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  • Special Alert: CFPB Proposes Amendments To Mortgage Rules

    Lending

    On April 30, the Consumer Financial Protection Bureau (CFPB or Bureau) proposed targeted amendments to the Dodd-Frank Act mortgage rules that took effect in January 2014. Comments are due 30 days after publication of the proposal in the Federal Register.

    Ability-to-Repay/Qualified Mortgage

    • Points and fees cure. The CFPB proposed a post-consummation cure mechanism for loans that are originated with the good faith expectation of qualified mortgage (QM) status but exceed the points and fees limit for QMs. Specifically, the Bureau’s proposal would allow the loan to retain QM status if the excess points and fees are refunded to the borrower within 120 days after consummation by the creditor or assignee.

      In proposing this amendment, the Bureau acknowledged that “[t]he calculation of points and fees is complex and can involve the exercise of judgment that may lead to inadvertent errors.” The Bureau further acknowledged that “some creditors may not originate, and some secondary market participants may not purchase, mortgage loans that are near the [QM] limits on points and fees because of concern that the limits may be inadvertently exceeded at the time of consummation.” As a result, creditors seeking to originate QMs may establish buffers to avoid exceeding the points and fees limit and “refuse to extend mortgage credit to consumers whose loans would exceed the buffer threshold, either due to the creditors’ concerns about the potential liability attending loans originated under the general ability-to-repay standard or the risk of repurchase demands from the secondary market if the qualified mortgage points and fees limit is later found to have been exceeded.” The Bureau expressed concern that such buffers would negatively affect the cost and availability of credit.

    • Debt-to-income cure. The Bureau did not propose a cure for loans that inadvertently exceed the 43% debt-to-income ratio (DTI) requirement for QMs made under Appendix Q. The Bureau did, however, request comment on the question, noting concerns that creditors may establish DTI buffers that would affect access to credit. For a DTI cure provision to be considered, the Bureau stated that “creditors would need to maintain and follow policies and procedures of post-consummation review of loans to restructure them and refund amounts as necessary to bring the debt-to-income ratio within the 43-percent limit.” However, the Bureau expressed skepticism that creditors could realistically meet such a requirement.

      The Bureau stated that it would also consider allowing creditors or assignees to correct DTI overages that result solely from errors in documentation of debt or income. However, the Bureau expressed concern that such a process might lead to post-consummation underwriting and requested comment on “whether or how a debt-to-income cure or correction provision might be exploited by unscrupulous creditors to undermine consumer protections and undercut incentives for strict compliance efforts by creditors or assignees.”

    • Non-profit small creditor exemption. The CFPB proposed to amend the exemption for non-profit lenders that make 200 or fewer dwelling-secured loans in a year to exclude from that limit certain interest-free, contingent subordinate liens commonly offered by affordable homeownership programs.
    • Other small creditor exemptions. The Bureau requested feedback and data from smaller creditors regarding the 500 loan limit on first lien mortgages for “small creditor” status, the implementation of the Dodd-Frank Act mortgage rules by small creditors, and how small creditors’ origination activities have changed in light of the new rules.

    Mortgage Servicing

    • Non-profit small servicer exemption. The CFPB proposed to provide an alternative definition of “small servicer,” that would apply to certain non-profit entities that service for a fee loans on behalf of other non-profit chapters of the same organization that do not fall within the Bank Holding Company Act definition of “affiliate.” Adoption of the proposal would exempt these entities would be exempt from the Regulation Z periodic statement requirements as well as certain provisions in Regulation X regarding force-placed insurance, servicing policies and procedures, and loss mitigation.

    Additional Amendments

    The CFPB also stated that it expects to issue additional proposals to address other topics relating to the Dodd-Frank Act mortgage rules, including the definition of “rural and underserved” for purposes of certain mortgage provisions affecting small creditors.

     

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    Questions regarding the matters discussed in the Alert may be directed to any of our lawyers listed below, or to any other BuckleySandler attorney with whom you have consulted in the past.

     

    CFPB Mortgage Origination Mortgage Servicing Qualified Mortgage Ability To Repay Loss Mitigation

  • VA Issues Statement On ATR/QM Rule

    Lending

    On January 9, the Department of Veterans Affairs (VA) issued Circular 26-14-1, which clarifies lender requirements for home loans guaranteed by the VA under the TILA and the CFPB’s Ability to Repay and Qualified Mortgage (ATR/QM) rule. Given that the CFPB’s ATR/QM rule took effect on January 10, 2014, and the VA has not yet finalized its own ATR/QM requirements for VA-guaranteed loans, the circular states that all lenders must comply with the requirements of TILA, as established by CFPB’s ATR/QM Rule. Further, all loans made in compliance with existing VA requirements will continue to be guaranteed by VA, regardless of their QM status. The VA expects to publish its ATR/QM rule in the “near future.”

