National Association of Federal Credit Unions l · PDF filereplaces “qualified written request” issues ... RESPA Covered Errors –1024.35(b) 1) ... National Association of Federal

National Association of Federal Credit Unions l www.nafcu.org


Inside the CFPB’s Mortgage Proposals

(a very scary place)

September 5, 2012

2:00 p.m. – 5:00 p.m. EST

Presented by:

Steve Van Beek, Esq., NCCO

Director of Regulatory Compliance

National Association of Federal Credit Unions


Webcast Goals

Remember, these are proposals– Compliance requirements may change

– Dodd-Frank mandated many of these changes

– CFPB proposed additional requirements

– CFPB has given very short notice for comments

• Understand which areas will change

• Think about how your credit union currently

operates and how it will need to change

• Numerous new notices, timeframes to track


Agenda

Mortgage Servicing Proposals– TILA – 3 Main Proposed Changes

– RESPA – 6 Main Proposed Changes

HOEPA/Section 32/High-Cost Proposal

– Potential change to finance charge definition

– Expanded coverage to purchases and HELOCs

TILA/RESPA Integrated Disclosures

– Broad Overview

– New Issues and Future Confusion


Mortgage Servicing

TILA/RESPA

Regulation Z & Regulation X

12 CFR 1026 & 12 CFR 1024


Mortgage Servicing - TILA

Regulation Z Proposed Changes– Prompt Crediting of Payments/Payoff Statements

– Adjustable-Rate Mortgage Adjustment Notices

– Periodic Statement Requirement

Proposed changes would apply to all mortgage

servicers (including nonbanks)

The Regulation Z proposed changes would apply

to different types of mortgage loans

– Need to review “applicability” of each requirement



Prompt Crediting of Payments – 1026.36– Applies to consumer credit transactions secured by

a consumer’s principal dwelling

– Defines a “full contractual payment” as one that

covers principal, interest, and escrow (if

applicable), but not late fees

– Partial Payments – allows servicers to hold partial

payments in “suspense accounts” but would

require disclosure on the periodic statement and

servicers need to apply payments when the

amount reaches a “full contractual payment”



Payoff Statements – 1026.36(c)(3)– Would apply to any consumer credit transaction

secured by a dwelling (not just principal dwellings)

• Includes both open-end and closed-end

– Statement must be sent within seven

business days of request (currently five days)

– Applies when credit union has received a

written request for a payoff statement



Adjustable-Rate Mortgage Notices– CFPB proposes to remove the existing “annual

notice” requirement – 12 CFR 1026.20(c)

– Two separate notices, two timing requirements

– Applies to closed-end consumer credit transactions

secured by a principal dwelling where the interest

rate may increase after consummation

• Does not apply to open-end credit plans (HELOCs)

• Only applies when secured by principal dwelling

– Model Forms proposed for both notices

– Can notice be combined with other information?



Rate Adjustment Notice – 1026.20(c)– Required prior to each change in payment is due

– Timing: 60 to 120 days before the new payment is due

• Increased from the current 25 to 60 days

• Will credit unions know the new interest rate and

payment amount 60 to 120 days out?

– CFPB proposing to “grandfather” existing

mortgages with “look back” periods that prevent

the notice from being sent 60 to 120 before

• After the rule is effective, mortgage contracts must be

structured to allow sufficient time for the notices

– Can be combined with periodic statement







Initial Rate Adjustment Notice – 1026.20(d)

– Required prior to the first rate adjustment

– Timing: 210 to 240 days prior to the first

payment due at the adjusted level.

Content – Dodd-Frank required specific information

– CFPB proposes to add tons of additional

information to the notice. Tons.

Notice would need to in writing, separate and

distinct from all other correspondence







Periodic Statement Requirement – 1026.41

– Applies to closed-end consumer credit

transactions secured by a dwelling.

• Does not apply to HELOCs (12 CFR 1026.7(a))

• Any dwelling. Does not need to be principal.

– Monthly periodic statement requirement

– What if bi-weekly billing cycle?

• Can send one statement covering entire month

• How does this work in practice? Two due dates?

– Combined statements?

• CFPB says would be ok – but will timing work?



Periodic Statement Requirement – 1026.41

– Timing: Statement must be sent within a

reasonably prompt time (4 days) after the close

of the grace period of the previous cycle

– First Statement: Sent no later than 10 days

before the first payment is due

– E-SIGN Act Consent Requirement?• CFPB proposes that credit unions would be able to send

notices electronically without following the E-SIGN Act

• TILA states that statement “may be transmitted in writing

or electronically” which takes it outside of E-SIGN

• CFPB seeking comment on this issue





Content of Periodic Statement– Some Required by Dodd-Frank

– CFPB adds tons more information on statement

Tabular Format

– Requires specific disclosures to be grouped

together and presented in close proximity (boxes)

Inapplicable Information can be excluded

– Delinquency Notice

– Prepayment Penalty Disclosure*

Sample Forms provide best overview



Required Information (if applicable)– Amount Due – 1026.41(d)(1)

• Amount due; payment due date; late payment fee

– Explanation of Amount Due – 1026.41(d)(2)• Provide monthly payment amount – including the allocation of that

payment to principal, interest and escrow (if applicable).

