CFPB Updates on Dodd-Frank, Qualified Mortgage Patch
The Consumer Financial Protection Bureau has released its Spring 2019 rulemaking agenda, part of the Unified Agenda of Federal Regulatory and Deregulatory Actions.
Included in the Bureau’s rulemaking is a Notice of Proposed Rulemaking to follow up on an interpretive and procedural rule that it issued in August 2018 to provide clarification regarding Economic Growth, Regulatory Relief, and Consumer Protection Act of 2018 (EGRRCPA) amendments to the Home Mortgage Disclosure Act (HMDA). These created “partial exemptions that allow certain insured depository institutions and insured credit unions not to report certain data points for some transactions.”
The Bureau also announced several new projects down the line. According to the CFPB, after completing an assessment in October 2018 of its rules to implement Dodd-Frank Act requirements for international remittance transfers:
The Bureau issued in April 2019 a request for information to gather information related to the expiration of a statutorily established exception in the Remittance Rule that permits insured banks and insured credit unions to estimate certain required disclosures and other potential remittance transfer issues and related topics.
The Bureau also recently completed an assessment of rules implementing Dodd-Frank Act provisions that require mortgage lenders to determine consumers’ ability to repay loans and define certain ‘qualified mortgages’ that are presumed to comply with the statutory requirements.
As part of its plan, the CFPB notes that it will be focusing its attention on the Qualified Mortgage “Patch” on loans that are eligible to be purchased or guaranteed by either Fannie Mae or Freddie Mac.
In addition, the CFPB will be reviewing existing regulations, such as, “conducting an assessment pursuant to section 1022(d) of the Dodd-Frank Act of its regulations to consolidate various mortgage origination disclosures under the Truth in Lending Act and Real Estate Settlement Procedures Act.”
In May 2019, the CFPB published its plan for conducting reviews consistent with section 610 of the Regulatory Flexibility Act, and also “issued a request for information on the first such review, concerning the impact of certain regulations concerning overdraft services on small banks and credit unions.”
CFPB Assesses Effectiveness of Mortgage Servicing Rule
The Consumer Financial Protection Bureau (CFPB) is planning to assess the effectiveness of the Real Estate Settlement Procedures Act (RESPA) mortgage servicing rule. The rule, introduced in January 2013 and which took effect in January 2014, was designed to assist consumers who were behind on mortgage payments.
Among other things, the RESPA mortgage servicing rule requires servicers to follow certain procedures related to loss mitigation applications and communications with borrowers. Servicers must give, in writing, notices of error within five days, and investigate and respond to the borrowers within 30 days.
Additionally, the RESPA mortgage servicing rule called for greater transparency between the servicer and the borrower. It required clear monthly mortgage statements, early warning before adjusting interst rates, and gave options to avoid fore-placed insurance.
“For many borrowers, dealing with mortgage servicers has meant unwelcome surprises and constantly getting the runaround. In too many cases, it has led to unnecessary foreclosures,” said CFPB Director Richard Cordray of the rule in 2013. “Our rules ensure fair treatment for all borrowers and establish strong protections for those struggling to save their homes.”
Dodd-Frank requires the CFPB to review their rules five years after they take effect, and this includes RESPA. Currently, the Bureau is seeking comment from consumers, consumer advocates, housing counselors, mortgage loan servicers, industry representatives, and the general public regarding the rule, and will issue a report of their assessment by January 2019.
The assessment will give the CFPB better understanding of the costs and benefits of the RESPA mortgage servicing rule, and, according to the Bureau, will provide the public with a better understanding of the mortgage servicing market.
The CFPB’s Information Request can be found here.
CFPB: Assessing our rules: Our reports on the Ability to Repay and Qualified Mortgage Rule and the RESPA Mortgage Servicing Rule
CFPB have published two reports assessing significant CFPB rules: The first assesses the effectiveness of our Ability to Repay and Qualified Mortgage Rule. The second assesses the effectiveness of the Mortgage Servicing Rule we issued under the Real Estate Settlement Procedures Act (RESPA).
For each of our significant rules or orders, section 1022(d) of the Dodd-Frank Act requires the Bureau to conduct an assessment addressing, among other relevant factors, the effectiveness of the rule or order in meeting the purposes and objectives of title X of the Dodd-Frank Act and the specific goals stated by the Bureau. Section 1022(d) further provides that an assessment shall reflect available evidence and any data we reasonably may collect. It also requires us to publish a report of that assessment no later than five years after each rule or order’s effective date.
This somewhat unique statutory requirement places a responsibility on the Bureau to take a hard look at each significant rule we issue and evaluate whether the rule is achieving its intended objectives, as well as title X’s purposes and objectives, or whether it is having unintended consequences with respect to those purposes and objectives. I see this as a valuable opportunity to assure that public policy is being pursued in an efficient and effective manner and to facilitate making evidence-based decisions in the future on whether changes are needed.
