The FP’s Final Mortgage RegulationsFeb 13, 2013 · The FP’s Final Mortgage Regulations (Or...

National Association of Federal Credit Unions l www.nafcu.org

The CFPB’s Final Mortgage Regulations (Or 3507 Pages in Two Hours)

February 13, 2013 2:00 p.m. – 4:00 p.m. EST

Presented by:

Steve Van Beek, Esq., NCCO Director of Regulatory Compliance

National Association of Federal Credit Unions


Webcast Goals

• Overview of New Regulations

• Overview of NAFCU Resources Available

• Understand Scope & Applicability –Which Requirements apply to your CU?

• Which Requirements have Exemptions? –What are the Exemption Thresholds?

–Which Transactions Count?

• Effective Dates of New Requirements

• Which areas will take the most resources?


7 New Regulations

1. Escrow Requirements for HPMLs

2. Loan Originator Compensation & More

3. Mortgage Servicing (Reg Z & Reg X)

4. Qualified Mortgage/Ability-to-Repay

5. Requirements for High-Cost Mortgages

6. Appraisal Requirements for HPMLs

7. Appraisal Disclosure & Delivery


NAFCU Resources

• Mortgage Reform Webcast Series

• Mortgage Rules Webpage

–www.nafcu.org/mortgagerules

• Compliance Blog Categories

• Regulatory Update Day at Reg School

• Multiple Sessions at Regulatory Seminar

• Articles in Compliance Monitor

• Scope & Applicability Charts

http://www.nafcu.org/mortgagerules

http://www.nafcu.org/school

http://www.nafcu.org/seminar


Escrow Requirements For Higher-Priced Mortgage Loans

Regulation Z

12 CFR 1026.35

Effective Date: June 1, 2013


Escrow Requirements - HPMLs

• Small Change to Escrow Requirement for Higher-Priced Mortgage Loans – 1026.35

• Existing Requirement Amended – Currently, member can cancel after one year

– Under the new rule, members cannot cancel for the first five years. • And, only when the unpaid principal balance is less than

80 percent of the original value of the property and the member is not delinquent or in default.

• Applies to applications received on or after 06/01/13



Scope of Escrow Requirement

The requirement applies to higher-priced mortgage loans that are closed-end consumer credit transactions secured by a first lien on a member’s principal dwelling.

Note: Scope is unchanged by new rules.

Higher-Priced Mortgage Loan (HPML) Determination

The test for HPML status still looks at the loan’s APR versus the “average prime offer rate” (APOR)



Excluded from Escrow Requirement

• Loans that are not higher-priced mortgages;

• Subordinate lien higher-priced mortgages;

• Home equity lines of credit (HELOCs);

• Loans secured by shares in a co-op;

• Loan to finance the initial construction of a dwelling;

• Temporary or bridge loans with a term of 12 months or less; and

• Reverse mortgages.


Loan Originator Compensation, Qualifications, Training, & Disclosures

And, More

Regulation Z

12 CFR 1026.36


Loan Originator Rules & More

Effective Dates Vary by Section

June 1, 2013 • Prohibition on Mandatory Arbitration

–12 CFR 1026.36(h)

• Prohibition on Financing Single-Premium Credit Insurance – 12 CFR 1026.36(i)

January 10, 2014 • All other requirements



Prohibition on Mandatory Arbitration

12 CFR 1026.36(h)

Dodd-Frank prohibited mandatory arbitration clauses. Not common, but credit unions must review agreements.

Scope: Applies to closed-end mortgages secured by a dwelling. Also applies to HELOCs secured by principal dwelling.



Prohibition on Financing Single-Premium Credit Insurance

12 CFR 1026.36(h)

Dodd-Frank also prohibited the financing, directly or indirectly, of single-premium credit insurance. This is not common.

Note: This does not prohibit credit insurance where the premium or fees are calculated and paid in full on a monthly basis.



Prohibition on Financing Single-Premium Credit Insurance

12 CFR 1026.36(h)

Scope: Applies to closed-end mortgages secured by a dwelling. Also applies to HELOCs secured by principal dwelling.



New Requirements for Loan Originators*

• Loan Originator Compensation – .36(d)

• Qualifications & Training – .36(f)

• Disclosures on Loan Documents – .36(g)

*Loan Originator has new definition

–Differs from SAFE Act definition – which is located in CFPB’s 12 CFR 1007.102 and Appendix A



New Requirements for Loan Originators

Effective Date – January 10, 2014

Scope: Closed-end consumer credit transactions secured by a member’s dwelling. This includes manufactured homes, boats, trailers and other loans that may be secured by personal property used as a dwelling. Timeshare plans are excluded.