• Total fees or charges incurred since the last statement

– Past Payment Breakdown – 1026.41(d)(3)• Total of payments since last statement and a breakdown of how

payments were applied to principal, interest, escrow, and fees.

• Total of all payments year-to-date and the YTD breakdown

• Any partial payments that have not been applied to mortgage

– If applicable, this also triggers a partial payment message under

1026.41(d)(5)



Required Information (if applicable)– Transaction Activity – 1026.41(d)(4)

• All activity since last statement that credits or debits account

• Covers payments received and applied, partial payments sent to

suspense account, and any fees or charges

– Contact Information – 1026.41(d)(6)• Must list toll-free phone number. May include other information as

well – such as website address

• Must be the same as the contact information provided for asserting

errors or requesting information (from RESPA)

– Account Information – 1026.41(d)(7)• Amount of principal balance; interest rate; the date on which the

interest rate may next adjust (if applicable); the amount of any

prepayment penalty*; and housing counselor information



Required Information (if applicable)– Delinquency Notice – 1026.41(d)(8)

• Required if member is more than 45 days delinquent

• Number of days delinquent and risks of delinquency

• Recent account history which shows the amount due for

each billing cycle, or the date on which a payment for a

billing cycle was considered fully paid.

– Would need to include the lesser of the past 6 months or the

last time the account was current

• Total amount to bring the loan current

• Loan modification acceptance or referral to foreclosure

• Housing counselor information



Coupon Book Exemption – 1026.41(e)(3)– Dodd-Frank included a specific exemption

– CFPB proposes to add new requirements before

credit unions can qualify for the exemption

– Only available for fixed-rate mortgages

Static and Dynamic Information

– CUs would need to provide static coupon books and

also provide “dynamic information” upon request

from a member – See Aug. 22 blog post.

Coupon book itself

– Disclosures on each coupon; on book itself



Small Servicer Exemption – 1026.41(e)(4)– Small servicers would be exempt if they (1) service

1000 or fewer mortgages; and (2) only service

mortgage loans in their portfolio or mortgage loans

they originated but sold (i.e., cannot service

mortgage loans originated by someone else)

– Only 1000? Yes – 1000 or fewer closed-end dwelling-

secured loans. HELOCs do not count.

– If exceed 1000? Six-month transition or next year

– CFPB assumes that mortgages are refinanced every

five years – so this allows 200 originations/year

– For more, see our August 21 blog post


Mortgage Servicing - RESPA

Regulation X Proposed Changes– Error resolution and information requests

– Force-placed insurance

– Information management policies and procedures*

– Early intervention with delinquent borrowers*

– Continuity of contact with delinquent borrowers*

– Loss mitigation procedures*

Some required by Dodd-Frank. CFPB adds more

requirements* (including from AG Settlement).



Other Regulation X Proposed Changes– Expand RESPA coverage to subordinate liens

• Closed-end loans – of all liens – would be covered

– Closed-end home equities covered

• Open-end lines of credit (HELOCs) still exempt

• CFPB accepting comment on this issue (the CFPB’s

justification for expanding was “piggyback loans”)

– If escrow, servicers must advance funds for force-

placed insurance if escrow has insufficient funds

• If no escrow? CFPB seeking comment. 1024.17(k)(5).

– Escrow refunds when mortgage paid in full

• If refinance at same CU, can transfer to new escrow



Error Resolution Procedures – 1024.35– Combined with information requests (1024.36),

replaces “qualified written request” issues

– Notice of error may be made orally or in writing

• For oral notices, CUs can designate a specific number

– Includes notices of errors made by “a person acting

on behalf of the borrower”

• This needs clarity from the CFPB. What about Regulation

P? How does CU determine if proper authority? Certify?

– Errors are limited to a finite list

• Nine covered errors



Covered Errors – 1024.35(b)1) Failure to accept a conforming payment

2) Failure to apply an accepted payment properly

3) Failure to credit a payment as of date of receipt

4) Failure to make disbursements from escrow account

5) Improper charging of a fee

6) Failure to provide accurate payoff balance under Reg Z’s

payoff statement requirement – 1026.36(c)

7) Failure to provide accurate information about loss

mitigation options

8) Delayed transfer of information to new servicers

9) Failure to suspend scheduled foreclosure sale



Separate telephone number and address for errors is

allowed. Trained personnel. 1024.35(c).