    CFPB TILA Mortgage Origination Qualified Mortgage Department of Veterans Affairs

  • Special Alert: HUD Adopts Its Own QM Rule

    Lending

    On December 11, 2013, the Department of Housing and Urban Development (“HUD”) issued a final rule defining what constitutes a “qualified mortgage” (“QM”) for purposes of loans insured by the Federal Housing Administration (“FHA”). With limited clarifications and adjustments, the rule tracks the proposal issued by HUD in September.  This final rule, which applies to all case numbers assigned on or after January 10, 2014, replaces the temporary QM definition for FHA loans established by the Consumer Financial Protection Bureau (“CFPB” or “Bureau”) in its Ability-to-Repay/Qualified Mortgage Rule (“ATR/QM Rule”).

    Loans that qualify as QMs provide lenders with some legal protection against borrower lawsuits under the Truth in Lending Act (“TILA”) alleging the lender did not sufficiently consider the borrower’s ability to repay the loan.  Under HUD’s final rule, most FHA loans will qualify for the QM safe harbor if they have Annual Percentage Rates (“APRs”) that are no more than 2.5 percentage points over the Average Prime Offer Rate (“APOR”) for a comparable transaction (as opposed 1.5 percentage points over APOR in the CFPB’s ATR/QM Rule).

    Questions regarding the matters discussed in this Alert may be directed to any of our lawyers listed below, or to any other BuckleySandler attorney with whom you have consulted in the past.

     

    CFPB Mortgage Origination HUD FHA Qualified Mortgage

  • Prudential Regulators Address Impact Of QM Lending On CRA Ratings

    Lending

    On December 13, the Federal Reserve Board, the FDIC, the OCC, and the NCUA issued an interagency statement to clarify safety and soundness expectations and CRA considerations in light of the CFPB’s ability-to-repay/qualified mortgage rule. The statement emphasizes that institutions may originate both QM and non-QM loans based on their business strategies and risk appetites and that residential mortgage loans “will not be subject to safety-and-soundness criticism based solely on their status as QMs or non-QMs.” Acknowledging that some institutions may choose to originate only or predominantly QM loans, the agencies state that, consistent with recent guidance concerning the fair lending implications of QM-only lending, “the agencies that conduct CRA evaluations do not anticipate that institutions’ decision[s] to originate only QMs, absent other factors, would adversely affect their CRA evaluations.”

    FDIC CFPB Federal Reserve OCC NCUA CRA Qualified Mortgage Agency Rule-Making & Guidance

  • HUD Finalizes QM Rule, Manual Underwriting Standards

    Lending

    On December 11, HUD issued a final rule defining what constitutes a “qualified mortgage” (QM) for purposes of loans insured by the FHA. The final rule largely adopts HUD’s proposal, which was the subject of our October 2013 Special Alert. The final rule clarifies certain aspects of the HUD proposal.  Among other things, it replaces provision in a CFPB’s QM rule that allows consumers to rebut the presumption of compliance based on residual income, with a provision that the consumer show that the creditor failed to underwrite consistent with HUD requirements. With the final rule, HUD also adopted new underwriting standards. The effective date for the underwriting standards will be set by a future Mortgagee Letter, but will be no earlier than March 11, 2014.

    CFPB Mortgage Origination HUD FHA Qualified Mortgage Agency Rule-Making & Guidance

  • Unofficial Transcripts Of CFPB Webinars On Mortgage Rules

    Lending

    In an effort to address outstanding questions regarding the new mortgage rules that are scheduled to take effect in January 2014, CFPB staff provided non-binding, informal guidance in two webinars hosted by the Mortgage Bankers Association. Specifically, CFPB staff answered questions regarding the mortgage servicing rules on October 16, 2013 and questions regarding the mortgage origination rules (including the Ability-to-Repay/Qualified Mortgage and Loan Originator Compensation rules) on October 17, 2013.

    The CFPB staff’s slides presenting the questions addressed during the webinars and the audio recordings of their responses are available through the MBA’s Compliance Resource Center. BuckleySandler has prepared transcripts of the servicing and mortgage origination webinars that incorporate the CFPB’s slides. These transcripts are provided for informational purposes only and do not constitute legal opinions, interpretations, or advice by BuckleySandler. The transcripts were prepared from the audio recordings provided by the MBA and may have minor inaccuracies due to sound quality. In addition, the transcripts have not been reviewed by the CFPB for accuracy or completeness.

