CFPB Issues Much-Anticipated Mortgage Rules: Understanding High-Cost Mortgage and Homeownership Counseling Amendments to TILA and RESPA

 

The Consumer Financial Protection Bureau (“CFPB”) has issued the much-anticipated final rules that implement residential mortgage reforms of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”). The rules introduced a wave of new requirements that financial institutions must meet, with the majority becoming effective in January 2014. The new rules are listed below:

  • High-Cost Mortgage and Homeownership Counseling Amendments to the Truth in Lending Act (“TILA”) (Regulation Z) and Homeownership Counseling Amendments to the Real Estate Settlement Procedures Act (“RESPA”) (Regulation X)
  • Escrow Requirements under TILA
  • Ability to Repay and Qualified Mortgage Standards under TILA
  • RESPA and TILA Mortgage Servicing Final Rules
  • Disclosure and Delivery Requirements for Copies of Appraisals and Other Written Valuations Under the Equal Credit Opportunity Act (Regulation B)
  • Appraisals for Higher-Priced Mortgage Loans
  • Loan Originator Compensation Requirements under TILA

Over the next several weeks, PYA will analyze the impact of each of these new rules.  We will start by analyzing the final rule to strengthen consumer protections for high-cost mortgages and homeownership counseling.  Listed below are some of the key aspects of this new rule:

  • The new rule expands the universe of loans potentially covered by the Home Ownership and Equity Protection Act (“HOEPA”) (i.e., home mortgage loans with high interest rates or high fees).  Most mortgage loans secured by a consumer’s principal dwelling, including purchase-money mortgages, refinances, closed-end home-equity loans, and open-end home-equity lines of credit (“HELOC”) are now included within the scope of HOEPA.
  • Loan exemptions from the scope of HOEPA include loans to finance the initial construction of a dwelling, loans originated and financed by housing finance agencies, and loans originated through the United States Department of Agriculture’s Rural Housing Service Section 502 Direct Loan Program.
  • A loan transaction will be considered a high-cost mortgage if any of the following tests are met:
    • The annual percentage rate (“APR”) exceeds the applicable average prime offer rate by more than 6.5 percentage points for most first-lien mortgages, or by more than 8.5 percentage points for a first-lien mortgage if the dwelling is personal property and the transaction is less than $50,000.
    • The APR exceeds the applicable average prime offer rate by more than 8.5 percentage points for subordinate or junior mortgages.
    • The points and fees exceed 5% of the total transaction amount or, for loans below $20,000, the lesser of 8% of the total transaction amount of $1,000 (adjusted annually for inflation).
    • The creditor is permitted to charge or collect a prepayment penalty more than 36 months after the loan closes or permit such fees or penalties to exceed more than 2% (in aggregate) of the amount prepaid.

For loans qualifying as a HOEPA loan, the following restrictions and requirements apply:

  • Balloon payment structures are not permitted unless they are being used to accommodate seasonal or irregular income of the borrower; they are part of a short-term bridge loan; or they are made by creditors operating in rural or underserved areas.
  • Creditors are not permitted to charge prepayment penalties.
  • Creditors are prohibited from financing points and fees.
  • Late fees cannot exceed 4% of the payment that is past due.
  • Fees for providing payoff statements are restricted.
  • Fees for loan modification and payment deferral are banned.
  • Creditors originating HELOCs are required to assess the consumers’ ability to repay.
  • Creditors and brokers are prohibited from recommending a consumer to default on a loan to be refinanced by a high-cost mortgage.
  • Creditors are required to obtain confirmation that a consumer has received counseling before making a high-cost mortgage.
  • Lenders must provide a list of homeownership counseling organizations to consumers within three business days after they apply for a mortgage loan.

To view the final rule to strengthen consumer protections for high-cost mortgages and homeownership counseling click here.  To discuss the impact of the new mortgage rules on your institution, please contact the expert listed below at PYA, (800) 270-9629.

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Learn more about PYA’s Financial Institutions Advisory Services and Financial Institutions Audit & Accounting Services

WE ARE REQUIRED BY IRS CIRCULAR 230 TO INFORM YOU THAT THE FOLLOWING DISCUSSION WAS NOT INTENDED OR WRITTEN TO BE USED, AND IT CANNOT BE USED, NOR RELIED UPON, BY ANY TAXPAYER FOR THE PURPOSE OF AVOIDING ANY PENALTIES THAT MAY BE IMPOSED UNDER FEDERAL TAX LAW. THE ADVICE WAS WRITTEN TO SUPPORT THE PROMOTION OR MARKETING OF THE TRANSACTIONS OR MATTERS ADDRESSED IN THE DISCUSSION. EACH TAXPAYER SHOULD SEEK ADVICE BASED ON ITS PARTICULAR CIRCUMSTANCES FROM AN INDEPENDENT TAX ADVISOR.


Mike Shamblin

Mike Shamblin

Managing Principal of Audit & Assurance Services

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