As we have previously discussed, on October 15, 2015, the Consumer Financial Protection Bureau (CFPB) released a final rule amending Regulation C, which implements the Home Mortgage Disclosure Act (HMDA), requiring certain data on mortgage applications and loans to be collected in 2017 by “Covered Institutions.” The 2017 HMDA institutional chart  provides guidance on how to determine whether an institution is covered by Regulation C in 2017.

We also reported on various resources available for HMDA filers. Recently, the “Resources for HMDA Filers” webpage has been updated and is accessible here. As you will see, the 2017 Loan/Application Register (LAR) Formatting Tool has been released. It appears that the focus is lenders with small loan volumes of covered loans and applications, as the Tool is based on Microsoft Excel. In addition, please note that the Filing Instructions Guide for data collected in 2017 is still the July 2016 guide, but the Filing Instructions Guide for 2018 is updated to a January 2017 guide.

A new CFPB report, “A snapshot of servicemember complaints,” focuses on issues related to VA mortgage refinancing.

The report indicates that as of November 1, 2016, the CFPB had received over 12,500 mortgage complaints from servicemembers, veterans, and their dependents.  The CFPB determined based on a key word search of complaint narratives that approximately 18% (about 1,800) of those complaints concern refinance issues.

According to the report, the issues raised in the complaints involve aggressive solicitations, misleading advertisements, and “failed promises” due to processing delays that caused rate locks to expire or otherwise resulted in less favorable terms than expected; a lack of clarity regarding underwriting requirements to obtain a loan; and poor communications causing consumer confusion about changes to monthly payments and escrows.

The CFPB has published a notice in the Federal Register announcing that it has revised its methodology statement for calculating the average prime offer rates (APORs) under Regulations C and Z.

Regulation C requires covered financial institutions to report, for certain transactions, the difference between a loan’s annual percentage rate (APR) and the APOR for a comparable transaction.  Under Regulation Z, a creditor may be subject to certain special provisions if the difference between a loan’s APR and the APOR for a comparable transaction exceeds certain thresholds.

The CFPB calculates APORs on a weekly basis according to a publicly available methodology statement.  The CFPB has revised the statement to reflect a change in the source of survey data for the one-year variable rate mortgage product that it uses to calculate the weekly APORs.  The change was made because Freddie Mac has discontinued publishing the one-year variable rate mortgage data used by the CFPB.  Beginning on July 7, 2016, the CFPB started using data provided by HSH Associates for the one-year variable rate mortgage product.  It continues to use data provided by Freddie Mac for other products in calculating the weekly APORs.

 

As we have reported, the Consumer Financial Protection Bureau (CFPB) released a final rule amending Regulation C, which implements the Home Mortgage Disclosure Act (HMDA), requiring “Covered Institutions” to report certain information about mortgage applications and loans in efforts to create transparency in the mortgage lending process. In connection with the revisions, beginning with data collected in 2017, Covered Institutions will file HMDA data with the CFPB rather than the Federal Reserve Board.

On July 13, 2016, the FFIEC and HUD published the following resources: filing instructions for HMDA data collected in 2017; filing instructions for HMDA collected in 2018; technology preview of the HMDA Platform; and frequently asked questions. These resources can be found on the CFPB website and on the FFIEC website. The filing instructions are updated versions of file specifications for 2017 and 2018 HMDA data that were released earlier this year.

In addition, the CFPB has posted a webinar recently conducted by the CFPB staff that provides an overview of the HMDA final rule.

 

 

 

In its Winter 2016 Supervisory Highlights, which covers supervision work generally completed between September and December 2015, the CFPB highlights violations found by CFPB examiners involving consumer reporting, debt collection, mortgage origination, remittances, and student loan servicing.

The report states that recent non-public supervisory actions have resulted in restitution of approximately $14.3 million to more than 228,000 consumers.  It  indicates that these non-public supervisory actions generally have resulted from CFPB ongoing supervision and/or targeted examinations.  The non-public resolutions involved deposits, debt collection, and mortgage origination.  The report also indicates that the CFPB’s supervisory activities “have either led to or supported” three recent public enforcement actions described in the report that resulted in $52.75 million in consumer remediation and $8.5 million in civil money penalties.

