Reg Relief a Reality – Now What?

Blue_Sky_CloudsOn May 24, the President signed the Senate bill known as the Economic Growth, Regulatory Relief and Consumer Protection Act (S.2155). You may have read a previous article I wrote that summarized the key points in this piece of legislation. However it’s worthwhile to reexamine them here before using a proven scientific method to predict what will happen next in the world of mortgage regulation.

Keep in mind that, while there are some significant provisions in this bill that benefit both consumers and the mortgage industry, the regulatory structure and disclosure regimes you’re used to at the federal level have not been affected. The CFPB is still the CFPB (albeit with a radically different approach to its mission under Acting Director Mulvaney), TRID is still TRID and the answer to the ultimate question of life, the universe and everything is still 42.

So, without further ado, here are the five parts of this much larger bill that are likely to affect originators and mortgage compliance professionals.

  1. Transitional MLO licensing. Without a doubt, this is the most important change for anyone on the front lines of our business, and one that the Mortgage Bankers Association has been advocating since the SAFE Act went into effect. The provision gives MLOs who work for depositories a 120-day window to originate loans after transitioning to a nonbank while securing their state license, meaning they would not need to lose valuable work time and income fulfilling the licensing provisions before speaking to consumers. This same 120-day grace period will also apply to currently licensed originators who wish to obtain a license in another state. 
  2. A small bank exemption from expanded HMDA reporting. Banks that originate fewer than 500 HELOCs and closed-end mortgages in a year have been exempted from reporting the expanded HMDA data points that went into effect with originations after January 1, 2018. Despite what you may have heard, this does NOT exempt these institutions from Regulation C altogether, merely from reporting the new data points such as disaggregated demographic information. This provision does not make any changes for other institutions, including nonbanks. 
  3. Eliminating the need for an additional 3-day waiting period when the APR decreases. Before you jump for joy at this one, the legislative language applies directly only to High-Cost mortgage loans. Although given the current leadership at the Bureau, it is likely to clarify through regulation or official interpretation that the same provision applies to loans that are not High-Cost as well (the Bureau has taken that position informally since TRID was enacted).

  4. Allowing consumers to freeze their credit reports without cost. This provision is a direct result of the massive Equifax data breach that shook the country in 2017. While credit freezes (that stop anyone from accessing a consumer’s credit file) have been around since the passage of the Fair and Accurate Credit Transactions Act, there has been a cost associated with them. Removing this cost will likely lead to more consumers placing freezes on their reports (and more MLOs needing to ask clients to unfreeze them to proceed with an application). Under the law, the bureaus are also required to inform consumers that these no-cost freezes are available.

  5. Providing Qualified Mortgage protection to bank portfolio loans. Depository institutions with assets under $10 billion receive QM protection on loans that they retain in portfolio without needing to follow all the documentation requirements in Appendix Q of the Qualified Mortgage rule. Before you start reliving 2007 however, keep in mind that such loans will still require verification of applicant income and assets, comply with prepayment penalty restrictions in the QM rule and not carry any interest-only or negative amortization features.

Where do we go from here?

While Congress is likely done with financial regulatory issues (at least for this session), the CFPB is, of course, under no pre-midterm election pressure. In fact, they’re scheduled to reexamine the QM Rule in 2018 due to the mandatory five-year review period specified in the Dodd-Frank Act. We know through various speaking engagements by Acting Director Mulvaney that this process is likely to lead to significant changes to the rule, although the scope and extent of those changes are not yet known. One of the areas of the rule that seems ripe for change is the 43% Debt-to-Income requirement exemption given to loans eligible for sale to Fannie Mae and Freddie Mac. Remember, this exception is temporary and is currently scheduled to sunset in January 2021. Thus, if not extended or made permanent, Fannie and Freddie loans would begin to be subject to the 43% DTI cap for QMs at that time. This could have a big effect on the marketplace by moving otherwise qualified loans out of the conventional conforming space and into FHA (adding risk to taxpayers), so look for this to be one of the focal points in an amended QM rule.

While we’re on the topic of regulation, remember the United States has a dual regulatory system where both federal and state governments have a say in regulating many financial services entities. It’s very likely that, as the CFPB pulls back on certain regulations, some states will move to continue or tighten them. Thus, compliance managers and MLOs alike need to remain focused on statehouses across the country for potential changes affecting rules in states in which they are licensed. This is especially true if there are leadership changes at the state level as a result of the off-year election results in November.

See you next month!


Peter



Real Estate Institute offers top-rated Mortgage Loan Originator Continuing Education and Pre-License courses in all three formats: Classroom, Live Webinar and Online, Self-Study. These courses were designed BY loan originators FOR loan originators covering topics you need to know to navigate today’s ever-changing lending landscape.


How CFPB’s Amendment to TRID Affects Your Business

TRID mazeThe Consumer Financial Protection Bureau (CFPB) finalized an amendment to the TILA/RESPA Integrated Disclosure Rule (TRID) that has been in effect since October of 2015. While the rule makes no changes to the Loan Estimate or Closing Disclosure forms or their timelines for delivery, there are some items in the amendment that may affect your business processes, and we’ll take a quick look at them here.

