purposes of rescission, "business day" means all calendar days except l) Sundays; and 2) the federal legal holidays listed in 5 U.S.C. Section 6103(a) Consumer Notice Requirement In addition to other disclosures, creditor must disclose the following in conspicuous type size for an HCML: Notice: 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 lose your home, and any money you have put into it, if you do not meet your obligations under the loan. Annual percentage rate (APR) Closed End Payments: Amount of regular periodic payment and any balloon payment Open End Payments: An example showing first minimum periodic payment for the draw period, first minimum periodic payment for any repayment period, and balance outstanding at beginning of any repayment period plus the fact that a balloon payment is required 137

30 HCML & Homeownership Counseling Consumer Notice Requirement Variable rate: Disclose that the interest rate and monthly payment may increase, and the amount of single maximum monthly payment, based on the maximum interest rate Amount borrowed: For closed end, the total amount the consumer will borrow, as reflected on face of the note. Reflect inclusion of any fees not prohibited. For open end, the credit limit for the plan when the account is opened New or Revised Substantive Limitations Balloon Payments: A payment > 2x regular payment. Except: seasonal adjustments, bridge loans and certain rural loans (refer to the QM rule) Prepayment Penalties: Specific parameters Acceleration of Debt: Other than in circumstances of default, due on sale or material violations Substantive Prohibitions Ability to Repay: Closed End Repayment ability: Cannot rely on value of consumer s collateral you must consider repayment ability Pre loan counseling: Must obtain written confirmation by a counselor of the advisability of the mortgage. The counseling must occur after receipt of the Good Faith Estimate (GFE) Historically, regulations implementing HOEPA have prohibited creditors from extending high cost mortgages without regard to the consumer s repayment ability. The Dodd Frank Act established new ability to repay requirements for most closed end mortgage loans, including high cost mortgages. These new requirements were implemented in the Bureau s Abilityto Repay/Qualified Mortgage Rule. In light of these new requirements, creditors that originate closedend high cost mortgages are required to satisfy the same ability torepay requirements as other closed end mortgages. These repayment ability provisions still provide for a presumption of compliance if specified criteria are met

31 HCML & Homeownership Counseling 29 Ability to Repay: Open End The new Dodd Frank Act ability to repay requirements do not apply to HELOCs. For open end high cost mortgages, repayment ability will still be determined using HOEPA s ability to repay rules (which have been revised in the 2013 HOEPA Rule to apply to HELOC transactions). ( (a)(4)(i) (iv)) These repayment ability provisions still provide for a presumption of compliance if specified criteria are met. Reg Z (4) 32 HELOC Ability to Repay (4) Repayment ability for high cost mortgages. In connection with an open end, high cost mortgage, a creditor shall not open a plan for a consumer where credit is or will be extended without regard to the consumer's repayment ability as of account opening, including: current and reasonably expected income, employment, assets other than the collateral, and current obligations including any mortgage related obligations that are required by another credit obligation undertaken prior to or at account opening, and are secured by the same dwelling that secures the high cost mortgage transaction. These requirements apply to HELOC HCMLs, but do not apply to closed end high cost mortgages (use QM & ATR rules). Temporary or "bridge" loans with terms of 12 months or less are exempt from this repayment ability requirement. 30 Cure Cure A creditor or assignee when acting in good faith failed to comply is not in violation if: Within 30 days of consummation and prior to beginning any action, the consumer is notified of or discovers the violation Appropriate restitution is made within a reasonable time; and Within a reasonable time, whatever adjustments are made to the loan or credit plan to, either, at the choice of the consumer: i. Make the loan compliant; or ii. Change the terms so it is no longer HCML A creditor or assignee when acting in good faith failed to comply is not in violation if: Within 60 days of discovery and prior to beginning any action, the consumer is notified of the violation Appropriate restitution is made within a reasonable time; and Within a reasonable time, whatever adjustments are made to the loan or credit plan to, either, at the choice of the consumer: i. Make the loan compliant; or ii. Change the terms so it is no longer HCML

