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Mortgage Compliance News | Mortgage Compliance Newsletter | Mortgage Regulations
News about complying with mortgage laws, rules and regulations.

Regulatory Requirements Evolve for Lenders

Recent compliance policy activity

July 23, 2012

By SAM GARCIA Mortgage Daily

portrait of Sam Garcia

The nation's regulator of financial services companies that deal directly with consumers has recently been getting an earful from the firms it oversees. Among their biggest concerns are the revival of disparate impact and the speedy implementation of combined disclosures before related regulations have been developed.

Mortgage lenders might be motivated to avoid litigation and scale back on originations as a result of the Department of Justice's revived use of the disparate impact theory, the American Bankers Association recently warned.

"Overly aggressive regimes can make a bank reluctant to lend, hurting the very groups they intend to help
," ABA Chief Executive Officer Frank Keating said in a statement. "The banking industry is committed to a color-blind, discrimination-free lending environment. ABA will continue to work with federal agencies to establish clear criteria on which a bank's fair lending performance will be judged."

In April, the Consumer Financial Protection Agency said it would use disparate impact to target discrimination by lenders. It issued a compliance bulletin reaffirming its commitment to enforcing the Equal Credit Opportunity Act by recognizing the disparate impact doctrine.

"We want consumers to avoid the marketplace's silent pickpocket -- discrimination," CFPB Director Richard Cordray said. "We cannot afford to tolerate practices, intentional or not, that unlawfully price out or cut off segments of the population from the credit markets."

Testimony last month on the CFPB's "Know Before You Owe" initiative was critical of the regulator. The hearing, Mortgage Disclosures: How Do We Cut Red Tape for Consumers and Small Businesses?, was held by the House Financial Services Subcommittee on Insurance, Housing and Community Opportunity. Discussion covered integrated disclosures required under the Truth-in-Lending Act and the Real Estate Settlement Procedures Act.

Bill Cosgrove, Chief Executive Officer of Union National Mortgage Co., testified on behalf of the Mortgage Bankers Association. He warned about rushing to implement disclosures and finalizing them before other Dodd-Frank Wall Street Reform and Consumer Protection Act rules are taken into account. Such rules include the "ability to repay" rule and its qualified mortgage definition, the high-cost loans rule and servicing rules.

"MBA also does not agree with the CFPB's suggestion that the application information needed by lenders to issue a 'Loan Estimate' should be reduced to six items without also allowing the lender to request 'any other information it deems necessary,' as permitted under RESPA today," Cosgrove testified.
"Under the proposed QM rule, lenders face significant liability for failing to determine that a borrower can repay a mortgage. Constraining companies like mine from gaining relevant information could not only result in unreliable estimates but may actually put us in legal jeopardy later on."

Testimony from the Consumer Mortgage Coalition called for a delay in the CFPB's rule revising the mortgage disclosure by July 21.

In its testimony, the American Bankers Association expressed "critical concerns about the coordination and timing of disclosure reform."

But the CFPB went ahead and issued a proposed rule on July 9.

A survey of 9,000 industry participants by Ernst Publishing Co. indicated that few of those surveyed felt that CFPB's RESPA changes will have a positive impact on mitigating mortgage fraud. More than a third believed that there is still a disconnect between RESPA requirements for the Good Faith Estimate and the closing table.

But the Ernst survey did find that 59 percent believe that the combined GFE-TILA disclosures will make closings easier.

The CFPB launched a public inquiry in April about how arbitration and arbitration clauses impact consumers and financial services companies. The Dodd-Frank act requires the CFPB to study the use of pre-dispute arbitration clauses in consumer financial markets and gives the CFPB the power to issue consumer protection regulations.

The CFPB wants to learn how prevalent arbitration clauses are and what claims consumers bring in arbitration. It also want to understand if financial services firms bring claims against consumers in arbitration, how consumers and companies are affected by actual arbitrations and how consumers and companies are affected by the clauses outside of actual arbitrations.

"Companies that use pre-dispute arbitration clauses claim that arbitration is faster and cheaper than litigation, and at least as fair," the CFPB said. "Others disagree, noting that consumers may not realize that they have waived their right to a trial because of an arbitration clause."

Sam Garcia founded Mortgage Daily in 1998 and became its full-time publisher in 2000. Prior to his news career he worked in mortgage lending for two decades.

[email protected]

Financial Regulation News | Mortgage Regulations
Bank and mortgage regulators, regulations and regulatory actions. Coverage of regulatory legislation and testimony.
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