    Questions regarding the matters discussed in the webinars or the rules themselves may be directed to any of our lawyers listed below, or to any other BuckleySandler attorney with whom you have consulted in the past. Additional information about the CFPB mortgage rules is available in our CFPB Resource Center.

     

    CFPB Mortgage Origination Mortgage Servicing Qualified Mortgage

  • CFPB Director Discusses Mortgage Rule Implementation And Enforcement Against Individuals

    Consumer Finance

    On October 23, CFPB Director Richard Cordray briefly spoke with the Reuters Washington Summit about the Bureau’s rulemaking and enforcement work.

    Upcoming Effective Dates for Mortgage Rules

    According to the report, Cordray stated that he was confident most mortgage lenders would be able to comply with the new mortgage rules by the January 2014 effective dates. "Everybody's had plenty of time to see this coming," Cordray said. However, he added that the Bureau would take into consideration that some smaller firms would need more time to fully comply. "What we're looking for come January 10 is that they've made good-faith efforts to come into substantial compliance with the rules," he said.

    Enforcement Actions Against Individuals

    Corday also stated that the Bureau would continue to take enforcement action against individual officers and employees, as well as banks and other entities. "I've always felt strongly that you can't only go after companies. Companies run through individuals, and individuals need to know that they're at risk when they do bad things under the umbrella of a company," Cordray said.

    The CFPB already has pursued individuals in several civil litigation matters. For example, the CFPB has named individuals in actions to enforce Section 8 of RESPA, including a lawsuit announced just this week against principals of a law firm. In July, the CFPB announced an enforcement action against a Utah-based mortgage company and two of its officers for giving bonuses to loan officers who allegedly steered consumers into mortgages with higher interest rates.

    CFPB Mortgage Origination Mortgage Servicing Compliance Enforcement Qualified Mortgage

  • Freddie Mac and Fannie Mae Provide Additional Guidance Regarding CFPB ATR/QM Rule

    Lending

    On October 1, Freddie Mac issued an industry letter and Fannie Mae issued Lender Letter LL-2013-07 to provide additional information regarding Freddie Mac’s and Fannie Mae’s new purchase eligibility requirements based on the CFPB’s final ability-to-repay/qualified mortgage (ATR/QM) rule. The letters inform sellers that, during an initial transitional period, the enterprises will not make any changes to their quality control processes and will not, except under certain circumstances, issue any repurchase requests related to the new points and fees eligibility requirements. The letters remind sellers that they must comply with all applicable laws regarding points and fees, including state laws and regulations that may be more restrictive than the CFPB ATR/QM rule, and withdraws prior guidance regarding excessive points and fees. Finally, the letters advise sellers that while Freddie Mac and Fannie Mae are not at this time requiring any additional documentation, sellers should retain all materials that might be necessary to demonstrate compliance with the new eligibility requirements.

    Freddie Mac Fannie Mae Mortgage Origination Qualified Mortgage

  • Special Alert: HUD Proposes Its Own QM Rule

    Lending

    On September 27, HUD released a proposal defining what constitutes a “qualified mortgage” (QM) for purposes of loans insured by the FHA. We have prepared a Special Alert regarding this proposal, which, once it is finalized and takes effect, will replace the temporary QM definition for FHA loans established by the CFPB in its January 2013 Ability-to-Repay/Qualified Mortgage Rule. QMs, when made in accordance with the applicable requirements, provide lenders with some legal protection against borrower lawsuits under TILA alleging the lender did not sufficiently consider the borrower’s ability to repay the loan.

    The CFPB’s temporary QM definition will continue to apply to loans that are eligible to be guaranteed or insured by the Department of Veterans Affairs and the Department of Agriculture until those agencies establish their own QM definitions. Similarly, the CFPB’s temporary QM definition will continue to apply to loans that are eligible to be purchased or guaranteed by Fannie Mae, Freddie Mac, or any successor entity for as long as those entities remain under the conservatorship or receivership of the Federal Housing Finance Authority or until January 10, 2021, whichever is earlier.

    Questions regarding the matters discussed in the Special Alert may be directed to any of our lawyers listed below, or to any other BuckleySandler attorney with whom you have consulted in the past.

    CFPB Mortgage Origination HUD Compliance FHA Qualified Mortgage

  • CFPB Releases QM Compliance Chart for Small Creditors

    Lending

    On September 24, the CFPB released an additional mortgage rule implementation resource, entitled the Small Creditor Qualified Mortgages Flowchart. The flowchart walks small creditors through a series of questions to help those institutions determine the types of qualified mortgages they can originate. The chart is included on the CFPB’s broader mortgage rule implementation resources website.

    CFPB Compliance Community Banks Qualified Mortgage

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