If you’ve taken Real Estate Institute’s 2014 CE class, you know there have been some questions raised regarding the borrower providing documentation to the creditor before receiving the new Loan Estimate under the rules that take effect on August 1, 2015.  Specifically, the question was how pre-approvals would be conducted given the language in Section 1026.19(e)(2)(iii) of Regulation Z going into effect next year, which states:

“The creditor or other person shall not require a consumer to submit documents verifying information related to the consumer’s application before providing the disclosures required by paragraph (e)(1)(i) of this section.” (Referring to the Loan Estimate.)

The official comments to the rule further state:

“A mortgage broker may ask for the names, account numbers, and balances of the consumer’s checking and savings accounts, but the mortgage broker may not require the consumer to provide bank statements, or similar documentation, to support the information the consumer provides orally before the mortgage broker provides the disclosures required by § 1026.19(e)(1)(i).” (Comment 19(e)(2)(iii) to the TILA-RESPA Rule)

As our instructors have mentioned in class, I wrote a letter to the Consumer Financial Protection Bureau some months ago asking for clarification on this section of the rule.  Specifically, I was concerned about the CFPB’s interpretation of the word “required” and whether a lender or broker would be in violation of the rule if we went through the typical pre-approval process as it exists in 2014.

I’m pleased to report that I received a call from Jeff Riley at the CFPB and had a lengthy discussion with him about this issue.  Jeff provided verbal clarification* that it is permissible for creditors/brokers to REQUEST information and documentation from the borrower prior to providing a loan estimate, including at the pre-approval stage.  However, the borrower cannot be REQUIRED to provide documentation before a creditor (or broker on behalf of a creditor) provides a loan estimate, nor can the collecting any of the six pieces of information that constitute an application be intentionally delayed until the borrower provides the documentation.  Put simply, if borrowers verbally provide you the six pieces of information (name, income, Social Security number, subject property address, estimate of value of the subject property and the desired loan amount), you must provide a loan estimate within three business days even if they refuse to furnish any documentation to substantiate what they verbally disclose.

What’s the takeaway here?  Carry on with your pre-approvals as you normally would after August 1, 2015.  Obtaining documentation from the borrower in order to issue a pre-approval would not appear to put you in violation of the TILA-RESPA rule (although I would certainly avoid giving the impression through verbal or non-verbal clues that any documentation is “required” or “mandatory”).  Also, if borrowers want to give you all of the required information verbally, don’t stop them from doing so until you’ve seen documents, as that would be a violation of the rule.

*NOTE – Verbal clarification is NOT official staff guidance or an official interpretation of the rule by the CFPB.  I encourage all readers to consult with a qualified attorney on all matters of law or regulation.  I am not an attorney (nor do I play one on TV), and no blog post can or should substitute for competent legal counsel.

Happy originating!


TODAY'S THE DAY – New Ability-to-Repay and Qualified Mortgage Rules Are In Effect!

Well, today is the day we’ve all been anxious about for the past year; the CFPB’s new Ability-to-Repay and Qualified Mortgage rules have gone into effect.  Mortgage brokers – do you know how your funding lenders are going to handle non-QM loans, if at all?  Are you prepared to review points-and-fees upfront to avoid the need for last minute changes or – worse – fatal compliance issues within the rubrics of your funding lenders?  Mortgage bankers, do you have a plan to handle loans that “fall out” of QM because of issues with points-and-fees calculations or investor interpretations?  Tammy Butler over at Optimal Blue has some excellent advice on having a “Plan B” for the mortgage bankers and depositories out there.  You can check out her latest blog here.

For those of you doing VA loans, the VA issued a circular yesterday indicating that all TILA requirements regarding ATR/QM will apply to VA loans until the VA has issued its own ATR/QM regulations, which it anticipates doing “in the near future.”  Note that any loan that is NOT a QM but meets VA eligibility requirements will still be guaranteed by the VA.

Remember that HUD’s FHA QM definition – implementing rebuttable presumption and safe-harbor thresholds for FHA loans – also goes into effect today.  HUD released a summary of that rule back on December 11 and you can find the actual text of the rule in the Federal Register.

