2013 Federation Annual Conference

Mortgage Compliance

Presented by:

Keith Rhodes-Director of Education and Training

West Virginia Credit Union League

In 2013 there have already been 3,500 pages of mortgage regulations from the CFPB

How did this all start?

2008 – Mortgage Crisis

2010 - Dodd-Frank Act

2011 - CFPB

Statutory objectives of CFPB

To ensure that consumers have timely and understandable information to make responsible decisions about financial transactions;

To protect consumers from unfair, deceptive, or abusive acts or practices, and from discrimination;

To reduce outdated, unnecessary, or overly burdensome regulations;

To promote fair competition by enforcing the Federal consumer financial laws consistently; and

To advance markets for consumer financial products and services that operate transparently and efficiently to facilitate access and innovation.

CFPB’s JurisdictionAlternative Mortgage Transaction Parity Act of 1982

Consumer Leasing Act of 1976Electronic Fund Transfer ActEqual Credit Opportunity ActFair Credit Billing ActFair Credit Reporting ActHome Owners Protection Act of 1998Fair Debt Collection Practices ActFederal Deposit Insurance ActGramm-Leach-Bliley Act

Home Mortgage Disclosure ActHome Ownership and Equity Protection Act of 1994Real Estate Settlement and Procedures Act of 1974S.A.F.E. Mortgage Licensing Act of 2008Truth in Lending ActTruth in Savings ActOmnibus Appropriations ActInterstate Land Sales Full Disclosure Act

CFPB Mortgage Rules

Ability to Repay (ATR) and Qualified Mortgage (QM) Rule Effective Jan. 10, 2014 The rule applies to closed-end loans

secured by a dwelling except: HELOCs Timeshares Reverse mortgages Temporary or bridge loan (term 12 months or

less) Construction phase of construction to

permanent

Ability to Repay (ATR)

Must make a reasonable and good faith determination that the consumer has the ATR using the eight factors

The ATR will depend on the creditor’s standards and how they are applied to each individual’s facts and circumstances

Ability to Repay (ATR) Factors1. Current income or assets;2. Current employment status;3. Credit history;4. The monthly payment of the mortgage;5. The monthly payment on any other loans associated

with the property;6. The monthly payment for other mortgage related

obligations (such as property taxes);7. Other debt obligations; and8. The monthly debt-to-income ratio or residual income

the borrower would be taking on with the mortgage

Qualified Mortgage

Includes product and underwriting guidelines/restrictions

Compliance standard differs if the QM is higher-pricedNot higher-priced = safe harborHigher-priced = presumption

Higher-priced mortgage loan

Defined as a covered transaction with an APR that exceeds the average prime offer rate for a comparable transaction as of the date the interest rate is set by 1.5 or more percentage points for a first-lien covered transaction, or by 3.5 or more percentage points for a subordinate-lien transaction

Qualified Mortgage

A QM must generally provide for regular periodic payments that are substantially equal.

A QM may not have the following features:

Negative amortization Interest-only paymentsBalloon paymentsA term exceeding 30 yearsPoints and fees in excess of rule limits

QM Points and Fees

Different thresholds for points and fees depending on loan amount.

Maximum: If loan amount is greater than or equal to $100,000, then points and fees cannot exceed 3% of the total loan amount

Minimum: If loan amount is less than $12,500, then points and fees cannot exceed 8% of the total loan amount

QM Underwriting

Periodic payment Verification of current or reasonably

expected income or assets Verification of current debt obligations,

alimony, and child support Debt-to-income ratio not to exceed

43%

Ok, this only one new mortgage regulation with more to come…

CFPB: Upcoming Mortgage Regulations

Mortgage Servicing (Reg X & Reg Z) - nine provisions

High Cost Mortgages Homeownership Counseling Escrow Reg B Appraisal Reg Z Appraisal Loan Originator Compensation

CFPB's “Small Servicer” Exemption” Small Servicer = a creditor (and its affiliates) that

originated 500 or fewer first lien covered transactions in the preceding calendar year AND had total assets of less than $2 Billion

So what is a “Small Servicer” and what are they exempted from? A credit union that services 500 or fewer mortgage loans where it is the creditor or assignee will be exempt from certain (not all) of the requirements of CFPB’s new mortgage servicing regulation.

CFPB's “Small Servicer” Exemption”1. Even if a credit union qualifies for the

small servicer exemption, it may retain liability for compliance with the rule if it is using a sub-servicer that does not qualify for the exemption

If a credit union use a sub-servicer, NCUA’s regulations require the institution to conduct sufficient due diligence to determine that the third-party servicer is compliant with the new servicing rules.

CFPB's “Small Servicer” Exemption”2. The exemption applies only to some

aspects of the servicing rule. Significant portions apply to all mortgage servicers.

All credit unions servicing mortgages must adopt new standards for error resolution and information requests, comply with new restrictions on forced-placed hazard insurance, credit payments promptly, comply with new restrictions on starting foreclosure procedures, and provide new interest-rate change notices with adjustable-rate mortgages.

CFPB's “Small Servicer” Exemption”3. Beware the inevitable regulatory creep that may

require small servicers to adopt the entire mortgage servicing rule despite the exemption. Credit union regulators at the state and federal level will still examine the servicing policies and procedures for all credit unions servicing mortgages regardless of whether they qualify as small servicers.

NCUA and state regulators may end up requiring de facto compliance with all of the servicing rule provisions as the means for small servicers to demonstrate the safety and soundness of their mortgage servicing portfolios.

Feeling Overwhelmed!!!

Compliance Best Practices 1. View CFPB’s website for compliance information 2. Form an in-house credit union team that meets regularly

regarding compliance3. Involve credit union management 4. Hold your third party vendors accountable 5. Stay informed through CUNA and your State

League/Association for compliance assistance 6. Review all policies and procedures regularly7. Establish a timetable with achievable deadlines – for

upcoming compliance regulations and stick to it8. Share compliance resources with other credit unions9. YouTube, yes I said YouTube!http://www.youtube.com/watch?v=wxsKnoFzSYI

Thank-You!!

QUESTIONS