Financial services companies that hoped for immediate regulatory relief when the Trump Administration assumed control may have to wait a bit longer, because the newly announced freeze on federal regulations does not appear to apply across the board. “Independent regulatory agencies,” such as the Consumer Financial Protection Bureau (“CFPB”), the Federal Reserve Board, the Office of the Comptroller of the Currency (“OCC”), the Federal Deposit Insurance Corporation (“FDIC”), and the Securities and Exchange Commission (“SEC”) may be excluded from that moratorium. Continue Reading How Solid is the “Freeze”? Some Agencies May Be Excluded from White House Regulatory Moratorium
The Consumer Financial Protection Bureau (CFPB) has issued an updated small entity compliance guide for compliance with the Mortgage Servicing Rules after the CFPB’s recent amendments to the rules take effect, generally on October 19, 2017.
The existing guide is still relevant for compliance before the new amendments take effect.
To learn more about the amendments to the Mortgage Servicing Rules, read the Mayer Brown white paper.
The Consumer Financial Protection Bureau (“CFPB”), in its most recent set of Supervisory Highlights, provides a bit of insight into how it interprets its Ability to Repay Rule for loans that are not Qualified Mortgages (“QMs”). However, it fails to reconcile the Rule’s contradiction that while a lender making a non-QM is not required to consider or verify the borrower’s income if it reasonably finds the borrower’s assets to be sufficient, it is nonetheless required to consider and verify a borrower’s income! Make sense?
By way of background, the Dodd-Frank Act and CFPB’s regulations generally require lenders making a closed-end residential mortgage loan to reasonably determine that the consumer will be able to repay the loan according to its terms. If the lender wants to take advantage of a safe harbor of compliance with that requirement, it may choose to make a QM in accordance with the Rule’s strict criteria for those loans. However, a lender may decide to make non-QMs, for which the Rule offers more underwriting flexibility. Still, the lender must consider eight specified factors, and verify the amounts of income or assets on which it relies using reasonably reliable third-party records. Continue Reading CFPB Addresses Non-QMs Under Ability-To-Repay Rule
The Consumer Financial Protection Bureau (CFPB) has offered its new mortgage servicing rule for public inspection today, meaning it is scheduled to be published in the Federal Register on October 19, 2016. The CFPB informally released the rule on its website in August.
The effective date of the rule is tied to its publication date, so the bulk of its requirements (with some exceptions) will take effect in 12 months, on October 19, 2017.
To learn more about the rule, read our Mayer Brown white paper.
Last week the American Association of Residential Mortgage Regulators (AARMR) hosted its 27th annual regulatory conference in Tampa, Florida. Over 300 attendees gathered to exchange information relating to the licensing, supervision, and regulation of the residential mortgage industry. Here are some of the highlights from the conference:
NMLS 2.0 — What’s on Your Wish List?
By far the hottest topic was “NMLS 2.0,” an effort to modernize the existing Nationwide Multistate Licensing System (NMLS) introduced in 2008. The NMLS, which was built for mortgage lending licenses, also applies to other types of consumer lenders. Modernization entails rebuilding the system, not just selected upgrades, to meet anticipated future needs for usability, enhanced functionality, and expansion for use by collection agencies, money transmitters, and installment lenders licensed through NMLS. Initial modernization discussions addressed account management, entity affiliation and application submission, and maintenance. While the overhaul is expected to be complete in 2018, that may be overly optimistic.
Meanwhile, the State Regulatory Registry LLC (SRR), which formally administers the NMLS, has expressed its commitment to consider input from both regulator and industry users of the system as the modernization development continues. If you have been thinking that a single sign-on to assist in the management of multiple accounts, a customizable user role template to assist in the management of your organization users, a more streamlined sponsorship process, or an employment history that is linked to sponsorship for an automated update of your record is on your list of must haves, let us know – we are active participants in the NMLS industry development working group (IDWG), and we frequently submit comments to SRR regarding proposed functional changes to the NMLS.
