VA Issues Statement On ATR/QM Rule

On January 9, the Department of Veterans Affairs (VA) issued Circular 26-14-1, which clarifies lender requirements for home loans guaranteed by the VA under the TILA and the CFPB’s Ability to Repay and Qualified Mortgage (ATR/QM) rule. Given that the CFPB’s ATR/QM rule took effect on January 10, 2014, and the VA has not yet finalized its own ATR/QM requirements for VA-guaranteed loans, the circular states that all lenders must comply with the requirements of TILA, as established by CFPB’s ATR/QM Rule. Further, all loans made in compliance with existing VA requirements will continue to be guaranteed by VA, regardless of their QM status. The VA expects to publish its ATR/QM rule in the “near future.”

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Special Alert: HUD Adopts Its Own QM Rule

On December 11, 2013, the Department of Housing and Urban Development (“HUD”) issued a final rule defining what constitutes a “qualified mortgage” (“QM”) for purposes of loans insured by the Federal Housing Administration (“FHA”). With limited clarifications and adjustments, the rule tracks the proposal issued by HUD in September.  This final rule, which applies to all case numbers assigned on or after January 10, 2014, replaces the temporary QM definition for FHA loans established by the Consumer Financial Protection Bureau (“CFPB” or “Bureau”) in its Ability-to-Repay/Qualified Mortgage Rule (“ATR/QM Rule”).

Loans that qualify as QMs provide lenders with some legal protection against borrower lawsuits under the Truth in Lending Act (“TILA”) alleging the lender did not sufficiently consider the borrower’s ability to repay the loan.  Under HUD’s final rule, most FHA loans will qualify for the QM safe harbor if they have Annual Percentage Rates (“APRs”) that are no more than 2.5 percentage points over the Average Prime Offer Rate (“APOR”) for a comparable transaction (as opposed 1.5 percentage points over APOR in the CFPB’s ATR/QM Rule).

Click here to read our 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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Prudential Regulators Address Impact Of QM Lending On CRA Ratings

On December 13, the Federal Reserve Board, the FDIC, the OCC, and the NCUA issued an interagency statement to clarify safety and soundness expectations and CRA considerations in light of the CFPB’s ability-to-repay/qualified mortgage rule. The statement emphasizes that institutions may originate both QM and non-QM loans based on their business strategies and risk appetites and that residential mortgage loans “will not be subject to safety-and-soundness criticism based solely on their status as QMs or non-QMs.” Acknowledging that some institutions may choose to originate only or predominantly QM loans, the agencies state that, consistent with recent guidance concerning the fair lending implications of QM-only lending, “the agencies that conduct CRA evaluations do not anticipate that institutions’ decision[s] to originate only QMs, absent other factors, would adversely affect their CRA evaluations.”

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HUD Finalizes QM Rule, Manual Underwriting Standards

On December 11, HUD issued a final rule defining what constitutes a “qualified mortgage” (QM) for purposes of loans insured by the FHA. The final rule largely adopts HUD’s proposal, which was the subject of our October 2013 Special Alert. The final rule clarifies certain aspects of the HUD proposal.  Among other things, it replaces provision in a CFPB’s QM rule that allows consumers to rebut the presumption of compliance based on residual income, with a provision that the consumer show that the creditor failed to underwrite consistent with HUD requirements. With the final rule, HUD also adopted new underwriting standards. The effective date for the underwriting standards will be set by a future Mortgagee Letter, but will be no earlier than March 11, 2014.

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Unofficial Transcripts Of CFPB Webinars On Mortgage Rules

In an effort to address outstanding questions regarding the new mortgage rules that are scheduled to take effect in January 2014, CFPB staff provided non-binding, informal guidance in two webinars hosted by the Mortgage Bankers Association. Specifically, CFPB staff answered questions regarding the mortgage servicing rules on October 16, 2013 and questions regarding the mortgage origination rules (including the Ability-to-Repay/Qualified Mortgage and Loan Originator Compensation rules) on October 17, 2013.

The CFPB staff’s slides presenting the questions addressed during the webinars and the audio recordings of their responses are available through the MBA’s Compliance Resource Center. BuckleySandler has prepared transcripts of the servicing and mortgage origination webinars that incorporate the CFPB’s slides. These transcripts are provided for informational purposes only and do not constitute legal opinions, interpretations, or advice by BuckleySandler. The transcripts were prepared from the audio recordings provided by the MBA and may have minor inaccuracies due to sound quality. In addition, the transcripts have not been reviewed by the CFPB for accuracy or completeness.

Questions regarding the matters discussed in the webinars or the rules themselves may be directed to any of our lawyers listed below, or to any other BuckleySandler attorney with whom you have consulted in the past. Additional information about the CFPB mortgage rules is available in our CFPB Resource Center.

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CFPB Director Discusses Mortgage Rule Implementation And Enforcement Against Individuals

On October 23, CFPB Director Richard Cordray briefly spoke with the Reuters Washington Summit about the Bureau’s rulemaking and enforcement work.

