Presented by: Mortgage Regulation Update Wisconsin Credit Union League Convention 1 Objectives At the end of this session, you will: Recognize recent updates to existing mortgage rules TILA/RESPA Integrated Disclosures Flood Disaster Protection Act Balloon Payment Qualified Mortgage and Escrow Understand the CFPB s focus on Fair Lending and Unfair, Deceptive or Abusive Acts or Practices Identify upcoming amendments to existing mortgage rules Home Mortgage Disclosure Act Servicing rules Summarize the CFPB s critical focus areas for 2016-2017 Information provided in this presentation, including all materials, should not be construed as legal services, legal advice, or in any way establishing an attorney-client relationship. Credit unions should contact their own legal counsel for advice. Information may have changed since this presentation was prepared. This information is intended to only be a summary of the issues. 2 All rights reserved. 1
Updates to Mortgage Rules TILA RESPA Integrated Disclosures (TRID) Flood Disaster Protection Act Balloon Payment Qualified Mortgage & Escrow 3 TILA RESPA Integrated Disclosures (TRID) 4 All rights reserved. 2
TILA RESPA Integrated Disclosures WHAT? Combination of RESPA and TILA disclosures WHY? To create disclosures that are easier to understand and use WHEN? Effective date was October 3, 2015 5 TILA RESPA Integrated Disclosures Loan Estimate Initial TIL Disclosure RESPA Good Faith Estimate Closing Disclosure Final TIL Disclosure HUD-1 / HUD-1A Settlement Statements 6 All rights reserved. 3
TILA RESPA Integrated Disclosures Documents are very dynamic at the loan level Disclosures based on loan type & purpose Different requirements for loans with or without a seller If disclosure is not required, it cannot show Cannot use n/a or leave something blank Format Requirements New Disclosures and Calculations New Documents New data fields and new required calculations 7 TILA RESPA Integrated Disclosures Inconsistencies and uncertainty Handling errors Changed circumstances after Closing Disclosure Certain types of Lender Credits Construction loans Title insurance policies Simultaneous second liens Balance items in Purchase Cash to Close table 8 All rights reserved. 4
TILA RESPA Integrated Disclosures April 28, 2016 Letter from the CFPB to industry trade groups. CFPB will propose changes in late July to provide greater certainty and clarity. January 2016 NCUA Letter 16-CU-01 2016 Supervisory Priorities NCUA examiners will be reviewing compliance with TRID 9 Flood Disaster Protection Act 10 All rights reserved. 5
Updates to Flood Insurance Requirements 1. Lenders are required to escrow all premiums and fees for flood insurance as of January 1, 2016 2. Additional notice requirements on the Notice of Special Flood Hazards 3. For existing loans, lenders must notify borrowers by June 30, 2016 of the option to escrow 4. Insurance isn t required on non-residential structures 5. Can charge for force-placed coverage Lender must refund if borrower has coverage 11 Flood Insurance Escrow Exceptions Small Lender Exception Lenders with total assets of < $1 billion as of December 1 st in either of the past two calendar years If they are not required to escrow and if they don t have a policy of escrowing Loan-Related Exceptions Loans in a subordinate position & senior lien carries insurance Business, commercial or agricultural loans Insurance is provided by the condo or home-owner s association HELOCs Non-performing loans (90 days or more past due) Loan term is 12 months or less 12 All rights reserved. 6
Balloon Payment Qualified Mortgage and Escrow 13 Balloon Payment Qualified Mortgage and Escrow Small Creditors in rural or underserved areas March 2016 Definition Lender and affiliates: have assets below $2 billion Originated no more than 2,000 covered first liens Lender originated at least one first lien located in a rural or underserved area in the prior calendar year Added a grace period until April 1 st of following year Advantages Can originate balloonpayment qualified mortgages Can originate balloonpayment high cost mortgages Exempt form escrowing for certain higher-priced mortgage loans 14 All rights reserved. 7
