Source: http://nafcucomplianceblog.typepad.com/nafcu_weblog/hoepa/
Timestamp: 2017-04-27 12:57:35
Document Index: 370305019

Matched Legal Cases: ['§ 1026', '§ 1026', '§ 760', '§ 760', '§226', '§226', '§226', '§ 226', '§ 226', '§ 226', '§ 226', '§ 226', '§ 226', '§ 226', '§ 226', '§ 226', '§ 226']

NAFCU Compliance Blog: HOEPA NAFCU Compliance Blog
Kat Cuoco on Should Credit Unions Photocopy Identification Cards? HOEPA
On Monday, the CFPB finalized amendments to its definition of small creditors and rural or underserved areas under Regulation Z. The final rule goes into effect on January 1, 2016 and while the rule may provide some credit unions with regulatory relief, there are some concerns relating to the rule’s treatment of affiliate assets (i.e. CUSOs). Here is a high-level overview of the rule.
Small Creditors. First, keep in mind that there are three provisions in Regulation Z which contain exemptions for small creditors:
the higher-priced mortgage loan (HPML) escrow requirement which contains an exemption for small creditors. This rule also houses the definition of “small creditor;” and
the high-cost mortgage rule, which exempts small creditors from a prohibition against balloon payment features on these kinds of loans;
the ability to repay/qualified mortgage (ATR/QM) rule which permits small creditors to make certain portfolio and balloon payment QMs.
Currently, under section 1026.35(b), to qualify for “small creditor” status, a credit union must meet a four-part test. The final rule amends the first three parts, here is a summary of the amended test:
Total Annual Mortgage Originations: A credit union and its affiliates that “regularly extended” first lien mortgage loans (CUSOs, for example) must have originated 2,000 or fewer first lien mortgage loans in the preceding calendar year. However, portfolio loans will now be excluded (increased from 500 first lien mortgage loans with no exclusion for portfolio loans);
Asset Size Threshold: The credit union and its “affiliates that regularly extended” first lien mortgage loans must have a combined asset size that is less than $2.060 billion (note this figure adjusts annually) at the end of the preceding calendar year (the existing rule does not include affiliates’ assets in this calculation);
Predominately in Rural or Underserved Areas: In the preceding year (or preceding two years for applications received before April 1) must have originated more than 50 percent of its first lien mortgages in counties that are determined to be "rural" or "underserved." This is not technically changing, but the definition of “rural or underserved” will be more granular, as discussed below;
Do Not Currently Escrow for Mortgage Loans: Even if a credit union meets these three requirements, the credit union (or its CUSO) will not qualify for the HPML escrow rule's small creditor exemption where the credit union regularly establishes escrow accounts for its mortgage loans (this provision is not changing).
While the CFPB acknowledged concerns relating to CUSOs with regard to the asset size threshold calculation, the bureau declined to adopt any carve out that acknowledges that credit unions and CUSOs are distinct from the kinds of affiliate and subsidiary relationships that other kinds of financial institutions utilize. Here’s an excerpt from page 34 of the rule’s Preamble:
“While credit unions in their comments expressed concern about the impact of the proposal on credit unions affiliated with CUSOs, under the proposal only the assets of affiliates that regularly extended covered transactions are counted toward the creditor’s asset limit. As adopted under the Bureau’s final rule, therefore, only the assets of CUSOs that meet the definition of affiliate in Regulation Z (meeting the “control” test under the Bank Holding Company Act) and that regularly extend covered transactions during the applicable period will be counted toward the asset limit. The Bureau is not excluding CUSOs from possible treatment as affiliates because it remains concerned that a credit union could, under the current asset limit calculation, enter into a relationship with a CUSO or CUSOs to create a large entity that would be eligible for the special provisions and exemptions accorded small creditor status. The Bureau also notes that § 1026.32(b)(5) and its definition of “affiliate” references the Bank Holding Company Act only for the purposes of how control is determined under that Act, which is applicable to the determination of affiliate under Regulation Z regardless of the applicability of the Act to credit unions.”
Rural or Underserved Areas. For a credit union to be deemed a small creditor, in the preceding calendar year, the credit union must have originated more than 50 percent of its first lien mortgages in counties that are determined to be "rural" or "underserved." The final rule, among other things, amends the rural definition by substituting the word "area" for "counties" in the current rule. This change would include all census blocks in order to account for additional communities that are rural by Census standards. To put this into perspective, there are only about 3,000 counties in the US, but 11 million different census blocks that are designated as either “urban” or “rural.” The final rule takes a more granular approach than the existing standard. It is also worth noting that the final rule changes the current three year look back period used to determine whether the rural and underserved test is met to a one year look back.
Again, this is a high-level summary, there are more nuances to these changes that are worth reviewing in full. For more details on this final rule, NAFCU will provide members with a Final Regulation summarizing the changes in the next couple of weeks.
Posted by NAFCU on September 23, 2015 in HOEPA, Mortgage Reform - HOEPA/High-Cost, Mortgage Reform - Qualified Mortgages | Permalink
The CFPB is required to annually adjust certain threshold amounts within various rules based on inflation. Last week, the bureau published a final rule implementing a few of these adjustments under the CARD Act, HOEPA and TILA. The rule modifies the credit card penalty fee safe harbor, the HOEPA total loan amount and fee trigger thresholds, and the loan amounts for specific points and fees limits under Regulation Z’s qualified mortgage rule.
CARD Act Penalty Fees Safe Harbor. Under Section 1026.52(b) of Regulation Z, fees on credit card accounts must generally be based on costs, but the rule contains safe harbor amounts that are considered compliant. Effective January 1, 2015, the safe harbor penalty fees will increase by one dollar. The new safe harbor for a member’s first late payment will be $27 and $38 for subsequent late payments within the same six month period.
