7 New Rules from the CFPB - Are You Ready? (3 of 3)
This is the third and final post in this series addressing the new CFPB mortgage loan rules.
As we all know by now, since 1/1/2013 there have been seven (7) new rule additions or changes that compliance officers and bank leadership must be aware of.
The 7 new rules include:
- Ability-to-Pay Rule
- Higher Cost Mortgage Rule
- Rule Amending Escrow Requirements under Truth in Lending Act (Reg Z)
- Mortgage Servicing Rule
- Appraisals for Higher Priced Mortgages Loans
- Reg B Appraisal Rule
- Mortgage Loan Originator Qualification and Compensation Practices Rule
In post number one and two, we covered the first five rules. We will summarize rule 6 and 7 here. If you haven’t had a chance, you may want to read the prior two posts. You can access them here.
Rule #6: Reg B Appraisal Rule - Access to Appraisal Report
- Dodd-Frank: Congress amended ECOA in the Dodd-Frank Act to require creditors to automatically provide applicants with a copy of appraisal reports and other written valuations prepared in connection with first lien loans secured by a dwelling. The amendment to ECOA also requires creditors to provide applicants with a disclosure at the beginning of the application process.
- CFPB Quote: “This rule will guarantee consumers can receive important information on how a lender determines the value of the home,” said CFPB Director Richard Cordray. “Having this information available promptly makes it easier for loan applicants to make informed decisions."
- Rule Overview: The new rule:
- Requires creditors to notify applicants within three business days of receiving an application of their right to receive a copy of appraisals developed.
- Requires creditors to provide applicants a copy of each appraisal and other written valuation promptly upon their completion or three business days before consummation (for closed-end credit) or account opening (for open-end credit), whichever is earlier.
- Permits applicants to waive the timing requirement for providing these copies. However, applicants who waive the timing requirement must be given a copy of all appraisals and other written valuations at or prior to consummation or account opening, or if the transaction is not consummated or the account is not opened, no later than 30 days after the creditor determines the transaction will not be consummated or the account will not be opened.
- Prohibits creditors from charging for the copy of appraisals and other written valuations, but permits creditors to charge applicants reasonable fees for the cost of the appraisals or other written valuation unless applicable law provides otherwise.
- The effective date of the new rule: January 18, 2014.
- More from CFPB (links):
Rule #7: Mortgage Loan Originator Qualification and Compensation Practices Rule
- Dodd-Frank: Expanded on previous efforts by lawmakers and regulators to strengthen loan originator qualification requirements and regulate industry compensation practices.
- CFPB Quote: “Before the financial crisis, many mortgage borrowers were steered towards risky and high-cost loans because it meant more money for the loan originator,” said CFPB Director Richard Cordray. “These rules will hold loan originators more accountable by banning the incentives that led so many of them to direct consumers toward disaster.”
- Overview of the Rule:
- Prohibit steering incentives: The rules prohibit compensation that varies with the loan terms. A broker or loan officer cannot get paid more if the consumer takes a loan with a higher interest rate, a prepayment penalty, or higher fees. Moreover, the mortgage originator cannot get paid more if, for example, the consumer agrees to buy title insurance from the lender’s affiliate. Previously, loan originators could make more money by getting the consumer to buy these services from the lender, broker, or one of their affiliates.
- Prohibit “dual compensation”: Under the CFPB’s rules, the loan originator cannot get paid by both the consumer and another person such as the creditor. In the run-up to the crisis, too often consumers incorrectly assumed that their loan originators were looking out for the consumer’s best interest.
- Set Qualification and Screening Standards: Under state law and the federal Secure and Fair Enforcement for Mortgage Licensing (SAFE) Act, loan originators currently have to meet different sets of qualification standards, depending on whether they work for a bank, thrift, mortgage brokerage, or nonprofit organization. These rules implement Dodd-Frank Act requirements that require a more level playing field so consumers can be confident that originators are ethical and knowledgeable. The final rules generally include:
- Character and Fitness Requirements: Loan originators must meet character, fitness, and financial responsibility reviews;
- Criminal Background Checks: Loan originators must be screened for felony convictions; and
- Training Requirements: Loan originators are required to undertake training to ensure they have the knowledge about the rules governing the types of loans they originate.
- The final rule also implements Dodd-Frank provisions that, for mortgage and home equity loans, generally prohibit mandatory arbitration of disputes related to mortgage loans and the practice of increasing loan amounts to cover credit insurance premiums.
- Effective Date of New Rule: January 10, 2014 (except that the prohibition on mandatory arbitration and on the financing of credit insurance will take effect in June 1st, 2013).
- More from CFPB (links):
We hope this summary of the 7 CFPB Rules has been helpful. As always, TRUPOINT Partners is here to help. If you have any questions, please don’t hesitate to contact us.