Upcoming Effective Dates for Mortgage Rules

According to the report, Cordray stated that he was confident most mortgage lenders would be able to comply with the new mortgage rules by the January 2014 effective dates. “Everybody’s had plenty of time to see this coming,” Cordray said. However, he added that the Bureau would take into consideration that some smaller firms would need more time to fully comply. “What we’re looking for come January 10 is that they’ve made good-faith efforts to come into substantial compliance with the rules,” he said.

Enforcement Actions Against Individuals

Corday also stated that the Bureau would continue to take enforcement action against individual officers and employees, as well as banks and other entities. “I’ve always felt strongly that you can’t only go after companies. Companies run through individuals, and individuals need to know that they’re at risk when they do bad things under the umbrella of a company,” Cordray said.

The CFPB already has pursued individuals in several civil litigation matters. For example, the CFPB has named individuals in actions to enforce Section 8 of RESPA, including a lawsuit announced just this week against principals of a law firm. In July, the CFPB announced an enforcement action against a Utah-based mortgage company and two of its officers for giving bonuses to loan officers who allegedly steered consumers into mortgages with higher interest rates.

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Freddie Mac and Fannie Mae Provide Additional Guidance Regarding CFPB ATR/QM Rule

On October 1, Freddie Mac issued an industry letter and Fannie Mae issued Lender Letter LL-2013-07 to provide additional information regarding Freddie Mac’s and Fannie Mae’s new purchase eligibility requirements based on the CFPB’s final ability-to-repay/qualified mortgage (ATR/QM) rule. The letters inform sellers that, during an initial transitional period, the enterprises will not make any changes to their quality control processes and will not, except under certain circumstances, issue any repurchase requests related to the new points and fees eligibility requirements. The letters remind sellers that they must comply with all applicable laws regarding points and fees, including state laws and regulations that may be more restrictive than the CFPB ATR/QM rule, and withdraws prior guidance regarding excessive points and fees. Finally, the letters advise sellers that while Freddie Mac and Fannie Mae are not at this time requiring any additional documentation, sellers should retain all materials that might be necessary to demonstrate compliance with the new eligibility requirements.

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Special Alert: HUD Proposes Its Own QM Rule

On September 27, HUD released a proposal defining what constitutes a “qualified mortgage” (QM) for purposes of loans insured by the FHA. We have prepared a Special Alert regarding this proposal, which, once it is finalized and takes effect, will replace the temporary QM definition for FHA loans established by the CFPB in its January 2013 Ability-to-Repay/Qualified Mortgage Rule. QMs, when made in accordance with the applicable requirements, provide lenders with some legal protection against borrower lawsuits under TILA alleging the lender did not sufficiently consider the borrower’s ability to repay the loan.

The CFPB’s temporary QM definition will continue to apply to loans that are eligible to be guaranteed or insured by the Department of Veterans Affairs and the Department of Agriculture until those agencies establish their own QM definitions. Similarly, the CFPB’s temporary QM definition will continue to apply to loans that are eligible to be purchased or guaranteed by Fannie Mae, Freddie Mac, or any successor entity for as long as those entities remain under the conservatorship or receivership of the Federal Housing Finance Authority or until January 10, 2021, whichever is earlier.

Questions regarding the matters discussed in the Special 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 Releases QM Compliance Chart for Small Creditors

On September 24, the CFPB released an additional mortgage rule implementation resource, entitled the Small Creditor Qualified Mortgages Flowchart. The flowchart walks small creditors through a series of questions to help those institutions determine the types of qualified mortgages they can originate. The chart is included on the CFPB’s broader mortgage rule implementation resources website.

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Helpful Resources for the Approaching ATR/QM Rule Effective Date

As the January 10, 2014 effective date for the ATR/QM Rule approaches, a number of questions remain about the requirements for QM and non-QM loans. Some of our clients have found the CFPB Comparison Chart outlining the contours of the rule helpful in gaining a general understanding of these requirements. In addition, we are assisting our clients with more difficult questions, such as how to comply with the underwriting requirements for non-QM loans and how to treat bona fide discount points, charges retained by affiliates, and fees paid for outsourced origination services under the QM points and fees test.

Please contact us if we can be of assistance on these or other matters. Questions may be directed to one of the lawyers listed below or to any other BuckleySandler attorney with whom you have consulted in the past:

For more information, insights, and observations on these issues from our attorneys, download our Special Alert on the final rule and Special Alert on amendments to the final rule, and visit BuckleySandler’s CFPB Resource Center.