HOEPA Annual Threshold and Fee Trigger Adjustments. Under Section 1026.32, whether a mortgage is considered high-cost depends on the annual percentage rate, with different thresholds for different loan amounts. Effective January 1, 2015, a loan that is $20,391 or above will be a high-cost mortgage if the loan’s points and fees exceed 5% of the total loan amount. A loan will also be high-cost if its points and fees exceed the lesser of 8% of the loan amount or $1,020 for loans for less than $20,391. Here is an excerpt from the final rule:
“Effective January 1, 2015, for purposes of determining the total loan amount threshold that determines whether a transaction is a high cost mortgage when the points and fees are either 5 percent or 8 percent is $20,391. Comment 32(a)(1)(ii)-3, which lists the adjustments for each year, is amended to reflect the new dollar threshold amount for 2015.
Effective January 1, 2015, for purposes of determining whether a consumer credit transaction that is secured by a consumer’s principal dwelling and is not otherwise exempt is covered by § 1026.32 (based on the total points and fees payable by the consumer at consummation), a loan is covered if the points and fees exceed $1,020 or 8 percent of the total loan amount, whichever is lower. Comment 32(a)(1)(ii)-1, which lists the adjustments for each year, is amended to reflect the new dollar threshold amount for 2015.”
Ability to Repay and Qualified Mortgage (QM) Annual Threshold Adjustments. Finally, the bureau’s rule also changes the loan amounts subject to the various points and fees limits to meet the requirements of a QM. Here is the excerpt from the rule:
“Effective January 1, 2015, for purposes of determining whether a covered transaction is a qualified mortgage, a covered transaction is not a qualified mortgage unless the transaction’s total points and fees do not exceed 3 percent of the total loan amount for a loan amount greater than or equal to $101,953; $3,059 for a loan amount greater than or equal to $61,172 but less than $101,953; 5 percent of the total loan amount for loans greater than or equal to $20,391 but less than $61,172 ; $1,020 for a loan amount greater than or equal to $12,744 but less than $20,391 , and 8 percent of the total loan amount for loans less than $12,744. Comment 43(e)(3)(ii)-1, which lists the adjustments for each year, is amended to reflect the new dollar threshold amounts for 2015.” (Emphasis added.)
Remember, none of these changes go into effect until January 1, 2015 but it is good to make a note of it now.
NAFCU's 2014 Credit Union Compliance GPS is still available. This comprehensive, electronic resource translates complex regulatory language into plain English. The latest edition includes improved user-friendly search functions, including more hyperlinks and bookmarks and much more. You can purchase a copy for your credit union here!
Posted by NAFCU on August 20, 2014 in HOEPA, Reg Z | Permalink
The Federal Credit Union - Compliance Central; Extended Early-Bird Pricing for Mortgage Webcast
The latest issue of NAFCU's The Federal Credit Union (TFCU) is now available. Included in each issue is a Compliance Central article that might be useful to pass along to your management team and Board. We usually try to identify issues that are coming up next and highlight areas of potential concern. In this month's issue we've looked at the Upcoming Regulatory Changes to the Mortgage Market. In the article, I examine the CFPB's mortgage servicing proposals as well as their high-cost/HOEPA proposal. Again, these are meant as higher-level overviews of the regulatory environment. If you'll indulge me, I'll quote myself:
"Dodd-Frank and More
Many of the CFPB’s proposed changes are mandated by the
Dodd-Frank Act. For example, Dodd-Frank requires the CFPB to amend the
thresholds for determining whether a mortgage loan is high-cost or not. However,
the CFPB is also proposing numerous additional requirements that are not
mandated by Dodd-Frank. In the majority
of cases, the CFPB is proposing that all mortgage servicers or lenders comply
with these additional requirements. NAFCU has urged the CFPB to focus solely on
the changes required by Dodd-Frank and conduct additional due diligence —
including reviewing whether exemptions are appropriate for credit unions —
before finalizing any non-Dodd-Frank requirements on credit unions."
The article goes on to provide an overview of the mortgage servicing and high-cost/HOEPA proposal - including an analysis of the potential change to the definition of "finance charge" and how this would impact credit unions:
"For example, the CFPB is required to amend the annual
percentage rate (APR) threshold for determining high-cost loan status. While
this change seems innocuous, the CFPB has also proposed amending the definition
of “finance charge,” which would have a direct impact on the high-cost APR
threshold test. If the CFPB finalizes its proposed changes to the definition of
finance charge, the APR on credit union mortgage loans would drastically
increase and could result in numerous loans being classified as high cost. The CFPB has proposed softening the impact of its proposed
action by creating a new metric — the transaction coverage rate (TCR) — that
credit unions would need to calculate to determine whether or not a particular
mortgage loan is high cost. The CFPB claims this additional metric would
decrease the compliance burden on credit unions. However, the opposite is more
likely as credit unions would need to calculate the new APR for disclosure
purposes and the new TCR for determining whether a loan is considered high
cost. To make things more confusing, the new APR would only apply to closed-end
mortgages. Credit unions would still need to use the “old APR” for all other loans,
such as closed-end auto loans. Thus, contrary to the CFPB’s claims, it’s clear the
ongoing regulatory burden from the proposed three calculations would be an increase
from the one calculation under the current regulations."
You can find the full article here. The full issue of the TFCU is here. Or, via PDF if you prefer. ***
Extended Early-Bird Pricing. We've extended the deadline for registering for our November 7th webcast (next Wednesday!) on the CFPB's Latest Mortgage Proposals. Register today (November 2nd) to Save $100! Have a great weekend!