The CFPB’s “supervisory observations” include the following:

  • Credit reporting.  CFPB reviews of compliance with FCRA furnisher obligations focused on furnishers of information to nationwide specialty consumer reporting agencies (NSCRA) that specialize in reporting in connection with deposit accounts and the NSCRAs themselves.  CFPB examiners found that while one or more furnishers generally had policies and procedures regarding FCRA furnishing requirements, they did not have policies and procedures for furnishing deposit account information.  Deficiencies involving deposit account information found at one or more furnishers involved a lack of processes for verifying data furnished to NSCRAs through automated internal systems, the failure to correct and update information furnished to NSCRAs, or the failure to institute reasonable policies and procedures regarding accuracy, including prompt updating of outdated information.  Specifically, CFPB examiners found that although such furnishers would update their records to reflect a consumer’s payment in full of a charged off account, they would not send an update of the change in status from “charged-off” to “paid-in-full” to NSCRAs.  The report also describes various deficiencies found at NSCRAs such as weaknesses in their systems for credentialing of furnishers before accepting deposit account information from a furnisher.
  • Debt collection.  The CFPB observed that the use of exception reports by consumer reporting agencies (CRA) had led to greater accuracy in the information furnished to CRAs.  CFPB examiners found that one or more debt collectors had failed to comply with the general FDCPA requirement to stop contacting a consumer after receiving written notice from the consumer that he or she refuses to pay a debt or wants the collector to stop contacting him or her.  One or more debt collectors were also found to have made false, deceptive, or misleading representations regarding administrative wage garnishment when collecting defaulted student loans for the Department of Education.  Specifically, collectors were found to have threatened garnishment against borrowers who were not eligible for garnishment or to have given borrowers inaccurate information about when garnishment would begin, creating a false sense of urgency.
  • Student loan servicing.  The CFPB describes supervising the student loan servicing market as “a priority” for its supervision program. The CFPB noted that its examiners found improved practices regarding payment allocation and modification practices at some servicers.  CFPB examiners found that one or more student loan servicers had used “auto-default” clauses to place loans into default when a co-borrower filed for bankruptcy, regardless of whether the borrower was current on all payments, or to disclose the potential impact of forbearance on the availability of cosigner release.  Examiners also found that one or more servicers, in connection with “converting” an account to reflect a new loan owner, had incorrectly updated the account by using an interest rate that was higher than the rate for which the borrower was contractually liable.  Such servicers were directed to implement a plan to reimburse all affected borrowers.
  • Mortgage origination.  Deficiencies found by CFPB examiners involved failing to maintain written policies and procedures required by the loan originator rule and weak compliance management systems.
  • Remittances.  The CFPB’s press release notes that the Winter 2016 report is the first Supervisory Highlights to cover exams of banks and nonbanks in the remittance market.  Deficiencies found by CFPB examiners at one or more remittance providers included giving incomplete and/or inaccurate disclosures to consumers, failing to refund cancelled transactions within the required timeframe, and failing to promptly credit consumers’ accounts when errors occurred.

As we previously addressed, the CFPB issued a final rule to expand the definition of “rural areas” under Regulation Z with regard to the authority of small creditors to make certain qualified mortgage loans under the ability to repay rule and avoid the escrow account requirement for certain higher priced mortgage loans. In order to facilitate the designation of additional areas as being “rural,” Congress passed the Helping Expand Lending Practices in Rural Communities Act of 2015 (HELP Rural Communities Act) on December 4, 2015.

The Act requires that within 90 days of the Act’s passage, the CFPB establish an application process for persons or businesses who would like to have a geographic area designated as “rural.” The Act requires that the CFPB take into consideration the following factors which will be used to evaluate applications:

(1) Criteria used by the Director of the Bureau of the Census for classifying geographical areas as rural or urban;

(2) Criteria used by the Director of the Office of Management and Budget (OMB) to designate counties as metropolitan or micropolitan or neither;

(3) Criteria used by the Secretary of Agriculture to determine property eligibility for rural development programs;

(4) The Department of Agriculture rural-urban commuting area codes;

(5) A written opinion provided by the State’s bank supervisor, as defined under section 3(r) of the Federal Deposit Insurance Act (12 U.S.C. 1813(r)); and

(6) Population density.

In its evaluation, the CFPB is not required to consider a designation of “nonrural” of the area subject to review that was previously made by any federal agency identified in these factors and based on any of the criteria set forth in the factors.

Before the CFPB renders its final decision on an application, the public will be given at least 90 days to comment. Within 90 days after the end of the public comment period, the CFPB must grant or deny the application, in whole or in part, and publish its determination in the Federal Register.