32 HCML & Homeownership Counseling Cure Notices 30 and 60 day timelines relate to notice Cure will probably take longer, but should be conducted within a reasonable time period (i.e., within 30 days of receipt of consumer choice) Homeownership Counseling Homeownership Counseling Counseling for High Cost Mortgages Logistics HCML Neg Am 1 st Time Buyers All Reg X Closed End Provide applicant a list of counselors Must confirm completion of homeownership counseling Provide applicant a list of counselors Must confirm completion of homeownership counseling Provide applicant a list of counselors No requirement to confirm applicant completed counseling The HCML consumer will need to have received either RESPA good faith estimate or HELOC Disclosures required under before the homeownership counseling session on the advisability of the mortgage. Homeownership counselor must confirm that the consumer received all of the HCML HELOC disclosures or RESPA closed end disclosures before the counselor can issue the certification of counseling

33 HCML & Homeownership Counseling 37 HCML Homeownership Counseling Requirements Prior to making a high cost mortgage, you must receive written certification that the consumer has received homeownership counseling on the advisability of the mortgage from a HUD approved counselor or a state housing finance authority, if permitted by HUD. The homeownership counselor cannot be affiliated with or employed by your organization. You cannot steer the consumer to a particular counseling agency. (Comments 34(a)(5)(vi) 1 and 2) HCML Consumer Counseling Because the consumer typically gets some of these documents at or just before closing, it may be best for counseling to occur in 2 stages: 1. In the first stage, the consumer receives counseling on the mortgage after receipt of the initial good faith estimate or disclosure. 2. In the second stage, the consumer has a second contact with the counselor, so the counselor can confirm receipt of all the additional required disclosures prior to issuing certification. ( (a)(5)(i) 3)) The rule does not require in person counseling. Counseling may be provided via telephone, but must be provided by a HUD approved counselor. A self study program may not be used to satisfy the counseling requirement. The counselor can send the bank the written certification via mail, , or facsimile, so long as the certification is in a retainable form. ( (a)(5)(i) 4) Who Pays for the HCML Consumer Counseling? Consumers can pay the fee themselves, or they can finance the fee as part of the mortgage transaction The bank can pay the counseling fee for the consumer, but cannot condition payment on the consumer getting the high cost loan 2 New Non HCML Counseling Requirements NOT related to HOEPA Loan Categories RESPA/Reg X Amendment: Creditors must provide list of homeownership counseling organizations within 3 business days of application. List to be available through CFPB or HUD TILA/Reg Z Amendment: Mandatory counseling for first time borrowers considering loans that will or may negatively amortize 141

34 HCML & Homeownership Counseling Homeownership Counseling These 2 provisions are not tied to HCML status: Creditors must provide a list of homeownership counseling organizations to most mortgage loan applicants within 3 days of application. Applies to most closed end and open end credit transactions, including HCMLs ( ) Prior to making a loan that permits negative amortization to a first time borrower, a creditor must confirm the consumer received homeownership counseling. Applies to most closed end loans secured by a dwelling, but will not apply to HCMLs (negative amortization is prohibited for HCMLs). ( (k)) First Time Mortgage Borrower s Counseling List Within 3 business days after a lender, mortgage broker, or dealer receives an application, the lender must provide the applicant with a written list of organizations providing relevant counseling services in the loan applicant s area Can be combined with other disclosures This list must be current ( obtained <30 days): i. The website maintained by the CFPB for lenders to use in complying with this section; or ii. Data made available by HUD for lenders to use in complying with this section, provided that the data is used per instructions provided with the data First-Time Borrower s Counseling List RESPA s Required Counselor List Lender must provide applicant with list of 5 homeownership counselors or counseling organizations located: Within the loan applicant s current zip code OR If 5 counselors or counseling organizations are not within the applicant s current zip code, then within zip code(s) closest to applicant s current address Requirement does not apply to: Reverse mortgages Timeshare plans Banks can generate a list of homeownership counseling organizations to provide to consumers through the CFPB s website, or use data provided by the CFPB or HUD. The CFPB has worked with HUD to develop the website to use to generate the list

35 HCML & Homeownership Counseling a housing counselor/ Homeownership Counseling List Delivery List may be delivered: In person; By mail or other means of delivery; or In electronic form (subject to ESIGN) If the lender denies the application or applicant withdraws before the end of the 3 business day period, no list required

