Special Alert: CFPB Finalizes Points-and-Fees Cure and Other Mortgage Rule Amendments

Last week, the CFPB finalized an important amendment to its ATR/QM Rule that provides a mechanism for curing points-and-fees overages on qualified mortgage (“QM”) loans, as well as more minor amendments to its mortgage origination and servicing rules.  The new rules, which were proposed in April, are detailed below.  The discussion below regarding the new origination rules, including the points-and-fees cure, will also appear with the American Bankers Association/BuckleySandler publication, The New CFPB Mortgage Origination Rules Deskbook.  (Click here for information about obtaining copies of the Deskbook.)

Click here to view the full special alert.

Questions regarding the matters discussed in this Alert may be directed to any of our lawyers listed below, or to any other BuckleySandler attorney with whom you have consulted in the past.

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CFPB Finalizes Qualified Mortgage Points & Fees Cure

On October 22, the CFPB finalized targeted amendments to the Dodd-Frank Act mortgage rules that took effect in January 2014.  The amendments include:

  • Points and fees cure.  Under the Ability-to-Repay/Qualified Mortgage Rule, loans must meet certain requirements to receive “qualified mortgage” or “QM” status.  In particular, the points and fees charged to a consumer on a QM generally cannot exceed 3 percent of the loan amount.  The amendments permit a lender or secondary market purchaser that discovers, after the loan has closed, that the 3 percent cap was exceeded to retain QM status by refunding the excess amount to the consumer with interest. However, the refund must occur within 210 days after consummation and before the consumer files suit, provides written notice to the lender that the cap has been exceeded, or becomes 60 days past due.  In addition, the creditor must maintain and follow policies and procedures for reviewing points and fees and providing refunds to consumers. Although the CFPB stated that this amendment is intended to encourage lenders to provide access to credit to consumers seeking loans that are at or near the points and fees limit, the provision will expire on January 10, 2021.

Read more…

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Regulators Jointly Approve Final Risk Retention Rule

On October 22, coordinated by the Department of Treasury, six federal agencies – the Board of Governors, HUD, FDIC, FHFA, OCC, and SEC – approved a final rule requiring sponsors of securitized transactions, such as asset-backed securities (ABS), to retain at least 5 percent of the credit risk of the assets collateralizing the ABS issuance. The final rule, which largely mirrors the proposed rule issued in August 2013, defines a “qualified residential mortgage” (QRM) and exempts securitized QRMs from the new risk retention requirement. Government-controlled Fannie and Freddie are exempt from the rule. Most notably, the final rule’s definition of a QRM parallels with that of a qualified mortgage as defined by the CFPB. Further, initially part of the proposed rule, the final rule does not include down payment provisions for borrowers. The final rule will be effective one year after publication in the Federal Register for residential mortgage-backed securities, and two years after publication for all other types of securitized assets.

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FHFA Director Outlines Plan To Refine Representation and Warranty Framework

On October 20, FHFA Director Melvin Watt delivered remarks at the Mortgage Bankers Association Annual Conference in Las Vegas, Nevada. Watt addressed the Agency’s progress in ensuring safety and soundness and liquidity in the housing finance market. Specifically, Director Watt focused on the Agency’s continued work to revise the Representation and Warranty Framework (Framework) under which lenders and Enterprises function, stressing the importance of providing “clear rules of the road to allow lenders to manage their risk and lend throughout the Enterprises’ credit box.” In January 2013, the Agency implemented the first improvements to the Framework, which ultimately “relieved lenders of representation and warranties obligations related to the underwriting of the borrower, the property, or the project for loans that had clean payment histories for 36 months;” and in May, the Agency announced additional clarifications on the 36 month benchmark. Now, the Agency is focusing on improving the Framework by (i) clearly defining the life-of-loan exclusions to ensure lenders know what the exclusions are and when the exclusions apply to loans that are eligible for repurchase relief. These exclusions range into six categorical types: 1) misrepresentations, misstatements and omissions; 2) data inaccuracies; 3) charter compliance issues; 4) first-lien priority and title matters; 5) legal compliance violations; and 6) unacceptable mortgage products. Details regarding the definitions of the life-of-loan exclusion types will be released by the Enterprises in the coming weeks; (ii) clarifying that only life-of-loan exclusions can trigger a repurchase; and (iii) adding a “significance” test that requires the Enterprises to “determine that the loan would have been ineligible for purchase initially if the loan information had been accurately reported.” By making these revisions to the Framework, the Agency anticipates that the Enterprises will continue to conduct quality control reviews, enhance their risk management practices, and “engage in transactions that sell a portion of the credit risk from new mortgage purchases to the private market.”