To meet the 90 day deadline to establish the application process, the CFPB will issue an enabling procedural rule by March 3, 2016. The CFPB also requests from the OMB by February 29, 2016 emergency processing and approval of a new information collection titled, “Application Process for Designation of Rural Area under Federal Consumer Financial Law.”

The CFPB invites comments on the following:

  1. Whether the collection of information is necessary for the proper performance of the functions of the CFPB, including whether the information will have practical utility;
  2. The accuracy of the CFPB’s estimate of the burden of the collection of information, including the validity of the methods and the assumptions used;
  3. Ways to enhance the quality, utility, and clarity of the information to be collected; and
  4. Ways to minimize the burden of the collection of information on respondents, including through the use of automated collection techniques or other forms of information technology.

Comments are due by April 18, 2016.

In today’s Federal Register the CFPB published a correction to the TILA/RESPA Integrated Disclosure (TRID) rule supplementary information as published on December 31, 2013 with regard to property taxes and certain similar charges.  The move apparently is intended to address an apparent oversight in the TRID rule regarding the treatment for tolerance purposes of property taxes and similar charges paid in advance, but not into an escrow or impound account.  However, it does not appear that the CFPB’s actions actually address the issue in the appropriate manner.

In the pre-TRID rule environment, property taxes, homeowner’s association dues, condominium fees and cooperative fees that a borrower was required to pay in advance to the applicable parties (and not into an escrow or impound account) were not subject to a specific percentage tolerance.  However, based on a typographical error in the supplementary information to the TRID rule, such charges were referred to as charges that were subject to tolerances in both the TRID rule and pre-TRID rule worlds.  While that was unfortunate, the bigger problem was the TRID rule itself.

In the pre-TRID rule environment, fees and charges were not subject to any tolerance unless Regulation X under RESPA specifically provided that the fee or charge was subject to the 0% tolerance or the 10% aggregate tolerance.  The TRID rule takes a different approach in that every fee and charge is subject to the good faith standard, unless there is an express exception.  The good faith standard effectively imposes a 0% tolerance on fees and charges, unless an exception applies.  Due to an apparent oversight, in identifying fees and charges that are not subject to a tolerance the CFPB neglected to list property taxes, homeowner’s association dues, condominium fees and cooperative fees that a borrower is required to pay in advance to the applicable parties (and not into an escrow or impound account).  Thus, it appeared to many in the industry that such items are subject to an effective 0% tolerance.

After this issue was raised with the CFPB with regard to property taxes, the CFPB staff informally advised that property taxes are charges paid for third party services not required by the creditor.  Under the TRID rule, charges paid for third party services not required by the creditor are not subject to any specific percentage tolerance.  The CFPB now states in the Federal Register release that property taxes, homeowner’s association dues, condominium fees and cooperative fees are charges paid for third party services not required by the creditor.  The CFPB also corrects the typographical error in the supplementary information to the TRID rule to provide that property taxes, homeowner’s association dues, condominium fees and cooperative fees are not subject to tolerances.  The CFPB, however, does not actually amend the TRID rule.

It is questionable if the CFPB’s actions address in the appropriate manner the issue regarding property taxes, homeowner’s association dues, condominium fees and cooperative fees that a borrower is required to pay in advance to the applicable parties (and not into an escrow or impound account).  Although the CFPB states that property taxes, homeowner’s association dues, condominium fees and cooperative fees are charges paid for third party services not required by the creditor, often a creditor will require that such items due within a certain period of time after closing be paid by the borrower.  So, in many cases these items are in fact charges that the creditor requires to be paid.  Also, in addressing recording fees, the TRID rule commentary provides that “Recording fees are not charges for third-party services because recording fees are paid to the applicable government entity where the documents related to the mortgage transaction are recorded . . . .”  If recording fees are not charges for third party services, how are property taxes charges for third party services?

The definitive way to address this issue is to simply amend the TRID rule to add an item (F) to section 1026.19(e)(3)(iii) to read as follows: “(F) Property taxes, homeowner’s association dues, condominium fees and cooperative fees, whether or not paid into an escrow, impound, reserve or similar account.”  We hope that the CFPB will act promptly to propose amendments to the TRID rule to address this and other important issues.

 

The CFPB has announced annual adjustments to two asset-size exemption thresholds.  First, the CFPB is making no change to the asset-size exemption threshold under HMDA/Regulation C which is currently set at $44 million.  Banks, savings associations, and credit unions with assets at or below $44 million as of December 31, 2015 will continue to be exempt from collecting HMDA data in 2016.