36 Housing counselors near you 10 CLOSEST RESULTS TO ZIP CODE The counseling agencies on this list are approved by the U.S. Department of Housing and Urban Development (HUD), and they 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 to you. This list shows you several approved agencies in your area. You can find other approved counseling agencies at the Consumer Financial Protection Bureau s (CFPB) website: consumerfinance.gov/mortgagehelp or by calling CFPB (2372). You can also access a list of nationwide HUD-approved counseling intermediaries at src=/ohc_nint 1. Clearpoint Financial Solutions 7200 Corporate Center Dr - Miami, FL Distance 1.4 miles Website: Phone: Address: Not available Languages: English, Other Services: Mortgage Delinquency and Default Resolution Counse Financial Management/ Budget Counseling Services for Homeless Counseling Pre-purchase Counseling Rental Housing Counseling 2. Ser Jobs for Progress 5600 NW 36th Street Suite 561 Miami, FL Distance 2.1 miles Website: Not available Phone: Address: [email protected] Languages: Creole, English, French, Spanish Services: Mortgage Delinquency and Default Resolution Counse Resolving/Preventing Mortgage Delinquency Workshop Financial Management/Budget Counseling Pre-purchase Counseling Pre-purchase Homebuyer Education Workshops 144

37 3. Neighborhood Housing Services of South Florida 300 NW 12th Ave Miami, FL Distance 5.1 miles Website: Phone: Address: Not available Languages: Creole, English, French, German, Spanish Services: Mortgage Delinquency and Default Resolution Counse Financial Management/ Budget Counseling Fair Housing Pre-Purchase Education Workshops Non- Delinquency Post Purchase Workshops Predatory Lending Education Workshops Pre-purchase Counseling Pre-purchase Homebuyer Education Workshops 4. Cuban American National Council, Inc. - Miami 1223 SW 4th STREET Miami, FL Distance 5.1 miles Website: Phone: Address: [email protected] Languages: English, Spanish Services: Mortgage Delinquency and Default Resolution Counse Financial Management/ Budget Counseling Non-Delinquency Post Purchase Workshops Predatory Lending Education Workshops Pre-purchase Counseling Pre-purchase Homebuyer Education Workshops 5. Cccs of the Midwest 1800 W 49th St Ste 303 Hialeah, FL Distance 6.2 miles Website: Phone: Address: [email protected] Languages: English, French, Spanish Services: Not available 145

38 6. Miami-Dade Affordable Housing Foundation, Inc 1444 Biscayne Blvd Ste 312 Miami, FL Distance 6.7 miles Website: Phone: Address: Not available Languages: English, Spanish Services: Non-Delinquency Post Purchase Workshops Pre-purchase Counseling Prepurchase Homebuyer Education Workshops 7. Little Haiti Housing Association, Inc. 181 NE 82nd Avenue Suite 100 Miami, FL Distance 8.9 miles Website: Not available Phone: Address: Not available Languages: Creole, English Services: Non-Delinquency Post Purchase Workshops Pre-purchase Counseling Prepurchase Homebuyer Education Workshops 8. Apprisen - Pinecrest S, Dixie Highway Suites 303 and 305 Pinecrest, FL Distance 9 miles Website: Phone: Address: [email protected] Languages: English, Spanish Services: Not available 146

39 9. Opa-Locka Community Development Corporation 490 Opa Locka Blvd Opa Locka, FL Distance 9 miles Website: Phone: Address: Not available Languages: English Services: Financial Management/Budget Counseling Financial, Budgeting and Credit Repair Workshops Home Improvement and Rehabilitation Counseling Non- Delinquency Post Purchase Workshops Pre-purchase Counseling Pre-purchase Homebuyer Education Workshops Rental Housing Counseling 10. Vision to Victory Destination Home NW 7th Avenue North Miami, FL Distance 9.7 miles Website: Not available Phone: Address: [email protected] Languages: English Services: Mortgage Delinquency and Default Resolution Counse Financial Management/ Budget Counseling Fair Housing Pre-Purchase Education Workshops Non- Delinquency Post Purchase Workshops Predatory Lending Education Workshops Pre-purchase Counseling Pre-purchase Homebuyer Education Workshops 147

