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The CFPB recently issued revised TILA/RESPA Integrated Disclosure (TRID) rule guides to reflect the adoption of an amendment to the rule to fix the so-called “black hole” issue.  As we reported previously, the amendment will permit the use of an initial or revised Closing Disclosure to reset tolerances without regard to the timing of when before consummation the creditor learns of a change that causes one or more fees to increase.  The amendment will apply to transactions in process as of June 1, 2018 regardless of when the loan application was received, but the amendment may not be applied retroactively.

The CFPB updated both versions of the Small Entity Compliance Guide and the Guide to Forms.  The reason there are two versions of each guide is to account for the TRID rule amendments adopted last summer that became effective on October 10, 2017, but have a mandatory compliance date of October 1, 2018.  While both versions of each guide now reflect the 2018 TRID rule amendment, one version of each guide does not reflect the 2017 amendments and one version of each guide reflects the 2017 amendments.

The U.S. Department of Housing and Urban Development (HUD) recently announced that it will “formally seek the public’s comment on whether its 2013 Disparate Impact Regulation is consistent with the 2015 U.S. Supreme Court ruling in Texas Department of Housing and Community Affairs v. Inclusive Communities Project, Inc.”

As we reported previously, the regulation provides that liability may be established under the Fair Housing Act (FHA) based on a practice’s discriminatory effect (i.e., disparate impact) even if the practice was not motivated by a discriminatory intent, and that a challenged practice may still be lawful if supported by a legally sufficient justification.  Under the regulation a practice has a discriminatory effect where it actually or predictably results in a disparate impact on a group of persons or creates, increases, reinforces, or perpetuates segregated housing patterns because of race, color, religion, sex, handicap, familial status, or national origin.  The regulation also addresses what constitutes a legally sufficient justification for a practice, and the burdens of proof of the parties in a case asserting that a practice has a discriminatory effect under the FHA.

While the Supreme Court held in its Inclusive Communities Project opinion that disparate impact claims may be brought under the FHA, it also set forth limitations on such claims that “are necessary to protect potential defendants against abusive disparate impact claims.”  In particular, the Supreme Court indicated that a disparate impact claim based upon a statistical disparity “must fail if the plaintiff cannot point to a defendant’s policy or policies causing that disparity” and that a “robust causality requirement” ensures that a mere racial imbalance, standing alone, does not establish a prima facie case of disparate impact, thereby protecting defendants “from being held liable for racial disparities they did not create.”  Significantly, while the Inclusive Communities Project opinion held that liability may be established under the FHA based on disparate impact, the disparate impact claim against the Texas Department of Housing and Community Affairs was later dismissed by the District Court based on the limitations on such impact claims prescribed by the Supreme Court in its opinion.

We have previously reported on a challenge to the HUD regulation by the American Insurance Association and National Association of Mutual Insurance Companies in the federal district court for the District of Columbia.  The trade associations assert that the regulation is not consistent with the limitations on disparate impact claims set forth by the Supreme Court its Inclusive Communities Project opinion.  A status conference was held on May 10, 2018, and HUD filed a notice with the court advising of its intent to solicit comment on the regulation.  The upcoming HUD request for comment will provide the opportunity for the mortgage industry and other interested parties to address whether the regulation reflects the limitations set forth by the Supreme Court and other concerns with the regulation.

We will report on the HUD request for comment once it is released, and hold a webinar on the request following its release.

As we reported previously, the CFPB recently adopted a long-awaited amendment to the TILA/RESPA Integrated Disclosure (TRID) rule that fixes the so-called black hole issue.

The amendment was published in the May 2, 2018 Federal Register and will become effective on June 1, 2018.  The CFPB notes in the supplementary information to the amendment that “[o]nce the final rule becomes effective, the ability to reset tolerances prior to consummation for a given transaction will not be limited by when the application was received.”  Thus, as of June 1, 2018 the flexibility created by the amendment regarding the use of a Closing Disclosure to reset tolerances will be available for both loan applications that are in process at the time, as well as loan applications made on and after such date.  However, the CFPB also made clear that the amendment may not be applied retroactively.

The CFPB, which is now referring to itself as the “Bureau of Consumer Financial Protection,” published the long-awaited final rule to address the so-called “black hole” issue under the TILA/RESPA Integrated Disclosure (TRID) rule.  The CFPB also issued an Executive Summary of the final rule.  The final rule will become effective 30 days after publication in the Federal Register.

