Consumer Financial Protection Bureau Proposes Two Major Mortgage Rules
July 10, 2012
July 10, 2012
The Consumer Financial Protection Bureau (CFPB) proposed two rules this week. The first proposal is the culmination of more than a year’s worth of work testing and revising mortgage disclosure forms. The second proposal expands the protections given members who enter into “high-cost” mortgage loans.
The new mortgage disclosure forms are designed to be easier to use. The CFPB hopes they will help consumers make informed decisions when shopping for a mortgage. According to a press release issued by the CFPB, the new forms are designed to provide transparency in the mortgage market and will give consumers greater power over the process of buying a home.
One further aim of the newly redesigned forms is to consolidate the disclosures consumers receive. The new mortgage forms will replace the old forms required by Truth in Lending and the Real Estate Settlement Procedures Act (RESPA). The CFPB has designed the new “Loan Estimate” and “Closing Disclosure” forms to present the costs and risks of the loan in clearer terms. The forms are written in plain language and are in an extensively tested format.
Finally, these rules also propose a change to the definition of a finance charge that the CFPB is calling “more inclusive.” The Northwest Credit Union Association (NWCUA) will be taking a close look at this proposal.
Comments are due in to the CFPB on the definition of a finance charge by Sept. 7. The remainder of the comments is due on Nov. 6.
Under the CFPB’s proposal, the definition of a high-cost mortgage will be expanded, and members who end up in a high-cost mortgage will have more protections. This proposal implements changes made to the Home Owner Equity Protection Act (HOEPA) by the Dodd-Frank Act. Included in HOEPA protections would be purchase money loans, refinances, home equity loans, and home equity lines of credit. Reverse mortgages will still be exempt.
A loan will fall under HOEPA protections if the APR on the loan exceeds the average prime offer rate by 6.5 percent for a first position loan and 8.5 percent on a second position loan; the loan has fees and points exceeding 5 percent of the total transaction amount; or the loan has a prepayment penalty that extends beyond 36 months after loan consummation (or penalties exceed 2 percent of the amount prepaid).
Once a loan qualifies for HOEPA protection, several requirements are triggered. Most balloon payments are prohibited, late fees would be capped, members will need to receive counseling before taking out such a mortgage, credit unions could not charge fees for payoff statements or loan modifications, and much, much more.
Comments on this proposal are due in to the CFPB by Sept. 7, 2012.
Questions? Contact the Compliance Hotline: 1.800.546.4465, email@example.com.