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CFPB Update

Learn about the 2014 Mortgage Rules issued by CFPB, their impact on lenders, QM and QRM rules, and how to ensure compliance and efficiency. For informational purposes only.

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CFPB Update

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  1. CFPB Update

  2. CFPBUpdate LookingAhead This presentation is for informational purposes only and is not and may not be construed as legal advice. North American is not a law firm and does not offer legal services of any kind. No third-party entity may rely upon anything contained herein when making legal and/or other determinations regarding title practices. You should consult with an attorney prior to embarking upon any specific course of action.

  3. ABOUTTHECFPB

  4. WhatIsthe CFPB? • Consumer Financial Protection Bureau • Independent bureau within Federal Reserve • System • Regulates offering and provision of consumer financial products or services under Federal consumer financial laws • Created by Dodd-Frank Wall Street Reform and Consumer Protection Act1 1Dodd-Frank§1011(a),12UnitedStatesCode§5491(a)

  5. What Does theCFPB Regulate? • Credit Cards • Mortgages • Bank Accounts & Services • Credit Reporting • Money Transfers • Debt Collection • And More

  6. 2014 MORTGAGE RULES

  7. The2014Mortgage Rules • Issued:January 2014(thereafteramended) • Effective:January2014 (mostprovisions) • Location: • CFPBWebsite: • http://www.consumerfinance.gov • PublishedinFederalRegister • Amend CodeofFederalRegulations

  8. The2014Mortgage Rules(cont.) • Ability to Repay and Qualified Mortgage Standards • Under the TILA1 (Reg. Z) • – Effective: 1/10/14; Issued: 1/10/13 (Amended: 5/29/13 & 7/10/13) • High-Cost Mortgage and Homeownership Counseling Amendments to the TILA (Reg. Z) and Homeownership Counseling Amendments to the RESPA2 (Reg. X) • – Effective: 1/10/14; Issued: 1/10/13 (Amended: 9/13/13 &10/15/13; Interpretive Rule & Summary: 11/8/13) • Escrow Requirements under the TILA (Reg. Z) • – Effective: 6/1/2014; Issued: 1/10/13 (Amended: 5/16/13, 7/10/13 & • 9/13/13) 1TruthIn LendingAct 2RealEstateSettlementProceduresAct

  9. The2014Mortgage Rules (cont.) • 2014 RESPA (Reg. X) & TILA (Reg. Z) Mortgage • Servicing Final Rules • – Effective: 1/10/2014; Issued: 1/17/13 (Amended: 7/10/13, 9/13/13 & 10/15/13) • Appraisals for Higher-Priced Mortgage Loans • – Effective: 1/18/2014; Issued: 1/18/13 • Disclosure and Delivery Requirement for Copies of Appraisals and Other Written Valuations Under Equal Credit Opportunity Act (Reg. B) • – Effective: 1/18/14; Issued: 1/18/13 (Amended: 9/13/13) • Loan Originator Compensation Requirements under TILA (Reg. Z) – Effective: § 1026.36(h) – 6/1/13; Remainder 1/10/14; Issued: 1/20/13 (Amended 5/29/13 & 9/13/13)

  10. The Impact • Lender’sactivitiesin2014 • Review theregulations • Upgradesystems • Train employees • Lender’sactivitiesin2014 • Implementtheregulations • Comply

  11. QM and QRM Rules The Dodd-Frank Act mandated that, for a residential mortgage, a creditor must make a reasonable and good faith determination based on verified and documented information that a consumer has a reasonable ability to repay an owner-occupied, residential mortgage loan according to its terms. The Ability To Repay Rule provided a series of factors to be considered when making a determination about a borrower’s ability to repay. It also provided a conclusive presumption, or safe harbor against litigation, for QM loans that are not higher-priced loans, and a rebuttable presumption of a borrower’s ability to repay QM loans that are higher-priced loans.