– Can also establish an online method for errors

Acknowledgment of Receipt – 1024.35(d)

– Written acknowledgment within five days

Response to Notice of Error – 1024.35(e)

– Generally, CUs will have 30 days to respond

• CUs can get 15 day extension if notify borrower

• CU can request additional information of borrower

– Notice required to borrower after investigation

– Borrower has right to request documents relied upon

– If multiple errors asserted, can respond separately



Error Resolution Exclusions

– Same error that was previously asserted by the borrower

• Unless, the borrower provides new and material information

– Overbroad or Unduly Burdensome

• Overbroad if CU cannot determine the specific error asserted

• Unduly burdensome if CU could not respond without exceeding

maximum timeframe or incurring unreasonably costs

– Intended to relieve CUs of current issues with Qualified Written

Requests and consumers (and consumer advocates) using online forms

as a form of pre-litigation discovery.

• If CU determines notice is overbroad or unduly burdensome it

must notify the borrower of that fact

– Untimely notices: Notice received by CU more than one year

after loan was transferred or paid in full

CU must notify borrower of the exclusion within 5 days



Requests for Information – 1024.36

– Information request could be oral or written

• For oral notices, CUs can designate a specific number

– Information could be requested by “a person acting

as an agent of the borrower”

• CFPB needs to provide clarity. Who is an agent?

– Can designate required telephone, address and

online for members to request information

Acknowledgment of Receipt – 1024.36(c)

– Written acknowledgment within five days

Respond within 30 days (oral or written)



Force-placed insurance – 1024.37– Reasonable basis before obtaining insurance

– Restrictions on charging a borrower for force-

placed insurance. Must meet all three:

1. Written notice 45 days prior to fee (1024.37(c)(2);

2. Written notice following 1024.37(d)(1); and

3. During the 45-day period, credit union has not

received verification of hazard insurance

First Notice – 1024.37(c)(2)

– Sent 45 days prior to CU charging a fee

– Model Form MS-3(A)



MS-3(A) – Model Form for Force-Placed Insurance Notice Required Pursuant to §§§§ 1024.37(c)(2)

[Name and Mailing Address of Servicer]

[Date of Notice]

[Borrower’s Name]

[Borrower’s Mailing Address]

Subject: Please provide insurance information for [Property Address]

Dear [Borrower’s Name]:

Our records show that your [hazard] [Insurance Type] insurance [is expiring] [expired], and we do not have evidence that

you have obtained new coverage. Because [hazard] [Insurance Type] insurance is required on your property, [we bought insurance for your property] [we plan to buy insurance for your property]. You must pay us for any period during which the insurance we buy is in effect but you do not have insurance.

You should immediately provide us with your insurance policy number and the name, mailing address and phone number

of your insurance company or insurance agent. [Describe how the borrower may provide the insurance information]. [The

information must be provided in writing.]

The insurance we [bought] [buy]:

� [Costs $[premium charge]] [Will cost an estimated $[premium charge]] annually, which is probably more expensive

than insurance you can buy yourself.

� May not provide as much coverage as insurance policy you buy yourself.

If you have any questions, please contact us at [telephone number].



Reminder Notices – 1024.37(d)(2)(i) or (ii)– Two separate notices depending on whether the

credit union has received insurance information

– Cannot send the reminder notices until 30 days

passes from the First Notice under 1024.37(c)(2)

• Receive no information – 1024.37(d)(2)(i)

– Reminder Notice following MS-3(B)

• Receives information but not verification that

borrower has continuous insurance – 1024.37(d)(2)(ii)

– Reminder Notice following MS-3(C)



MS-3(B) – Model Form for Force-Placed Insurance Notice Pursuant to §§§§ 1024.37(d)(2)(i))


[Date of Notice]

[Borrower’s Name]


Subject: Second and final notice – please provide insurance information for [Property Address]


This is your second and final notice that our records show that your [hazard] [Insurance Type] insurance [is expiring] [expired], and

we do not have evidence that you have obtained new coverage. Because [hazard] [Insurance Type] insurance is required on your

property, [we bought insurance for your property] [we plan to buy insurance for your property]. You must pay us for any period

during which the insurance we buy is in effect but you do not have insurance.

You should immediately provide us with your insurance policy number and the name, mailing address and phone number of your

insurance company or insurance agent. [Describe how the borrower may provide the insurance information]. [The information must

be provided in writing.]

The insurance we [bought] [buy]:

• [Costs $[premium charge]] [Will cost an estimated $[premium charge]] annually, which is probably more expensive than

insurance you can buy yourself.

• May not provide as much coverage as insurance policy you buy yourself.