Both the state and the federal regulators at the AARMR conference discussed frequent findings in their examinations. Across the country, regulators saw (i) failures in timely filing of advance change notices, (ii) unapproved records storage locations, (iii) property owners who were locked out of their homes even when actively working with the servicer, and (iv) deficiencies in compliance systems. In addition, regulators are starting to look not only at the licensee’s compliance with the individual rules and regulations, but at its ability to test and audit technology-based processes, quickly identify issues, and implement a resolution process.
Regulators also expressed concerns about licensees’ assessment of risks presented by reliance on vendors. Many state regulators are requiring more oversight (including auditing) of certain vendors by the licensee. Regulators warned that a licensee could be penalized for the inappropriate actions of certain vendors, even if the vendor is regulated and examined by another agency.
States Regulators Consider CFPB Rules
Consumer Financial Protection Bureau (CFPB) Deputy Assistant Director Brown discussed the final mortgage servicing rules under the Real Estate Settlement Procedures Act (Regulations X) and Truth in Lending Act (Regulation Z). That rule addresses loss mitigation, early intervention, and periodic statements. It also addresses successors in interest, debtors in bankruptcy, and borrowers who send a cease communication request under the Fair Debt Collection Practices Act (FDCPA).
Simultaneously, the CFPB issued an interpretive rule to clarify the interaction of the FDCPA and certain mortgage servicing rules in Regulations X and Z. The interpretive rule provides safe harbors from liability for servicers : (1) communicating about the loan with confirmed successors in interest; (2) providing the written early intervention notice required by Regulation X to a borrower who has invoked the cease communication right; and (3) responding to a borrow-initiated communication concerning loss mitigation after the borrower has invoked a cease communication right.
Given what we hear from state regulators, do not be surprised if many of the CFPB’s rules find their way into state law.
(Mayer Brown’s Consumer Financial Services Review addressed the CFPB’s final mortgage servicing rules and its FDCPA interpretation here.)
Account Executive Licensing?
The NMLS Ombudsman session included a lively discussion of whether individual account executives of wholesale mortgage lenders must be licensed as mortgage loan originators. After a detailed description of the activities performed by these account executives, a few state regulators recommended licensing, but affirmed that it was not required. Several state regulators declined to respond categorically, but warned that an individual could “step over the line” and be considered a mortgage loan originator if he or she discusses loan terms with the consumer.
Generally, states have adopted the SAFE Act definition of a “mortgage loan originator,” and unless exempt, an individual is required to be licensed if he or she takes a residential mortgage loan application and offers and negotiates the terms of a residential mortgage loan for compensation or gain. As account executives or similar persons perform their duties, they should be aware of whether they are performing those mortgage loan originator activities, regardless of their current professional title.
Keisha Whitehall Wolf served as the Acting Deputy Commissioner for the Maryland Office of the Commissioner of Financial Regulation before joining Mayer Brown.
Today the CFPB finalized the final mortgage servicing rules update that it proposed at the end of 2014. The rule adds new protections for mortgage borrowers in financial distress, including provisions that require servicers to:
- Provide some borrowers with foreclosure protections more than once over the life of the loan;
- Provide protections to an expanded universe of successors in interest upon the death of a borrower;
- Provide more information to borrowers in bankruptcy;
- Notify borrowers when their loss mitigation applications are complete;
- Comply with specific timing requirements for loss mitigation activities when servicing rights are transferred;
- Avoid wrongful foreclosures by refraining from pursuing those actions until loss mitigation applications are properly dispositioned;
- Comply with clear timing requirements for borrower delinquencies.
The final rule also addresses force-placed insurance and periodic disclosure requirements.
Concurrently with that final servicing rule, the CFPB issued an interpretive rule under the federal Fair Debt Collections Practices Act (FDCPA), to address its interplay with the new servicing rules and their requirements related to certain borrower communications.
Most of the new requirements will become effective one year following their publication in the Federal Register, so their effective date will likely be in the fall of 2017. The requirements addressing successors in interest and periodic statements for borrowers in bankruptcy will become effective 18 months after publication.
Mayer Brown will issue a detailed analysis of the new provisions in an upcoming Legal Update.
With only a few days to spare in order to meet its July 2016 target release date, the Consumer Financial Protection Bureau (“CFPB”) finally issued a Notice of Proposed Rulemaking (NPRM) today, proposing a number of amendments to its TILA-RESPA Integrated Disclosure rule (“TRID” or the “Know Before You Owe” rule).