Posted by NAFCU on November 02, 2012 in CFPB, Dodd-Frank, HOEPA, RegFlex, RESPA | Permalink
CFPB Proposes (1) TILA/RESPA Combined Disclosures & (2) HOEPA Changes
The First Shoe. Well - the initial mortgage proposals from Dodd-Frank are out. The initial verdict: 1099 pages and 293 pages. And, keep in mind that this is only the beginning. There are numerous other mortgage proposals required by Dodd-Frank that will be proposed soon (and finalized within a short period of time after that).
Today's post will not attempt to provide an overview of the two proposals (we'll do that in our webcast tomorrow). Instead, we'll link to various documents and information released by the CFPB yesterday. Director Cordray's Speech - No Más: Restoring Trust in Home-buying
CFPB's Press Release - CFPB Proposes "Know Before You Owe "Mortgage Forms
CFPB's July 5th Blog Post - Preparing for New Mortgage Disclosures: A Look Back at Know Before You Owe
CFPB's July 6th Blog Post - Know Before You Owe: How We Learned to Build a Better Mortgage Disclosure
CFPB's July 9th Blog Post - Know Before You Owe: Introducing our Proposed Mortgage Disclosure Forms
CFPB's 5-Page Mortgage Fact Sheet - Restoring Trust in the Mortgage Market
TILA/RESPA Disclosure Proposed Rule (1099 Pages)
HOEPA/High-Cost Mortgage Loans Proposed Rule (293 Pages)
CFPB's Know Before You Owe webpage with resources and additional information. Quite a day for the Consumer Financial Protection Bureau. It is probably a good thing the CFPB doesn't have a Board and doesn't hold public meetings prior to proposing regulations - who has the time anyway when there is so much regulating that needs to be done??
No Más. Director's Cordray's speech didn't hold back when it came time to summarize the existing mortgage market:
"I am here today to say about the mortgage market: “No Más.” No more costs and risks buried in the fine print that do not become clear until it is too late. No more mortgages designed to fail – mortgages that benefit originators but not borrowers. No more last-minute shocks at the closing table that leave consumers stuck with fees they did not know about or plan for. And no more costly surprises and runarounds by mortgage servicers that leave people with nowhere to turn when they need help the most."
The CFPB's Fact Sheet carries this theme as well as it highlights future changes to (1) Shopping for a Mortgage; (2) Closing on a Mortgage; and (3) Paying Off a Mortgage. ***
Regulatory Burden is in the Details. Not surprising, the CFPB's press release and blog posts do not mention the current and future burden that is placed on financial institutions trying to understand and comply with these future changes. Unfortunately, while just reading through the proposals themselves seem like a momentous task - the actual regulatory burden is in the details as credit unions and other mortgage lenders will need to alter almost every aspect of their mortgage lending practices. Oh, and retrain all their staff. Posted by NAFCU on July 10, 2012 in CFPB, Dodd-Frank, HOEPA, Reg Z, Regulatory Burden | Permalink
Fed Guidance on HPMLs, "Balloons" and Ability to Repay
Earlier this week, the Fed issued a nice guidance document to clear some confusion on higher priced mortgage loans that centered on balloon loans and verifying the borrower's ability to repay. Access the guidance here. Before the guidance, many concluded that HPMLs with short-term balloons (less than 7 years) were a no-no. The Fed clarifies that this isn't the case.
I'd keep an eye out for this type of guidance moving forward. With virtually every aspect of Reg Z being amended, the Fed will have to clarify issues that pop up. And many will. I'd bet on it.
Here's the Q and A portion of the guidance:
1. Question: Does the rule prohibit short-term balloon loans that are higher-priced mortgage loans?
Answer: No. However, the creditor must use prudent underwriting standards and, after considering consumers’ income, employment, obligations and assets other than the collateral, the creditor should determine that the value of the collateral (the home) is not the basis for repaying the obligation (including the balloon payment).
2. Question: Does that mean the creditor must verify that the consumer has assets and/or income at the time of consummation that would be sufficient to pay the balloon payment when it comes due?
Answer: No, such a requirement would effectively ban short-term balloon loans. If the Board had intended to ban these products it would have done so explicitly.
3. Question: What must the creditor do, then, to verify the borrower’s ability to repay a short-term balloon loan?
Answer: In addition to verifying the consumer’s ability to make regular monthly payments, a creditor should verify that the consumer would likely be able to satisfy the balloon payment obligation by refinancing the loan or through income or assets other than the collateral.
4. Question: How does the creditor verify, when it originates a short-term balloon loan, whether the consumer could qualify for a refinancing before the balloon payment is due?
Answer: The creditor has an affirmative duty to engage in prudent underwriting. Thus, the creditor should consider factors such as the loan-to-value ratio and the borrower’s debt-to-income ratio or residual income—all as of the time of consummation. A borrower with a high debt-to-income ratio, and/or with little or no equity in the property, will be less likely to be able to refinance the loan before the balloon payment comes due than a borrower with lower debt-to-income and loan-to-value ratios. The creditor is not required to predict the consumer’s future financial circumstances, interest rate environment, and home value.
Posted by NAFCU on November 12, 2009 in HOEPA, Reg Z | Permalink
Escrow for Flood Insurance; Dividends on Escrow Accounts?