Fair Lending Fair Lending Home Mortgage Disclosure Act 15 Fair Lending Compliance Management Systems (CMS) Up-to-date fair lending policy statement Regular training for all employees, including all officers and the board Ongoing monitoring of all policies and procedures and corrective action Review of lending policies for disparate impact Regular statistical analysis of loans to identify disparities in pricing or underwriting Regular assessment of how loan products are marketed Oversight of compliance by management and the board 16 All rights reserved. 8
Fair Lending Maternity Leave Underwriting Policy (HUD) Include: Mortgage applicant is not required to return to work before closing Mortgage applicant on leave is considered employed Exclude Do not ask about future maternity leave plans Do not state that the loan cannot be approved due to maternity leave Do not state that you cannot use maternity leave income to underwrite the loan 17 Fair Lending Social Security Disability Income Reg B / ECOA Prohibit discrimination against an applicant because of income derived from a public assistance program What is okay? Can consider income when determining creditworthiness Can take into account the length of time eligible What s not okay? Cannot require additional documentation to show income is likely to continue Cannot ask about the disability or ask for a physician letter 18 All rights reserved. 9
Fair Lending Further SSI Guidance from CFPB Disability Income Appendix Q states Social Security income can be verified with a Social Security Administration benefit verification letter Expiration If the letter doesn t define an expiration date within 3 years, must consider income likely to continue What else? Re-evaluation of medical eligibility for benefits is not an indication that payments are not likely to continue 19 Unfair, Deceptive or Abusive Acts or Practices Unfair Deceptive Abusive 20 All rights reserved. 10
UDAAP Unfair Acts or Practices An act or practice is unfair when: It causes or is likely to cause substantial injury to consumers The injury is not reasonably avoidable by consumers; and The injury is not outweighed by countervailing benefits to consumers or to competition 21 UDAAP Unfair Acts or Practices Capital City Mortgage Corp Mortgage company allegedly failed to release liens after consumers fully paid the amount due Settlement by consent decree Company general counsel fined $20,000 Permanently barred from participating in any debt collection business 22 All rights reserved. 11
UDAAP Deceptive Acts or Practices An act or practice is deceptive when: The act or practice misleads or is likely to mislead the consumer; The consumer s interpretation is reasonable under the circumstances; and The misleading act or practice is material. 23 UDAAP Deceptive Advertising RMK Financial Implied FHA or VA mortgages Used the names/logos of the Department of Veterans Affairs (VA) and Federal Housing Administration (FHA) in ads Implied mortgages were endorsed by the VA or FHA Ads misrepresented the price and whether rates were fixed or variable In a 2 month period, 5 consent orders for mortgage marketing 24 All rights reserved. 12
UDAAP Deceptive Advertising Amerisave Inaccurate rates in ads for mortgages Inaccurate rates for jumbos Rates were for other products Rates were for a 800 credit score which wasn t disclosed Majority of scores are below 800 Rates were dependent on nondisclosed discount points, as high as $10,000 Very few consumers received these rates 25 UDAAP Abusive Acts or Practices An act or practice is abusive when it: Materially interferes with the ability of a consumer to understand a term or condition, or Takes unreasonable advantage of: A consumer s lack of understanding of the material risks, costs, or conditions Consumers inability to protect their interest; or Consumers reliance to act in their interest 26 All rights reserved. 13
Upcoming Changes to Existing Mortgage Rules Home Mortgage Disclosure Act (HMDA) TILA & RESPA Servicing Rules 27 Home Mortgage Disclosure Act (HMDA) Why? Dodd-Frank amends HMDA to: Improve the utility of data collected, and Revise Federal agency rulemaking and authority How? CFPB is taking the opportunity to: Improve data collection Reduce unnecessary burden on financial institutions, and Modernize data collection and reporting When? October 2015 Date of final rule 2017 phase in for lenders subject to rule Jan. 1, 2018 Effective date of rule changes 28 All rights reserved. 14