Under the TRID rule, a Loan Estimate is the disclosure primarily used to reset tolerances. Because the final revised Loan Estimate must be received by the consumer no later than four business days before consummation, the Commentary to the TRID rule includes a provision under which a creditor may use a Closing Disclosure to reset tolerances if “there are less than four business days between the time” a revised Loan Estimate would need to be provided and consummation.  Because of the four-business-day timing element, in various cases when a creditor learns of a change, the creditor is not able to use a Closing Disclosure to reset tolerances.  This situation is what the industry termed the “black hole.”  The industry repeatedly asked the CFPB to address the black hole issue.  As previously reported in our Mortgage Banking Update, when the CFPB finalized various amendments to the TRID rule last summer, it punted on a prior proposal to address the black hole issue and proposed another rule to address the issue.  The CFPB has now finalized the second proposal.

In the final rule the CFPB removes the four business day timing element, and makes clear that either an initial or a revised Closing Disclosure can be used to reset tolerances.  Consistent with the requirements for the Loan Estimate, when the TRID rule permits a creditor to use a Closing Disclosure to revise expenses, the creditor must provide the Closing Disclosure within three business days of receiving information sufficient to establish that a changed circumstance or other event triggering a change has occurred.

When proposing the amendment last summer, the CFPB requested comments on whether it should impose additional limits on the ability of a creditor to reset tolerances with a Closing Disclosure, such as allowing a reset of tolerances only in certain of the circumstances currently permitted by the TRID rule.  The CFPB decided not to impose additional limits.

The U.S. Senate on March 14 passed S.2155, the Economic Growth, Regulatory Relief, and Consumer Protection Act (the Act), by a vote of 67 to 31.  Although the Act would not make the sweeping changes to the Dodd-Frank Act found in the Financial CHOICE Act of 2017 (CHOICE Act), it, nevertheless, would provide financial institutions welcome relief from a number of specific Dodd-Frank provisions.

Representative Jeb Hensarling, Chairman of the House Financial Services Committee, has indicated that further negotiations between the House and Senate must take place before the House votes on the Act.  House Speaker Paul Ryan has taken a more conciliatory tone, commenting on the need for common sense bipartisan solutions in the final bill.  As a result, while a final bill can be expected to include changes to the Act, it is unclear how substantial those changes will be.  Assuming a final bill signed by President Donald J. Trump retains many, if not most, of the Act’s provisions, the Act should positively impact both smaller and larger financial institutions.  The Act would make a number of changes to provisions of Dodd-Frank and other federal laws regarding consumer mortgages, credit reporting, and loans to veterans and students.

On June 19, 2018, from 12 p.m. to 1 p.m. ET, Ballard Spahr attorneys will hold a webinar: Economic Growth, Regulatory Relief, and Consumer Protection Act: Anatomy of the New Banking Statute.  The webinar registration form is available here.

The Act would also reduce the regulatory burdens on financial institutions—particularly financial institutions with total assets of less than $10 billion.  Bank holding companies with up to $3 billion in total assets would be permitted to comply with less restrictive debt-to-equity limitations instead of consolidated capital requirements.  This change should promote growth by smaller bank holding companies, organically or by acquisition.  Larger institutions should benefit from the higher asset thresholds that would apply to systemically important banks subject to enhanced prudential standards.  The higher thresholds may lead to increased merger activity between and among regional and super regional banks.

Although the banking industry can be expected to view the Act positively should it become law, it falls short of the CHOICE Act in several important respects. The CHOICE Act would:

  • reduce regulatory burdens on institutions based on capital levels irrespective of asset size
  • reduce the Financial Stability Oversight Council’s powers
  • repeal Dodd–Frank’s orderly liquidation authority, and
  • scale back the CFPB’s powers.

For a summary of some of the Act’s key provisions applicable to financial institutions, click here for our full alert.

The CFPB recently issued its final rule amending the timing requirements for transitioning between unmodified periodic statements and modified statements for consumers in bankruptcy.  Initially proposed on October 4, 2017, the CFPB finalized the amendments without further revision.  These changes will go into effect on April 19, 2018, along with the other servicing rule amendments adopted in 2016 that require sending periodic statements to consumers in bankruptcy.  (Part of the 2016 amendments were implemented in October 2017, and the remaining amendments will be implemented April 19, 2018.)

