CFPB Upcoming Mortgage Regulations
Over both 2011 and 2012, the Federal Reserve Board (Fed) and the Consumer Financial Protection Bureau (CFPB) have proposed many regulations covering the mortgage industry, but none have yet been finalized. Starting next month – likely in conjunction with the field hearings on mortgage policy set for January 10 in Baltimore and January 17 in Atlanta -- this will change. This is a snapshot of the regulations expected to be finalized in 2013.
- Ability-to-Repay/Qualified Mortgages – Proposed by the Fed in April, 2011; required to be finalized by the CFPB not later than January 21, 2013. Under the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act), no creditor may make a residential mortgage loan unless the creditor makes a reasonable and good faith determination based on verified and documented information that, at the time the loan is consummated, the consumer has a reasonable ability to repay the loan. If the loan is a Qualified Mortgage, the creditor may presume that the ability to repay test has been met. This rule has the ability to reshape the mortgage industry in the years to come, and many have argued that this is the most important rule under consideration by the CFPB at present.
- Loan Originator Compensation – The CFPB issued a proposed rule in August of this year. The proposed rule includes a requirement that a creditor may not impose any points and fees unless it makes available a comparable, alternative loan with no points and fees. (This requirement would not apply if the consumer is unlikely to qualify for the alternative loan.) The proposal also contains clarifications for what is a proxy for purposes of loan originator compensation and implements new requirements on loan originator qualifications. The final rule is required to be issued not later than January 21, 2013.
- Home Owner’s Equity Protection Act (HOEPA) – In July of this year, the CFPB issued a proposed rule that implements Dodd-Frank Act changes regarding the definition of a high-cost mortgage under HOEPA. The Dodd-Frank Act lowers the APR trigger and fee amounts for HOEPA coverage, and the CFPB proposed two alternatives in this area, including a substitute transaction coverage rate (TCR) for the APR to compare the average prime offer rate. Additionally, prior to extending a high-cost mortgage loan, the proposal contains a requirement that a creditor would have to receive certification that the consumer has obtained counseling from a HUD-approved counselor. The proposal also implements changes to the points and fees trigger and includes a requirement to provide a list of homeownership counselors (not just high-cost borrowers) within 3 business days of application. The final rule must be issued by January 21, 2013.
- Escrow – In early 2011, the Fed proposed new disclosure and additional requirements for escrow accounts under the Truth in Lending Act (TILA, Regulation Z). The rule would also implement new escrow account requirements for certain mortgages and establish disclosures relating to mandatory escrow accounts, as well as escrow waiver disclosures for consumers who so elect, all of which are mandated by the Dodd-Frank Act. The CFPB is expected to finalize this rule in early 2013.
- Mortgage Servicing – Earlier this fall, the CFPB issued two separate proposals addressing mortgage servicing: One for Regulation Z, and one for Regulation X, the Real Estate Settlement Procedures Act (RESPA). Included are new periodic billing statement requirements for all closed-end residential mortgages, advance ARM notice disclosures, prompt payment crediting requirements, new error resolution and information request disclosures, and loss mitigation procedures. The CFPB is required to finalize both of these rulemakings not later than January 21, 2013.
- Appraisals – The CFPB also issued a proposed rule (along with other Federal banking agencies) concerning appraisal requirements for higher-risk mortgages – a new category of mortgages created under the Dodd-Frank Act. Under this proposal, a creditor may only extend a higher-risk mortgage if it obtains a written appraisal performed by a licensed or certified appraiser which includes a physical inspection of the property’s interior, the applicant is given a statement with certain information regarding the appraisal, and the consumer is provided a free copy of any written appraisals at least three business days before closing. A separate proposal would implement an amendment to the Equal Credit Opportunity Act (Regulation B) to require creditors to provide free copies of all appraisals or valuations developed in connection with an application for a loan to be secured by a first lien on a dwelling upon completion and not later than three days prior to closing. The proposal would also require creditors to notify consumers of the right to receive a copy of each appraisal or valuation at no additional cost. The CFPB is required to finalize both of these rulemakings not later than January 21, 2013.
- TILA/RESPA Disclosure Integration – The CFPB issued a massive 1100 page proposed rule in July of this year, and will continue to conduct quantitative testing on the proposed new TILA and RESPA disclosures in the first quarter of 2013. While the proposed rule and forms were required by the Dodd-Frank Act to be issued not later than July 21, 2012, the Dodd-Frank Act did not mandate a date by which the CFPB must issue a final rule and forms for purposes of this rulemaking.