  1. Information sharing with parties to the transaction: The new rule makes it clear that the borrower’s Closing Disclosure may be shared with other parties to the transaction (i.e. the real estate agent and the seller.) This codifies long-established practice in many States, and removes uncertainty that was thrown into the mix when the original TRID rule was promulgated. The CFPB is working on additional specific guidance on providing separate CD forms to the borrower and seller. NOTE: this Federal regulation will not change practices in any State that might explicitly prohibit such sharing of information at the state level.
  2. Housing Assistance / HFA Loans: In the final rule, the CFPB provides guidance that certain loans made by housing finance agencies and other non-profit housing groups will retain their partial disclosure exemption from the TRID rule even when recording fees and transfer taxes are charged to the borrower. The CFPB hopes that this will increase the number of these transactions that receive the exemption, thereby increasing the number of such loans made.
  3. Co-Op Loans to be Covered by TRID: The new rule extends the scope of TRID to cover all loans made on cooperative housing units (“Co-Ops”), where the buyer is technically buying into the Corporation running the housing project instead of purchasing real property in the traditional sense. Co-ops are quite prevalent in the New York metropolitan area, as well as elsewhere on the East Coast, and this change will probably have more impact on general business processes than the others listed here.
  4. Tolerance for Total of Payments Disclosure: Under the old TIL disclosure, the total of payments box was calculated specifically using the finance charge. With the roll-out of TRID, the marriage between finance charge and this disclosure was removed, but no accuracy tolerances were put in place. This rule changes that by adding an accuracy tolerance to the total of payments disclosure that mirrors the one that has been in place for the finance charge itself.

Finally, the CFPB also put out another request for comment on a proposal to address when creditors specifically may use a Closing Disclosure (instead of a Loan Estimate) to determine if a charge was disclosed in good faith. The uncertainty around acceptable situations for this has created what many compliance officers call the “black hole” – especially when closings are delayed. See the CFPB Website for more information.

The mandatory compliance date for all provisions of the rule listed above is OCTOBER 1, 2018.

Happy Originating,

Peter



Real Estate Institute offers top-rated Mortgage Loan Originator Continuing Education and Pre-License courses in all three formats: Classroom, Live Webinar and Online, Self-Study. These courses were designed BY loan originators FOR loan originators covering topics you need to know to navigate today’s ever-changing lending landscape.

Is the CFPB Finally Listening on TRID?

TRID maze
According to the folks over at National Mortgage Professional Magazine, the CFPB has quietly begun drafting a Notice of Proposed Rulemaking. For those unfamiliar with the process, this is the first step in issuing a new or revised administrative rule, and typically opens the door for public comments on the topic at hand before the rule is actually drafted/released.

In this case, the topic at hand is the TILA-RESPA Integrated Disclosure Rule – or TRID – which totally revamped the mortgage disclosure process beginning in October of 2015. Since the new rules took effect, lenders have been struggling to comply with what they believe the CFPB wants, which in some areas is still unclear as the CFPB has not issued formal written guidance on many topics.

While there are positives that have come out of TRID – namely the effectiveness of the simplified Loan Estimate form that replaced the GFE for most transactions – there also have been many speedbumps. For example, many technology providers lagged behind in releasing updates to origination, document preparation and other software, which led to lenders issuing non-compliant Loan Estimates and Closing Disclosures. In fact, recently Moody’s estimated that up to 90% of loans originated in the first few months of the rule’s effective date contained at least one TRID-related defect.

A large mortgage lender – W.J. Bradley – closed its doors in March after being unable to sell a large number of loans with TRID compliance issues. This event, along with consistent industry prodding for help in understanding CFPB expectations through formal written guidance may have led to Director Cordray’s decision to revisit the rules.

While the NMP article indicates a “possible TRID rewrite,” I wouldn’t expect a massive overhaul of the key components that we’re becoming accustomed to in the origination community – namely the Loan Estimate and Closing Disclosure. Instead, what I believe is likely to happen is a clarifying tweak to some of the more confusing areas of the regulation, such as the sections dealing with construction and other non-traditional lending products, and (fingers crossed) significantly more written industry guidance to help us understand what we need to do to comply with CFPB expectations. If this is the case, that should make the secondary market (especially in the nonconforming space) much more comfortable in purchasing loans, which should result in an easing of credit availability and – one would hope – a reduction in loan turn-times which skyrocketed industrywide after October 1, 2015. It also may lead to a long-term reduction in compliance costs, which would make many small and midsized players in our industry very, very happy.

More on this as it develops. Until then, happy originating!

