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CFPB Updates - 1/14/2013

CFPB Issues New Final Mortgage Rule & Associated Proposal
On January 10, 2013 at a field hearing held in Baltimore, MD, the Consumer Financial Protection Bureau (CFPB) issued the final Ability-to-Repay rule containing the important definition for “Qualified Mortgages.”  The final rule becomes effective January 10, 2014.  For the Credit Union National Association's (CUNA) initial summary of the rule, please click here.  You can also obtain the final rule here.  

CUNA's early reaction is that the final rule has addressed a number of issues that were raised, including the safe harbor for compliance challenges when prime residential mortgage loans meet the rule’s “qualified mortgage” standards.  (Most credit union home mortgage loans are prime loans.)  The agency has also included standards for legal protections for lenders when the mortgage loan is subprime.

The rule calls for prime and subprime lenders to consider economic factors regarding the borrower that are outlined in CUNA's summary.  It also includes requirements for a loan to be a qualified mortgage, such as a prohibition on no-doc loans; no negative amortization, interest-only, balloon payments or terms beyond 30 years; and point and fees cannot generally exceed three percent of the total loan amount.  A QM must also meet underwriting criteria including a total debt-to-income ratio of no more than 43%.  Certain balloon payment loans could be QMs if they are originated and held in portfolio by small creditors (assets under $2 billion) in rural or underserved areas; also these loans would not be subject to the 43% DTI requirements.

The rule includes a temporary provision that allows mortgage loans to be considered as QMs even if they have somewhat different loan underwriting as long as they are eligible to be purchased by the GSEs (while they remain under the control of the US government), HUD, or the Department of Agriculture; this provision will end in 7 years.  More details of the entire rule are in our summary.

The CFPB also issued a related proposal that seeks comments on, among other things, whether it should exempt certain nonprofit lenders such as credit unions and others from the ability to repay rules and whether a new category of mortgage loans could qualify as QM if they do not have balloon payments and are originated and held by small creditors, which could include credit unions with assets under $2 billion.  CUNA is working on a Comment Call for the proposed rule.  Comments are due to the CFPB on February 25, 2013.

Escrow Accounts Final Rule

On January 10, 2013, the Consumer Financial Protection Bureau (CFPB) issued a final rule that amends Regulation Z to implement new Truth in Lending Act (TILA) requirements regarding escrow accounts.  Specifically, the rule requires creditors to establish escrow accounts for certain mortgage transactions to help ensure that consumers set aside funds to pay property taxes, and premiums for homeowners insurance, and other mortgage-related insurance required by the creditor.
The rule applies to closed-end mortgage loans secured by a first-lien on real property or a dwelling.  The primary provisions of the final rule are as follows:

  • It amends existing regulations that require creditors to establish and maintain escrow accounts for at least one year after originating a “higher-priced mortgage loan” to require generally that the accounts be maintained for at least five years.
  • It creates an exemption from the escrow requirement for small creditors that operate predominately in rural or underserved areas.  Specifically, to be eligible for the exemption, a creditor must: (1) make more than half of its first-lien mortgages in rural or underserved areas; (2) have less than $2 billion in assets; (3) have originated 500 or fewer first-lien mortgages during the previous calendar year; and (4) do not maintain escrow accounts on mortgage obligations they currently service.
  • It expands the existing exemption from escrowing for insurance premiums (though not for property taxes) for condominium units to extend the partial exemption to other situations in which an individual consumer’s property is covered by a master insurance policy.

The final rule becomes effective June 1, 2013

HOEPA – “High-Cost Mortgage” Loans Final Rule

On January 20, 2013, the Consumer Financial Protection Bureau *(CFPB) issued a final rule on “high-cost mortgages” that implement Dodd-Frank Act amendments to the Home Ownership and Equity Protection Act (HOEPA).  The final rule expands the universe of loans potentially covered by HOEPA to include most types of mortgage loans secured by the consumer’s principal dwelling, including: first-lien home purchase mortgage loans, subordinate-lien loans including closed-end home equity loans, and HELOCs.

The final rule revises the HOEPA – high-cost mortgage loan threshold test to include the following:

  • For a first mortgage, if the APR is more than 6.5 percentage points higher than the average prime offer rate.
  • For less than $50,000, if the loan is for a personal property dwelling (such as a manufactured home), and has an APR more than 8.5 percentage points higher than the average prime offer rate for a similar mortgage.
  • For a second, or junior mortgage, and the APR is more than 8.5 percentage points higher than the average prime offer rate for a similar second mortgage.
  • For less than $20,000 and the points and fees exceed the lesser of 8% of the loan or $1,000, or the loan is for $20,000 or more and the points and fees exceed 5%.

In addition, the final rule establishes certain restrictions and requirements concerning loan terms and origination practices for a high-cost mortgage under the rule:

  • Balloon payments are generally banned, and creditors are prohibited from charging prepayment penalties and financing points and fees;
  • Late fees are restricted to 4% of the payment that is past due, fees for providing payoff statements are restricted, and fees for loan modification or deferral are banned; and
  • Creditors originating HELOCs are required to assess consumers’ ability to repay.

The final rule also implements the following homeownership counseling-related provisions: (1) lenders must provide a list of homeownership counseling organizations to consumers within 3 business days of applying for a mortgage; and (2) creditors must obtain confirmation that a first-time borrower has received homeownership counseling from a federally certified or approved homeownership counselor before making a loan that permits negative amortization.

The final rule becomes effective January 10, 2014.

Chart on CFPB Rulemakings:  Updated 1/11/2013
Credit union representatives now have access to a chart  that highlights various rulemaking projects that are being undertaken by the Consumer Financial Protection Bureau (CFPB). The projects are required by the Dodd-Frank Act. The chart covers topics like Reg Z, Appraisals, Reg B and more.   Click here to view the updated chart.

A CUNA username and password are required to access the chart.