On January 10, 2013 the Consumer Financial Protection Bureau (CFPB) released its first phase of rulemaking that should dramatically affect the Mortgage industry. Below are three pieces of analysis on this groundbreaking topic. Thanks to the listed authors for their committed time to understand and present this information:
First two are from different writers from SNR Denton:
January 11, 2013
CFPB Ability-to-Repay Rule and Qualified Mortgage Definition
More than twenty months ago, the Board of Governors of the Federal Reserve System (the "Board") first proposed a rule amending Regulation Z to implement an expanded ability-to-repay requirement and to define a "qualified mortgage" in accordance with various Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act") amendments to the Truth in Lending Act ("TILA"). Responsibility for rulemaking with respect to Regulation Z passed to the Consumer Financial Protection Bureau ("CFPB") on July 21, 2011.
On January 10, 2013, the CFPB completed the initial phase of this rulemaking process by promulgating a final rule that will fundamentally reshape the residential mortgage market (the "2013 ATR Final Rule"). Effective January 10, 2014, the 2013 ATR Final Rule (i) institutes a broad ability-to-repay requirement applicable to virtually the entire residential mortgage market, (ii) defines a new category of "qualified mortgage" and (iii) establishes a two-tier safe harbor/rebuttable presumption architecture for assessing compliance with the ability-to-repay requirement for "qualified mortgages" that roughly distinguishes between "prime" and "subprime" mortgage loans.
Read the complete article
CFPB releases mortgage servicing rules
By Kate Davidson and Jon Prior
1/17/13 12:01 AM EST
The CFPB on Thursday released a set of national mortgage servicing standards aimed at preventing the foreclosure problems that plagued the mortgage market following the financial crisis.
The final rules are part of a sweeping set of new mortgage regulations required by the 2010 Dodd-Frank law.
Although officials have taken several bites at the servicing apple — including the $25 billion settlement between the five biggest banks and state attorneys general and federal officials and the April 2011 consent orders with the top 14 servicers — this is the first set of new servicing rules that will apply to all mortgage servicing companies, banks and nonbanks alike.
“For many borrowers, dealing with mortgage servicers has meant unwelcome surprises and constantly getting the runaround. In too many cases, it has led to unnecessary foreclosures,” said CFPB Director Richard Cordray. “Our rules ensure fair treatment for all borrowers and establish strong protections for those struggling to save their homes.”
The rules impose a slew of new requirements on servicers, from notifying borrowers of their foreclosure prevention options to providing clear monthly mortgage statements to promptly crediting mortgage payments.
The final rule toughened a provision that restricts “dual tracking,” when a servicer proceeds with a foreclosure against a borrower at the same time they are working toward a loan modification.
In response to comments received during the rulemaking process, a senior CFPB official said the bureau added new protections that prohibit servicers from initiating the foreclosure process until borrowers are 120 days delinquent on their loan payments or if the borrowers have submitted an application for a loan modification and that review is still pending.
The rule also requires servicers to notify borrowers of any available loss mitigation options. And servicers must consider all of the foreclosure alternatives that are authorized by the owner of the loan to help the borrower stay in the home.
The provision prevents servicers from steering borrowers to options that are more financially favorable for the servicer, a senior CFPB official said on a conference call with reporters Wednesday.
But the rule stops short of mandating loan modifications, which is required under other federal foreclosure prevention initiatives, including Treasury’s Home Affordable Modification Program.
“We commend the Consumer Financial Protection Bureau for seeking to address broad problems in the mortgage servicing industry and for extending some sensible, enforceable guidelines to the entire market,” Alys Cohen, a lawyer with the National Consumer Law Center, said in a statement ahead of the rule’s release. “However, the CFPB’s final rules fail to implement the key lesson of the foreclosure crisis, that a loan modification requirement is essential to protect qualified homeowners from unnecessary foreclosures.”
The rule also restricts a servicer from conducting a foreclosure sale — the last step in the process — if a borrower submits a loan modification application at least 37 days before the scheduled sale.
Cohen said the provision provides “significantly less protection” to borrowers in so-called non-judicial states, such as California, where the foreclosure process does not go through the courts.
Because foreclosure sales in those states are often scheduled with less than 37 days’ notice, those borrowers may not be able to determine the deadline to submit a modification application, Cohen said. This, she added, still allows some servicers to manipulate the system.
“Servicers must not be permitted to continue wrongful foreclosures,” Cohen said.