Under the amended rule, the single billing cycle exemption is replaced with a more uniform single statement exemption, when a mortgage servicer transitions between an unmodified and a modified bankruptcy periodic statement.  Accordingly, after a triggering event (e.g., the borrower enters bankruptcy, personal liability is discharged, or the borrower exits bankruptcy), the servicer is exempt from providing the next periodic statement or coupon book that would otherwise be required, regardless of when in the billing cycle the triggering event occurs.  As previously drafted, the exemption applied for the next periodic statement or coupon book only if the payment due date for that ensuing billing cycle was 14 days or less after the triggering event.

The amendments provide welcome help to mortgage servicers by eliminating an aspect of the new bankruptcy requirements that was unnecessarily complex and difficult to operationalize.

 

 

 

On February 8, 2018 the United States House of Representatives passed The Mortgage Choice Act, H.R. 1153, to revise the definition of “points and fees” for purposes of the Regulation Z ability to repay/qualified mortgage requirements and high-cost mortgage loan requirements.  Although a voice vote was held on February 7, Chairman of the House Financial Services Committee Jeb Hensarling demanded a roll call vote.  The roll call vote was 280 to 131.

The Act would amend the definition of “points and fees” for purposes of the requirements to exclude charges for title examinations, title insurance or similar purposes regardless of whether the title company is affiliated with the creditor.  Currently for such charges to be excluded from points and fees the title company must not be an affiliate of the creditor.  The Act also would make a conforming change to exclude escrowed amounts for insurance from points and fees.  Currently escrowed amounts for taxes are excluded from points and fees.

As we reported previously, last year the House passed the Financial CHOICE Act.  The Act included the same amendments to the “points and fees” definition, but was never enacted into law.  Prior bills including the same amendments have suffered the same fate.

The focus now shifts to the Senate.  Because the Mortgage Choice Act would amend Dodd-Frank provisions, that can pose difficulty for Senate passage.  With 52 Democrats joining with Republicans to pass the Act, this may indicate that the Act has a greater chance of success than Financial CHOICE Act.  No Democrats voted for the Financial CHOICE Act, and that Act included more sweeping Dodd-Frank changes than the narrow changes included in the Mortgage Choice Act.

The CFPB has launched a new online “Digital Check Tool” to be used by companies reporting HMDA data starting January 1, 2018.

More specifically, the new tool supports the Universal Loan Identifier (ULI) requirements of the revised HMDA rule.  The CFPB states on its website that the new tool can be used for two functions.  The first function is to generate a two-character check digit when a company enters a Legal Entity Identifier and loan or application ID.  The second function is to validate that a check digit is calculated correctly for any complete ULI a company enters.

The CFPB also made its rate spread calculator available for use with applications on which the final action occurred on or after January 1, 2018.

In notices published in today’s Federal Register, the CFPB adjusted the thresholds of the asset-size exemptions for collecting HMDA data and establishing an escrow account for certain mortgage loans under TILA.

Pursuant to Regulation C, which implements HMDA, depository institutions with assets below an annually adjusted threshold are exempt from HMDA data collection requirements.  In its notice, the CFPB increased the 2017 threshold of $44 million to $45 million for 2018.  Thus, depository institutions with assets of $45 million or less as of  December 31, 2017 will be exempt from collecting HMDA data in 2018.  (An institution’s exemption from collecting data in 2018 does not affect its duty to report data it was required to collect in 2017.)

Regulation Z, which implements TILA, requires creditors to establish an escrow account to pay property taxes and insurance premiums for certain first-lien higher-priced mortgages.  The rule contains an exemption for creditors that operate predominantly in rural or underserved areas that meet certain other criteria, including an annually adjusted asset-size threshold.  In its notice, the CFPB increased the 2017 threshold from $2.069 billion to $2.112 billion for 2018.  Thus, loans made by creditors with assets of less than $2.112 billion on December 31, 2017 that operate predominantly in rural or underserved areas and meet the other exemption criteria will be exempt in 2018 from the TILA escrow account requirement for higher-priced mortgage loans.  The adjustment will increase the similar Regulation Z threshold for small-creditor portfolio and balloon-payment qualified mortgages.