MS-3(C) – Model Form for Force-Placed Insurance Notice Pursuant to §§§§ §§§§ 1024.37(d)(2)(ii)


[Date of Notice]

[Borrower’s Name]


Subject: Second and final notice – please provide insurance information for [Property Address]


We received the insurance information you provided but we are unable to verify coverage from [Date Range].

Please provide us with insurance information for [Date Range] immediately.

We will charge you for insurance we [bought] [plan to buy] for [Date Range] unless we can verify that you have insurance coverage

for [Date Range].




Renewal Notices – 1024.37(e)– In order to charge a borrower for renewing or

replacing force-placed insurance, credit unions

must:

1. Provide the renewal notice in 1024.37(e)(1) at least 45

days prior to the fee; and

2. Not have received evidence during the 45-day period

that the borrower has obtained insurance.

• Content of Renewal Notice– Additional statements about prior force-placed insurance

– Model Form MS-3(D)

• Notice only required once every 12 months


Mortgage Servicing - RESPAMS-3(D) – Model Form for Renewal or Replacement of Force-Placed Insurance Notice Pursuant to §§§§ 1024.37(e)(2)


[Date of Notice]

[Borrower’s Name]


Subject: Please update insurance information for [Property Address]


Because we did not have evidence that you had [hazard] [Insurance Type] insurance on the property listed above, we bought

insurance on your property and added the cost to your mortgage loan account.

The policy that we bought [expired] [is scheduled to expire]. Because [hazard][Insurance Type] insurance] is required on your

property, we have the right to maintain insurance on your property by renewing or replacing the insurance we bought.

The insurance we buy:

• [Costs $[premium charge]] [Will cost an estimated $[premium charge]], which is probably more expensive than insurance you

can buy yourself.

• May not provide as much coverage as an insurance policy you buy yourself.

If you buy [hazard] [Insurance Type] insurance, you should immediately provide us with your insurance policy number and the name,

mailing address and phone number of your insurance company or insurance agent. [Describe how the borrower may provide the

insurance information]. [The information must be provided in writing.]




Cancellation of force-placed insurance – 1024.37(g)

– Within 15 days of receiving verification that a borrower has

insurance, a credit union must:

• Cancel force-placed insurance obtained for the

borrower’s property; and

• For any period which the borrower’s insurance was in

place, refund to the borrower all force-placed insurance

premium charges (as well as any charges that have been

assessed but not yet collected)

– In short, when a member obtains their own

insurance (or provides evidence of prior insurance)

the credit union must cancel the force-placed

insurance and refund any overlap of premiums



Reasonable Information Management Policies &

Procedures – 1024.38

– Requires policies and procedures for maintaining

and managing information and documents related

to borrower mortgage loan accounts.

– Flexibility to design based on size, nature, and

scope of credit union’s operations.

– Safe harbor if credit union does not engage in

pattern or practice of failing to meet objectives

Credit unions being punished for the sins of large

mortgage servicers (National AG Settlement)



Policies & Procedures Must Cover

• Access and provide accurate information

• Evaluating loss mitigation options

• Facilitate oversight of service providers

• Facilitate servicing transfers

Standard Requirements – 1024.38(c)

– Record retention (one year after transfer/paid)

– Servicing file upon request

• CFPB wants to establish a industry standard



Servicing File Upon Request – 1024.38(c)(2)

Credit union would be required to provide upon request:

• Schedule of all payments credited or debited to the

mortgage (including escrow and suspense accounts);

• A copy of the borrower’s mortgage note;

• A copy of the borrower’s deed of trust;

• Any collection notes created by servicer personnel

reflecting communications with the borrowers;

• A report of any data fields relating to the borrower’s

mortgage by the credit union’s electronic system

(including any records of phone calls); and

• Copies of any information provided by the borrower in

accordance with 1024.35 or 1024.41.



Early Intervention Requirements – 1024.39

– Two notices required – one oral; one written

– Oral Notice – 1024.39(a)

• Must contact borrowers within 30 days after the

payment due date.

• Must be live contact (telephone or in-person) not

recorded message.

• Good faith efforts – must try to contact on three

separate days.

• Must inform the borrower that they were late and that,

if applicable, loss mitigation options may be available.

• Notice required each time a borrow becomes delinquent



Early Intervention Requirements – 1024.39

– Written Notice – 1024.39(b)

• Must be provided within 40 days of the payment due

date that resulted in the borrower’s delinquency

• Credit unions can provide the written notice anytime

between the missed due date and the end of the 40-day

time period (could even provide prior to oral notice)

• Written notice only required once every 180 days

– 180 days from the prior written notice; after that the

CU would need to provide written notice again

• Detailed content requirements

–Model Clauses – MS-4


Mortgage Servicing - RESPAMS-4—Model Clauses for the Written Early Intervention Notice Pursuant to §§§§ 1024.39(b)(2)

MS-4(A)—Statement Encouraging the Borrower to Contact the Servicer (§ 1024.39(b)(2)(i) and (ii))

Please contact us. [We may be able to make your mortgage more affordable. The longer you wait, or the further you fall behind on your payments, the

harder it will be to find a solution.]