HMDA Amendments Institutions Subject to HMDA Assets in excess of $44 million as of 12/31/2015 Home or branch office in an MSA In preceding year, originated at least one purchase (or refinance) mortgage Federally insured or regulated, and 2017 originate at least 25 closed-end loans in each of the two preceding years 2018 originate at least 25 closed-end loans OR at least 100 open-end loans (HELOCs) in each of the two preceding years 29 HMDA Amendments Loans Subject to HMDA Applications, originations and purchases of all loans secured by a dwelling Now includes: HELOCs (was optional in the past) Business purpose loans secured by a dwelling Reverse mortgages No longer includes an unsecured home improvement loan 30 All rights reserved. 15
HMDA Changes 48 Data Points! 9 existing 14 modified 25 new (Six were mandated by Dodd-Frank) Reporting New web-based data submission tool in 2018 (for 2017 loans) In 2020, if had > 60,000 in previous year, report quarterly Requirements CU s disclosure statement and LAR will be on the Bureau s website 31 HMDA Changes Implementation Challenges Additional compliance burden Significant cost increases to upgrade systems and the use of staff time Privacy concerns additional data points Increased potential for error Additional Fair Lending responsibilities 32 All rights reserved. 16
TILA and RESPA Servicing Rules 33 TILA/RESPA Mortgage Servicing Rules Timeline January 2014 Servicing rules effective date November 2014 Proposed Changes to the servicing rules under TILA and RESPA Mid-2016 CFPB is expected to issue final rule 34 All rights reserved. 17
TILA/RESPA Mortgage Servicing Rules Purpose Nine servicing sub-rules to improve service to member 3 are in Reg Z, 6 are in Reg X Scope Different scope by rule Mostly for closed-end, but some HELOC requirements 35 Proposed Changes to TILA/RESPA Servicing Rules Successors in Interest Delinquency Definition Loss Mitigation (LM) Requirements Provide Additional Loss Mitigation Opportunities Amend the Process for Evaluating LM Applications Loss Mitigation during servicing transfers 36 All rights reserved. 18
Proposed Changes to TILA/RESPA Servicing Rules Comply with Dual Tracking Requirements Borrowers in Bankruptcy Early Intervention Requirements Distribution of Periodic Statements Continue to send to debtors who have filed Chapter 7 Do not need to send to debtors who have filed Chapter 13 Other Periodic Statement Considerations Balance due on delinquent mortgage Charged off loans are exempt if servicer provided a final periodic statement 37 CFPB 2016-2017 CFPB s Supervisory Highlights and Policy Priorities 2016-2017 38 All rights reserved. 19
CFPB Mortgage Origination Supervisory Highlights March 8, 2016 CFPB issued its latest supervisory report from examinations from September through December 2015 Examinations focused on compliance with first 6 mortgage rules Need written policies and procedures for loan originator activities compensation, anti-steering, qualification and identification requirements Deficiencies in compliance management systems 39 CFPB 2016-2017 Mortgage Origination Policy Priorities February 2016 CFPB outlined its two-year supervision and enforcement priorities for 2016-2017 Committed to implement changes to Home Mortgage Disclosure Act Implement changes to the RESPA and TILA Servicing rules Assess the effectiveness of mortgage rules already in place 40 All rights reserved. 20
What questions do you have? QM & Abilityto-Repay LO Comp HOEPA HMDA Flood Ins Servicing TRID Mortgage Rules Theresa Reinke, Assistant Regulatory Compliance Manager CUNA Mutual Group, 608.665.8143, theresa.reinke@cunamutual.com Resources: www.loanliner.com/realestate 41 Thank you for attending today s session! If you are a current LOANLINER customer, contact our team of compliance experts at loanliner@cunamutual.com or 800.356.5012 LOANLINER Documents customers have access to additional resources to help you manage compliance in the Lending Resource Center at: https://www.cunamutual.com/resource-library/resourcecenters/lending/secure/loanliner-compliance 42 All rights reserved. 21
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