Excluded: Home-equity lines of credit (HELOCs)


Mortgage Servicing

Regulation Z & Regulation X

12 CFR 1026 & 12 CFR 1024

Effective Date: January 10, 2014


Mortgage Servicing – Reg Z

3 Reg Z Mortgage Servicing Requirements

1. Mortgage Periodic Statements • 12 CFR 1026.41

2. Interest Rate Adjustment Notices • 12 CFR 1026.20(c) & (d)

3. Prompt Payment Crediting and Payoff Statements • 12 CFR 1026.36(c)

All three have different scopes.



Mortgage Periodic Statements – 1026.41

Eligible for Small Servicer Exemption

Scope: Applies to closed-end consumer transactions secured by a member’s dwelling. This includes closed-end home equity loans as well as other closed-end subordinate lien loans. Also includes second homes, vacation homes and loans secured by personal property that is used as a dwelling (manufactured home, boat, etc.)

Excludes: Open-end credit – such as HELOCs. Remember, HELOCs already have a periodic statement requirement.



Interest Rate Adjustment Notices - 1026.20

Not Eligible for Small Servicer Exemption

Scope: Applies to closed-end consumer transactions secured by a member’s principal dwelling where the APR may change after consummation.

Applies to adjustable-rate mortgages (ARMs). Does not apply to fixed-rate mortgages.

Excludes: Open-end credit – such as HELOCs. Also, excluded are ARMs with terms of one year or less.



Prompt Payment Crediting – 1026.36(c)(1)


Scope: Applies to consumer transactions secured by a member’s principal dwelling. This includes home equity-lines of credit (HELOCs).

Payoff Statements – 1026.36(c)(3)


Scope: Applies to consumer credit transactions secured by a member’s dwelling. Includes HELOCs.


Mortgage Servicing – Reg X

6 Reg X Mortgage Servicing Requirements

1. Force-placed Insurance;

2. Error Resolution & Information Requests;

3. General Servicing Policies, Procedures and Requirements;

4. Early Intervention with Delinquent Borrowers;

5. Continuity of Contact with Delinquent Borrowers; and

6. Loss Mitigation Procedures.



Scope of First Three Reg X Requirements

1. Force-placed Insurance;

2. Error Resolution & Information Requests; and

3. General Servicing Policies, Procedures and Requirements.

Scope: Closed-end “federally related mortgage loans.” Excludes HELOCs. Also, excludes loans on property of 25 acres or more, business-purpose loans, temporary financing and vacant land loans. Loans secured by dwellings considered personal property are also excluded.

Includes both first and subordinate liens. Includes second homes and vacation homes.



Scope of Next Three Reg X Requirements



6. Loss Mitigation Procedures.

Scope: Closed-end “federally related mortgage loans” secured by a member’s principal dwelling. HELOCs are excluded. Loans on property of 25 acres or more, business-purpose loans, reverse mortgages, temporary financing and vacant land loans are excluded. Loans secured by dwellings considered personal property are also excluded.

Includes both first and subordinate liens.



Small Servicer Exemption Applicability


1. Force-placed Insurance Notices; and

2. Error Resolution & Information Requests.

Note: One part of the force-placed insurance requirements of 1024.17 has a limited exception for small servicers. However, the force-placed insurance notices – under 1024.37 – are required for all credit unions servicing mortgage loans.




Eligible for Small Servicer Exemption




6. Loss Mitigation Procedures*.

Exemption Threshold is same as Periodic Statements




*Loss Mitigation Procedures

Two provisions of 1024.41 still apply to small servicers.

1. Small servicers would still be prohibited from making the first notice or filing of foreclosure unless a member is more than 120 days delinquent.

2. Small servicers would be prohibited from proceeding to foreclosure if a member is performing according to a loss mitigation agreement.


Small Servicer Exemption

Small Servicer Exemption Determination 9 Total New Mortgage Servicing Requirements

Four are ineligible for small servicer exemption:

1. Interest Rate Adjustment Notices;

2. Prompt Crediting of Payments & Payoff Statements;

3. Force-placed Insurance Notices; and

4. Error Resolution and Information Request Procedures.



Small Servicer Exemption Determination Five are eligible for small servicer exemption:

1. Mortgage Periodic Statements;




5. Loss Mitigation Procedures*.



Small Servicer Exemption Determination

Language from 12 CFR 1026.41(e)(4):

(ii) Small servicer defined. A small servicer is a servicer that either:

(A) Services 5,000 or fewer mortgage loans, for all of which the servicer (or an affiliate) is the creditor or assignee; or

(B) Is a Housing Finance Agency, as defined by 24 CFR 266.5




Servicer (or affiliate) is the creditor

This requirement means the credit union originated the mortgage loan. Credit unions that service loans originated by another mortgage originator are not eligible for the small servicer exemption.