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Fannie Mae, Freddie Mac Update Selling Policies Based on CFPB QM Rule

On August 20, Fannie Mae issued Announcement SEL-2013-06 and Freddie Mac published Bulletin 2013-16, both of which update numerous selling requirements in response to the CFPB’s final Ability-to-Repay/Qualified Mortgage (ATR/QM) rule. As promised in their July 2013 notices to sellers, the issuances (i) detail new mortgage eligibility requirements (e.g., retirement of mortgages with original maturities in excess of 30 years and making mortgages with prepayment penalties ineligible for sale) (ii) revise thresholds for points and fees, (iii) revise higher-priced mortgage loans eligibility requirements, and (iv) remind sellers of other policies, including those related to the representation and warranty framework announced in September 2012. The changes take effect when the ATR/QM rule goes into effect on January 10, 2014.

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CFPB Releases Updated Ability-to-Repay/Qualified Mortgage Rule Implementation Resources

On August 14, the CFPB released an updated small business guide for the ability-to-repay / qualified mortgage rule it finalized early this year. The CFPB also released (i) a video that provides an overview of the rule and the recent changes and (ii) implementation guidance. The updated guide incorporates clarifications and amendments to the rules issued on May 29, 2013 and July 10, 2013, respectively. For analyses on the revisions incorporated into the update, see the Special Alerts released by BuckleySandler in May 2013 and July 2013.

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Senate Banking Leaders Offer Bipartisan FHA Reform Bill

On July 15, Senate Banking Committee Chairman Tim Johnson (D-SD) and Ranking Member Mike Crapo (R-ID) released a discussion draft of a bill intended to improve the solvency of the FHA’s Mutual Mortgage Insurance Fund (MMI Fund). As with legislation recently passed by the House, the bill would allow HUD to manage its HECM program through mortgagee letters. Unlike the House bill, this draft further would require that, whenever HUD issues a HECM mortgagee letter, it also initiate a proposed rulemaking that addresses the subject of the mortgagee letter. The bill also would require that, for a mortgage to be eligible for insurance under the HECM program, the mortgage must contain terms and provisions for ensuring property maintenance, establishing escrow accounts, performing financial assessments, or limiting the amount of any payment made available under the mortgage.

In addition, the bill includes changes to the broader FHA insurance program, including provisions similar to those in a bill passed by the House last year with overwhelming bipartisan support. It would, for example, (i) set a minimum annual mortgage insurance premium of at least 55 basis points and increase existing up-front and annual premium caps by 50 basis points, (ii) direct HUD to establish underwriting standards using criteria similar to the CFPB’s criteria for Qualified Mortgages, and (iii) require that the MMI Fund achieve a capital reserve ratio of 3% within 10 years of enactment and establish escalating reporting requirements and program evaluations that take effect immediately if the capital ratio falls below required levels. Further, the bill would, among other things, (i) enhance HUD’s ability to seek indemnification from FHA-approved mortgagees approved to originate loans under the lender insurance program or the direct endorsement program, (ii) expand the criteria HUD uses to compare mortgagee performance and to allow HUD to terminate a mortgagee’s approval on a national basis, and (iii) require HUD to develop a single resource guide for lenders and servicers regarding the requirements, policies, processes, and procedures that apply to loans insured by FHA.

The committee has scheduled a legislative hearing on the bill for July 24, 2013.

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Fannie Mae, Freddie Mac Provide Additional Information Regarding QM Requirements

On July 2, Fannie Mae and Freddie Mac provided lenders additional information about eligibility criteria for mortgages with application dates on or after January 10, 2014. Recently, the FHFA directed Fannie Mae and Freddie Mac to limit future mortgage acquisitions to loans that meet the requirements for qualified mortgages under the CFPB’s ability-to-repay/qualified mortgage rule. The letters state that, effective January 10, 2014, mortgages will be eligible for sale to either entity only if they (i) are fully amortizing, (ii) have terms no longer than 30 years, and (iii) have points and fees of 3% or less of the total loan amount. In addition, both entities will continue to purchase mortgage loans that are exempt from the ability-to-repay rule. Fannie Mae and Freddie Mac anticipate updating policies regarding representations and warranties, as well as certain policies related to loan eligibility in August 2013, and plan to provide information about how they will test for compliance with the new eligibility criteria in September 2013.

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CFPB Publishes 2014 List of Rural Counties

On July 2, the CFPB published a final list of rural and underserved counties for use in 2014. Several of the CFPB’s new mortgage rules include provisions and exceptions related to creditors who operate in predominantly rural or underserved counties, including the ability-to-repay/qualified mortgage rule and the TILA escrows rule. The CFPB notes that the list has changed based on 2010 census data such that some small creditors will lose eligibility for certain mortgage rule exemptions. Based on those changes and extensive feedback the CFPB has received about the definition of rural and underserved counties, the CFPB reminded institutions that it (i) recently revised its ability-to-repay rule to extend the ability to originate balloon QMs to certain small creditors that do not operate predominantly in rural or underserved areas during the period from January 10, 2014, to January 10, 2016, (ii) recently proposed to extend the same treatment to these small creditors for purposes of the high-cost mortgage balloon exemption, and (iii) proposed to extend eligibility for the rural or underserved exemption from the escrow requirement to creditors that operated predominantly in rural or underserved counties in any of the previous three years.

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