The 4 CFPB Final Rules of the Dodd-Frank Wall Street...

The 4 CFPB Final Rules

of the

Dodd-Frank Wall Street Reform

and Consumer Protection Act

December 2013

Agenda

1. LO Compensation

2. ATR / QM / TQM

3. ECOA & HPML

4. HOEPA & Home Counseling

Agenda

In the 2010 Dodd-Frank Wall Street Reform and Consumer

Protection Act (Dodd-Frank Act aka DFA), Congress

adopted Ability to Repay (ATR) requirements on closed-end

mortgage loans and also established a presumption of

compliance with certain mortgages called Qualified

Mortgages (QM), and other changes affecting the

origination of mortgage loans, such as LO Compensation,

ECOA, HPML, and Home Ownership Counseling.

In January 2013, the CFPB adopted a rule implementing

them with a mandatory effective date of:

January 10, 2014

CFPB Implementation Dates The CFPB has issued the following effective dates:

Subject

1. LO Compensation Rule

Loan Originator Compensation Rule

New LO Comp rules are effective with loan applications taken on or

after January 1, 2014.

In the aftermath of the mortgage crisis, regulators and lawmakers

imposed a number of new requirements concerning loan originator’s

licensing and registration, training, screening, and compensation

practices.

The regulations also implement Dodd-Frank Act (DFA) requirements

concerning LO qualifications that build upon existing requirements

under the Secure and Fair Enforcement for Mortgage Licensing Act

of 2008 (SAFE Act).

Am I A Loan Originator?

Activities of a Loan Originator include:

Taking a loan application

Arranging a credit transaction

Assisting a consumer in applying for credit

Offering or negotiating credit terms

Making an extension of credit

Referring a consumer to a particular loan originator or creditor

Advertising or communicating to the public that you can or will

perform any loan origination services

See commentary to Regulation Z § 1026.36(a) for further info


Activities of a Loan Originator DO NOT include:

A servicer or servicer’s employee, unless you perform LO activities

on replacing an existing obligation with a new debt as listed below:

To avoid application of the LO Comp Rule, do not engage in LO

activities, such as handling a refinance or assisting in adding a

different consumer on an existing debt.

The LO Comp Rule will not apply to the renegotiation or modification

of an existing mortgage.

An employee of a manufactured home retailer who does not take

applications, offer or negotiate terms, or advise consumers on credit

terms.

A seller financer who meets certain requirements of the LO Comp

Rule, under Reg. Z § 1026.36(a)(4) and (5).


Activities of a Loan Originator DO NOT include:

Real estate brokers, who do not receive LO or referral compensation

Management, clerical, and administrative staff

Loan processors

Underwriters

Closers

Other LO Comp Rule Requirements

Prohibition on mandatory arbitration clauses and single premium

credit insurance:

Prohibits the inclusion of clauses requiring the consumer to submit

disputes concerning a residential mortgage loan or HELOC to

arbitration.

Prohibits the financing of any premiums or fees for credit insurance

(such as credit life insurance) in connection with a consumer credit

transaction secured by a dwelling, but allows for credit insurance to

be paid for on a monthly basis.

Loan Documentation Requirements

The following data must be listed on the Note and the Mortgage:

Loan Originator Organization (LOO) company name

Name and NMLS ID of the individual Loan Originator who is primarily

responsible for the transaction

Special Note:

Names of the LOO and LO registered on NMLS must appear on the

documents as they appear on NMLS

The LOO and LOO ID must be on the specified docs when they are

delivered to the borrower to sign and cannot be added post-closing

The LO name and LO ID must also be on the specified docs when

they are delivered to the borrower to sign and cannot be added post-

closing

Subject

2. ATR / QM / TQM Rule

Ability to Repay / Qualified Mortgage

New ATR-QM-TQM rules are effective with loan applications taken

on or after January 10, 2014.

However, in alignment with Fannie Mae DU 9.1 release, the max DTI

and min FICO score for DU Refi+ HPML transactions are effective

with loans submitted to DU after November 16, 2013.