John Taylor, the president of the National Community Reinvestment Coalition, said the servicing standards and other mortgage rules CFPB is releasing this month “are creating a bright line of parameters in which the industry has to follow, and it creates, I think, consistency and efficiency in the industry.”
Institutions that service fewer than 5,000 loans will be exempt from the rule, a provision that was expanded from the original proposal, which called for a threshold of 1,000 loans.
Although the industry had pushed for a broader exemption in the final rule, a senior CFPB official said the 5,000-loan threshold was suggested by the Small Business Administration and will exempt approximately 99 percent of small banks and credit unions.
The original proposal would have exempted approximately 20 percent of banks with more than $10 billion in assets, the official said.
And the final, the Press Release from CFPB
CONSUMER FINANCIAL PROTECTION BUREAU ISSUES RULES TO STRENTHEN PROTECTIONS FOR HIGH-COST MORTGAGES
JAN 10 2013
Consumer Financial Protection Bureau issues rules to strenthen protections for high-cost mortgages
Bureau Also Expands Time Frame for Required Escrow Accounts
WASHINGTON, D.C. — Today the Consumer Financial Protection Bureau (CFPB) issued final rules to strengthen consumer protections for high-cost mortgages and to provide consumers with information about homeownership counseling. The Bureau also finalized a rule that requires escrow accounts be established for a minimum of five years for certain higher-priced mortgage loans.
“Addressing problems in the mortgage market is critical to helping our economy recover,” said CFPB Director Richard Cordray. “Today’s changes will better help consumers to understand the real costs of owning a home while protecting them from harmful practices that can trap them into high-cost mortgages.”
The Home Ownership and Equity Protection Act (HOEPA) was enacted in 1994 to address abuses in home-equity lending and refinances. Since then, HOEPA has deterred high-rate and high-fee lending in those markets. In recent years, high-cost mortgages have made up only about 0.2 percent of those types of loans.
The Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) expanded HOEPA to cover home purchase loans and home equity lines of credit (“HELOCs”); revised HOEPA’s rate- and fee-thresholds for coverage; added a new coverage test based on a transaction’s prepayment penalties; and provided new limitations on risky loan features, as well as other new protections for high-cost mortgages. The CFPB has finalized rules to implement the Dodd-Frank Act’s amendments to HOEPA.
For loans that are high-cost mortgages, today’s final rule:
- Bans potentially risky features: For mortgages that qualify as high-cost, the rule generally bans balloon payments (a large, lump sum payment usually due at the end of the loan) with some exceptions, such as for certain types of loans made by creditors serving rural or underserved areas, and bans penalties for paying the loan early.
- Bans and limits certain fees and practices: The CFPB’s rule bans fees for modifying loans, caps late fees at four percent of the payment that is past due, generally prohibits closing costs from being rolled into the loan amount, and restricts the charging of fees when consumers ask for a payoff statement (a document that tells borrowers how much they need to pay off the loan). The rule also prohibits certain bad practices, such as encouraging a consumer to default on an existing loan to be refinanced by a high-cost mortgage.
- Requires housing counseling: The rule requires consumers to receive housing counseling before taking out a high-cost mortgage.
In addition to strengthening the protections for high-cost mortgages, the Bureau today is implementing a requirement of the Dodd-Frank Act that lenders provide a list of homeownership counseling organizations to consumers shortly after they apply for a mortgage so consumers know where to get help when deciding what loan is best for them.
The Bureau is also implementing other changes made by the Dodd-Frank Act concerning escrow accounts. An escrow account is an account that a lender may set up to pay certain recurring property-related expenses on a consumer’s behalf, such as property taxes and homeowner’s insurance. Escrow accounts help to ensure that consumers have enough money to pay those bills when they come because the lender breaks the expenses down into monthly installments and adds them to the monthly mortgage payment. Through an escrow account, consumers can better see the true cost of owning a home with insurance and tax costs laid out with each mortgage payment and are better assured that those costs are paid in a timely manner.
Under current regulations, creditors are required to establish escrow accounts for certain higher-priced mortgage loans for a minimum of one year. Today’s final rule implements changes from the Dodd-Frank Act that generally extend the required duration of an escrow account on such mortgage loans from a minimum of one year to a minimum of five years. To preserve access to credit, the rule exempts loans made by certain creditors that operate predominantly in rural or underserved areas, as long as certain other criteria are met.
A consumer guide to the final Escrows rule can be found at: http://files.consumerfinance.gov/f/201301_cfpb_escrow-requirements-rule_what-it-means-for-consumers.pdf
