April 30, 2013

Our Mini-Theme: The CFPB's New Mortgage Origination and Servicing Rules

Nicole F. Munro

In last month's Business Law Today, I introduced you to both the Consumer Financial Services Committee and financial services industry's new super-regulator - the Consumer Financial Protection Bureau (CFPB). Creating a brave new world of consumer financial services, the CFPB has vigorously pursued enforcement actions against large banks, engaged in supervisory examinations of "larger participants" and their progeny, enacted sweeping mortgage regulations, adopted regulations on debt collectors and consumer reporting agencies, issued civil investigative demands, commissioned studies on issues relating to federal finances services, and much more.

No one part of the industry has felt the tidal wave of CFPB rulemaking more than the mortgage industry. This BLT mini-theme is dedicated to the myriad of mortgage origination and servicing rules recently enacted by the CFPB.

In this issue, Amy Durant, of Bodman, PLC, in Ann Arbor, Michigan, discusses the requirements of the CFPB's Loan Originator Compensation Rule. The rule includes loan originator qualification requirements, requires the use of unique identifiers on certain loan documents, prohibits mandatory arbitration provisions and the financing of single-premium credit insurance for covered loans, and extends record keeping requirements. It also prohibits upfront points and fees in connection with certain loans, terms that require the borrower to submit a dispute to binding arbitration, and prohibits financing premiums for credit insurance.

Sanford Shatz, of Irvine, California, provides an overview of the CFPB's Ability-to-Repay and Qualified Mortgage Rule, giving historical context for the rule. The Ability-to-Repay Rule requires that a creditor make a "reasonable and good faith determination at or before consummation that the consumer will have a reasonable ability to repay the loan according to its terms." The Dodd Frank Act also provided that "qualified mortgages" are entitled to a presumption that the creditor making the loan satisfied the ability-to-repay requirements. The Qualified Mortgage Rule establishes a safe harbor and creates a conclusive presumption for loans that meet certain criteria and are not high-priced loans that the creditor made a good faith and reasonable determination of the consumer's ability to repay.

Angela Cheek of Mavent, Inc., of Irvine, California, addresses the new rules expanding the types of transactions subject to the Home Ownership and Equity Protection Act of 1994 (HOEPA), revising and expanding HOEPA thresholds, and imposing additional requirements on HOEPA loans. The final rule also amends Regulation Z and Regulation X (RESPA) by imposing homeownership counseling requirements. The article focuses not only the components of the rule, but also on its impact on creditors, brokers, purchasers, and consumers.

After a credit crisis, where mortgage servicing jumped to the forefront of American political discourse, and borrower complaints to federal and state regulators skyrocketed, the CFPB took the opportunity to establish mortgage servicing standards. In her article, The New World of Mortgage Servicing, Lynette Hotchkiss of OneWest Bank, in Pasadena, California, provides an overview of the two mortgage servicing rules amending Regulation X, which implements the Real Estate Settlement Procedures Act, and Regulation Z, which implements the Truth in Lending Act. The rules are nuanced and complicated. Included in her article are explanatory "Sidebars" for clarification.

The Consumer Financial Services Committee focuses on these and other laws affecting the industry on a daily basis. If you joined us in April in D.C., you received but a taste of the complex and detail driven world that is consumer financial services. We welcome you to join the Consumer Financial Services Committee. The benefits are many, and the cost of joining is zero. Please visit us at the CFSC website.

Nicole F. Munro