The CFPB’s Deputy Assistant Director for origination recently warned mortgage lenders of the four main examination priorities for 2016—loan originator compensation plans, the ability-to-repay rule, the TILA-RESPA Integrated Disclosures (TRID) rule, and marketing service agreements.
Speaking at the California MBA Legal Issues Conference, Calvin Hagins indicated that CFPB examiners will spend a substantial amount of time evaluating loan compensation schemes at every exam at every entity. The Regulation Z loan originator compensation rule prohibits loan originators from being paid based on a loan’s terms or a proxy for a loan’s terms. We understand that the CFPB previously has focused on loan originator compensation during exams, and it appears that the CFPB intends to increase efforts to assess compliance with the compensation rule.
Significantly, Mr. Hagins indicated that examinations would assess compliance with the TRID rule in certain situations. Despite requests from the industry, he noted the CFPB did not adopt any exception to complying with the rule during the initial months of implementation, and that there is no grace period. The position appears to be contrary to statements by Director Richard Cordray, which we reported on previously. He has indicated that examinations would evaluate an institution’s compliance management system and overall efforts to come into compliance, and that institutions would be expected to make good-faith efforts to comply. Additionally, Mr. Cordray stated at the MBA Annual Convention: “[W]e recognize that the mortgage industry has already dedicated substantial resources to understand the rules, adapt systems, and train personnel. We know that you are just trying to get it right and that there is no particular advantage to playing fast and loose with these disclosures. And so we and the other regulators have made clear that our initial examinations for compliance with the rule will be sensitive to the progress you have made. In particular, our examiners will be squarely focused on whether you have been making good-faith efforts to come into compliance with the rule. This is the same approach we took in our oversight of the QM rule, which has worked out well for all concerned over the past 21 months. And both HUD and the FHFA—the two key housing regulators whose principal leaders are speaking before and after me today—have announced that the FHA, Fannie Mae, and Freddie Mac will apply the same basic approach in dealing with mortgage loans that are made under the new rule.” Mr. Cordray’s statements do not suggest that examinations will focus at the loan level on compliance with all aspects of the TRID rule; however, Mr. Hagins appears to indicate that examinations will have such focus. We understand that the American Bankers Association confirmed on an informal basis with the CFPB that prior CFPB statements remain valid for entities that have made good faith efforts to comply with the TRID rule, and that the statements by Mr. Hagins were intended to address entities who may have erroneously believed that there was an actual grace period and did not engage in good faith efforts to comply. Finally, while the House has passed a bill that would provide a formal hold harmless period, the Senate has not passed a similar bill, and efforts to include such a period in an omnibus bill have not been successful.
The ability-to-repay rule requires lenders to verify borrowers’ ability to repay their mortgages, either by satisfying criteria to fit into one of the qualified mortgage categories, or by following the general criteria for non-qualified mortgage loans that require a lender to focus on eight factors, including credit history, income or assets, and debt obligations.
Finally, Mr. Hagins stated that the Bureau will be further investigating marketing service agreements (MSAs). The indication that the CFPB will focus on MSAs follows an October 8, 2015, CFPB bulletin that addressed MSAs and their potential negative effects on consumers and implications under the RESPA Section 8 referral fee provisions.