Posted by Steve Van BeekThe new higher-priced mortgage requirements under HOEPA require the escrowing of taxes and mortgage insurance for loans secured by a first lien on a principal dwelling. This blog post discusses this requirement. Reminder: the deadline is April 1, 2010 (or October 1, 2010 for manufactured homes). So what does this have to do with flood insurance? NCUA's regulations require credit unions that escrow for taxes and mortgage insurance to also escrow for flood insurance:"§ 760.5 Escrow requirement.If a credit union requires the escrow of taxes, insurance premiums, fees, or any other charges for a loan secured by residential improved real estate or a mobile home that is made, increased, extended, or renewed on or after November 1, 1996, the credit union shall also require the escrow of all premiums and fees for any flood insurance required under § 760.3. The credit union, or a servicer acting on behalf of the credit union, shall deposit the flood insurance premiums on behalf of the borrower in an escrow account. This escrow account will be subject to escrow requirements adopted pursuant to section 10 of the Real Estate Settlement Procedures Act of 1974 (12 U.S.C. 2609) (RESPA), which generally limits the amount that may be maintained in escrow accounts for certain types of loans and requires escrow account statements for those accounts, only if the loan is otherwise subject to RESPA. Following receipt of a notice from the Director of FEMA or other provider of flood insurance that premiums are due, the credit union, or a servicer acting on behalf of the credit union, shall pay the amount owed to the insurance provider from the escrow account by the date when such premiums are due."Note that the section says "if a credit union requires the escrow." Could you argue that it is not the credit union requiring escrow but, rather, HOEPA which requires the credit union to escrow? I'm not so sure. In practice, the credit union would require escrowing of taxes and mortgage insurance to comply with HOEPA and, therefore, would need to escrow for flood insurance as well.Thanks to Katey from Chevron FCU for bringing this to our attention. ***The new HOEPA requirements will result in some credit unions escrowing for the first time which will bring some new challenges. One of them is state law that attempts to require escrow accounts to pay interest (or dividends). Do federal credit unions have to pay dividends on escrow accounts? NCUA says that these state laws are preempted as they attempt to regulate the setting of dividends (an explicit power granted to the FCU Board under the Federal Credit Union Act). Here is another NCUA opinion from 1991 on a Wisconsin state law.
Posted by NAFCU on September 14, 2009 in Flood Insurance, HOEPA, Preemption | Permalink
HOEPA - Section 226.36: No-nos related to principal dwellings; NCUA Chairwoman Speaks on CARD Act Compliance
I HOEPA you enjoyed this overview. Today, we've come to the last "new" provision in the HOEPA rulemaking: 226.36. This section has a title that just rolls off the tongue: Prohibited acts or practices in connection with credit secured by a consumer’s principal dwelling. While the title will not win marketing awards, it is fairly accurate. And note: the requirements below do not apply to HELOCs.
Broker defined. 226.36(a) defines the term "mortgage broker." The definition excludes an employee of the creditor. Coercion of appraisers. 226.36(b) addresses practices that will constitute impermissible coercion of appraisers for consumer credit transactions secured by a consumer's principal dwelling. This sort of closes the loop on appraisals. The HVCC only applied to Fannie/Freddie transactions, and some of the anti-coercion guidance on appraisals was just that - guidance. Now, such practices are a violation of Regulation Z. This section lists a number of examples of impermissible coercion, such as implying to an appraiser that current or future work depends on the value of an appraisal. But it also gives a number of examples that are not impermissible coercion, such as asking an appraiser to consider additional information about the basis for a valuation.
In addition, this section states that a creditor may not extend credit secured by a consumer's principal dwelling if it is aware of impermissible coercion in relation to the appraisal. There is an exception to this; if the creditor acts with reasonable diligence to determine that the appraisal does not misrepresent the value of the dwelling, then all is hunky-dory.
Servicing requirements. Section 226.36(c) places new requirements on loan servicers, which often are the creditors themselves. You may see a trend here: these requirements apply to loans that are secured by a consumers principal dwelling. Servicers must credit payments when they are received. If you provide specific instructions for payments that are not followed, and you accept the payment, you can credit it no more than 5 days after it is received. Servicers cannot pyramid late fees, and they cannot refuse to provide an accurate payoff statement within a reasonable time of receiving such a request. What is a reasonable amount of time? The Fed doesn't say for sure, but it states that 5 days would be reasonable. Or in other words, a safe harbor.
As always, there are additional details lurking within the Official Staff Interpretation section of the regulation.
On Friday, new NCUA Chairwoman Deborah Matz issued a statement regarding CARD ACT Compliance for credit unions.
..We understand some credit unions may experience difficulties complying with the requirement of the Credit CARD Act and the Federal Reserve Board’s interim rule regarding the mailing of periodic statements. The amount of time necessary to come into full compliance will likely vary, depending on the type of credit arrangements a credit union offers its members and, in many cases, the cooperation of third party vendors in revising billing procedures and statements. All credit unions are expected to come into full compliance as early as reasonably possible, and to demonstrate their efforts to do so. In the interim, credit unions should follow the alternative allowed by the Federal Reserve. Like any regulatory compliance matter, examiners will review credit union efforts to achieve compliance. In no event can credit unions impose a late fee or change terms except as permitted by the Credit CARD Act and the Federal Reserve’s regulation. (Emphasis added.)
OK, it is a Monday, and we're still slogging through Regulation Z. With that in mind, enjoy the following photo that I took of my son recently. It never fails to crack me up. How he finds this pose comfortable is beyond my understanding. Let's have a great week, everyone!