40 5.What are the additional homeownership counseling requirements? I. What homeownership counseling requirements apply to creditors regardless of whether or not they make high-cost mortgages? In addition to the pre-loan counseling requirement for high-cost mortgages, the 2013 HOEPA Rule implements two other Dodd-Frank Act homeownership counseling provisions: 1. An amendment to Regulation Z (TILA) that requires pre-loan counseling for negative-amortization loans made to first-time borrowers 2. An amendment to Regulation X (RESPA) that requires you to give federally-related loan applicants a list of housing counselors i. Negative-amortization counseling (TILA (k)) You must obtain sufficient documentation showing that a first-time borrower has received homeownership counseling prior to making most types of closed-end, dwelling-secured loans that permit negative amortization. You cannot steer the consumer to a particular counselor or counseling agency. A few things to note concerning this rule: It is specific to first-time borrowers and does not apply to consumers who have taken out mortgages before

41 ii. It does not apply to high-cost mortgages since negative amortization is prohibited for high-cost mortgages. Like the HOEPA counseling requirement, the counselor must be federally-certified or approved. You must receive documentation that the consumer has obtained pre-loan counseling before making the loan. List of homeownership counseling organizations (RESPA ) The final rule contains a new requirement that you must give applicants for federally-related mortgages (whether or not a high-cost mortgage) a written list of homeownership counseling organizations within three business days of receiving the application. Applicants for reverse mortgages and loans f or time-shares are excluded. In order to comply, you have two options for obtaining the list required to be provided to loan applicants: Use a tool developed and maintained by the Bureau on its website, (which uses U.S. Department of Housing and Urban Development (HUD) data on HUD-approved counseling agencies) ( (a)(1)(i)) or Use data made available by the Bureau or HUD, provided that the data is used in accordance with instructions provided with the data. ( (a)(1)(ii))) Implementation Tip: The Regulation X homeownership counseling provisions (as opposed to the pre-loan counseling requirements for high-cost mortgages and negativeamortization loans) require you only to provide consumers with a list of counseling resources. It is up to these consumers to decide if they want to get counseling the rule does not require them to do so. See the Bureau s November 2013 Interpretive Rule ( Homeownership Counseling Organizations Lists Interpretive Rule ), describing data instructions for lenders to use in complying with the (a)(1)(ii) requirement to generate a list of counseling organizaions by using data provided by the Bureau or HUD. The following summarizes those instructions: The list of housing counseling agencies provided to each consumer must comply with the following general requirements: You must provide a list of ten HUD-approved housing counseling agencies.. The tool maintained by the Bureau will generate a list of ten HUD-approved housing counseling agencies

42 It must list the ten counseling agencies that are closest to the centroid of the zip code of the borrower s current address, in descending order of proximity to the centroid. Lenders, should they choose may offer borrowers the option of generating the list from a zip code different from their home address, or from amore precise geographic marker such as a street address but they are not required to do so. The Bureau s tool will permit generating the list of HUD-approved housing counseling agencies through entry of a zip code. It must contain the following data fields on each counseling agency to the extent they are available through HUD s application programming interface ( HUD API) containing data on HUD-approved housing counseling agencies o o o o o o o o o o o Agency name Phone number Street address Street address continued City State Zip code Website URL address Counseling services provided Languages spoken The list must include the following text: The counseling agencies on this list are approved by the U.S. Department of Housing and Urban Development (HUD), and they 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 to you. This list shows you several approved agencies in your area. You can find other approved counseling agencies at the Consumer Financial Protection Bureau s (CFPB) website:.consumerfinance.gov/mortgagehelp or by calling CFPB (2372). You can also access a list of nationwide HUD-approved counseling intermediaries at Please Note: On November 8, 2013 the Bureau issued a CFPB Bulletin which included the following statements:

43 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 HUDapproved counseling agencies, in accordance with Bureau s list instructions. The Bureau published an interpretative rule on November 8, 2013, which provides the list instructions and clarifies how lenders may generate their own lists. 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 nforcement concerns. Following is the suggested text to be used for this interim procedure: Housing counseling agencies approved by the U.S. Department of Housing and Urban Development (HUD) can offer independent advice about whether a particular set of mortgage loan terms is a good fit based on your objectives and circumstances, often at little or no cost. If you are interested in contacting a HUD-approved housing counseling agency in your area, you can visit the Consumer Financial Protection Bureau s (CFPB) website, 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)