Finally, I’m interested in hearing about your experiences with ATR/QM as we venture into this brave new world together!  If you have any difficulties – or good experiences – that you’d like to share as these new applications make their way to the closing table, feel free to leave a comment below. (Just keep it clean!) or send me an email.

Happy originating!


CFPB Finalizes Rules on New RESPA & TILA Disclosures

As widely expected, the Consumer Financial Protection Bureau (CFPB) today issued the final rules to implement the “unified disclosures” required under the Dodd-Frank Act.  Rules will go into effect on August 1, 2015. Readers who have been following this blog will recall that getting to this point has been a relatively long and in-depth process, with the agency issuing several draft documents and soliciting comment from the public and industry in a process it named “know before you owe.”

The big surprise today, however, was the length of time the agency gave to industry to implement these new requirements.  A 20-month implementation period comes as a surprise, especially in light of the compressed time period the industry has been working under to implement the oft-amended ability-to-repay and qualified mortgage rules.

In a very brief overview of the final rule (I’ll be getting much more in-depth into it over the next few months to prepare next year’s CE course), it becomes apparent the reasoning behind the extended implementation widow becomes apparent:

  • There is no exemption from the rule given to small creditors, despite heavy involvement from the Independent Community Bankers of America and various State Community Bankers Associations.
  • The fairly controversial provision in the proposed rule requiring borrowers to receive the new Closing Disclosure (replacement for the current HUD-1 and final TIL disclosure) three days before closing was not removed from the final rule – over the objections and warnings of many industry trade groups.

Such a long window of preparation is likely to make beleaguered technology vendors struggling with the QM/ATR implementation – such as LOS providers like Ellie Mae and Calyx – as well as compliance consulting companies, loan pricing engines and mortgage law firms, breathe a long sigh of relief.

You can find a narrative description of the disclosure initiative, as well as links to the final disclosures and the rule itself, at:


Additionally, the CFPB will be publishing the rule in the Federal Register as required by law.

Happy originating,


CFPB Posts Video Summaries of New Mortgage Rules

As part of its industry education initiative, the Consumer Financial Protection Bureau today released video summaries of the new mortgage rules.  For the small-business owners and compliance professionals out there, these videos provide a good, plain-English resource for interpreting the rules and viewing them through the same lens as the issuing regulator.  (Honestly, I wish that more regulators would take the approach that the CFPB is taking – it would make our jobs a tiny bit easier.  Whatever your opinion on the many issues surrounding the rules themselves, kudos to the CFPB for taking an innovative approach in getting information out there.)

Use these videos, along with the various written summaries and compliance guides that the CFPB continues to release, in your compliance planning.  We’ll go in-depth into some of these rules in our 2013 CE courses here at the Real Estate Institute as well.  Keep in mind that, although these videos and the compliance guides are useful, they are not a substitute for knowledge of the actual rules themselves.  As always, we encourage you to seek advice from competent legal counsel on any questions of law that may arise in your business.

A playlist containing all of the videos, as well as an option to watch them all in one session, can be found by clicking this link.

Real Estate Institute’s new CE courses will be available soon. More information about NMLS-approved Continuing Education courses, Pre-License courses and Test Prep is available at http://www.InstituteOnline.com.

Happy Originating!


Washington Takes Notice of Integrated Disclosure Issue

Yesterday, Frank Garay and Brian Stevens over at the National Real Estate Post focused their show on the CFPB’s proposed Closing Disclosure; specifically the upcoming requirement to disclose it three business days before closing – and then RE-disclose and wait another three business days if there are changes exceeding $100.  As we discussed in the CE classes at Real Estate Institute last year, there are A LOT of unintended consequences with this part of the proposed rule that would have a negative effect on consumers.  It seems that a movement to change the requirement may be gaining some momentum in Washington.  Just thought you might want to know – I’ll keep you posted with any updates as they happen.  In the meantime…

Happy Originating!


P.S. For those of you who may not know what we’re talking about, I wrote an overview blog post on the proposed rule last year.  You can find that blog by clicking here.

To view Frank and Brian’s show “Reps Call out CFPB,” click here.


