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:
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.
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:
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.
Manager, Lending and Lending Compliance
Thomas LaChac is Manager of P&G Associatesâ€™ Lending and Lending Compliance team, and brings a wide range of experience in regulatory underwriting, quality assurance, regulatory compliance management and the banking and mortgage industries.