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CFPB Finalizes Rule To Limit Relief From Annual Privacy Notice Delivery Requirements

On October 20, the CFPB finalized its amendment to Regulation P, which requires that financial institutions meet specific consumer data-sharing requirements, including the delivery of annual privacy notices. Under the new rule, bank and nonbank institutions under the CFPB’s jurisdiction will now be allowed to post privacy notices online, rather than deliver an annual paper copy. Institutions that choose to post notices online must meet certain conditions, including (i) providing notice to consumers if the institution shares any data to third parties, in addition to providing an opportunity to opt out of such sharing; and, (ii) using the 2009 model disclosure form developed by federal regulatory agencies. The institutions that choose to rely on the new delivery method must (i) ensure that customers are aware of the notices posted online; (ii) provide paper copies within ten days of a customer’s request; and, (iii) make customers aware that the privacy notice(s) are available online—and that a paper copy will be provided at the customer’s request—by inserting a “clear and conspicuous statement at least once per year on an account statement, coupon book, or a notice or disclosure.” As outlined when the proposed rule was issued in May, the CFPB anticipates that the rule will: (i) provide consumers with constant access to privacy notices; (ii) limit the amount of an institution’s data sharing with third parties; (iii) educate consumers on the various types of privacy policies available to them; and, (iv) reduce the cost for companies to provide privacy notices.

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CFPB Proposes Language Access Plan To Provide Services In Non-English Languages

On October 23, the CFPB announced its proposal for a Language Access Plan, continuing its efforts to provide non-English speaking persons access to its programs and services. The Language Access Plan “describes the Bureau’s policy and how the Bureau’s current language access activities are implemented across all of the Bureau’s operations, programs and services.” Comments on the proposed plan are due by January 6, 2015.

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Ginnie Mae Revises Net Worth And Liquidity Requirements

On October 17, Ginnie Mae announced that it would be adjusting its minimum net worth and liquid asset requirements for Single-Family Issuers and Issuers that participate in at least two Mortgage-Backed Securities programs. For Single-Family Issuers, the minimum net worth will be $2,500,000 plus .35% of the Issuer’s total effective outstanding Single-Family obligations; the minimum liquidity will be either $1,000,000 or .10% of the Issuer’s Single-Family securities. For Issuers participating in more than one Mortgage-Backed Securities program, the new minimum net worth and liquid assets requirement will be adjusted so that they are “equal to or greater than the sum of the minimum requirements for all the program types in which the Issuer is approved to participate, as opposed to the highest program requirement.” The new requirements will be effective January 1, 2015 for those Issuers seeking approval in the new year, but for Issuers approved on or before December 31, 2014, the new requirements take effect beginning December 31, 2015.

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Senator Warren And Congressman Cummings Urge GAO To Study Economic Vulnerability Of Non-Bank Mortgage Servicers, Risks To Consumers

On October 20, Senator Warren and Congressman Cummings co-authored a letter to the GAO requesting that the agency investigate possible effects on the non-bank servicing industry in the event of an economic downturn. In addition, the duo urged the GAO to study the potential risks to consumers should a major non-bank servicer fail. The letter stems from a report recently issued by the FHFA-OIG. The report cites that the rise in non-bank mortgage servicers “has been accompanied by consumer complaints, lawsuits, and other regulatory actions as the servicers’ workload outstrips their processing capacity.”

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SEC Finalizes Rule To Adopt Updated EDGAR Filer Manual

Recently, the SEC issued a final rule to update its EDGAR system to support changes to the disclosure, reporting, and offering process for asset-backed securities. Specifically, EDGAR will be revised to update Volume I: General Information, Volume II: EDGAR Filing, and Volume III: N-SAR Supplement. The EDGAR system is scheduled to reflect the updates on October 20.

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Fannie Mae Appoints Executive Vice President, General Counsel, and Corporate Secretary

On October 20, Fannie Mae announced that, effective November 10, Brian Books would serve as its executive vice president, general counsel, and corporate secretary. Prior to his appointment, Brooks was the vice chairman and chief legal officer of OneWest Bank, where he “advised executive management and the board of directors on all key legal, risk, and strategic issues, developed and implemented strategies to manage litigation and government inquiries, and led the bank’s compliance with regulatory orders on mortgage servicing and foreclosures.” Additionally, Brooks has over 20 years of experience in the legal and business industry including serving as a managing partner at O’Melveny & Meyer before serving as OneWest Bank’s Vice Chairman and chief legal officer.