In response to a directive last week from the Federal Housing Finance Agency, both Fannie Mae and Freddie Mac today issued bulletins indicating that they will only purchase qualified mortgages when the Ability-to-Repay rule goes into effect on January 10, 2014.  EFFECTIVE WITH APPLICATIONS TAKEN ON OR AFTER JANUARY 10, 2014, both Fannie and Freddie will rely on selling lender Representations and Warranties that all loans purchased are, in fact, qualified mortgages or are otherwise exempt from the ability-to-repay rule (i.e. the loan is secured by an investment property).

Aren’t ALL loans eligible for sale to the GSEs automatically Qualified Mortgages?  Why is this a big deal?

While there is a “GSE Exemption” in the QM rule that grants loans eligible for purchase by Fannie and Freddie QM status for the next 7 years (or until the GSEs are no longer in receivership, whichever occurs first), those loans still must meet certain overarching guidelines.  In order to ensure that this happens, Fannie Mae and Freddie Mac are making the following changes to their product eligibility guidelines effective with applications taken on or after January 10, 2014 (note that individual lenders/investors may modify their product guidelines before this date, so be sure to watch for bulletins for those that you do business with):

  • Loans that are not fully amortizing will be ineligible for purchase (i.e. interest-only loans) except for investment properties
  • Loans with terms longer than 30 years will be ineligible for purchase
  • Loans with points and fees greater than 3% of the loan amount (or that exceed limit for small-balance loans, if applicable) will be ineligible for purchase, except for investment properties

The elimination of the interest-only and other odd products will only impact a small percentage of the GSEs’ business (based on recent origination trends), but the points-and-fees restriction could have a large impact on originators – ESPECIALLY those with affiliated business relationships – because of the way that “points-and-fees” are calculated under the rule.

We’ll be discussing the Ability to Repay and Qualified Mortgage rule in depth in our CE courses this year, so be sure to get your spot reserved early!  We’ll be publishing our CE schedule for 2013 later this month.

In the meantime, you can find the bulletins from Fannie Mae and Freddie Mac and some good information on compliance with the QM/ATR rule from the CFPB at the links below.

See you in class!


Fannie Mae Lender Letter LL-2013-05

Freddie Mac  Industry Letter 5/6/2013

CFPB Ability to Repay and Qualified Mortgage Rule: Small Entity Compliance Guide

GFE/TILA RULES PROPOSED BY CFPB - Big Changes to Disclosure and Settlement Statement

The Consumer Financial Protection Bureau submitted the much-awaited proposed rule revamping the current GFE/TIL disclosure and HUD-1 settlement statements.  The rule will be published in the Federal Register in the next few days, and the rule will be open for public comment until November 6, 2012, (September 7, 2012 for the section dealing with APR calculation changes).

If you want to view the proposed disclosures (which I recommend you take some time to do), you can find them at the links below.

  1. New GFE/TIL combined disclosure: http://files.consumerfinance.gov/f/201207_cfpb_loan-estimate.pdf  
  2. New settlement statement: http://files.consumerfinance.gov/f/201207_cfpb_closing-disclosure.pdf  
  3. The full text of the rule  can be found at: http://files.consumerfinance.gov/f/201207_cfpb_proposed-rule_integrated-mortgage-disclosures.pdf

At this point, I’ve only done a cursory review of the disclosures and the rule itself (it’s 1,099 pages and was just published yesterday), so I’m not going to do an in-depth analysis yet.  However, here are some off-the-cuff highlights of the changes:

  • There is a signature line on the new combined GFE/TIL disclosure (YES!!!!)
  • There is a signature line on the new combined GFE/TIL disclosure (there are some things that bear repeating; this is one of them.)
  • A line has been added to the cost disclosure that estimates total cash-to-close!
  • The lender cost-of-funds has been added to the settlement statement, although it is now called “Approximate Cost of Funds” or ACF.  (In my opinion, this is completely useless information for borrowers because they cannot possibly affect the lender’s cost of funds, nor does the cost of funds generally have any real-world impact on their loan terms, but I don’t work for the Bureau and they don’t consult me.)
  • There is a new carve-out exemption to the need to re-disclose three business days before closing if the reason for the change in terms results from the final walk-through on a purchase transaction or if the changes are minor (result in less than $100 in increased cost.)  However, if redisclosure is required (if the change does not meet the carve-out provisions), it must be done three business days before closing; the exemption to allow for an at-closing redisclosure  for a last-minute change is eliminated.
  • HELOCs and reverse mortgages are exempt from these specific disclosure requirements.
  • Lenders who make fewer than five residential mortgage loans per year are also exempt.
  • Providing any sort of loan estimate prior to application (in other words, a non-binding cost estimate that is not done on the official form) will now require the use of a disclaimer.
  • The CFPB is soliciting comments on who should be responsible for providing the settlement disclosure – the settlement agent or the lender.  Either way, it appears the lender will be responsible for the accuracy of the form.
  • Lenders will be responsible for keeping electronic copies of all loan estimates and closing disclosures, although the CFPB is considering exempting “smaller lenders” from this provision.