On April 28, 2016, the CFPB issued a letter stating that it would engage in formal rulemaking in order to provide “greater certainty and clarity” to the mortgage industry. (Mayer Brown’s post regarding the April 28 letter can be found here.) Since then, the industry has been anxiously awaiting the proposal to see which of the many issues the CFPB would address. While it may not have touched upon every issue on which the mortgage lending industry has pleaded for guidance, the NPRM is a step in the right direction, indicating that the CFPB understands some of the challenges market participants have faced.
Since the regulations were finalized in November 2013, the CFPB has periodically issued informal guidance through webinars, compliance guides, and sample disclosures. With its current proposal, the CFPB is seeking to memorialize its past guidance, as well as make additional clarifications and technical updates. In the NPRM, the CFPB highlights the following four amendments:
- Tolerances for the Total of Payments Disclosure — The Truth in Lending Act provides certain tolerances when calculating the finance charge and “disclosures affected by the disclosed finance charge.” Prior to TRID, the finance charge was a component of the Total of Payments disclosure. However, TRID changed the Total of Payments calculation so that the finance charge was not specifically used. The current proposal would include a tolerance provision for the Total of Payments that would parallel the tolerance for the finance charge.
- Housing Assistance Lending — TRID currently provides a partial exemption for certain housing assistance loans that are originated primarily by housing finance agencies and non-profits. According to the CFPB, the exemption was not operating as intended, so the CFPB is proposing to clarify that recording fees and transfer taxes may be charged in connection with a housing assistance loan without losing eligibility for the exemption. The proposal also would exclude recording fees and transfer taxes from the exemption’s limits on costs.
- TRID’s Application to Cooperatives — Currently, TRID’s applicability to loans secured by interests in cooperative units depends on whether a cooperative is considered real property under state law. Since some states treat cooperatives as real property, and others deem it personal property, there is not uniform coverage of cooperatives under the regulation. In order to provide more consistency, the CFPB proposes to require the provision of the TRID disclosures in all transactions involving cooperative units, regardless of whether state law classifies the interests as real or personal property.
- Privacy and Information Sharing — The CFPB has received many requests for guidance regarding the sharing of disclosures with sellers, real estate agents, and others involved in the mortgage origination process. In its proposal, the CFPB seeks to add a comment that addresses a creditor’s ability to modify the Closing Disclosure in order to accommodate the provision of separate disclosures to the consumer and seller. The proposal would also add examples where the creditor may choose to provide separate Closing Disclosure forms to the consumer and the seller.
In addition, the CFPB includes a number of “minor changes and technical corrections” in the NPRM.
Mayer Brown’s Legal Update detailing the CFPB’s proposal is coming soon.
The Consumer Financial Protection Bureau (CFPB) marks its fifth birthday having made a substantial mark on the consumer financial services marketplace. To mark this event, we have compiled a retrospective of the CFPB’s first five years. The retrospective provides an overview of the CFPB’s actions in the realms of rulemaking, supervision, and enforcement. While it would be difficult to chronicle all of the CFPB’s activities over that period, the articles in the retrospective provide a snapshot of the rules the CFPB has written or proposed, the supervision program it has implemented, and the enforcement actions it has taken across the landscape of consumer financial services. Some of the articles appeared previously on this blog, others appeared as Mayer Brown Legal Updates, and many are new analyses or summaries of the CFPB’s actions. Read the retrospective, available here.
On May 12, 2016, the Consumer Financial Protection Bureau (“CFPB”) published annotated model forms (“TILA Mapping Forms”) for the Loan Estimate and Closing Disclosure. The CFPB intends those annotations to indicate the statutory requirements in Chapter 2 of the Truth in Lending Act (“TILA”) on which it relied in implementing specific portions of those forms. Unfortunately, the Mapping Forms are subject to such extensive disclaimers that the CFPB might as well have issued them over Snapchat – this “guidance” could disappear at any time.
