Friday, April 19, 2019

The Summer of CFPB Proposals

Posted by Tom July 11, 2012 11:26am

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The Consumer Financial Protection Bureau ("CFPB") is proposing Consumer Mortgage  related changes faster than summer releases at the box office.  Here is a summary of the latest that have come down the pipe from on high:

  • Utilizing the new Consumer Protection Act (Dodd-Frank Act),  the CFPB is proposing new rules and forms that "combine certain disclosures that consumers receive in connection with applying for and closing on a mortgage loan under the Truth in Lending Act and the Real Estate Settlement Procedures Act. Consistent with this requirement, the Bureau is proposing to amend Regulation X (Real Estate Settlement Procedures Act) and Regulation Z (Truth in Lending) to establish new disclosure requirements and forms in Regulation Z for most closed-end consumer credit transactions secured by real property. In addition to combining the existing disclosure requirements and implementing new requirements in the Dodd-Frank Act, the proposed rule provides extensive guidance regarding compliance with those requirements."

What this (1099 page!!!!) proposal appears to do is in substance, rewrite Regulation Z and Regulation X ,  and further burden the industry , and by proxy,  the consumer, with more confusing disclosures, time frames and regulations.  While the goal behind these proposals are admirable,  the industry just went through an upheaval regarding regulatory changes and form disclosures within the past two years , and the dust hasn’t even settled from that.

To view the proposal, click here.

To view a sample of the forms, click here.

It goes without saying that the industry as a whole needs to evaluate these proposals and assist in their final structuring at every step of the process. 

  • High Cost Mortgages, The Sequel -  Secondly, the CFPB has proposed an expansion as to what is considered a high cost mortgage  and further restrict the types and terms of mortgages that fall under this new restriction.  HOEPA currently considers a mortgage as “high cost” if points and fees charged to the borrower  surpass  eight  percent of the total loan  amount.  The last time the our lending team saw such a loan  during an audit engagement was probably back in 2003 during the height of the refinance boom.  The new proposal would lower that threshold to 5 percent for most loans, something again that is almost unheard of in today’s loan market.
What’s more interesting about this proposal is that  it would restrict final balloon payments for such loans;  and completely eliminate prepayment penalties and modification fees. Additionally, it would  put a limit on late charges, and cap charges for a payoff request.

Finally, the proposal would necessitate the need for potential borrowers to receive "housing counseling" prior to closing one of these types of loans.

I think that this is a case where the industry is far ahead of the CFPB, as far as community banks are concerned.   While there may be some unscrupulous lenders still out there, most institutions that the Firm Evaluates pride themselves in low or even no cost mortgages,  and have checks and double checks in their underwriting that ensure that loans sent to them for approval come nowhere near the threshold , current or even proposed.

The full proposal can be found here:

  • Finally, the CFPB, like a summer movie theater, has issued a preview of what’s to come from the Bureau in the immediate future.  Dubbed “Restoring Trust in the Mortgage Market”, the CFPB intends to: “…..Over the next six months ,the Bureau will be proposing and finalizing rules to address the problems consumers often face in each of the three major steps in buying a home − shopping for a mortgage, closing on a mortgage, and paying off a mortgage. In many cases, the CFPB is implementing requirements under the Dodd‐Frank Wall Street Reform and Consumer Protection Act. On all of the below proposals, the CFPB will be soliciting comments from consumers, industry, and other members of the public through the notice and comment process.”

 From what the fact sheet states, what is coming will focus on  points and fees, interest rate changes for ARM  and the nebulous "unexpected" insurance charges. From this I could only surmise that they were referencing mortgage insurance and not homeowners and flood coverage.  There is also a passage regarding Mortgage Servicing and record keeping requirements .

A link to the “fact sheet” can be found here

Needless to say, This is an ….interesting time for the industry as a whole.  The Banking and Mortgage industries need to be directly involved in shaping these proposals to ensure they do not overburden an already  heavily regulated  trade with even more layers of paperwork, bureaucracy and potential for error . There may come a point  for a community bank where it is simply not cost effective from a risk standpoint to engage in such lending activities when the potential for regulatory infraction (and penalty) outweigh the financial benefit of the product.



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