After I’ve had the time to read and digest the APR calculation changes (it appears that virtually all costs will affect APR) and the balance of the rule, I’ll put together a post with more in-depth analysis.  I’m sure we’ll also have some good conversations during our CE courses this year!

****On a separate note, the Bureau also issued a proposed rule implementing the Dodd-Frank changes to HOEPA.  The new high-cost test will measure APR against the Average Prime Offer Rate instead of the Treasury yield, and the triggers will be 6.5% over the APOR (1st lien loans) and 8.5% over the APOR (subordinate lien loans); additionally, the points and fee triggers for high-cost loans will be reduced to 5% of the loan amount (you Illinois readers are already familiar with this limitation because it’s been a state law for years).  Also, remember that Dodd-Frank requires that PURCHASE MONEY LOANS AND HELOCS BE SUBJECT TO HIGH-COST REQUIREMENTS.

Happy originating!

Mortgage Lending Gets Personal

Hello, friends!  It’s been a while since I’ve posted to this blog, but I hope to be a more frequent communicator over the next few months as exciting things happen in the Mortgage Education Division for 2012 – starting with the NMLS approval of a brand-new CE class/webinar.  When that approval is in, we’ll be sure to share all of the details, as I’m looking forward to spending time with all of you again!

 CFPB and ECOA News Coming Soon

I fully planned for this post to cover the CFPB’s recent bulletin putting our industry on notice that fair lending (specifically ECOA) is going to continue to take center stage in examinations and with enforcement actions.  However, due to some recent experiences, I’ve decided to put that off until next week.  Today, if you’ll allow me, I’d like to reflect on the more personal side of our business.

 When the Going Gets Tough

As many of you know, aside from my course development and instruction career at Real Estate Institute, I maintain an active origination business; mainly because I need more stress in my day-to-day life.  I’m currently involved in one of “those loans,” full of roadblocks, detours and unforeseen underwriting conditions. (Yes, even those of us who teach the business for a living have them occasionally.)  This loan has required me to go back to the borrower and their employer(s) multiple times to get everything in order, have conversations of varying levels of pleasantry with attorneys and real estate agents, and generally has left me wishing I would have pursued a career in something less stressful, such as manual defusing of nuclear weapons.  Although I’d be the happiest MLO in the world if I never ran across another loan like this, it has given me cause for reflection, and that’s never a bad thing.

 When we get one of these Tales From the Crypt files, it’s tempting to play possum, letting calls go to voicemail, putting off emailing and otherwise becoming an invisible person.  It’s only natural to want to delay unpleasant news, both to save us from dealing with an uncomfortable phone call and the client from angst.  In doing so, we’re forgetting a key element – that there is another person on the other end of the transaction with real emotions who is often literally staring at the phone waiting for a call from us.  Think of your life as a teenager when you were first navigating the complex world of personal relationships.  Remember how it felt the first time you got a call from someone you were interested in?  EUPHORIA!!  Now… remember how it felt the first time you didn’t get a call from someone you had been seeing and were really into.  “Devastating” doesn’t even begin to address the range of emotions.  “Why isn’t this person calling?  What doesn’t this person want me to know?  WHAT’S GOING ON?!?!?!?!”  Well, that’s the mortgage business in a nutshell.  It’s easy to deal with the files that have one underwriting condition – heck, anyone could do that.  It’s how we deal with the surprises, the roadblocks, the bumps and the sinkholes that define who we are as originators, who we are as people and why we deserve to be paid well for what we do.  Remember, bad news isn’t like good scotch – it doesn’t get better with age.  Those of you who master the art of communication in both good times and bad and are able to manage expectations of everyone in the transaction will truly set yourselves apart from your competition.  It’s not easy, but the most rewarding things in life never are.