Posted by NAFCU on August 31, 2009 in HOEPA | Permalink
HOEPA - Section 226.35 - Higher-Priced Mortgage Loans - Cont'd
Posted by Steve Van BeekYesterday's blog posting discussed the creation of the new "higher-priced mortgage loans" category, and today we will take a look at some of the restrictions and requirements that come with that special category of loans.Higher-priced mortgages will be under the following restrictions:Repayment Ability. Higher-priced mortgage loans will be subject to the same repayment ability requirement that "Section 32" loans - which Sarah discussed earlier this week. The key is to realize that Section 226.35(b)(1) simply indicates that credit unions must verify repayment ability as provided in 12 C.F.R. 226.34(a)(4). So, refer to that section when looking for how to determine repayment ability (including the very, very useful official staff commentary).Prepayment Penalties. As you are aware, FCUs are already prohibited from charging prepayment penalties. However, if you are a state-chartered credit union - be sure to analyze these restrictions:"(2) Prepayment penalties. A loan may not include a penalty described by §226.32(d)(6) unless:(i) The penalty is otherwise permitted by law, including §226.32(d)(7) if the loan is a mortgage transaction described in §226.32(a); and(ii) Under the terms of the loan—(A) The penalty will not apply after the two-year period following consummation;(B) The penalty will not apply if the source of the prepayment funds is a refinancing by the creditor or an affiliate of the creditor; and(C) The amount of the periodic payment of principal or interest or both may not change during the four-year period following consummation."A key here is to realize that these restrictions - which had already applied to "Section 32" mortgages - have been strengthened. Be sure you review any prepayment penalties your credit union may offer to make sure it will still be allowed when the stronger requirements go into place after October 1, 2009.Escrow Requirement. This requirement applies to loans secured by a first lien on a principal dwelling. In short, credit unions will not be able to extend a higher-priced mortgage loan unless they escrow for for property taxes and mortgage-related insurance. Mortgage-related insurance includes "insurance against loss of or damage to property, or against liability arising out of the ownership or use of the property, or insurance protecting the creditor against the consumer's default or other credit loss." This blog post contains a link to a great resource from the Philadelphia Federal Reserve Bank on escrow requirements.Compliance Dates. The escrow requirement has an effective date of April 1, 2010. Loans secured by manufactured houses have an extended deadline of October 1, 2010.Cancellation. The credit union can allow the member to cancel the escrow account only if one year has passed from consummation of the mortgage and the member submits a dated, written request to cancel the escrow account. Keep in mind that the request to cancel must come from the member and can not be signed at consummation to apply in the future. Rather, the written request must be signed, dated and submitted by the member after the one year period has expired.Again, this escrow requirement applies to higher-priced mortgage loans secured by a first lien on a principal dwelling. Footnote 99 to the Final Rule (page 42 of the PDF) reiterates the definition of dwelling for Regulation Z:"99 Regulation Z currently defines a dwelling to include manufactured housing. See § 226.2(a)(19). Official staff commentary § 226.2(a)(19) states that mobile homes, boats and trailers are dwellings if they are in fact used as residences; § 226.2(b) clarifies that the definition of ‘‘dwelling’’ includes any residential structure, whether or not it is real property under state law; §§ 226.15(a)(1)–5 and 226.23(a)(1)–3 make clear that a dwelling may include structures that are considered personal property under state laws (e.g., mobile home, trailer or houseboat) and draws no distinction between personal property loans and real property loans. "The official staff commentary includes similar language:"35(b)(3) Escrows. Paragraph 35(b)(3)(i). 1. Section 226.35(b)(3) applies to principal dwellings, including structures that are classified as personal property under state law. For example, an escrow account must be established on a higher-priced mortgage loan secured by a first-lien on a mobile home, boat or a trailer used as the consumer’s principal dwelling. See the commentary under §§ 226.2(a)(19), 226.2(a)(24), 226.15 and 226.23. Section 226.35(b)(3) also applies to higher-priced mortgage loans secured by a first lien on a condominium or a cooperative unit if it is in fact used as principal residence."Limited Exemptions for Cooperatives and certain Condominium units. Escrow accounts do not need to be established for loans secured by shares in a cooperative. For loans secured by condominium units, the exemption is smaller - it only excludes the requirement to escrow for mortgage-related insurance premiums if the condominium association has an obligation to maintain a master policy insuring condominium units. However, even if this exception applies there is still a requirement to establish an escrow account for property taxes.Have a great weekend!
Posted by NAFCU on August 28, 2009 in HOEPA, Reg Z | Permalink
HOEPA - Section 226.34, Prohibited Acts or Practices for Section 32 Loans
This amendment to section 226.34 strengthens the requirement to verify repayment ability for "section 32" mortgage loans (it does not apply to temporary or bridge loans that do not extend beyond 12 months). What are Section 32 loans? These are the traditional HOEPA high-cost loans. They are referred to as section 32 loans because the definition of and requirements for these loans are found in section 226.32 of Reg Z.
The new rule provides that a credit union may not extend a Section 32 loan to a consumer based on the value of the consumer’s collateral without regard to the consumer’s repayment ability as of consummation, including the consumer’s current and reasonably expected income, employment, assets other than the collateral, current obligations, and mortgage-related obligations.
Current obligations include other loans, that the credit union has knowledge of, that are entered into at or around the same time as the current transaction and are secured by the same dwelling (i.e., piggy-back loans). Mortgage related obligations include property taxes, premiums for mortgage-related insurance, and similar expenses such as homeowners/condo dues. Repayment Ability
The credit union must verify the amounts of income/assets that you rely on by IRS W-2 forms, tax returns, payroll receipts, financial institution records, or other documents that provide reasonable reliable evidence. The credit union must also verify the consumer's current obligations, and this can be done by reviewing a credit report.
There is a get-out-of-jail-free card of sorts - if the credit union didn't verify income and assets, it will not be considered in violation of this provision if it can demonstrate that the income and assets it relied upon were not materially greater than the consumer's actual income and assets. Here's an example from the Staff Commentary:
"For example, if a creditor determines a consumer's repayment ability by relying on the consumer's annual income of $40,000 but fails to obtain documentation of that amount before extending the credit, the creditor will not have violated this section if the creditor later obtains evidence that would satisfy Sec. 226.34(a)(4)(ii)(A), such as tax return information, showing that the creditor could have documented, at the time the loan was consummated, that the consumer had an annual income not materially less than $40,000."