[Servicer Name]

[Servicer Address]

[Servicer Telephone Number]

[For more information, visit [Servicer Web Site or Email Address]].

MS-4(B)—Available Loss Mitigation Options (§ 1024.39(b)(2)(iii))

[You may have options that could help make your mortgage more affordable, including:]

[Forbearance. This is a temporary reduction or suspension of your mortgage payments. Forbearance might be available if recent events have made it

difficult for you to make your payments—for example, if you recently lost your job, suffered from a disaster, or had an illness or injury that increased

your health care costs. If this option is available, your lender could create a payment plan to make up any missed payments over a period of time.]

[Mortgage modification. Your lender may be able to change your loan terms, such as your interest rate, the amount of principal you owe, or the

number of years you have to repay the loan.]

[If you are not able to continue paying your mortgage, your best option may be to find more affordable housing. As an alternative to foreclosure, you

might be able to transfer ownership of your home without having to pay off the full amount of your mortgage, although you would be required to

leave your home. For example, you may be eligible for the following option[s]:]

• [Short-sale. With your lender’s permission, you might be able to sell your home and pay off your mortgage even if the sale price is less than your

remaining balance. You might also be eligible to receive money to help you move.]

• [Deed-in-lieu of foreclosure. Your lender may release you from your mortgage if you transfer ownership of your home to your lender. As with a

short sale, you might also be eligible to receive money to help you move.]



MS-4(C)—Additional Information About Loss Mitigation Options (§ 1024.39(b)(2)(iv))

[Call us today to learn more about your options and for instructions on how to apply.]

MS-4(D)—Foreclosure Statement (§ 1024.39(b)(2)(v))

Foreclosure is a legal process a lender can use to take ownership of a property from a borrower who is behind on his or her mortgage

payments. The foreclosure process usually begins approximately [_] days after you miss a mortgage payment, although it may begin earlier

or later. The foreclosure process depends on the laws of the state where your home is located, the terms of your loan, whether you are

covered by the Servicemembers Civil Relief Act, and other factors.

MS-4(E)—State Housing Finance Authorities and Housing Counselors (§ 1024.39(b)(2)(vi))

For help exploring your options, Federal government agencies provide contact information for housing counselors, which you can access

by contacting [the Consumer Financial Protection Bureau at [Bureau Housing Counselor List Telephone Number] or [Bureau Housing

Counselor List Web Site]] [the Department of Housing and Urban Development at [HUD Housing Counselor List Telephone Number] or

[HUD Housing Counselor List Web Site]].

Your State housing finance authority may also be able to help. You can reach them at [State Housing Finance Authority Telephone Number]

or [State Housing Finance Authority Web Site].



Continuity of Contact – 1024.40– Within five days of the oral delinquency notice (1024.39(a)),

CU must assign personnel to the borrower

• CU personnel would also need to respond to the borrower’s

“agent” which could include housing counselor or attorney

– Credit union could assign a single person or a team

– Assigned personnel must be available by telephone

• Borrower must be able to leave a voicemail

• Personnel must respond within three days

– Assigned personnel must be able to perform an enumerated

list of functions and CUs need policies & procedures

– Personnel must remain assigned until:

• Refinance; Paid off; three on-time payments; transfer; foreclosure



Loss Mitigation – 1024.41– CFPB proposing specific procedures for servicers to follow

related to loss mitigation options

• Does not require credit unions to offer loss mitigation options

– Loss Mitigation Application – 1024.41(b)

• A complete loss mitigation application includes all the

information the servicer regularly obtains and considers

• If incomplete application, servicer must attempt to

obtain additional information to complete application

• If incomplete application, must send notice to borrower

– Review of Loss Mitigation Application – 1024.41(c)

• Must evaluate borrower for all loss mitigation options

for which the borrower may qualify. Within 30 days.



Denial of Loan Modification – 1024.41(d)

– If CU denies a loan modification, must provide

borrower with written notice which includes the

specific reasons for the determination.

– Notice must also inform the borrower of their right

to appeal the CU’s determination

Borrower Response – 1024.41(e)

– If CU does not hear back from borrower within 14

days of the offer of loss mitigation, it may deem the

offer rejected.