 Pause for One of the Good Guys

In closing, I’d like to take a moment to ask all of you to keep one of the good guys in our industry in your thoughts and prayers.  Dustin Hughes, President of Northwest Mortgage Advisors in Portland, Oregon, has been an industry leader since the mid-1990s and an inspiration to many, many people in our business.  I’ve only had the pleasure of meeting Dustin twice, but I was simply amazed both times by his character, energy and love of life, and I personally know many, many others who have been positively influenced by this amazing person.  As some of you may know, Dustin is battling Stage 4 glioblastoma (brain cancer), and the battle is getting tougher.  I’m a firm believer in the power of positive energy, and I’m sure that Dustin and his family could use as much as they can get at the moment.  Dustin is chronicling his battle with this disease (and continuing to inspire people) on his blog at www.blinkofamoment.com, and you can also find information and lend support on the Facebook group “Hughes’ Troop.”

President Obama to Make ‘Recess Appointment’ of Richard Cordray to Head CFPB

Move has widespread impact for mortgage bankers and brokers.

As was widely expected, the president today announced that former Ohio Attorney General Richard Cordray will be appointed to the position of Director of the Bureau of Consumer Financial Protection (or “CFPB” – Consumer Financial Protection Bureau) while Congress is on recess.  The appointment is intended to circumvent a filibuster that was being staged by 42 senators who wanted to see changes made to the underlying Dodd-Frank legislation before allowing a vote on Cordray’s confirmation. 

What does this mean? My CE students already know.

Those of you who took my continuing education course in 2011 are intimately familiar with both Cordray and the CFPB and understand more than most that this move is NOT an insignificant one.  Without an official director, the CFPB could not utilize many of the powers that were granted to the agency in the Dodd-Frank legislation.  Now that Cordray will be taking the reins of the organization, the CFPB will be able to wield its full power – including supervisory authority over non-bank originators (i.e. mortgage banks and brokers) and rulemaking authority that will impact these businesses (i.e. most of you reading this post).  This move also paves the way for the CFPB to issue the new combined GFE/TIL disclosure that has been in development for the past year, as well as a redesigned HUD-1 settlement statement.  Expect to see those rolled out over the next few months, with a final implementation date later in the year.  Also, we should expect to see a mortgage loan originator “duty of care” rule issued soon as well, clarifying our responsibilities to safeguard borrowers from harm.  I have no advance knowledge of what that will look like, but I will certainly share the critical points with you when it is released.

Possible bump in the road.

There is one minor detail that may pose a bit of a bump in the road for Cordray: Congress is not officially in recess.  The Constitution prohibits either chamber from recessing for longer than three days without the consent of the other chamber.  In this case, the House of Representatives objected to the Senate going into recess, which triggered a series of “pro-forma” sessions where one member of Congress opens and closes a session (of an empty House of Representatives) once every three days.   There are some constitutional questions surrounding this appointment, but Congress has no grounds to challenge this in court.  Any challenge to the appointment’s constitutionality would have to be made by an individual or organization directly affected by the CFPB.  Some members of Congress indicated earlier this morning that they thought such a challenge would be forthcoming.  While this may be true, it will take time, and there is no guarantee of the eventual result. 

Get your house in order – NOW!

The bottom line is, those of you in compliance or ownership positions at non-bank lenders and brokers would be wise to ensure that your business practices are free of unfair, deceptive and abusive acts and practices (UDAAP) and that you’re ready to adapt to any significant changes that may be coming down the pipe.  I also strongly recommend that you obtain a copy of the CFPB’s “Supervision and Examination Manual” to give you a strong reference point for the items that the CFPB will be looking for when conducting examinations of companies (audits).   This is doubly true for any of you who are engaged in servicing loans.

Happy new year to all, and be sure to continue watching this space for updates on critical issues that will affect you in the future.  Happy originating!