A credit union is presumed to comply with these requirements if it verifies the consumer's repayment ability as mentioned above, determines the consumer's repayment ability using the largest payment of principal and interest scheduled in the first 7 years of the loan, taking into account current obligations and mortage-related obligations, and assesses the consumer's repayment ability taking into account at least one of the following: the ratio of total debt obligations to income; or the income the consumer will have after paying debt obligations. Notwithstanding the above, there is no presumption of compliance for loans where the regular periodic payments for the first 7 years would cause the princpal balance to increase, or the term of the loan is less than 7 years and the regular periodic payments do not fully amortize the outstanding principal balance.
I know I go on and on about the Staff Commentary (I really am a fan), but again, the Fed provides great tidbits in there, including examples of how to determine the maximum scheduled payment in the first 7 years of the loan.
Tomorrow is Section 226.35, which incorporates these rules for higher-priced mortgage loans.
Posted by NAFCU on August 26, 2009 in HOEPA | Permalink
HOEPA: Section 226.32 (Prepayment penalties)
On to section 226.32. The HOEPA amendments added a new protection for "section 32" mortgages. But this new protection shouldn't be that big of a deal. It says that unless you fit within the exception outlined in 226.32(d)(7), you won't be able to charge a prepayment penalty on a mortgage subject to 226.32 (as determined by fees or the loan's interest rate). That's old news to us. FCUs, as an industry, can't charge prepayment penalties. The prohibition is outlined in the Federal Credit Union Act.
Worth noting: Some federal credit unions waive closing costs on their mortgages. But if the member pays off that mortgage within 2 years, they seek to recoup those fees. Is that a prepayment penalty? NCUA says no.
Here are a few other things to chew on:
NCUA recently issued Letter to Credit Unions 09-CU-17. The letter gives everyone a "heads up" that on September 1, 2009, NCUA is moving toward web-based system to collect Report of Officials and 5300 Call Report information. NCUA conducted a webinar to explain the changes, which you can access from the guidance noted above. They plan to offer 3 more webinars on the subject in the next few months On September 18, 2009, the NACHA IAT era will begin. The Fed is offering IAT transaction testing until September 11, 2009 for its FedACH customers. If you are one of those customers, you may want to take advantage. Each year, the Fed's annual report documents how banks and thrifts are complying with consumer regs. It lists the most common compliance boo-boos in many areas. Shari Pogach has written an article highlighting the report, and the article can serve as a simple auditing tool to judge whether you have made similar mistakes in your shop. NAFCU members can access the article here. Posted by NAFCU on August 25, 2009 in HOEPA | Permalink
HOEPA: 226.24 - Closed-End Advertising
Sure, HOEPA was designed to place a ton of protections on "higher-priced" mortgage loans. But the new regulations will create quite of few new consumer protections that affect many other loans. The new regulations add a number of requirements to Regulation Z's closed-end advertising rules. In the Fed's own words..." The three most significant aspects of the (rule) related to strengthening the clear and conspicuous standard for advertising disclosures, regulating the disclosure of rates and payments in advertisements to ensure that low promotional or ‘‘teaser’’ rates or payments are not given undue emphasis, and prohibiting certain acts or practices in advertisements."
The Federal Reserve overviewof the HOEPA changes does a great job of highlighting the new rules. Rather than recreate the rule, here's what they had to say.
Under the new rules, advertisements for home-secured loans may include only the simple annual interest rate, or the rate at which interest will accrue, along with and not more conspicuously than the disclosed APR. In addition, if an advertisement for a dwelling-secured loan includes a simple annual interest rate, such as a teaser rate, and more than one rate may apply during the loan's term, the advertisement must include: each simple annual rate of interest that will apply; the time period for which the rate will apply; and the loan's APR. If an advertisement for a dwelling-secured loan states any payment amount, the advertisement must include: the amount of each payment that will apply during the loan's term, including any balloon payment; the period of time each payment will apply; and the fact that the payments do not include taxes and insurance premiums if a first-lien loan. The additional disclosures discussed above must be equally prominent and in close proximity to the advertised payment or rate that triggered the required disclosures. Prohibited Advertising Practices. The final rule prohibits a number of advertising practices for dwelling-secured loans deemed to be unfair, deceptive, associated with abusive lending practices, or otherwise not in the borrower's interest. These prohibited practices are: using the term “fixed” when advertising a variable- rate loan or a transaction with a planned payment increase without including information about the time period for which the rate or payment is fixed and stating “ARM,” if applicable; comparing the advertised rate or payment to an actual or hypothetical rate or payment without disclosing the rates or payments that will apply during the entire loan's term, and that they do not include taxes and insurance, if applicable; misrepresenting that a loan is government endorsed; using the name of the borrower's current lender without including the actual advertiser's name and disclosing that the current lender is not associated with the advertisement; making a misleading claim that debt will be eliminated or waived rather than replaced; using the term “counselor” to refer to a for-profit mortgage broker or creditor; and providing an advertisement in one language while providing required disclosures in another. I find it amazing that the Fed felt the need to regulate away some of these practices. But just the other night, I saw an ad that did a number of these things. The ad showed a clip of President Obama talking about the need for affordable mortgages. Then the ad jumped into the marketing of the lender's mortgage product. The false implication was more than clear. And then the ad stated that depending on the value of the home, you could eliminate credit card debt. Note: the ad was at 2:30 in the morning while I was feeding Briggs. But still. Posted by NAFCU on August 24, 2009 in HOEPA | Permalink
HOEPA - Sections 226.17 .19; This and that
I'll handle these two sections rather quickly. As I mentioned earlier, the Fed first issued their HOEPA regulations in 2008. But then Congress passed MDIA, which overtook the HOEPA regs in several areas. Well, the overlapped areas affect the two sections noted above in this post's title.