5000 or fewer mortgage loans

Which loans count toward the 5000?

Mortgage loans. As defined by 12 CFR 1026.41(a):

(a) In general. (1) Scope. This section applies to a closed-end consumer credit transaction secured by a dwelling, unless an exemption in paragraph (e) of this section applies. Such transactions are referred to as mortgage loans for the purposes of this section.





Closed-end consumer credit secured by a dwelling

Thus, credit unions need to include any closed-end dwelling-secured mortgage loans that the credit union services to determine if they qualify.

Includes: Purchases, refinances, closed-end home equities, vacation homes, second homes, first liens and subordinate liens. Closed-end dwelling-secured.





Closed-end consumer credit secured by a dwelling

Excludes: Home equity lines of credit (HELOCs).

Mortgage loans the credit union originated but does not service should not be included in the 5000 mortgage loan calculation. This includes loans the credit union sold to Fannie Mae and Freddie Mac (if the CU also sold the servicing rights).


Homeownership Counselor Disclosure

Included in the High-Cost Mortgage Regulation

Regulation X

12 CFR 1024.20



Counseling Disclosure

Homeownership Counselor Disclosure New requirement from Dodd-Frank that was included in high-cost final rule, but applies much broader. Implemented in 12 CFR 1024.20.

Scope: Applies broadly to “federally related mortgage loans” and open-end home equity lines of credit (HELOCs).

Excluded: Reverse mortgages; timeshares; construction loans; and loans secured by a dwelling that is considered personal property under State law.

http://www.ecfr.gov/cgi-bin/text-idx?SID=cc7a7aea7945dc4e89483f9d09c4fc78&node=20130131y1.7


Counseling Disclosure

Disclosure Requirements – 1024.20 Timing: Must be sent no later than three business days after the credit union receives an application.

– With Special Information Booklet for closed-end loans; or

– With HELOC disclosures for home equity lines of credit.

Content: A written list of homeownership counseling organizations in the loan applicant’s location. Credit unions must have obtained the list in the prior 30 days.

Creating List: CFPB will be developing a website portal that credit unions (and vendors) can use to populate the listings.


Qualified Mortgages & Ability-to-Repay Requirements

Regulation Z

12 CFR 1026.43



Scope & Applicability

Ability-to-Repay Requirements – 12 CFR 1026.43

The new ability-to-repay requirements apply to closed-end consumer transactions secured by a member’s dwelling. This includes purchases, refinances, and closed-end home equity loans. It also includes loans secured by a first lien or a subordinate lien.

Note: the requirement applies to any dwelling – which includes a member’s principal residence, second home, vacation home, condo, co-op, mobile home or manufactured home.


Exemptions

Ability-to-Repay Requirements – 12 CFR 1026.43

The following are exempt:


• Loans secured by a timeshare plan;

• Reverse mortgages;

• Temporary or bridge loans with a term of 12 months or less;

• The construction phase of 12 months or less of a construction-to-permanent loan;

• Business-purpose loans; and

• Loan modifications (but, true “refinances” under 12 CFR 1026.20(a) are covered).

http://www.ecfr.gov/cgi-bin/text-idx?c=ecfr&SID=662ec875074cbb03a17e775e8dcb9034&rgn=div8&view=text&node=12:8.0.2.14.18.3.1.4&idno=12

http://www.ecfr.gov/cgi-bin/text-idx?c=ecfr&SID=662ec875074cbb03a17e775e8dcb9034&rgn=div8&view=text&node=12:8.0.2.14.18.3.1.4&idno=12


Ability-to-Repay Requirement

Ability-to-Repay Requirement – 1026.43(c) The final rule provides minimum requirements for credit unions making ability-to-repay determinations. Credit unions must consider eight factors:

– Current or reasonably expected income or assets;

– Current employment status;

– The monthly payment of the mortgage;

– The monthly payment on any simultaneous mortgage;


Ability-to-Repay Requirement

Ability-to-Repay Requirement – 1026.43(c) Credit unions must consider eight factors (cont’d):

– The monthly payment for mortgage-related obligations;

– Current debt obligations, alimony, and child support;

– Monthly debt-to-income ratio or residual income; and

– Credit history.

The final rule provides guidance on each factor.


Qualified Mortgage Standard

Qualified Mortgage Standard – 1026.43(e) The new rules include a complex definition of “qualified mortgage.” Importantly, credit unions can make non-qualified mortgages – so long as the credit union complies with the ability-to-repay requirements.