Consumer Financial Protection Bureau – the Birth of a Regulator

A few weeks ago, amidst much fanfare, the Consumer Financial Protection Bureau (CFPB) assumed some level of regulatory authority over, well, pretty much the entire financial sector of the U.S. economy.  The reaction from most of the media has been one of fawning delight, as evidenced by this column that appeared on WalletPop.com back in May and this column by Gail MarksJarvis that appeared in the Chicago Tribune.  Indeed, a simple Google search for “Consumer Financial Protection Bureau” returns almost 2 million hits and, if my random sampling of articles is statistically valid, roughly 70% of the Literati are convinced that sliced bread has found some competition in the “best things” category.

It is certainly true that many banks are indeed ‘scared’ – a fact that the media pundits gleefully celebrate, as though a regulatory entity striking fear into the heart of the institutions that are charged with financing our hopes and dreams somehow makes things better for consumers.  Sorry, Charlie, but that is simply not true, and for evidence of that, look no farther than the announcement made by MetLife last week that it would sell its banking business to avoid CFPB regulation.  Lest you believe this is some sort of isolated incident, MetLife is joining its brethren insurers Hartford Financial Services Group and Allstate in divesting depository business. There are likely more firms to follow as the CFPB issues the expected myriad of new regulations necessary to implement other Dodd-Frank reforms over the next few months. 

Unfortunately for senior citizens, MetLife is currently one of the nation’s leading lenders in reverse mortgages – a product designed for the 62-and-older-crowd to help manage life expenses on a fixed income.  Most of the large “money center” banks have already shut down their reverse mortgage divisions, meaning that the result of MetLife’s announcement may be that funding for this necessary loan product becomes more difficult to find.  One must assume that limiting consumer choice for the elderly was NOT one of the goals of Dodd-Frank and, by extension, the CFPB. So let’s call this a real-world example of unintended consequences.

Here are some other possible unintended consequences arising out of the CFPB, as I see them:

  • Traditional mortgage loans may become much more difficult to obtain as a result of the Qualified Residential Mortgage (QRM) being so restrictively defined as to exclude a large portion of the loans actually written in the last two years.  Loans with terms falling outside the QRM definition will be subject to risk-retention requirements that will lower banks’ tier-one capital ratios and increase their administrative and compliance costs, leading to questions as to whether they will be willing to make these loans at all.
  • Mortgage, auto and consumer loan products may become more expensive for consumers as a result of restrictions that Dodd-Frank placed on debit card fees paid by retailers to banks.  Banks rely on these fees to pay for expansion and maintenance of their vast debit card networks and other overhead costs.  Restricting collection of such fees means that banks will have to compensate with increased fees and rates on their other products.
  • Mortgage, auto and consumer loan products may become more expensive for consumers as a result of banks’ increased regulatory compliance expenses.  Compliance costs for companies in the financial sector, whether or not they are depository institutions, have skyrocketed over the past two years as regulators at both the federal and state levels have implemented a series of laws designed to curb lending practices that the marketplace had already largely eliminated on its own.  More regulations and the addition of a new regulator with new reporting and examination procedures will only add to these costs.

Please don’t misunderstand; I’m not saying that the CFPB is without its positives.  For example, it has already been working behind the scenes to create simplified mortgage forms designed to merge the confusing Good Faith Estimate and Truth-in-Lending disclosures into one easy-to-follow document.  Consumers and mortgage professionals alike have been clamoring for this for a long time, and I am encouraged by what the CFPB has designed.  I am also encouraged that they have actually made the effort to solicit (and listen to!) input from the mortgage industry in the design process, making it far less likely that the result of the process will be an unworkable document with compliance consequences that extend outside the document itself, like the last GFE revision was.

Bottom line – in my opinion, the CFPB should tread very lightly in promulgating new regulations.  In order to be successful, they need to keep in mind that protecting the consumer from “unfair, deceptive and abusive acts and practices” does NOT mean the same thing as preventing the consumer from making his or her own decisions for fear that they will end up being bad ones.  They also must be cognizant of the fact that, regardless of the portrait that the media paints, the financial sector was really NOT an “unregulated wildwest” before the Dodd-Frank legislation.  In many cases, stated goals can be accomplished with minor tweaks to existing regulations instead of sweeping new ones intended as punitive to the very financial institutions that the government is pressuring to increase lending and save the larger economy from another downturn.


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