Sections 226.17 (general disclosure requirements) and .19 (certain mortgage and variable rate transactions) were amended by the Fed in 2008, but were superseded by the MDIA amendments to Reg Z. When you begin working toward compliance for HOEPA, remember this important distinction. The FDIC created thisgreat side-by-side chart that details how MDIA widened and strengthened the disclosure requirements.
With all the important compliance work we're going to have to do, I didn't want you heading down alleyways that are no longer relevant.
Here are a few things kicking around my in-box.
Prescreened offers are important. Just ask this mortgage company that forgot to include the all-important prescreen opt-out notice. A mistake that cost them $20,000. NCUA issued a legal opinion recently offering guidance to a credit union that was trying to offer loan servicing and collection services to a non-profit entity. It is an interesting read, as it brings up a credit union's charitable donation powers in a way that had not occurred to me. The letter also offers guidance relating to nonmember services and CUSOs. FinCEN issued a ruling to issue guidance on this situation: what do you do when four customers/members get together to have an armored car service to deliver cash to your institution in amounts greater than $10,000? Well, I won't answer that question, because it is fairly complicated - and the ruling does a good job of walking you through the process. But here's a great idea for training: ask a group of tellers how they would treat the transaction, and see if the come up with the same answer as FinCEN. (Just don't tell them that it was my idea.) The OCC has issued an updated version of its "Other Consumer Protection Laws and and Regulations. While not every reg in the massive document apply to federal credit unions, many do. And there are audit checklists for each one. Two words for this, my friends. Good stuff. Have a great weekend, everyone.
Posted by NAFCU on August 21, 2009 in BSA, HOEPA, MDIA | Permalink
HOEPA - 226.16
Although most of the HOEPA provisions apply to closed-end loans, the final rule did tweak advertising rules for HELOCs. The major changes to Section 226.16 relate to the clear and conspicuous standard, the advertisement of promotional terms, and the advertisement of initial discounted and premium rates. As Anthony mentioned, these rules apply for advertisements that occur on or after October 1, 2009.
Promotional Rates and PaymentsIf a HELOC advertisement includes a promotional rate or payment amount, the advertisement must also include:
1. the period of time during which the promotional rate or payment will apply (the promotional period); and 2. information about the rate or payment that will apply after the promotional period. These must be listed in a clear and conspicuous manner with equal prominence and in close proximity to each listing of the promotional rate or payment.
A promotional rate is defined as a rate, in a variable rate plan, that is not based on the index and margin that will be used later in the plan, if that rate is less than a reasonably current APR that would be in effect under the index and margin.
A promotional payment is defined, for a variable-rate plan, as a payment applicable for a promotional period that is not derived by applying the index and margin, and is less than other minimum payments under the plan derived by applying a reasonably current index and margin, given an assumed balance. For a non-variable-rate plan, the promotional payment is any minimum payment applicable for a promotional period if that payment is less than other payments required under the plan given an assumed balance.
Initial Discounted and Premium RatesFirst of all, what’s the difference between a discounted/premium rate and a promotional rate? The rule limits discounted/premium rates to initial rates (so, a promotional rate could occur anytime throughout the loan). Also, a promotional rate is a rate that is not based on the index or margin that will be used later only if that promotional rate is less than a reasonably current APR that would be in effect under the index and margin. A discounted/premium rate is an initial rate that is not based on the index and margin to be used later, period. Got that? Ok…
Under the rule, if an advertisement states a discounted or premium rate, it must also state the amount of time the rate will be in effect, and a reasonably current APR that would be in effect using the index and margin. Again, these must be stated with equal prominence and in close proximity to the advertised discounted or premium rate.
Television and Radio AdsThe final rule provides alternative disclosure options for radio and television HELOC advertisements that contain trigger terms. A radio/television HELOC ad that contains a trigger term may comply with the disclosure rules by providing APR information and a toll-free telephone number (or any number that allows the consumer to reverse charges) along with a reference that the consumer may call to obtain additional cost information. Tomorrow we’ll go through the clear and conspicuous standards, which help to explain what “equal prominence and in close proximity” mean, along with some other amendments to the HELOC advertising rules.
Posted by NAFCU on August 19, 2009 in HOEPA | Permalink
HOEPA - 226.2; A little of this, a little of that
When navigating a new regulatory requirement, do not overlook definitions. With the Reg Z changes that implement HOEPA, there was a tweak of the definition of "business day." This is important because the HOEPA changes create new requirements for early disclosures. The final HOEPA rule was designed to expand upon Regulation Z's requirements to require early TILA disclosures for certain mortgage loans. In addition, a new requirement will prohibit a lender or any person from collecting a fee, other than a credit report fee, from a borrower until after the borrower has received the early TILA disclosures. For mailed disclosures, the lender may assume that the disclosures have been received three business days after mailing and assess a fee at that time. Does this sound familiar? It should. MDIA did the same thing. Only sooner. If you recall, after the Fed issued the HOEPA regs that we are discussing, Congress passed the Mortgage Disclosures Improvements Act, which pushed up (and expanded) some of the HOEPA requirements. If it sounds confusing, it is. But here's the point I am trying to make: when MDIA or HOEPA talks about days or business days, be sure you understand what they mean. Because it can mean two things, depending on the situation. Under the standard definition, a business day means a day on which the creditor’s offices are open to the public for carrying on substantially all of its business functions. However, for purposes of rescission under §§ 226.15 and 226.23, and for purposes of § 226.31, a ‘‘business day’’ means all calendar days except Sundays and specified legal public holidays.The definition of ‘‘business day’’ is being revised to apply the second definition of business day to the consumer’s receipt of early mortgage loan disclosures under § 226.19(a)(1)(ii). The Board believes that the definition of business day that excludes Sundays and legal public holidays is more appropriate because consumers should not be presumed to have received disclosures in the mail on a day on which there is no mail delivery.