Key Concept: lender has protections from challenge that the loan

was made without regard to the borrower’s ability to pay if at time of

loan closing:

a) lender has determined the borrower is able to repay the loan

using the criteria in the regulation

b) all QM requirements regarding loan terms and characteristics

have been satisfied

Ability to Repay / Qualified Mortgage

What is ATR? - that the lender must make a reasoned

determination that the borrower has the ability to repay the loan; thus

a sound underwriting decision.

If the ATR requirements are not met, the borrower can sue the

lender for money damages or to stop a foreclosure, even in the loan

is then owned by a subsequent purchaser/lender.

The ATR requirement is presumed to be satisfied if the loan is a

“qualified mortgage”

ATR-QM Overview

Applicability:

Primary residence

Second Homes

Investment – if not for business purpose (e.g., borrower intends to

occupy for greater than 14days in the year)

Ineligible Risky Product Features:

Payments with deferred principal

Negative amortization

Interest-only payments

Balloon payment

Terms in excess of 30 years

Irregular payments (except ARMs and Step rate loans)

ATR-QM Overview

Exempt categories:

Open-end credit plans (HELOCs)

Time-share plans

Reverse mortgages

Temporary or bridge loans with terms of 12 months or less

A construction phase of 12 months or less of a construction-to-

permanent loan

Consumer credit transactions secured by vacant land

Exempt types of lenders:

Community Development Financial Institutions

Community Housing Development Organizations

Downpayment Assistance Providers of Secondary Financing

501(c)(3) Nonprofit Organizations that meet specific requirements

ATR-QM Overview

ATR Verifications:

PITI monthly payment, and any payment on simultaneous mortgages

Income, assets and debt obligations including alimony and child

support

Employment

Credit History

DTI max 43% using Appendix Q requirements; and

Points/fees are 3% or less of the total loan amount (cures not

permitted)

Special Note:

The Temporary QM provision allows for a higher DTI% for loans

eligible for sale to the GSEs (must meet Agency investor guidelines

and receive an Approve/Eligible or Accept/Eligible AUS findings

result) and government insurance transactions (including manually

underwritten loans as long as it meets FHA/VA/RHS investor

guidelines)

Currently valid until 2021 or unless GSE’s

provide their own QM rules sooner.

Safe Harbor vs. Rebuttable Presumption

QM Safe Harbor (QM non-HPML loans):

No prohibited terms (no risky loan features)

Does not exceed the point/fees limit

Meets agencies’ guidelines regarding DTI, etc.

QM Rebuttable Presumption (QM HPML loan):

Max DTI 45%

Min FICO 680-740 depending on LTV and transaction type

FHA Streamlines and VA IRRRLs;

Max DTI 50%

3% Points and Fees Limit

The loan must pass the QM Points and Fees Test. Points/Fees are the

same as outlined under the updated HOEPA regulation. However, QM

thresholds differ from the HOEPA regulation. The table below outlines

thresholds for QM Points and Fees:


Points and fees include:

1) Compensation paid to a mortgage broker by a borrower or lender

2) Any origination charges paid by a borrower to the broker or lender

3) LLPA’s that are not included in the interest rate of the loan

4) Discount points that do not lower the interest rate

5) Non-refundable PMI

6) Fees paid to a lender affiliate (e.g., credit reports, appraisals, or

escrow services)

7) All prepayment penalties, including prepayment penalty paid in a

refinance payoff

8) Credit life or similar insurance payable at closing if the lender is the

beneficiary


Points and fees exclude:

1) Prepaid interest charges

2) Govt MI (UFMIP) or VA Funding Fee

3) UFMIP if premium is less than or equal to FHA premium amount

(currently 1.75%) and borrower receives a pro-rated refund upon

early payoff

4) Bona fide 3rd party fees not retained by lender or an affiliate (e.g.,

title exam, title insurance, escrow survey, credit report or appraisal)