– But, if member pays new amount = accepted



Deadline for Loss Mitigation App – 1024.41(f)

– CU can set a deadline for a borrower to submit a

complete loss mitigation application

• So long as the deadline is no earlier than 90 days prior to

a scheduled foreclosure sale

Prohibition on Foreclosure Sale – 1024.41(g)

– If borrower submits loss mitigation application by

the deadline, CU cannot foreclose unless:

1. CU denies application and no appeal;

2. CU denies borrower’s appeal of determination;

3. Borrower rejects the CU’s offer; OR

4. Borrower fails to perform terms of loss mitigation option



Appeal Process – 1024.41(h)– Borrower has right to appeal loan modification denial

– CU must give at least 14 days for borrower to appeal

– Appeal must be reviewed by different personnel than those

that made the initial determination

– CU must decide the appeal within 30 days

Other liens – 1024.41(j)– Within 5 business days, a CU that receives a complete loss

mitigation application must determine if other servicers

have liens

– If so, provide the application to those servicers

– If CU is the other servicer – MUST FOLLOW ALL THE

REQUIREMENTS as if application was sent to the CU directly


HOEPA/Section 32

High-Cost Mortgages

Regulation Z

12 CFR 1026


HOEPA Changes

Proposal to amend Regulation Z to expand

HOEPA/High-Cost/Section 32 Mortgage Loans

• Comments are due September 7, 2012• Except “finance charge” proposal – November 6, 2012

• Currently, protection is limited to refinance

and closed-end home equity loans

Proposal would expand coverage to include:

• Purchase money mortgages

• Home equity lines of credit (HELOCs)


HOEPA Changes

HOEPA Background

• Currently, very few credit unions make HOEPA loans

• HOEPA loans are small part of the mortgage market

– In 2005, 8.2 million originations; 36,000 HOEPA loans

– In 2010, 5.3 million originations; 3,400 HOEPA loans

So, why should credit unions be concerned?

• Expanded definition to purchases & HELOCs

• Proposal to change “finance charge” & APR

• Burden is in determining if you have a HOEPA loan


HOEPA Changes

CFPB Doesn’t Get It

In the CFPB’s cost-benefit analysis:

“We do not discuss the costs and benefits of

determining whether a loan is a high-cost mortgage,

e.g., the cost of computer systems and software,

employee training, outside legal advice, and similar

costs potentially necessary to determine whether a

loan is defined as a high-cost mortgage.” Page 153.

Suggestion: CFPB should create an online calculator

where credit unions could input the loan information

and CFPB certifies if loan is high-cost or not


HOEPA Changes

General Coverage

Transaction is considered a “high-cost” mortgage loan

if it is secured by a principal dwelling and one of the

following thresholds is triggered:

1. APR at consummation exceeds the “average prime

offer rate” (APOR) for a comparable transaction;

2. Points and Fees test; or

3. Prepayment Penalty* can be charged more than 36

months after consummation or is more than 2 % of the

amount prepaid

*Includes waived closing costs that could be recouped


HOEPA Changes

APR Threshold – 1026.32(a)(1)(i)

• Currently tied to “Treasury securities”

• Dodd-Frank moves to APOR - same as “higher-priced”

• First lien mortgages $50,000 or greater: 6.5 percentage

points above APOR

• First lien mortgages on dwelling that is personal

property and less than $50,000: 8.5 percentage points

above APOR

• Subordinate liens: 8.5 percentage points above APOR


HOEPA Changes

Impact of “finance charge” and APR Change

CFPB is proposing to move to an “all-in” APR calculation

where almost all fees would be finance charges

How does this impact HOEPA loans?

The APR threshold is based off the APOR. The APOR is “generally

calculated using data that includes only contract interest rate and

points, but not other origination fees.” Page 43.

Thus, the APR – under an all-in approach – would rise significantly

but the APOR would not. More loans would be HOEPA loans.


HOEPA Changes


CFPB is proposing to create a new metric - the transaction

coverage rate (TCR) - that credit unions would need to

calculate to determine if a loan was a HOEPA loan.

If adopted, credit unions would need to calculate the APR

for disclosures and calculate the TCR for HOEPA purposes.

CFPB claims it would be easier for CUs under this two

metric approach.

Suggestion: CFPB should create an online calculator to

determine the TCR and HOEPA coverage.


HOEPA Changes


What about HELOCs?

The proposed change – to an all-in APR – would only

apply to closed-end mortgage loans. Not HELOCs.

So, how do you determine HOEPA status for a HELOC?

Use the APR. But what do you compare it against?

CFPB states that CUs should use the APOR for the most

closely comparable closed-end mortgage loan. Huh?

– Comment 3 to 1026.32(a)(1)(i) gives one example that

compares a HELOC initial fixed-term to an ARM


HOEPA Changes

Calculating APR for HELOCs

CFPB proposes a difference between variable-rate where

the index is “outside the creditor’s control” and one

where the index may vary at any time

– If outside of control, calculate the APR using the maximum

margin to the value of the index at the opening of the plan

– If may vary at any time (or if a floor rate?), calculate the APR

using the maximum interest rate that may be imposed during

the plan.