So, as you work through the HOEPA (and review MDIA) requirements, don't forget to note that business day has a very specific meaning. The devil is in the details, or definition section, many times.
You may have noticed already, but the NAFCU Compliance Blog has surpassed 1,000 subscribers. Did you hear that sound? It was us patting ourselves on the back. :) All kidding aside, we have a lot of fun with this, and we appreciate that you choose to read what we have to say. NAFCU's August Flash Report is available. (NAFCU log-in needed.) Many folks do not know that NAFCU has a team of economists that do a BUNCH of stuff. One of the things they do is issue a monthly Flash Report, which summarizes the results of a member survey. The August issue, linked above, looks at regulatory burden. From a compliance perspective, it is fairly interesting. For example...(a)lmost all participating credit unions said that they would expect their regulatory burden to increase should the June 30th proposal for a consumer finance protection agency come into effect. The rough estimate respondents stated of their credit union’s annual regulatory costs due to a duplicate agency was an average of $45,120. Remember when I wrote about how GAO wasn't overly pleased with how fair lending regs are being enforced? Well, on August 4, the FFIEC did release new fair lending exam procedures. I would glance through this doc if you are in lending. Posted by NAFCU on August 18, 2009 in HOEPA, Lending, Reg Z | Permalink
HOEPA Overview - Intro and 226.1; RESPA FAQs
HOEPA. Compliance deadline: October 1, 2009. Overview. The mortgage crisis continues to throw curve balls at compliance officers. Using its existing powers under the Home Ownership and Equity Protection Act (HOEPA), the Fed amended Regulation Z to create a slew of consumer protections in the area of mortgage lending. And while many refer to this as the "higher priced mortgage" regulation, there are provisions that affect all dwelling-secured loans. First, there's one area of confusion that I want to clear up. These regulations do create a category of loans, known as "higher-priced" loans. Many of the restrictions within the new changes affect these loans. (But not all.) Regulation Z already has an existing category of HOEPA loans, known as "Section 32 loans." Don't get these confused. Here's how the Fed explains the distinction:
Distinguishing New Higher-Priced Loans From Existing HOEPA LoansMany of the key provisions of the rule relates to higher-priced loans, a new category of mortgage loans within Regulation Z containing expanded consumer protections. This new loan category should not be confused with existing HOEPA loans, often referred to as “section 32” loans. Higher-priced loans have lower triggers than HOEPA loans and therefore encompass more loans. In addition, the rule for higher-priced loans applies to purchase money mortgages, which are excluded from HOEPA's coverage. But like HOEPA, the final rule for higher-priced loans excludes home equity lines of credit (HELOCs) and construction and reverse mortgage loans. The final rule also prohibits lenders from structuring a closed-end higher-priced loan as an open-end line of credit to evade the rule's protections. The rule for HOEPA loans remains in effect, albeit with some enhancements. Next, I think it would be good to share some resources on the upcoming requirements.
Here's a link to the actual regulation itself. Here's a link to a wonderful overview produced by the Philadelphia Fed. Here's a link to NAFCU's Final Regulation on the changes. (NAFCU Member Log-in needed.)
In addition, this Wednesday, NAFCU will host a webcast that will address HOEPA requirements.
I'd read the overview first or our Regulatory Final. This will give you a good foundation. Then you can dive into the rule itself for tough issues. Now, let's get started.
The changes amend many sections of Regulation Z. Today, we'll focus on section 226.1. The section covers "Authority, purpose, coverage, organization, enforcement, and liability." Never overlook these sections when reviewing regs. They can hold important information.
The HOEPA changes amend paragraph (d)(5) within 226.1 as follows:
Subpart E contains special rules for mortgage transactions. Section 226.32 requires certain disclosures and provides limitations for loans that have rates and fees above specified amounts. Section 226.33 requires disclosures, including the total annual loan cost rate, for reverse mortgage transactions. Section 226.34 prohibits specific acts and practices in connection with mortgage transactions that are subject to § 226.32. Section 226.35 prohibits specific acts and practices in connection with higher-priced mortgage loans, as defined in § 226.35(a). Section 226.36 prohibits specific acts and practices in connection with credit secured by a consumer’s principal dwelling.
The staff commentary for the section does the following:
Makes it clear that the requirements apply to covered loans where applications are received on or after October 1, 2010. Makes it clear that the rules apply to refinances and assumptions considered new transactions under 226.20. Notes that the rules for mandatory escrow for certain covered loans kicks in on April 1, 2010. But mandatory escrow for covered manufactured loans kicks in October 1, 2010. We'll tackle the escrow issue later. It also notes that for advertising, requirements apply to ads occurring on or after October 1, 2009. But interestingly, it notes that a radio advertisement, for example, occur on the day it they are "first broadcast." And that would make sense. Perhaps advertisements are scheduled to air for months. Forcing folks to plan ahead to make advertisements comply with future requirements would effectively move up the compliance date.
Tomorrow, we'll tackle 226.2, definitions.
HUD has dropped its FAQ document that is designed to help compliance with the upcoming RESPA changes. It was announced as HUD's "first release," so hopefully, there will be more.
Posted by NAFCU on August 17, 2009 in HOEPA, RESPA | Permalink