Example: By definition, a 40-year mortgage loan cannot be a “qualified mortgage.” A credit union can still make this loan – it just wouldn’t meet the definition of a “qualified mortgage.”


Qualified Mortgage Standard

Qualified Mortgage Standard – 1026.43(e) Credit unions making “qualified mortgages” receive additional protections. The level of the protection depends on whether the “qualified mortgage” is considered “higher-priced” or not.

Higher-Priced: The higher-priced determination uses the same APR versus APOR threshold – without the jumbo loan consideration. Thus, first liens that are 1.5 percentage points or more and subordinate liens that are 3.5 percentage points or more.


Safe Harbor vs. Presumption

Safe Harbor

Mortgage loans that meet the definition of a “qualified mortgage” and are not higher-priced will obtain a safe harbor.

Rebuttable Presumption of Compliance

Mortgage loans that meet the definition of a “qualified mortgage” and are higher-priced will obtain a presumption of compliance.


High-Cost Mortgages

Regulation Z

12 CFR 1026.32



High-Cost Mortgages

Dodd-Frank Expanded Scope

Historically, credit unions have not made high-cost mortgage loans. Dodd-Frank expanded the scope to include purchase loans and HELOCs.

Scope: Loan secured by a member’s principal dwelling that meets one of three tests.

Excluded: Loans to finance the initial construction of a dwelling and loans originated through the Section 502 Direct Loan Program (USDA).


High-Cost Mortgages

Three Tests of High-Cost Mortgages

1. APR versus APOR Determination

As with higher-priced mortgage loans, compare against the APOR tables on FFIEC’s website. Four different thresholds:

– First liens (Real Property): 6.5 percentage points above APOR

– First liens (Personal Property > $50,000): 6.5 points above APOR

– First liens (Personal Property < $50,000): 8.5 points above APOR

– All Subordinate Liens: 8.5 percentage points above APOR

2. Points & Fees Test

3. Prepayment Penalty Test

– Not applicable to FCUs as the Federal Credit Union Act prohibits already. Recouped closing costs are not penalty.


High-Cost Mortgages

Points & Fees Test

There are two different thresholds depending on the loan amount:

1. For loans of $20,000 or greater, the loan will be a high-cost mortgage if points and fees exceed 5 percent of the total transaction amount.

2. For loans below $20,000, the loan will be a high-cost mortgage if points and fees exceed 8 percent of the total transaction or exceed $1,000 (adjusted annually for inflation)


High-Cost Mortgages

New Prohibitions – Effective January 10, 2014

• Late fees are capped at 4% of payment (and 15-day courtesy period for all high-cost mortgages);

• Fees for payoff statement are prohibited;

• Modification/Deferral (including skip-a-pay) fees are prohibited;

• Prepayment penalties are prohibited;

• Financing of points and fees is prohibited;

• Balloon payments are banned (except in limited situations); and

• Creditors cannot recommend default.


High-Cost Mortgages

New Requirements – Effective January 10, 2014

Homeownership Counseling Certification

Credit unions would be unable to make a high-cost mortgage loan unless they have received a certification that a borrower has received homeownership counseling.

Ability-to-Repay for HELOCs

Before granting a high-cost HELOC, the credit union would need to consider the member’s ability-to-repay.


Appraisal Requirements For Higher-Priced Mortgage Loans

Regulation Z – 12 CFR 1026.35

NCUA’s Regulation – 12 CFR 722.3(f)



Appraisals for HPMLs

New Appraisal Requirements

For Certain Higher-Priced Mortgage Loans

Same HPML Test: APR versus APOR

Scope: Higher-priced mortgage loans that are closed-end consumer credit transactions on a member’s principal dwelling. But, see exemptions (next slide).

Not Limited to First Liens (unlike escrow).



The Following Loans are Exempt:

• Qualified mortgages;


• 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;

• Temporary or bridge loans; and




New Appraisal Requirements for HPMLs Credit unions making a higher-priced mortgage loan must obtain an appraisal from a certified or licensed appraiser who conducts a physical visit of the interior of the property. Credit unions can obtain a safe harbor from this requirement by verifying that the written appraisal meets a checklist of requirements.

Additional Appraisal Requirement In certain “flipping” situations, credit unions would need to obtain an additional appraisal before making the higher-priced mortgage loan (CU could not charge the member for additional appraisal).


Appraisal Disclosure

& Delivery Requirements

Regulation B – 12 CFR 1002.14



Appraisal Disclosures & Delivery

New Appraisal/Valuation Requirements Historically, FCUs were exempt from Regulation B’s requirement for copies of appraisals. The Dodd-Frank Act changed this and all credit unions will now need to follow all the new Regulation B requirements.