The Bureau issued the Ability to Repay and Qualified Mortgage Rule in January 2013 to implement provisions of the Dodd-Frank Act. Those provisions require lenders, before making a residential mortgage loan, to make a reasonable and good faith determination that the consumer has a reasonable ability to repay the loan. The rule took effect in January 2014.
The Bureau also issued the RESPA Mortgage Servicing Rule in January 2013 to implement certain provisions of the Dodd-Frank Act imposing new obligations on mortgage servicers who are generally responsible for billing borrowers for amounts due, collecting payments, disbursing funds, and providing customer service. The rule also added new protections, which the Bureau deemed appropriate or necessary to carry out the consumer protection purposes of RESPA. This rule also took effect in January 2014.
The CFPB’s Office of Research took the lead in conducting our assessments of these rules. Our researchers began work over two years ago in identifying the questions that needed to be asked and in exploring the available data sources to answer those questions. Bureau researchers then developed and solicited public comment on research plans.
The researchers determined that the effects of the rules could be studied to an extent through public and commercially-available data, and, in the case of the Ability to Repay and Qualified Mortgage Rule, with the National Mortgage Database, which the Bureau developed in collaboration with the Federal Housing Finance Agency.
The CFPB also obtained a unique dataset comprised of deidentified, loan-level data from a number of servicers for the assessment of the servicing rule and a separate dataset of deidentified application-level data from a number of creditors for the ATR-QM assessment.
Our researchers also supplemented those data, including with (among other things) results from a survey conducted by the Conference of State Bank Supervisors; by surveying lenders, housing counselors, and legal aid attorneys; by conducting structured interviews with a number of servicers; and careful review of public comments received in response to Bureau requests for information.
I am confident that these reports provide numerous useful findings and insights for stakeholders, policy makers, and the general public about developments in the mortgage market and the effects of the rules on consumers, creditors and servicers.
The issuance of these reports is not the end of the line for the Bureau.
I am committed to assuring that the Bureau uses lessons drawn from the assessments to inform our approach to future assessments and future rulemakings.
We are interested in hearing reactions from stakeholders to the reports’ methodologies, findings, and conclusions. The Bureau anticipates that continued interaction with stakeholders will help inform our future assessments as well as future policy decisions.
Dodd-Frank: Title XIV – Mortgage Reform and Anti-Predatory Lending Act
The 2008 economic depression was triggered in part by the real estate bubble bursting. Mortgages became extremely easy to obtain, and many of those mortgages had predatory provisions that made it difficult for borrowers to pay off the mortgages in the event that their real estate value decreased.
Subtitle A – Residential Mortgage Loan Origination Standards
Title XIV amends the Truth in Lending Act (15 U.S.C. 1631) to establish a duty of care for all mortgage originators, which would require them to be properly qualified, registered and licensed as needed, and to comply with any regulations designed by the Federal Reserve Board to monitor their operations. See 15 U.S.C. § 1639(a), 15 U.S.C. § 1639(b) (Dodd-Frank § 1402). Mortgage originators are prohibited from receiving compensation that is correlated to the face amount of the loan, which should diminish incentives for such originators to steer borrowers towards residential mortgage loans that the borrower cannot repay. See 15 U.S.C. § 1639(b) (Dodd-Frank Act § 1403). Further authority to prohibit deceptive, unfair or predatory loan terms is given to the Federal Reserve Board, which can regulate all residential mortgages to ensure that terms are in the interest of consumers and the public. See id. (Dodd Frank Act § 1405).
Subtitle B: Minimum Standards for Mortgages
Title XIV establishes minimum standards for all mortgage products. Creditors may not make a home mortgage loan unless they reasonably determine that the borrower can repay the loan based on the borrower’s credit history, current income, expected income and other factors. See 15 U.S.C. § 1639(c) (Dodd-Frank Act § 1411). For certain types of mortgages as enumerated in this Title and as will be determined by the Federal Reserve Board, there is a presumption of ability to repay. See id. (Dodd-Frank Act § 1412). There are certain types of prepayment penalties that are prohibited as well. See id. (Dodd-Frank Act § 1414). This Title also establishes that a violation of these minimum standards by a creditor can be used as a defense by a borrower to set off or recoup damages. See 15 U.S.C. 1640 (Dodd-Frank Act § 1413). Of course, if a borrower commits fraud in obtaining the mortgage, the creditor will not be held liable. See id. (Dodd Frank Act § 1417).
In addition, there must be additional disclosures given to any borrowers for home mortgages, both at the time that the mortgage is made, as well as in the monthly loan statements. See 15 U.S.C. § 1638(a) (Dodd-Frank Act § 1419–20).The Comptroller General of the United States (the “Comptroller”) is to conduct a study on the effects of these provisions on the home mortgage market. See Dodd-Frank Act at § 1421.
