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CFPB News 1/22

CFPB Finalizes Mortgage Servicing Rules

As expected, the CFPB issued its mortgage servicing rules amending Regulation X (RESPA) and Regulation Z (Truth in Lending) last week.  The final rules become effective on January 10, 2014.

CUNA, the leagues and credit unions have worked tirelessly over the last several months with the Bureau in an attempt to minimize the regulatory burden that would be placed on credit unions from the requirements of these rules.  While the Bureau did not incorporate all of CUNA's recommendations, the final rules do reflect a significant number of exemptions that were urged for small servicers.  Of note, small servicers will be exempted from the periodic statement requirements of Regulation Z, as well as the following sections of the Regulation X rule:  Continuity of contact and early intervention requirements for delinquent borrowers, the general servicing policy and procedures and requirements, a vast majority of the loss mitigation procedural requirements and the restriction on purchasing force-placed insurance for borrowers with escrow accounts for the payment of hazard insurance as long as the cost to the borrower of the insurance obtained by the small servicer is less than the amount that would be disbursed from the borrower’s escrow account to ensure that the hazard insurance premium charges are paid in a timely manner.

To qualify for as a “small servicer,” a servicer must service 5,000 or fewer mortgage loans, where either the servicer or an affiliate is the creditor or the assignee.  Additionally, a servicer that owns mortgage servicing rights for mortgage loans that are not owned by the servicer or affiliate, or for which the servicer or an affiliate was not the entity to whom the obligation was initially payable, is not a small servicer.

The issue of whether a credit union that uses a subservicer that services more than 5,000 mortgage loans may still be exempt has arisen.  We are still reviewing the rules, commentary and supplementary information and feel the answer to that is not clear, particularly since the rule has changed from the proposal.

We have been in contact with a senior attorney at the CFPB who helped write the rules.  She confirmed that the rule is intended to keep a large servicer from taking advantage of a small servicer’s exemption but said she would get back to us on the exemption issues.  As Monday is a holiday, she said she would get back on Tuesday. We reiterated that a credit union should not lose its exemption by virtue of doing business with a subservicer.

While CUNA’s early estimates indicate that approximately 130 credit unions will be directly impacted by the entirety of the mortgage servicing rules, and not eligible for the small servicer exemption, CUNA staff continues to review the rules to determine whether the small servicer exemption may have other implications for credit unions, and will be providing additional detail in the coming days.  For CUNA’s initial summary of both Regulation X and Regulation Z, click here.


CFPB Adopts Reg B Changes to Appraisals 

The CFPB issued a final rule that amends Reg B in regard to the provision of copies of appraisals and valuations to loan applicants on January 18. Specifically, the rule implements provisions of the Equal Credit Opportunity Act (ECOA)—as amended by Dodd-Frank—that require creditors to provide applicants a free copy of the appraisal and other written valuations developed in connection with an application for a first-lien mortgage loan.  In addition, the rule requires creditors to notify applicants that a copy of the appraisal will be provided to them.

Before the Dodd-Frank Act, ECOA required creditors to provide the applicant with a copy of the appraisal report only upon request.  Prior to today’s final rule, Reg B explicitly exempted credit unions from the appraisal requirement because NCUA has an existing rule that similarly requires credit unions to provide a copy of the appraisal upon request.  The final rule implements changes to ECOA that require creditors to automatically provide copies of the appraisal and valuation report.  Therefore, the final rule removes the credit union exemption, as necessary under amended-ECOA.

In the final rule, the CFPB addressed several comments included in CUNA’s comment letter on the proposal.  In response to a specific suggestion in our letter, the CFPB stated in the final rule’s supplemental information that the requirement to provide a free copy of each appraisal or valuation does not apply to subsequent copies provided to the applicant upon request.  In addition, the final rule clarifies that creditors may provide applicants with electronic copies of appraisals and other written valuations; this also was an issue we addressed in our comment letter to the Bureau.

The rule will become effective on January 18, 2014.

Reg Z Comments Due 2/15

The CFPB is proposing to amend Regulation Z, Truth in Lending Act (TILA), in connection with the final rule issued January 10, 2013, that  requires creditors to make a reasonable, good faith determination of a consumer’s ability to repay a closed-end credit extension secured by a dwelling.  The proposal covers some new exemptions from the ability to repay requirements and would provide a new category of “qualified mortgage.”

To follow-up on the agency’s proposal, CUNA posted a new Comment Call on its website.  Credit unions are encouraged to weigh in on this proposal, and provide comments to by Friday, February 15, 2013.

Mortgage Loan Originator Compensation Rules: 1/20 

The CFPB announced it is issuing rules on Sunday, January 20, 2013, to implement provisions of the Dodd-Frank Act to prevent unscrupulous mortgage loan originators (MLO) from steering borrowers into risky and high-cost loans that generate more income for the originators.

The final rule will require mortgage servicers to simplify billing statements, provide additional notice of rate changes to borrowers and help ensure that consumers know all of their options to prevent foreclosures. The CFPB’s final rules will:

  • Broaden the application of prohibitions on compensation that varies with the loan terms.  For instance, an MLO should not be paid more if the consumer takes a loan with a higher interest rate, a prepayment penalty, or higher fees;
  • Prohibit “dual compensation”: Under the CFPB’s rules, the loan originator cannot get paid by both the consumer and another person such as the creditor; and
  • Set qualification and screening standards:  An MLO must meet character, fitness, and financial responsibility reviews, pass a criminal background check, be screened for felony convictions; and undertake training to ensure they have the knowledge about the rules governing the types of loans they originate.
  • The final rule also implements Dodd-Frank provisions that, for mortgage and home equity loans, generally prohibit mandatory arbitration of disputes related to mortgage loans and the practice of increasing loan amounts to cover credit insurance premiums.

CUNA Urges CFPB to Delay Remittance Rule

Last week CUNA submitted a comment letter to the CFPB, urging the agency to postpone the effective date of the remittance transfers final rule by at least 12 months.  While CUNA commends the agency’s consideration of a delayed compliance date, it believes that ample compliance time is essential, since many credit unions must rely on third-parties for remittances, and will also need to work within their credit union to make numerous changes. CUNA, our International Remittances Working Group, leagues and credit unions continue to advocate for broader relief under the remittance transfers regulation.

CUNA will be filling a second comment letter to the CFPB on international remittances in response to the agency’s pending proposal to relieve some burdens regarding certain errors, disclosure of foreign taxes, and liability issues.

Also, you may access the recording of our free CUNA conference call on the CFPB’s remittance transfers proposal that was held on January 14.  During the call, Eric Goldberg, Counsel from the CFPB’s Office of Regulations, discussed the proposed rule, and answered technical questions from credit unions in the Q&A session.  We appreciate that over 300 credit unions joined us for the conference call.

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