Scope: The new Regulation B requirements apply to first lien mortgage loans secured by a dwelling.

Note: This is not limited to closed-end loans. Thus, a home equity line of credit (HELOC) would be included if secured by a first lien. Subordinate liens would be excluded from this requirement.


Appraisal Disclosures – Reg B

New Appraisal Disclosure Requirement

Requirement: Credit Unions must provide a disclosure regarding a member’s right to obtain any and all appraisals or other written valuations developed in connection with the application.

Timing: Within three business days of receiving an application for a mortgage loan (secured by a first lien on a dwelling). If – at a time after application – the credit union determines the loan will be a first lien secured by a dwelling, the credit union must provide the disclosure within three business days.


Appraisal Disclosures – Reg B


Model Form – C-9 from Regulation B:

“We may order an appraisal to determine the property’s value and charge you for this appraisal. We will promptly provide 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.”


Appraisal Disclosures – HPML


For Higher-Price Mortgage Loans

There is a similar disclosure required under the appraisal requirements for higher-priced mortgage loans. Credit unions can use the Regulation B disclosure to meet both requirements.

However, the scopes are different.




For Higher-Price Mortgage Loans

Scope: Appraisal disclosure requirement applies to higher-priced mortgage loans that are closed-end consumer credit transactions secured by a member’s principal dwelling.

Distinction: Applies to subordinate liens.



Exemptions from Appraisal Disclosure Requirement for Higher-Priced Mortgage Loans


• 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;

• Temporary or bridge loans; and





Model Form (difference is “give” not “promptly provide”)

“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.”

If you use one disclosure – Use Reg B Form


Higher-Priced Mortgage Loans

Versus

High-Cost Mortgage Loans


HPML vs. High-Cost

Both Requirements Use APR versus APOR

However, the scopes of the rules differ. For example, a HELOC could be a high-cost mortgage but not a higher-priced mortgage (as HPMLs are limited to closed-end credit).

And, the APR thresholds differ. Higher-priced mortgage loans are either 1.5, 2.5 (jumbos*) or 3.5 percentage points above the APOR. High-cost mortgage loans are either 6.5 or 8.5 percentage points above the APOR.

*Jumbo threshold applies to escrow and appraisal determination and not qualified mortgage.


HPML vs. High-Cost

Determining the Comparable APOR

For both higher-priced and high-cost mortgage loans (starting January 10, 2014), credit unions should compare their APRs to the APOR tables on the FFIEC’s website.

Tables: http://www.ffiec.gov/ratespread/newcalc.aspx

FAQs: http://www.ffiec.gov/ratespread/newcalchelp.aspx

Credit unions should compare their APRs (as of the last date of the rate lock) against the comparable transaction (same maturity, adjustable vs. fixed rate, and lien status) in the APOR tables.

http://www.ffiec.gov/ratespread/newcalc.aspx



http://www.ffiec.gov/ratespread/newcalchelp.aspx


Effective Dates

June 1, 2013

• Escrow Requirements for Higher-Priced Mortgage Loans

• Prohibition on Mandatory Arbitration

• Prohibition on Financing of Single-Premium Credit Insurance

January 10, 2014

• Ability-to-Repay Requirements & Qualified Mortgage Standards

• Mortgage Servicing Requirements (Both Reg Z & Reg X)

• Loan Originator Compensation, Qualifications, Training & Disclosures

• New Requirements for High-Cost Mortgages

• New Disclosure for Homeownership Counseling Disclosure


Effective Dates

January 18, 2014

• New Appraisal Requirements under Regulation B

• New Appraisal Requirements for Higher-Priced Mortgage Loans

Headache Areas? [All of the Above?]

• Determining Exemption Applicability

• New Notices – Content-Rich and Strict Timelines

• Error Resolution & Information Request Procedures

• Loan Originator Compensation Determinations

• Implementing So Many Changes At One Time


Questions?

Contact Info:

Steve Van Beek, Esq., NCCO

Email: [email protected]

Direct Phone: 703.842.2266

[email protected]

www.nafcu.org/mortgagerules

www.nafcucomplianceblog.com

mailto:[email protected]

http://www.nafcu.org/mortgagerules

http://www.nafcucomplianceblog.com/

The FP’s Final Mortgage RegulationsFeb 13, 2013 · The FP’s Final Mortgage Regulations (Or...

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Transcript of The FP’s Final Mortgage RegulationsFeb 13, 2013 · The FP’s Final Mortgage Regulations (Or...