Subtitle C: High Cost Mortgages
High cost mortgages include first mortgages with an interest rate that is more than 6.5% higher than the average prime offer rate, or a second mortgage with an interest rate more than 8.5% higher than the average prime offer rate, as well as other enumerated definitions. See 15 U.S.C. § 1602 (Dodd-Frank Act § 1431). Additionally, to keep payments on high-cost mortgages lower, this Title prohibits “balloon payments” that rapidly increase so that scheduled payments are eventually twice as large as the average of earlier payments. See 15 U.S.C. § 1639 (Dodd-Frank Act § 1432). Additionally, creditors may not recommend or encourage default on prior loans, impose large late fees, accelerate debt, finance prepayment fees or penalties, points, or fees or structure a loan to avoid such requirements. See id. (Dodd Frank Act § 1433).
Subtitle D: Office of Housing Counseling
Title XIV establishes the Office of Housing Counseling to conduct research and public outreach, and to establish, coordinate and administer all regulations relating to housing and mortgage counseling. See 42 U.S.C. § 3533 (Dodd Frank Act § 1442). This office is responsible for providing information, educational programs, and assistance to borrowers during the mortgage application process. See id. (Dodd Frank § 1443). The Department of Housing and Urban Development, of which the Office of Housing Counseling is a part, is also responsible for conducting a study of defaults and foreclosures and maintaining a database of all foreclosures and defaults for all one-to-four unit residential properties. See id. at §§ 1446–47. In addition, the Secretary of Housing and Urban Development is also responsible for informing potential homebuyers about home inspection counseling services and warning them about foreclosure rescue scams. See 12 U.S.C. § 1701p-2 (Dodd-Frank Act §§ 1451–52).
Subtitle E: Mortgage Servicing
Subtitle E first requires creditors to establish five-year escrow or impound accounts to pay taxes, hazard insurance and any other necessary insurances in most situations. See 15 U.S.C. § 1638 (Dodd Frank Act § 1461). For consumers that waive escrow services, the creditor must provide the consumer with disclosures that clearly explain the consumers’ responsibilities. See id. (Dodd-Frank Act § 1462).
Mortgage servicers are also prohibited from obtaining force-placed insurance without reasonable basis to believe the borrower has not maintained property insurance, charging fees for responding to valid written requests, failing to promptly respond to requests about errors in payment allocation, failing to respond within 10 business days to a request to provide information about the loan owner or failing to comply with any other obligations. See 12 U.S.C. § 2605 (Dodd-Frank Act § 1463).
Subtitle F: Appraisal Activities
The appraisal must be done at the expense of the creditor, and cannot violate appraisal independence by inappropriate influence or compensation between the creditor and appraiser. See id. (Dodd-Frank Act §§ 1471–72).
Subtitle F also provides for annual reports from the Appraisal Subcommittee of the Bureau of Consumer Financial Protection, and regulations to supervise the quality of appraisals, qualifications of appraisal companies, fees, and reporting. See 12 U.S.C. § 3341 (Dodd-Frank Act § 1473).
In addition, theGovernment Accountability Office (“GAO”) is to conduct a study on various appraisal methods, valuation models and the impact on the home valuation code of conduct and the appraisal subcommittee. See Dodd-Frank Act at § 1476.
Subtitle G: Mortgage Resolution and Modification
Subtitle G creates a program to help protect current and future residential tenants by making sure the property owner has sustainable financing, funds for rehabilitation of the property and an easy way to transfer the property to responsible new owners, if necessary. See 12 U.S.C. § 5220b (Dodd-Frank Act § 1481).
Additionally, the Home Affordable Modification Program established under the Emergency Economic Stabilization Act of 2008 will be modified to give more information to the public as well as borrowers whose requests for a mortgage modification are denied. See 12 U.S.C. § 5219a (Dodd-Frank Act §§ 1482–83). Additionally, the Subtitle extends the Protecting Tenants at Foreclosure Act through 2014. See 12 U.S.C. § 5220 (Dodd-Frank Act § 1484).
Subtitle H: Miscellaneous Provisions
Congress first states that the effort to reform residential mortgage credit practices and protections should include meaningful structural reforms of the Federal National Mortgage Association (“Fannie Mae”) and the Federal Home Loan Mortgage Corporation (“Freddie Mac”). See Dodd-Frank Act at § 1491. Additionally, the Subtitle commissions a GAO study on government efforts to catch mortgage foreclosure rescue scams and loan modification fraud, and a Housing and Urban Development study on drywall presence in foreclosures. See id. at § 1492, 1494. The Emergency Homeowners’ Relief Fund is made available beginning October 1, 2010, as is additional funding for neighborhood stabilization programs. See 12 U.S.C. § 2703, 42 U.S.C. § 5301 (Dodd-Frank Act § 1496–97). Finally, this Subtitle establishes a program to provide foreclosure legal assistance to low- and moderate-income homeowners and tenants. See 12 U.S.C. § 1701x-2 (Dodd-Frank Act § 1498).
Title XIV was implemented in order to provide standards for the level of disclosure required for borrowers, so that individuals getting a mortgage would be aware of the obligations and the risks. The Title prohibits certain predatory lending tactics that were used frequently during the real estate bubble, and also establishes certain provisions for loan modifications which will help to change and reduce mortgages that are completely out of the borrower’s ability to repay.