5) Bona fide Discount Points

Up to 2 points if interest rate without discount does not exceed the

APOR by more than 1%

1 point if interest rate exceeds APOR by more than 1% but less

than 2%

2% Lender Paid vs. cap example

Loan

Amount $70,000 $110,000 $140,000 $225,000 $275,000

Allowable

Fee $3,000 $3,300 $4,200 $6,750 $8,250

LPC 2%

Comp $1,400 $2,200 $2,800 $4,500 $5,500

UW Fee $895 $895 $895 $895 $895

Affiliated

Title/AMC $175 $175 $175 $175 $175

Remaining

3% $530 $30 $330 $1,180 $1,680

QM

Approved YES YES YES YES YES

2.50% Lender Paid vs. cap example

Loan

Amount $70,000 $110,000 $140,000 $225,000 $275,000

Allowable

Fee $3,000 $3,300 $4,200 $6,750 $8,250

LPC 2.50%

Comp $1,750 $2,750 $3,500 $5,625 $6,875

UW Fee $895 $895 $895 $895 $895

Affiliated

Title/AMC $175 $175 $175 $175 $175

Remaining

3% $180 -$520 -$370 $55 $305

QM

Approved YES NO NO YES YES

Borrower Paid Compensation

PHE Retail LO’s cannot perform Borrower Paid Comp loans.

TPO submitted loans are acceptable up to a max of 2.50%

compensation.

Note: if switching from lender paid comp to borrower paid comp the

TPO origination cannot exceed what was initially disclosed under the

lender paid comp plan disclosure.

Note: PHE does not allow switching from borrower paid comp to

lender paid comp.

Subject

3. ECOA & HPML Valuation Rule

ECOA and HPML

New ECOA Appraisal and Valuation rules are effective with loan

applications taken on or after January 10, 2014.

Covered transactions:

All first liens on dwellings, including closed-end mortgage loans and

open-end loans.

New standards: previously Reg. B required only that lenders provide

copies of appraisals to applicants upon request and notify them of

their right to make a request. The changes to ECOA broaden the

scope to include property valuation and requires lenders to:

Disclose to applicants that they have the right to receive copies of

appraisals and written valuations

Automatically send a free copy of the home appraisal and other

written valuations promptly after the valuation is complete,

regardless of whether credit is extended, denied, incomplete, or

withdrawn.

ECOA and HPML

Special Note: the new ECOA rule applies to all written valuations

(not just appraisals) that the lender develops or obtains in connection

with an application for covered transactions.

Covered transactions:

All first liens on dwellings, including closed-end mortgage loans and

open-end loans.

ECOA and HPML

New HPML Appraisal requirements are effective with applications

taken on or after January 18, 2014.

Current requirements effective June 1, 2013:

Reg. Z defines Higher Priced Mortgage Loans (HPML) as a

mortgage secured by the borrower’s principal dwelling with an

annual percentage rate (APR) that is at least:

1.50% higher than the Average Prime Offered Rate (APOR)

2.50% higher than the APOR for a Jumbo loan (first lien)

As of the rate lock date (with the borrower).

Validation of repayment ability

Verification of income and assets

Establishment of Escrow accounts for taxes and insurance

premiums for a period of 1year after closing

Non-financing of closing costs / points & fees

ARM loans of 7/1 terms or greater

FHA Streamlines and VA IRRRLs require

ATR and income/assets are verified.

ECOA and HPML

NEW requirements effective January 18, 2014:

A full interior appraisal by a certified or licensed appraiser is

required. Note: QM loans are exempted, but TQM are not.

Lender disclosure must provide applicant with a statement that any

appraisal or state of value prepared or obtained for the mortgage is

for the sole use of the lender, and

Applicant may choose to have a separate appraisal conducted at the

applicant’s expense which must be given within three business days

of application (or, it at application was not a HPML, within three

business days of when it becomes a HPML).

ECOA and HPML

A 2nd appraisal is required, by a different non-affiliated appraiser

from the 1st appraisal, if the loan will be used to finance the purchase

of a dwelling and either:

Seller is reselling the property within 90days of acquiring it and the

resale price exceeds the seller’s acquisition price by more than 10%,

OR

Seller is reselling the property within 91 to 180 days of acquiring it

and the resale price exceeds the seller’s acquisition price by more

than 20%.