The TILA-RESPA Integrated Disclosure/Know Before You Owe Rule (“TRID”) implements portions of the Real Estate Settlement Procedures Act (“RESPA”), TILA, and the Dodd-Frank Act. Civil liability for violations of TRID is governed by the underlying statutes. To the extent the CFPB promulgated a particular TRID requirement solely under RESPA or the Dodd-Frank Act, a consumer generally would not have a private right of action for a violation of the requirement. However, a creditor – and in some circumstances, an assignee – is more likely to be subject to liability when a TRID violation involves a requirement the CFPB promulgated in whole or in part to implement Chapter 2 of TILA (also sometimes referred to as Part B of TILA).
The TRID Rule and its Commentary do not, however, address the extent to which a creditor or assignee may be held civilly liable for any particular TRID violation. In the rule’s preamble, the CFPB briefly mentions the statutory authority on which it relied in connection with each TRID requirement, but that preamble discussion is often ambiguous, difficult to parse, and occasionally even contradictory. The CFPB apparently published the TILA Mapping Forms yesterday in response to industry requests for clearer guidance. While the Mapping Forms are helpful, they do not resolve all of the complicated TRID liability issues that creditors and assignees continue to face. Perhaps most importantly, the Mapping Forms are subject to a general disclaimer that they do not represent the CFPB’s legal interpretation, guidance, or advice. They also do not purport to bind the agency or create any enforceable rights, benefits, or defenses that can be asserted by any party, in any manner. The CFPB declined to state what the Forms do represent, if anything. Continue Reading Guidance by Snapchat? CFPB Issues TRID Forms with Mapping Citations
The Consumer Financial Protection Bureau (CFPB or Bureau) has come under criticism recently for its heavy handed approach to regulation, including “regulation by enforcement”. Perhaps partially in response to those criticisms, and certainly in response to a January 2016 industry trade group request to the CFPB to publish unofficial guidance in the Federal Register, the CFPB issued a letter to the residential mortgage lending industry on April 28, 2016. In that letter the Bureau acknowledged there are “operational challenges” with the TILA / RESPA Integrated Disclosure rule (commonly known as TRID or Know Before You Owe). The Bureau promises to engage in formal rulemaking in late July of 2016, to propose changes to TRID that will provide “greater certainty and clarity” to the mortgage industry.
In what might qualify as understatements of the year, CFPB Director Cordray said he recognizes that “incorporating some of the Bureau’s existing informal guidance whether through webinar, compliance guide, or otherwise, into the regulation text and commentary would be helpful” and that “there are places in the regulation text and commentary where adjustments would be useful for greater certainty and clarity.” This is in stark contrast to remarks Director Cordray has previously made in which he resisted formalizing the informal guidance and amending TRID to address ambiguities.
Since its October 3, 2015 effective date, TRID has posed a number of issues for the mortgage banking industry. One hurdle involved coordinating implementation with all interested parties, such as mortgage brokers and correspondents, title companies, loan origination system software vendors, and other vendors. Exacerbating the implementation issues was TRID’s ambiguity in a number of areas, and its outright failure to address many issues. For example, the mortgage industry has struggled with issues such as how minor or technical errors may be corrected (such as alignment or shading of forms, rounding errors, check boxes that are improperly completed on the Loan Estimate, and data fields on the Loan Estimate that are not subject to either tolerances or redisclosures), and what penalties, if any, attach to those errors. Equally problematic has been uncertainty as to the conditions under which a Closing Disclosure may be cured, how to account for lender credits, disclosure of title insurance premiums, and disclosure of construction loans.
This lack of clarity has caused significant problems in the secondary market, particularly with the jumbo loan market. Because of the issues noted above and other issues, secondary market investors are often unwilling to purchase loans with minor technical violations, or with issues as to which the TRID rule is unclear.
While Director Cordray did not offer any details of what changes the CFPB might propose, the industry is hopeful the rulemaking will address the above noted issues and other issues the industry has pointed out to the CFPB. Director Cordray has promised that the Office of Financial Institutions, together with the CFPB’s Regulations and Markets teams, will hold one or two meetings in late May or early June before the Bureau issues its Notice of Proposed Rule Making (NPRM), to discuss issues with the industry. This will hopefully be an opportunity for the industry to offer input before the proposed rule is issued.