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SEC Appoints Marc Wyatt As Deputy Director Of National Exam Program

On October 20, the SEC appointed Marc Wyatt as the Deputy Director of the agency’s Office of Compliance and Inspection Examinations (OCIE). In September 2012, Wyatt joined the SEC as a senior specialized examiner with a concentration on examinations of advisers to private equity funds and hedge funds. In his new role working with the OCIE staff, Wyatt will oversee the examinations of SEC-registered investment advisers, investment companies, broker-dealers, self-regulatory organizations, clearing agencies, and transfer agents. Prior to joining the SEC, Wyatt served as Stark Investments’ chief executive, in addition to spending time at Merrill Lynch UK and at Alex. Brown as a senior investment banker.

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Fannie Mae Provides New Appraisal Tool For Lenders

On October 20, Fannie Mae announced that its proprietary appraisal and analysis application, Collateral Underwriter, will become available to lenders in early 2015. Currently, Fannie Mae uses the tool to “analyze appraisals when a lender delivers a loan,” and the Agency anticipates that by providing greater certainty around repurchase rise, the tool will help “lenders expand access to mortgage credit.” Ultimately, Collateral Underwriter will allow lenders to evaluate the appraisal of a loan, address any potential issues, and then close and deliver the loan to Fannie Mae.

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Special Alert: Lessons Learned from Arab Bank’s U.S. Anti-Terrorism Act Verdict

On September 22, 2014, following a two-month trial, a federal jury in the Eastern District of New York ruled in favor of a group of 297 individual plaintiffs in a civil suit accusing Arab Bank PLC, headquartered in Amman, Jordan, of supporting terrorism. Linde vs. Arab Bank PLC, No. 1:04-CV-2799 (E.D.N.Y. filed July 2, 2004).

In summary, the plaintiffs alleged that Arab Bank was liable under the U.S. Anti-Terrorism Act, 18 U.S.C. § 2331, et seq. (the “ATA”), for the deaths and/or severe injuries resulting from acts in international terrorism that occurred between 2001 and 2004, because the bank had processed and facilitated payments for Hamas and other terrorist or terrorist-related organizations, their members, the families of suicide bombers, or Hamas front organizations.

What this means for financial institutions, particularly foreign banks that increasingly face the potential reach of U.S. laws and plaintiffs, remains to be seen. But there are three take-aways worthy of immediate consideration.

Click here to view the full special alert.

 

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Proposed Changes to the TILA-RESPA Integrated Disclosure Rule

On October 10, the CFPB issued a proposal to modify and make technical amendments to the TILA-RESPA Integrated Disclosure Rule, issued in November of 2013. Specifically, the CFPB proposes to (i) relax the timing requirements associated with the redisclosure of interest rate dependent charges and loan terms after consumers lock in a floating interest rate, such that creditors would have until the next business day after a consumer locks in a floating interest rate to provide a revised disclosure; and (ii) add language to the Loan Estimate form that creditors could use to inform a consumer that the consumer may receive a revised Loan Estimate for a construction loan that is expected to take more than 60 days to settle. In addition, the Bureau proposes non-substantive changes such as technical corrections and corrected or updated citations and cross-references in the regulatory text and commentary, minor word changes throughout the regulatory text and commentary, and an amendment to the 2013 Loan Originator Rule, to provide for placement of the NMSR ID on the integrated disclosures. The CFPB is accepting comments on the proposed changes through November 10, 2014. The CFPB noted its intention to finalize the proposed amendments quickly in order to provide the industry adequate time to implement any resulting changes by August 1, 2015, the effective date of the TILA-RESPA Integrated Disclosure Rule.

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CFPB Updates Dodd-Frank Mortgage Rules Readiness Guide

Recently, the CFPB published an updated mortgage rules Readiness Guide for financial institutions to assist them in complying with new mortgage lending requirements. The Guide contains: (i) a summary of the mortgage rules finalized by the CFPB as of August 1, 2014; (ii) a readiness questionnaire to help perform self-assessments; (iii) a section on frequently asked questions; and (iv) a section on further tools to assist with compliance with the new rules. The guide discusses, among other rules, the TILA-RESPA Integrated Disclosure rule that integrates the mortgage loan disclosures currently required under TILA and RESPA. That rule requires a new Loan Estimate form that combines two existing forms, the Good Faith Estimate and the initial Truth-in Lending disclosure. The Loan Estimate must be provided to consumers no later than the third business day after they submit an application. The rule also requires a Closing Disclosure form, which combines the current Settlement Statement (“HUD-1”) and final Truth-in Lending disclosures forms. The Closing Disclosure must be provided to consumers at least three business days before consummation of the loan. The new requirements are effective for loans where the lender receives an application on or after August 1, 2015.

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