If a floor rate pushes HELOCs into the second

calculation, many HELOCs will be high-cost


HOEPA Changes

Points & Fees Threshold – 1026.32(a)(1)(ii)

• For transactions of $20,000 or more, points and

fees exceed 5 percent of the total transaction

amount

• For transactions of less than $20,000, points and

fees exceed the lesser of 8 percent of the total

transaction amount or $1000 (adjusted annually)

• Bona fide third party charges not retained by the credit

unions are excluded from “points and fees”


HOEPA Changes

Prepayment Penalty Threshold – 1026.32(a)(1)(iii)

• Remember, prepayment penalties prohibited for Federal

Credit Unions

• NCUA does allow FCUs to “recoup” waived closing costs

• Proposed definition of “prepayment penalty” for Reg Z

includes recouping waived costs

• Dodd-Frank further restricts prepayment penalties

• What about HELOCs? Calculate 2% of credit limit

– Comments 2-3 of 1026.32(a)(1)(iii)

See waived closing cost discussion on Pages 100-101


HOEPA Changes

New HELOC Disclosures for HOEPA Loans

For HOEPA loans, credit unions are required to

disclose payment examples.

How do you show payment examples for a HELOC?

CFPB proposes to require credit unions to disclose

payment examples showing first minimum payment for

the draw period and repayment period.

CFPB requires assumptions to make the estimates and

then requires credit unions to tell borrowers the payment

examples are estimates


HOEPA Changes

Pre-Loan Counseling – 1026.34(a)(5)

Prior to making a high-cost mortgage loan, credit unions

need to receive a written certification that the borrower

has obtained homeownership counseling.

– Credit unions can process the application but cannot extend

the loan until it receives the certification

Timing: Required counseling must occur after the

member receives the GFE or HELOC disclosures

List of Counselors: Must be given but credit unions

can follow 1026.20 and receive a safe harbor


HOEPA Changes

List of Homeownership Counselors – 1026.20

Proposal would require the list be give to all

applicants of federally-related mortgage loans

– Requirement extends to more than just HOEPA loans

Must provide written list of five homeownership

counselors or counseling organizations by using the

zip code of the applicant’s current address

– CFPB is planning on developing an online portal

Timing: No later than 3 business days after application


HOEPA Changes

Fee Limits – 1026.34(a)(7) & 1026.34(a)(8)

Modification or deferral fees would be prohibited for

high-cost mortgages (skip-a-pay fees?)

– Proposal is very broad and would cover any type of fee to

“modify, renew, extend or amend a high-cost mortgage, or to

defer any payment due under the terms of the mortgage.”

Late fees are capped at 4 percent of the “amount of the

payment past due” for high-cost mortgages

Also, Dodd-Frank created a mandatory 15-day grace

period for high-cost mortgage loans


Integrated Disclosures

TILA/RESPA

Regulation Z & Regulation X

12 CFR 1026 & 12 CFR 1024


TILA/RESPA

TILA/RESPA Integrated Disclosure Proposal

Proposed on July 9, 2012

Comment Deadline of November 6, 2012

Dodd-Frank required a proposed rule by July 21, 2012

BUT - there is no statutory deadline for a finalized rule

Congress has been seeking a solution to the confusion

from the TILA/RESPA disclosures for over 16 years

– EGRPRA of 1996

– Dodd-Frank mandates combined disclosures


TILA/RESPA

Applicability of TILA/RESPA Integrated Disclosure

• Would apply to most closed-end consumer credit

transactions secured by real property

– Would not apply to dwelling secured by personal property

• Were previously exempt from RESPA. Still need to follow Reg Z.

– Would not apply to home equity lines of credit (HELOCs)

– Would not apply to reverse mortgages

• Proposal adds new categories of covered loans

– Construction-only loans

– Loans secured by vacant land or 25 or more acres

– Loans to trusts


TILA/RESPA

Proposed Change to Finance Charge Definition

CFPB proposes to move to an “all in” finance charge

(currently, there is a “some in, some out” approach)

– Proposal would apply to closed-end transactions secured

by real property or a dwelling

• Not limited to transactions covered by Integrated Disclosures

– Example: Mobile home or manufactured home – personal property

• Would not apply to HELOCs

• Would not apply to other closed-end loans (i.e., auto loans)

Comment Period Extended to November 6, 2012


TILA/RESPA


New definition would impact the calculations for:

– Higher-priced mortgage loans – 1026.35

• Including mandatory escrow for first liens

– High-cost mortgage loans – 1026.32

• As discussed in HOEPA section, would impact the APR threshold

for determining which loans are high-cost (APR vs. APOR test)

– Higher-risk mortgage loans (new appraisal proposal)

– Qualified Mortgages (Ability to Repay proposal)

• Based off the points and fee calculation which uses the finance

charge as part of the calculation


TILA/RESPA


Proposed “transaction coverage rate” - TCR

“Although adopting the TCR would mean that

lenders would have to calculate one metric for

disclosure and another for purposes of

regulatory coverage, both metrics would be

simpler to compute than APR today using the

current definition of finance charge.”

