DODD-FRANK. November 14, 2012 SPONSORED BY MORTGAGE BANKERS OF THE BLUEGRASS

Transcription

1 DODD-FRANK November 14, 2012 SPONSORED BY MORTGAGE BANKERS OF THE BLUEGRASS

2 Agenda Objectives Dodd Frank Overview CFPB Mission and Initiatives Pending Legislation - Qualified Mortgages (QM) - Qualified Residential Mortgages (QRM) Additional Resources Page 1

3 OBJECTIVES Develop a basic understanding of Dodd-Frank, the CFPB and pending legislation regarding key mortgage issues The financial crisis of called for changes in the regulatory system. In 2009 President Obama introduced a proposal for a sweeping overhaul of the United States financial regulatory system, a transformation on a scale not seen since the reforms that followed the Great Depression In 2009 a series of proposed bills were introduced in the House. On December 2, 2009, revised versions were introduced in the House by Committee Chairman, Barney Frank, and the Senate Banking Committee Chair Chris Dodd. Due to the involvement of Dodd and Frank the bill was named after them. Signed into Law July 21, 2010, the final bill contained 2315 pages, 243 Rules. As of November 1, regulators have missed 61% of their deadlines for implementation. Page 2

4 DODD-FRANK OVERVIEW-Title XIV The stated aim of the legislation is: o to promote the financial stability of the United States by improving accountability and transparency in the financial system, to end too big to fail banks, to protect the American taxpayer by ending bailouts, to protect consumers from abusive financial services practices, and for other purposes. Sample of Regulations Implemented since inception: o Creation of the Consumer Financial Protection Bureau (CFPB) o Establishment of regulation of investment advisors to hedge funds Extensive requirements concerning mortgage originator compensation. Residential Mortgage Originator(RMO)-may not receive compensation that varies based on the term of the loan, other than the principal amount. The RMO can only receive payment from the consumer. o S.A.F.E., Mortgage Licensing Act Federal Registration of Residential Loan Originators. Just to name a few. Page 3

5 CONSUMER FINANCIAL PROTECTION BUREAU (CFPB) MISSION & INITIATIVES Mission - The Consumer Financial Protection Bureau (CFPB) is a 21 st century agency that helps consumer finance markets work by making rules more effective, by consistently and fairly enforcing those rules and by empowering consumers to take more control over their economic lives. Initiatives - Large bank supervision program - Prevention of predatory, discriminatory and deceptive lending practices - Establishment of consumer feedback programs - Ban or regulate arbitration regarding consumer initiated litigation related to unfair practices - Significant mortgage servicing reforms - Establish an ability to pay (QM) rule to minimize the origination of unsustainable mortgage loans - Establish a 5% skin in the game requirement for lenders originating loans outside of certain criteria Page 4

6 PENDING LEGISLATION Qualified Mortgage (QM) Ability to Repay - Currently defined by the CFPB to include loans that meet several requirements, including: - Income relied on to qualify borrowers is verified and documented - Underwriting Ratios are consistent with the statutory and regulatory requirements - Total and fees payable do not exceed 3% of the loan amount. FHA, VA & RHS and KCH loans are exempt from QM & QRM. These agency s are to prescribe their own rules. o How Qualified Mortgage is ultimately defined (broad or narrow), will essentially set the boundaries for the U.S. Mortgage Market o Narrow Interpretation Implications - Restriction of consumer mortgage credit availability - Significant increase in consumer litigation. The consumer will no longer be allowed - Lenders and Investors would face an elevated risk of an ability to pay or Steering violation Mortgage advocacy groups are currently lobbying for a broad interpretation of the proposed QM Rule. Page 5

7 Qualified Residential Mortgage (QRM) is part of a risk-sharing provision set forth by Dodd-Frank. This rule would require that creditors of MBS s (mortgage backed securities) retain a 5% share of securities that do not meet the QRM credit standards. Proposed QRM Standards - Borrower must contribute at least 20% down payment - Pay Closing Costs out of pocket - Provide full documentation of income with strict DTI ratio limitations - Be current on all existing debt payments - Not have been more than 50 days delinquent on any debt obligation for the past 24 months - Not have had any property repossessed in past three years - Not have been a party to a bankruptcy proceeding, foreclosure, short-sale, or a deed in lieu of foreclosure with in past three years - Not have been subject to a Federal or State Judgment for collection of any unpaid debt Current QRM proposal would place a high percentage of originations outside of the QRM Box, increasing the risk for lenders. Similar to a narrow QM interpretation, implementation of the QRM proposal as it currently stands would shrink mortgage credit availability. Page 6

8 Minimum Standards for All Originations and All Loans Part of H.R Registration and Licensing for all loan originators. Duty of Care Standard All originators must present to the consumer a range of products for which they might qualify. Make full and timely disclosures for each consumer of comparative costs and benefits of each loan product. Net Tangible Benefit All lenders must make a reasonable determination based on known information that the consumer will benefit from a refinance. Liability Loans that do not qualify for QM can expose assignees and lenders to liability. Plaintiff can seek rescission or damages as well as attorney fees. Rescission Where the Ability to Repay and Net Tangible Benefits are not met, a consumer may rescind the loan. Lender Liability Lenders will not be held liable where a loan meets the QM standards. However, a borrower can rebut the presumption that the loan meets these standards. A lender will not be liable if the loan is cured within 90 days of receiving the notice. Cure For a violation of Ability to Repay or Net Tangible standard a cure requires modification or refinancing of the loan at no cost to the consumer to provide terms that would have satisfied the Ability to Repay and Net Tangible standards. Page 7

9 ADDITIONAL RESOURCES: CFPB 5 YEAR PLAN American Bankers Association Dodd-Frank and Community Banks American Bankers Association Calling for a broad QM Definition (4/12) American Bankers Association - QM position letter (9/12/12) National Association of Realtors QM/QRM Response (7/9/12) Mortgage Bankers Association of America Page 8