Transcript Meeting the Challenge of Regulatory Compliance
2013 Federation Annual Conference Mortgage Compliance Presented by: Keith Rhodes-Director of Education and Training West Virginia Credit Union League
In 2013 there have already been 3,500 pages of mortgage regulations from the CFPB
How did this all start?
2008 – Mortgage Crisis
2010 - Dodd-Frank Act
2011 - CFPB
Statutory objectives of CFPB
To ensure that consumers have timely and understandable information to make responsible decisions about financial transactions; To protect consumers from unfair, deceptive, or abusive acts or practices, and from discrimination; To reduce outdated, unnecessary, or overly burdensome regulations; To promote fair competition by enforcing the Federal consumer financial laws consistently; and To advance markets for consumer financial products and services that operate transparently and efficiently to facilitate access and innovation.
CFPB’s Jurisdiction
Alternative Mortgage Transaction Parity Act of 1982 Consumer Leasing Act of 1976 Electronic Fund Transfer Act Equal Credit Opportunity Act Fair Credit Billing Act Fair Credit Reporting Act Home Owners Protection Act of 1998 Fair Debt Collection Practices Act Federal Deposit Insurance Act Gramm-Leach-Bliley Act Home Mortgage Disclosure Act Home Ownership and Equity Protection Act of 1994 Real Estate Settlement and Procedures Act of 1974 S.A.F.E. Mortgage Licensing Act of 2008 Truth in Lending Act Truth in Savings Act Omnibus Appropriations Act Interstate Land Sales Full Disclosure Act
CFPB Mortgage Rules
Ability to Repay (ATR) and Qualified Mortgage (QM) Rule
Effective Jan. 10, 2014 The rule applies to closed-end loans secured by a dwelling except: HELOCs Timeshares Reverse mortgages Temporary or bridge loan (term 12 months or less) Construction phase of construction to permanent
Ability to Repay (ATR)
Must make a reasonable and good faith determination that the consumer has the ATR using the eight factors The ATR will depend on the creditor’s standards and how they are applied to each individual’s facts and circumstances
1.
2.
3.
4.
5.
6.
7.
8.
Ability to Repay (ATR) Factors
Current income or assets; Current employment status; Credit history; The monthly payment of the mortgage; The monthly payment on any other loans associated with the property; The monthly payment for other mortgage related obligations (such as property taxes); Other debt obligations; and The monthly debt-to-income ratio or residual income the borrower would be taking on with the mortgage
Qualified Mortgage
Includes product and underwriting guidelines/restrictions Compliance standard differs if the QM is higher-priced Not higher-priced = safe harbor Higher-priced = presumption
Higher-priced mortgage loan
Defined as a covered transaction with an APR that exceeds the average prime offer rate for a comparable transaction as of the date the interest rate is set by 1.5 or more percentage points for a first-lien covered transaction, or by 3.5 or more percentage points for a subordinate lien transaction
Qualified Mortgage
A QM must generally provide for regular periodic payments that are substantially equal. A QM may not have the following features: Negative amortization Interest-only payments Balloon payments A term exceeding 30 years Points and fees in excess of rule limits
QM Points and Fees
Different thresholds for points and fees depending on loan amount.
Maximum
: If loan amount is greater than or equal to $100,000, then points and fees cannot exceed 3% of the total loan amount
Minimum
: If loan amount is less than $12,500, then points and fees cannot exceed 8% of the total loan amount
QM Underwriting
Periodic payment Verification of current or reasonably expected income or assets Verification of current debt obligations, alimony, and child support Debt-to-income ratio
not to exceed 43%
Ok, this only one new mortgage regulation with more to come…
CFPB: Upcoming Mortgage Regulations
Mortgage Servicing (Reg X & Reg Z) - nine provisions
High Cost Mortgages
Homeownership Counseling
Escrow
Reg B Appraisal
Reg Z Appraisal
Loan Originator Compensation
CFPB's “Small Servicer” Exemption”
Small Servicer = a creditor (and its affiliates) that originated 500 or fewer first lien covered transactions in the preceding calendar year AND had total assets of less than $2 Billion So what is a “Small Servicer” and what are they exempted from? A credit union that services 500 or fewer mortgage loans where it is the creditor or assignee will be exempt from certain (not all) of the requirements of CFPB’s new mortgage servicing regulation.
CFPB's “Small Servicer” Exemption”
1. Even if a credit union qualifies
for the exemption for the small servicer exemption, it may retain liability for compliance with the rule if it is using a sub-servicer that does not qualify If a credit union use a sub new servicing rules.
servicer, NCUA’s regulations require the institution to conduct sufficient due diligence to determine that the third-party servicer is compliant with the
CFPB's “Small Servicer” Exemption”
2. The exemption applies only
to some aspects of the servicing rule. Significant portions apply to all mortgage servicers.
All credit unions servicing mortgages must adopt new standards for
error resolution and information requests, comply with new restrictions on forced-placed hazard insurance, credit payments promptly, comply with new restrictions on starting foreclosure procedures, and provide new interest-rate change notices with adjustable-rate mortgages.
CFPB's “Small Servicer” Exemption”
3. Beware the inevitable regulatory creep
that may require small servicers to adopt the entire mortgage servicing rule despite the exemption. Credit union regulators at the state and federal level will still examine the servicing policies and procedures for
all
credit unions servicing mortgages regardless of whether they qualify as small servicers. NCUA and state regulators may end up requiring
de facto
compliance with all of the servicing rule provisions as the means for small servicers to demonstrate the safety and soundness of their mortgage servicing portfolios.
Feeling Overwhelmed!!!
Compliance Best Practices
1.
2.
3.
4.
5.
6.
7.
8.
9.
View CFPB’s website for compliance information Form an in-house credit union team that meets regularly regarding compliance Involve credit union management Hold your third party vendors accountable Stay informed through CUNA and your State League/Association for compliance assistance Review all policies and procedures regularly Establish a timetable with achievable deadlines – for upcoming compliance regulations and stick to it Share compliance resources with other credit unions YouTube, yes I said YouTube!
http://www.youtube.com/watch?v=wxsKnoFzSYI