  12. QM and QRM Rules Broadly defined, a QM loan has the following requirements: • no negative amortization • no interest-only payments • no balloon payments • no terms in excess of thirty years • verification and documentation of the borrower’s financial resources • points and fees must be less than three percent of the principal amount of the loan (but certain bona fide discount points excluded from this calculation in certain cases) • monthly payments, for purposes of calculations used in determining QM status, based on the highest payment in first five years • total debt to income ratio cannot exceed 43%, except in the case of loans meeting certain government affordability or other standards (e.g., loans meeting Fannie Mae or Freddie Mac requirements, or loans that are eligible for government insurance or guarantees)

  13. QM and QRM Rules Under Dodd-Frank, securitizers of asset-backed securities are required to retain an economic risk (no less than 5%) in the assets collateralizing the asset-backed securities. However, among the exceptions in the proposed rule is that the risk retention requirements do not apply if all of the assets collateralizing the securities are QRMs. Dodd-Frank requires that the definition of QRM be “no broader” than the definition of QM adopted by CFPB. In the proposed rule, issued on April 29, 2011, the QRM Agencies defined QRM as “a closed-end credit transaction to purchase or refinance one-to-four family property at least one unit of which is the principal dwelling of a borrower” and that meets certain criteria. While the criteria for a QRM in the proposed rule are similar to the criteria for a QM set forth in the Ability-to-Repay Rule, there are some significant differences. In particular, the proposed rule defining QRM: (a) capped the interest rate increases for adjustable rate mortgages whereas the QM definition merely clarified how the adjustment should be factored into an Ability-to- Repay determination, (b) contains a maximum loan-to-value ratio of 80% for a purchase money mortgage whereas the QM definition does not establish loan-to-value limits, (c) required a 20% down payment for a purchase money mortgage whereas the QM definition does not require a specific down payment amount, and (d) required a debt-to-income ratio of 36% in contrast to the QM limit of 43%.

  14. THE IMPACT – SELLER FINANCING • Seller Financers • Have legal obligations • Should seek legal counsel • May receive notices and disclaimers from settlement service providers • May be asked to sign acknowledgments of notice and disclaimers or releases of liability

  15. INTEGRATEDMORTGAGE DISCLOSURESRULE

  16. InGeneral • Dodd-Frank Mandate1: • – Replace existing RESPA and TILA disclosures with single disclosure to include information previously contained in two separate ones • Proposed Rule - Issued: 7/9/12 • Final Rule - Issued: 11/20/13 • Implementation Date: 8/1/15 1Dodd-Frank§1032(f),12UnitedStatesCode§5532(f).

  17. Rule Forms • New “LoanEstimate” • ReplacescurrentGFEandinitialTIL • Threepages long • New“ClosingDisclosure” • ReplacescurrentHUD-1andfinalTIL • Fivepages long

  18. LoanEstimate • Required by 12 CFR § 1026.19(e) • Contents in 12 CFR § 1026.37 • Provided by lender or mortgage broker • Deliver or place in mail within 3 “business • days” of application (incl. Saturday if Lender open) • With estimated settlement & transaction • Charges • Estimates subject to tolerances

  19. Loan Estimate Page 1 § 1026.37(a)-(c) • General Information • Loan Terms • If answers to questions in this section were “YES” different information would be provided • Projected Payments • Includes payment schedule & estimated taxes, insurance & assessments

  20. Loan Estimate Page 1 § 1026.37(d)-(e) (cont.) • CostsatClosing • Websitereference • Statementabout& linkto CFPBwebsite

  21. LOAN ESTIMATE PAGE 2 1026.37(F)-(J) § Loan Costs Other Costs Calculating Cash to Close Adjustable Payment (AP)Table* Adjustable Interest Rate (AIR) Table* *To reduce confusion, these tables are only included if applicable

  22. LOAN ESTIMATEPAGE 3 1026.37(K)-(N) • § • Contact Information • Comparisons • Other Considerations • Signature Statement • Signatures not required • Different statements required depending on whether signature • line is or is not included.