ECOA and HPML

When a 2nd appraisal is required the following requirements also

apply:

One of the 2 required appraisals must include an analysis of:

Difference between the price the seller acquired the property and the

price the consumer is obligated to pay for the property as outlined in

the Purchase Contract

Changes in market conditions

Any improvements made to the property between date acquired and

resale date

Cost of the 2nd appraisal cannot be charged to the borrower

ECOA and HPML

2nd appraisal exclusions:

A 2nd appraisal is not required when the seller:

Is a local, state or federal government agency or acquired title:

Through Foreclosure or Deed-in-Lieu of Foreclosure when the seller

was the foreclosing holder of the mortgage

By inheritance or through court-ordered dissolution of marriage, civil

union, or domestic partnership, or through the partition of the seller’s

joint or marital assets

From an employer or relocation agency in connection with the

relocation of an employee

From a service member who received deployment or change of

station order after purchasing the property area

Or the property is: (1) located in a disaster area and a regulatory

waiver is issued and available, or (2) located in a defined rural area

Subject

4. HOEPA & Home Counseling

HOEPA & Home Counseling

The new HOEPA Regulations are effective with applications taken

on or after January 10, 2014.

The current HOEPA (Section 32-industry nickname) Reg. Z (12 CFR

1026.32) was enacted in 1994 to address abusive practices in

refinancing of home-equity mortgages with high interest rates or

fees. Loans that meet HOEPA’s high-cost tests are subject to

special disclosure requirements and restrictions on loan terms, and

borrowers in high-cost mortgages have enhanced remedies for

violations of the law.

In 2010, Congress passed the Dodd-Frank Act, which made

changes to the high-cost provisions of the Truth in Lending Act.

Special Note: PHE does not originate Section 32 loans. Rate/fees

must be adjusted under the limits of Reg. Z 12 CFR 1026.32 before

signup of the consumer’s mortgage loan.

Cures are not permitted.


Section 32 loans apply to consumer credit transactions secured by a

consumer’s principal residence. Excluded from coverage are:

Reverse mortgages

Loans to finance the initial construction of a dwelling

Loans originated and financed by a Housing Finance Agency (HFA)

Loans originated through the USDA Rural Development section502

Direct Loan Program

New inclusions: purchase loans, HELOCs, bridge loans

Certification of counseling: a written certification that the consumer

has obtained counseling on the advisability of the mortgage from a

counselor that is approved to provide such counseling by HUD or by

a State housing finance authority.

Homeownership Counseling changes: a lender must provide an

applicant with a list of Homeownership Counseling organizations in

the applicant’s area within three business days after the application

is received.


The HOEPA changes are made to the following thresholds:

APR Test: the annual percentage rate applicable to the transaction

exceeds the Average Prime Offered Rate (APOR) by more than:

1) 6.5% on a 1st lien transaction

2) 8.5% on a 1st lien transaction if the dwelling is personal property

and the loan amount is less than $50,000; or

3) 8.5% on a 2nd lien transaction

Points and Fees Test: the transactions total points and fees

exceed either:

1) 5% of the total loan amount of $20,000 or greater (subject to

change annually); or

2) The lesser of 8% of the total loan amount or $1,000 (subject to

change annually) for a loan amount less than $20,000.

Prepayment Test: loan documents showing a prepayment penalty

more than 36 months after closing, or more than 2% of the amount

prepaid.

Special Note: PHE does not allow

prepayment penalties to be charged.


Scope of the included and excluded fees has changed.

Points and Fees include:

All items required to be disclosed in §1026.4(a) and §1026.4(b);

except for the interest or time-price differential; and any Federal or

State agency guaranty or MI; optional credit insurance of non-

Agency MI payable at or prior to closing (e.g., credit life,

disability, unemployment, property insurance, or other life,

accident, health or loss-of-income insurance if the lender is the

beneficiary; the amount in excess of FHA UFMIP

Less excludable discount points (Bona Fide limits)

All compensation or fees paid by the borrower or lender to a

mortgage broker or its affiliates known at closing

Prepayment penalties charged on a refinance payoff

Prepayment penalties charged on the new loan, if any

HELOCs – participation fees charged at or before account

opening

HELOCs – draw fees charged to the

borrower from the credit line


Special Note: a number of State high-cost loan laws have been

impacted by these HOEPA changes as they use HOEPA definitions;

be sure to know your State laws for which you are licensed to

originate loans.

See attached HOEPA comparison chart describing current

parameters through January 9, 2014 vs. new parameters effective

on January 10, 2014.

QUESTIONS?

Contact the PHE Compliance Committee for questions:

Phone: 615-872-0220 x603

Email: [email protected]

Mail: 5205 Maryland Way, Ste100

Brentwood, TN 37027

mailto:[email protected]

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