CFPB Issues Proposal to Clarify and Enhance January’s Mortgage Rules

You spoke and the CFPB listened.

Earlier this week, the Consumer Financial Protection Bureau (CFPB) released a proposal that lays out numerous clarifications to the January 2013 mortgage rules. The rules take effect in January 2014. The proposal aims to find a middle ground between growing compliance concerns of lenders and consumer protection proponents. No mortgage rule is left untouched by these changes; however, the severity of the changes ranges from small, technical corrections to substantial revisions and clarifications.

“We are still combing through all of the changes made, but there are a few that boldly stand out,” said David Curtis, director of compliance services for the Northwest Credit Union Association (NWCUA). Those changes include:

Mortgage Servicing Rule

Loss Mitigation Applications: January’s final rule included requirements detailing how a lender should handle the loss mitigation application process. The rule included requirements for acknowledging the application, providing a list of additional documents needed, and the timelines in which the process must be completed. The proposed rule clarifies how a servicer should handle a situation where a loss-mitigation application is received but is deemed incomplete or if the application is deemed complete but later determined that more information is necessary. The proposed rule does give some flexibility for the lender to work with the borrower if it seems that certain time requirements cannot be met due to the discovery of additional documentation that is needed. The proposal also ensures that the borrower does not lose certain rights under the rule, including a foreclosure ban during the first 120 days.

Short-term forbearance: Lenders reacted to the loss mitigation requirements with justified confusion regarding short-term forbearance plans. The CFPB recognized that many lenders use short-term forbearance plans to help borrowers that find themselves in a difficult financial position that may only be temporary. The proposal clarifies a short-term forbearance plan as a delay of payments over a period of 2 months, regardless of when the delayed payments have to be made up by the borrower. The CFPB does clarify that borrowers would not lose their ability to file a loss-mitigation application and would lose none of the protections guaranteed under the rule.

Ability-to-repay/Qualified Mortgage Rule

Rural or underserved areas: The CFPB announced that it plans to review the definitions of rural and underserved counties. While this is occurring, the CFPB does not want small creditors to limit their lending for fear of losing their rural/underserved lender status. The proposal would allow a small creditor to retain their rural/underserved status if they qualified in any of the three previous calendar years. Additionally, the proposal would allow certain small creditors to make certain high-cost mortgages featuring balloon payments who do not meet the definition of predominately operating in a rural or underserved area, as long as the loans meet certain requirements.

Mortgage Loan Originators

The proposed rule seeks to clarify the definition of a loan originator so that tellers and other administrative staff can still provide the member service required for the position without having to register as a loan originator because they were unintentionally looped into this definition.

The proposal would also change the effective date for certain provisions of the mortgage loan originator rule. The CFPB believes that changing the effective date from January 10, 2014 to January 1, 2014 would help financial institutions avoid having to create an irregular accounting period from January 1 – January 9, 2014 since the old rules would still be in place through January 9.

Financing of credit insurance premiums- The proposal helps clarify what the CFPB considers financing of credit insurance premiums and when premiums are considered to be calculated and paid on a monthly basis.

The proposed rule does address a lot of questions and concerns voiced by credit unions in the Northwest.

“While most of the rules issued in January remain unchanged, the clarifications and revisions to the final rules will help credit unions better understand their compliance requirements and hopefully make implementation of the new rules a tiny bit easier,” said Curtis.

Comments on the proposed rule are due by July 22, 2013. The final rule can be viewed on the CFPB’s website.

 

Questions? Contact the Compliance Hotline: 1.800.546.4465, compliance@nwcua.org.

Posted in Compliance.