  23. ClosingDisclosure • Required by § 1026.19(f) • Three business days before closing • Provided by: • – Lender - § 1026.19(f)(1)(i) • – Lender may rely on Settlement Agent, but Lender • remains responsible for accuracy - § 1026.19(f)(1)(v) • Contents in § 1026.38

  24. Closing Disclosure Page 1 1026.38(a)-(d) (b)LoanTerms (c) ProjectedPayments (d) CostsatClosing

  25. Closing Disclosure Page 2 § 1026.38(f) • LoanCosts • OriginationCharges • Services Borrower DidNotShopFor • Services Borrower Did ShopFor • TotalLoanCosts

  26. Closing Disclosure Page 2 § 1026.38(g)-(h) (cont.) (g) Other Costs • Prepaids: • Homeowner’sIns.Premium • MortgageIns.Premium • PrepaidInterest • PropertyTaxes • Other: • HOACapitalContribution • **** • RealEstateCommission • RealEstateCommission • Title-Ownerstitle • (h) TotalClosingCosts

  27. CLOSING DISCLOSUREPAGE 3 § 1026.38(I)-(K) • Calculating Cash to Close • Tolerance amounts shown here • Summary of borrower’s • transaction • Summary of seller’s transaction • Itemizations in I and J are like page 1 of today’s HUD-1 Settlement Statement

  28. CLOSING DISCLOSUREPAGE 4 § 1026.38(L)-(N) Loan Disclosures Adjustable Payment (AP) Table* Adjustable Interest Rate (AIR) Table* *Tablesare onlyincludedif applicable

  29. CLOSING DISCLOSURE PAGE 5§ 1026.38(O)-(Q) Loan Calculations OtherDisclosures QuestionsNotice

  30. Closing Disclosure Page Five § 1026.38(r)-(s) (cont.) (r)ContactInformation (Sale) Contactinformationfor: (r)Contactinformation(Refinance) Contactinformationfor: Lender MortgageBroker RealEstateBroker(B) RealEstateBroker(S) SettlementAgent Lender MortgageBroker SettlementAgent (s) SignatureStatement

  31. Additional ModelForms& Variations • Forms differ based on: • Sale vs. loan only • Split forms for: • Borrower’s transaction • Seller’s transaction • Alternative “Calculating Cash to Close” table • Etc.

  32. Three DayAdvanceDisclosure • Closing disclosure received 3 business days • before “consummation” (closing) • Business day includes Saturday whether lender is open or not1 • Changes requiring a new 3 business day • waiting period2 • Annual percentage rate becomes inaccurate – most loans 1/8%; certain loans 1/4% • Loan product changed • Prepayment penalty added 112CFR§1026.2(a)(6)2ndsentence 212CFR§1026.19(f)(2)(ii)

  33. Three DayAdvanceDisclosure (cont) • If not provided in person (i.e. mailed), add 3 • business days for presumed receipt1 • Still have 3 day rescission for refinances2 • Consumer may not waive the 3 day waiting period except in the event of a “Bona Fide Personal Financial Emergency”3 112CFR§1026.19(f)(1)(iii) 212CFR§1026.23(notamendedbythis FinalRule) 312CFR§1026.19(f)(1)(iv)

  34. Changes&Guidance • AmendmentstotheFinal Rulecouldoccur • BeforeAugust1, 2015 • OnorafterAugust1, 2015 • OfficialInterpretations • Foundin: • Detailed SupplementItoPart1026 – Time consumingto issue

  35. Thank you Michael Holden Vice President Field Operations and Agency Manager, Great Lakes Region North American Title Insurance Company 7550 Lucerne Street, Suite 401 Middleburg Heights, Ohio 44130 Direct/Cell: 440-725-8973 Fax: 866-216-4381 mholden@natic.com http://www.natic.com/MichaelHolden

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