Page 110 of TILA/RESPA Disclosure Proposal


TILA/RESPA

Other Potential Definition Changes

• “Application”

– Proposal would remove the “any other information

deemed necessary by the loan originator” clause

– Currently, there are 7 elements for “application”

– Proposal would allow creditors to collect other

information prior to collecting the [now] 6 elements

– Once a CU has the 6 elements, the 3 business day

clock for the Loan Estimate disclosure begins

• “Business Day” - All Except Sunday/Holidays


TILA/RESPA

Pre-disclosure Issues

No fees can be charged prior to disclosure

– Exception: Credit report fee

– Taking a check or credit/debit card information would not be

allowed (even if not charged)

Borrower must provide “intent to proceed” prior to the

CU charging any fees (similar to RESPA)

Credit unions can provide “preliminary written estimates”

but must disclose that the information is not the “Loan

Estimate”


TILA/RESPA

Loan Estimate Disclosure

Combines the Early TIL and the GFE

Model Forms H-24

Timing: Within 3 business days of application

Waiting Period: Loan Estimate Disclosure must be

provided at least 7 business days prior to consummation

– Clock starts when disclosures placed in the mail

Delivery: In person disclosures are delivered at that time

– Mailed or electronically delivered disclosures are presumed to

be received 3 business days after sent


TILA/RESPA

Written List of Settlement Service Providers

Must be sent separately from Loan Estimate Disclosure

Timing: Within 3 business days of application

Model Form H-27

Special Information Booklet

Applicability: Consumer credit secured by real property

– Certain exclusions (refinance; subordinate lien; personal property)

Timing: Must be sent within 3 business days of application

CFPB currently reviewing and may make changes in future

HELOCs? Use the HELOC brochure under 1026.40


TILA/RESPA

Tolerance Levels

• Proposal would move any fees from an affiliate

(i.e., CUSO) to the zero tolerance level

• Any “no shop” services would be moved to the

zero tolerance level (because CU should know

costs based on repeated use)

• 10 percent tolerance level only for (1) services

from a non-affiliate the borrower can shop for

and (2) recording fees


TILA/RESPA

Changed Circumstances

New definition and new categories and examples

1. Information Inaccurate; New Information

2. Consumer’s Creditworthiness or Value of Collateral

3. Revisions Requested by Consumer

4. Interest Rate Dependent Charges

5. Expiration (no intent to proceed – 10 business days)

6. Delayed Settlement Date on Construction Loan

Revised disclosures must be delivered within 3

business days of determining changed circumstance


TILA/RESPA

Closing Disclosure

Combines the Final TIL and HUD-1 or HUD-1(A)

Timing: At least 3 business days before consummation

– Timing restarts when revised disclosures

Delivery: Presumed received 3 business days after

mailed (presumption can be rebutted by evidence)

Model Forms H-25


TILA/RESPA

Subsequent Changes

Where 3 business day waiting period is not applicable

1. Changes Due to Consumer/Seller Negotiations

2. De minimus Change (less than $100)

3. Events After Consummation (taxes, recording fees)

4. Changes Due to Clerical Errors (non-numerical)

– No later than 30 days after consummation

5. Refunds Related to Tolerance Levels

– No later than 30 days after consummation


TILA/RESPA

Record Retention

Proposal would require CUs to retain evidence of

compliance for three years

Must retain the Closing Disclosures for five years

Electronic Records

Proposal would require CUs to keep records in an

electronic, machine readable format

– Where record can be analyzed & processed by spreadsheet or

database program

– Image reproductions, PDFs or document text not ok


TILA/RESPA

Lender Cost of Funds

Proposal would allow CUs to use either the most recent ten-

year Treasury or the CU’s actual cost of borrowing the funds

– Is this useful to consumers? Not in the slightest

– CFPB alternatively proposing to remove requirement

Total Interest Percentage

Total interest paid over the life of the loan shown as a

percentage of the loan’s principal

– CFPB alternatively proposing to remove requirement

– Contributes to consumer confusion and information overload


Questions?

Contact Info:

Steve Van Beek, Esq., NCCO

Email: [email protected]

Direct Phone: 703.842.2266

[email protected]

www.nafcu.org/compliance

www.nafcucomplianceblog.com


Documents

National Association of Federal Credit Unions l · PDF filereplaces “qualified written request” issues ... RESPA Covered Errors –1024.35(b) 1) ... National Association of Federal