Peter

Mortgage Originators – The Changes Aren’t Over Yet

Magnifying-glass-showing-changeWe all knew this was coming (and, honestly, given the increasing importance of Mortgage Industry Standards Maintenance Organization (MISMO) standards in keeping our loan-level data compliant, is probably long overdue) but just when we thought we might be getting a breather from front-end form changes for a while…

The Uniform Residential Loan Application (you know it as the 1003) is undergoing a facelift. According to Fannie and Freddie, the redesign should be complete by the summer of 2016. It will likely come with a nice trial period before its use becomes mandatory. Given the expanded dataset that is being phased-in in the coming years with the CFPB’s updated HMDA rule, expect to see the government monitoring information section expanded, along with a re-aligning of the data fields to more closely match information used in evaluating applications under current GSE underwriting guidelines. In fact, this project is probably very closely related to the significant updates that Fannie has told us will be coming to Desktop Underwriter next year.

You can bet that we’ll have more information on this for you as the new form is released. Until then, drink a cup of Auld Lang Syne to TRID, and here’s to a great 2016!

Happy Originating,

Peter

BREAKING NEWS: TRID Delayed

TRID Deadline ExtendedIn response to what the CFPB claims was a “technical error in the regulatory process” – but likely has everything to do with continued concern from creditors about their ability to implement and guarantee compliance with the new disclosure rules by August 1 – the effective date of the new Loan Estimate and Closing Disclosure has been delayed two months to October 1, 2015.

Many lenders are calling TRID the biggest change in the mortgage industry since the 1960s. Understanding the new TILA-RESPA integrated disclosures is critical for anyone working with the real estate industry, from loan originators to real estate agents, to real estate attorneys.

Real Estate Institute has been offering courses for mortgage loan originators that provide an in-depth look at the disclosure changes for a year. The newest course designed to prepare Illinois attorneys who support both buyers and sellers of residential real estate has been very popular. New TRID course content for Illinois real estate agents will be released this summer.

 

What Mortgage Companies Need to Know About Advertising to Stay Out of Trouble

Gavel_Regulation NSurely you’ve seen the recent headlines. The Consumer Financial Protection Bureau (CFPB) is cracking down on mortgage companies for unfair and deceptive advertising practices. These companies are incurring multi-million-dollar fines for improper advertising.  Understanding the rules is critical. Here’s an overview of what you need to know about REGULATION N: Mortgage Acts and Practices (Advertising) to stay out of the headlines.

Regulation N Defined

Regulation N is a CFPB regulation that is intended to ensure that mortgage credit is not advertised in a misleading manner and that there are no material misrepresentations made – either explicitly or implicitly – about any term or mortgage credit product in a commercial communication (advertisement).

Under Regulation N, it is unlawful to:

  • Misrepresent the amount of interest a consumer will be charged, including any misrepresentations of, or failure to disclose, negative amortization.
  • Misrepresent the APR, simple interest rate, periodic rate or any other rate. (This is also prohibited separately in Regulation Z.)
  • Fail to disclose whether separate payment of taxes or insurance is required or misrepresent the extent to which those payments are included in the consumer’s mortgage payment or loan amount.
  • Misrepresent the existence, amount or duration of a prepayment penalty.
  • Using the word “fixed” to describe an ARM, unless the term “Adjustable Rate Mortgage” is clearly used before the term fixed and it is obvious that the loan is an ARM.  (For example, you can’t advertise a “five-year fixed” unless that really is a loan that amortizes over five years with no rate change.  You can, however, advertise “an adjustable rate mortgage with an initial fixed rate period of five years after which time the interest rate may adjust once per year.”
  • Misrepresent the type of mortgage credit product.  For example, it is illegal to lead a customer to believe that a balloon loan is a fully-amortizing mortgage.
  • Misrepresent the amount of the loan, or the amount of cash or credit available to the consumer, including claiming that no payments are required in a reverse mortgage.  (The payment is made when the loan matures, and the borrower can also make payments at any time during the term.)
  • Advertise or imply that the mortgage company or loan product is sponsored by or affiliated with the government.
  • Insinuate that the advertisement in question is coming from the borrower’s current servicer when it is in fact not.
  • Tell consumers that they are pre-approved or guaranteed for a loan when that is not true.
  • Promise a refinance or loan modification unless that refinance or modification has actually been underwritten and approved and cannot change.

Finally, under Regulation N, all advertisements must be retained by the lender for a period of 24 months after their last publication or broadcast.

Helpful Hint for Prospective MLOs

If you’re thinking of becoming a loan officer, you will need to know Regulation N for the National SAFE mortgage loan originator exam. This is the licensing test that prospective loan officers need to pass to become a state-licensed mortgage loan originator. For more help preparing for the NMLS / SAFE test, try out these free practice tests.

 


Real Estate Institute encourages all readers to consult with a qualified attorney on all matters of law or regulation, as no blog post can or should be a substitute for competent legal counsel.

 

TILA-RESPA DISCLOSURE RULE – VERBAL CLARIFICATION FROM CFPB ON DOC REQUESTS AT PRE-APPROVAL

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!

Peter

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!

Peter

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:

http://www.consumerfinance.gov/blog/a-final-rule-that-makes-mortgage-disclosure-better-for-consumers/

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

Happy originating,

Peter

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!

Peter