Regulation Z Michelle Nuckols, CRCM. financial services

Transcription

1 Regulation Z Michelle Nuckols, CRCM 1

2 Amendments to Regulation Z The CFPB has changed the definition of small creditors, and rural and underserved areas under Regulation Z - January 1, 2016 Expands the definition of small creditor Changes in assets used to calculate the limit Expands the definition of rural areas Provides a grace period for status change Amends current exemption under (b)(2)(iii)(D)(1) Provides additional implementation time Safe harbor provisions 2

3 Amendments to Regulation Z - Small Creditor Loan origination limit for small-creditor status is raised from 500 first-lien mortgage loans to 2,000. This excludes originated loans held in portfolio by the creditor and its affiliates from that limit. 3

4 Amendments to Regulation Z - Small Creditor The current asset limit for small-creditor status would remain the same at $2 billion (adjusted annually) in total assets at the end of the preceding calendar year. However, the assets of the creditor s mortgageoriginating affiliates would be included in calculating whether the creditor is under the limit. 4

5 Amendments to Regulation Z - Small Creditor The definition of rural has been expanded by adding census blocks that are not in an urban area as defined by the Census Bureau to the current county-based definition. 5

6 Amendments to Regulation Z - Small Creditor Provides a grace period for creditors that exceeded the origination limit or asset-size in the preceding calendar year to operate, in certain circumstances, as a small creditor with respect to transactions with applications received before April 1 of the current calendar year. There is a similar grace period for creditors that no longer operate predominantly in rural or underserved areas during the preceding calendar year. 6

7 Amendments to Regulation Z - Small Creditor Amends the current exemption provided to creditors that operate predominantly in rural or underserved areas from the requirement for the establishment of escrow accounts for higher-priced mortgage loans. The final rule ensures that creditors who established escrow accounts solely to comply with the current rule will be eligible for exemption if they meet the expanded definition of small creditors operating predominantly in rural or underserved areas under the rule. 7

8 Amendments to Regulation Z - Small Creditor Extends the current two-year transition period, which allows certain small creditors to make balloon-payment qualified mortgages ( (e)(6)) and balloonpayment high-cost mortgages ( (d)(1)(ii)(C)), regardless of whether they operate predominantly in rural or underserved areas. The transaction period will include covered transactions for which the application was received before April 1, 2016, rather than covered transactions consummated on or before January 10,

9 Helping Expand Lending Practices Act On March 22, 2016, the CFPB issued an Interim Final Rule to implement certain portions of the Helping Expand Lending Practices in Rural Communities Act (HELP Act). Effective March 31, Prior to the January 1, 2016 effective date of the changes to Regulation Z, Congress enacted the HELP Act, which broadens the class of creditors which may be eligible under the TILA for the special provision that permits a qualified mortgage to have a balloon-payment feature and the exemption from the escrow requirement for certain HMPLs under Regulation Z. 9

10 Helping Expand Lending Practices Act The pertinent sections of TILA previously permitted the Bureau to grant the special provision and exemption to certain small creditors that operate predominantly in rural or underserved areas. The HELP Act removed the predominantly requirement from those provisions, giving the Bureau the authority to extend those provisions to certain small creditors who operate in rural or underserved areas, even if they do not operate predominantly in such areas. Effective March 31, 2016, a small creditor may be eligible to rely on those special provisions and exemptions if it originated at least one covered transaction secured by a first lien on the property located in a rural or underserved area in the preceding calendar year. 10

11 Helping Expand Lending Practices Act Application Process a person, including but not limited to a natural person, may submit an application to the CFPB to have a census block or county designated as rural for purposes of Federal consumer financial laws, including eligibility for the balloon-payment special provisions and the escrow exemption. Areas designated as rural through the application procedure is only effective before December 4, Identify the census block or county Provide certain information to support the designation Include certain applicant information 11

12 Regulation Z Adjustable Rate Mortgages 12

13 Adjustable Rate Mortgages Many of the changes we have discussed so far will benefit small community banks. With that said, some community banks will not be able to originate balloon loans and therefore may want to consider adjustable rate mortgages (ARM). 13

14 Adjustable Rate Mortgages Initial Disclosure General Disclosure Requirements If the annual percentage rate may increase after consummation in a transaction secured by the consumer s principal dwelling with a term greater than one year, the following disclosures must be provided at the time an application form is provided or before the consumer pays a non-refundable fee, whichever is earlier. 14

15 Adjustable Rate Mortgages Initial Disclosure Booklet titled Consumer Handbook on Adjustable Rate Mortgages A loan program disclosure for each variable-rate program in which the consumer expressed an interest The fact that the interest rate, payment, or term of the loan can change The index or formula used in making the adjustments, and a source of the information about the index or formula An explanation of how the interest rate and payment will be determined, including an explanation of how the index is adjusted 15

16 Adjustable Rate Mortgages Initial Disclosure A statement that the consumer should ask about the current margin value and current interest rate The fact that the interest rate will be disclosed, and a statement that the consumer should ask about the amount of the interest rate discount The frequency of interest rate and payment changes Any rules relating to changes in the index, interest rate, payment amount, and outstanding loan balance including, for example, an explanation of interest rate or payment limitations, negative amortization, and interest rate carryover. 16

17 Adjustable Rate Mortgages Initial Disclosure At the option of the creditor, either of the following: A historical example, based on a $10,000 loan amount, illustrating how payments and the loan balance would have been affected by interest rate changes The maximum interest rate and payment for a $10,000 loan originated at the initial interest rate (index value plus margin, adjusted by the amount of any discount or premium) in effect as of an identified month and year 17

18 Adjustable Rate Mortgages Initial Disclosure An explanation of how the consumer may calculate the payment for the loan amount to be borrowed based on either: The most recent payment shown in the historical example or The initial interest rate used to calculate the maximum interest rate and payment 18

19 Adjustable Rate Mortgages Subsequent Disclosures Rate adjustments with a corresponding change in payment Creditors must provide consumers with a disclosure in connection with the adjustment of interest rates that results in a corresponding adjustment to the payment. Timing and content the disclosure shall be provided to consumers at least 60, but no more than 120, days before the first payment at the adjusted level is due for ARMs with uniformly scheduled interest rate adjustments occurring every 60 days or more frequently. 19

20 Adjustable Rate Mortgages Subsequent Disclosures Initial rate adjustment Creditors must provide consumers with disclosures in connection with the initial interest rate adjustment. Timing and content the disclosure shall be provided at least 210, but no more than 240, days before the first payment at the adjusted level is due. 20

21 Contact Information Michelle Nuckols, CRCM Senior Manager Dixon Hughes Goodman, LLP