There is no shortage of comments on the wave of mortgage regulations emanating from the Consumer Financial Protection Bureau and other government agencies. Recently issued rules, as well as upcoming regulations, are rippling throughout the mortgage community — and some could have potentially ugly consequences for consumers and for the industry itself.
On Jan. 22 Ballard Spahr LLP issued its summary involving, the Consumer Financial Protection Bureau’s Jan. 20 final ruling on loan originator compensation requirements. According to Ballard Spahr, this final rule incorporates the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 qualification requirements into the current Regulation Z loan originator compensation rule but doesn’t address steering prohibition regulations or rules that govern similarly related conduct.
Three days after the CFPB issued the final LO compensation rule, the National Association of Mortgage Brokers issued a statement declaring the rule would harm consumers. NAMB president Donald J. Frommeyer said the rule would contribute to eliminating small businesses since they would be unable to compete with larger lenders.
“The CFPB has failed to realize that a mortgage broker company does not get all of the fees for arranging a loan,” said Frommeyer. “The limitations in this regulation along with the new rules on qualified mortgages, assures higher prices to consumers and less competition in the marketplace.”
In the wake of the CFPB’s early January issuance of the final set of ability-to-repay and Qualified Mortgage standards, Amherst Securities Group LP, in its Jan. 16 Amherst Mortgage Insight, provided a focused overview of QM guidelines and an analysis of the rule’s implications for the mortgage market. Amherst speculated lenders would not issue loans with debt-to-income ratio’s greater than 43 percent since these loans would not qualify as QMs, and the penalties could be substantial.
Mortgage Bankers Association president and CEO David H. Stevens also commented on the influx of CFPB regulations during his Jan. 16 speech to the Exchequer Club of Washington, D.C. Stevens warned that these rules must be issued and implemented using a coordinated and balanced approach that does not harm qualified borrowers. Using the QM rule as an example, Stevens said the CFPB did achieve its goal of eliminating risky features for borrowers but still needed to work on compliance specifics and how they negatively affect the mortgage industry and ultimately, the borrower.
According to its Jan. 17 news release, the Independent Community Bankers of America supported the CFPB’s community bank exemptions from the finalized mortgage-servicing rules, released mid-January. However, smaller community banks still must comply with notices for adjustable-rate mortgages. The ICBA said it was concerned with cost and compliance challenges community banks faced with requirements to deliver notices both 210 to 240 days prior to first payment due dates after first rate adjustments and 60 to 120 days prior to first payment due dates at a new level when rate adjustments cause payments to change.
On Dec. 13, as part of Project Catalyst, the CFPB announced a proposed policy to allow financial companies to test new consumer disclosures. Meant to encourage banks, credit unions and other financial services companies to participate in trial disclosure programs, the CFPB would approve companies on a case-by-case basis. These companies would be exempted from current disclosure laws for a limited time in order to test and research the new disclosures.
In related consumer disclosure news, Consumer Mortgage Coalition Executive Director Anne C. Canfield submitted comments on Nov. 6 to the CFPB’s proposed mortgage origination rules to integrate mortgage disclosure rules under the Real Estate Settlement Procedures Act and the Truth in Lending Act. Canfield commended the CFPB for releasing nine rounds of prototype disclosures for public comment before releasing a proposed regulation. However, she said the CFPB needed to conduct testing, which populated forms using the rules and based on actual loans, to identify and resolve any issues.
Shortly before Canfield’s commentary, the Federal Trade Commission staff commended the CFPB’s efforts in developing new mortgage disclosures aimed at helping consumers make better, more-informed decisions on mortgages. The FTC staff, whose comments were part of the CFPB’s Sept. 25 release of FTC staff comments in accordance with the bureau’s request for comments on proposed rules for integrated mortgage disclosures, also encouraged the CFPB to conduct controlled, quantitative testing of its proposed disclosures before issuing final rules.
The Dec. 6 issue of The Federal Register highlighted the FTC’s amendment of the Red Flags Rule under the Fair Credit Reporting Act to implement the Red Flag Program Clarification Act of 2010. This interim final rule, effective Feb. 11 with comments taken up to Feb. 11, amended the definition of creditor in the original rule to make it consistent with the Clarification Act’s definition.
The CFPB provided a high-level overview of mortgage originator violations in its Oct. 31 Supervisory Highlights: Fall 2012. RESPA violations included mortgage originators failing to give consumers proper and complete disclosures on costs and other transaction terms because good faith estimates and HUD-1 settlement statements were not properly or adequately completed. TILA violations included failures providing disclosures for accurate interest rates, payment amounts and schedules, late payment policies, security interests and assumption policies. The CFPB also noted lenders were not reporting required information about lending activity, which violated Home Mortgage Disclosure Act compliance and hindered abilities for meaningful mortgage data comparison.
A Sept. 24 letter to U.S. Attorney General Eric Holder from Congressmen Lamar Smith, Darrell Issa, Patrick McHenry and Charles Grassley asked Holder to provide all documents and make department officials available for transcribed interviews in relation to Magner v. Gallagher and the decision by the city of St. Paul, Minn. to abandon arguing this case in front of the U.S. Supreme Court. This case would have weighed in on whether disparate impact could apply under the Fair Housing Act, according to CMC Executive Director Canfield’s Sept. 25 explanation on the importance of this case.
“A disparate impact theory of liability in mortgage lending would be directly counter to the Dodd-Frank ‘ability-to-repay’ or QM rule, a centerpiece of that law’s mortgage reforms,” said Canfield. “Complying with that rule will have disparate impacts.”
In an Aug. 14 notice to non-bank residential mortgage lenders and originators, the Financial Crimes Enforcement Network reminded originators of compliance obligations under FinCEN regulations, which include filing FinCEN reports electronically. FinCEN published a webinar on its website to further assist originators with understanding new and existing obligations.
An Aug. 17 FinCEN press release announced an advisory for non-bank originators to report suspicious activity related to mortgage fraud and for compliance to FinCEN’s final rule requiring anti-money laundering programs to be established.
