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!


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.

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,


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 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.