Second, the CFPB has decreased the asset-size threshold under TILA/Regulation Z for certain small creditors operating primarily in rural or underserved areas to qualify for an exemption to the requirement to establish an escrow account for higher-priced mortgage loans (HPML).  The threshold is currently set at $2.060 billion.  Loans made by creditors operating primarily in rural or underserved areas with assets of less than $2.052 billion as of December 31, 2015 (including assets of certain affiliates) that meet the other Regulation Z exemption requirements will be exempt in 2016 from the escrow account requirement for HPMLs.  (The adjustment will also decrease the asset threshold for small creditor portfolio and balloon-payment qualified mortgages which references the HPML escrow account asset-size threshold.)

Since it is unusual for CFPB annual adjustments to result in reduced thresholds, we want to remind blog readers of the reduced HOEPA and QM points and fee limits that will be effective January 1, 2016.

Effective January 1, the lower limits will be:

  • The total loan amount thresholds that determine whether a transaction is a high cost mortgage when the points and fees are either 5 percent or 8 percent of such amount will be, respectively, $20,350 and  $1,017.
  • The points and fees limits that a loan must not exceed to satisfy the requirements for a QM and related loan amount limits will be:
    • For a loan amount greater than or equal to $101,749 (currently $101,953), points and fees may not exceed 3 percent of the total loan amount
    • For a loan amount greater than or equal to $61,050 (currently $61,172) but less than $101,749, points and fees may not exceed $3,052
    • For a loan amount greater than or equal to $20,350 (currently $20,391) but less than $61,050, points and fees may not exceed 5 percent of the total loan amount
    • For a loan amount greater than or equal to $12,719 (currently $12,744) but less than $20,350, points and fees may not exceed $1,017
    • For a loan amount less than $12,719 (currently $12,744), points and fees may not exceed 8 percent of the total loan amount

Also effective January 1 are revisions to the definitions of “small creditor” and “rural areas” in  Regulation Z and a new requirement to include the assets of the creditor’s affiliates that regularly extended covered transactions in the calculation of the $2 billion asset limit for small-creditor status.

See our previous blog posts for more information on the adjustments and revisions.

The CFPB has issued a final rule amending Regulation C, its Home Mortgage Disclosure Act regulation.  The changes, which, in part, implement the Dodd-Frank Act’s amendments to HMDA, expand the scope of data required to be collected and reported, change the scope of HMDA’s coverage of both institutions and transactions, and adopt new processes for disclosing data.  Most of the new and revised requirements take effect on either January 1, 2018 or January 1,  2019.

Key provisions of the nearly 800-page final rule include the following:

  • Coverage.  The final rule adopts a uniform loan-volume reporting threshold for both depository institutions and for-profit mortgage lending institutions that are not depository institutions.  A financial institution will be subject to Regulation C if it originated at least 25 covered closed-end mortgage loans in each of the two preceding calendar years or at least 100 covered open-end lines of credit in each of the two preceding calendar years, and it meets other applicable coverage requirements.  Banks, savings associations, and credit unions must also meet the current Regulation C asset-size, location, federally related and loan activity tests.  Other for-profit mortgage lending institutions must also satisfy the existing Regulation C location test ( but will no longer be subject to a dollar-volume and asset test).  Covered loans will generally include closed-end mortgage loans and open-end lines of credit secured by a dwelling.   (Only covered institutions that originated at least 100 covered open-end lines of credit in each of the preceding two calendar years will be required to collect and report information about open-end lines of credit.)  Dwelling-secured business purpose mortgage loans and credit lines must also be reported if they are home purchase or home improvement loans or refinancings.  (Only dwelling-secured home improvement loans will have to be reported.  However, the collection and reporting of certain preapproval requests will no longer be optional.)
  • New Information.  The new information that a covered institution must collect and report includes:  (1) an applicant’s or borrower’s age, credit score, and debt-to-income ratio, (2) application channel used (but not for purchased loans) and name of automated underwriting system used, (3) property information, including address, construction method, property value, and certain information for manufactured and multifamily housing, (4) loan feature information, including pricing information such as borrower-paid loan costs and origination fees, discount points, loan term, interest rate, introductory rate period, non-amortizing features, and prepayment penalty term, and (5) unique identifiers, such as a universal loan identifier and loan originator identifier.  A covered institution must also report how it collected information about an applicant’s or borrower’s ethnicity, race or sex (i.e., based on visual observation or surname) when an applicant chose not to provide the information for an application taken in person (and must allow applicants choosing to self-identify to use disaggregated ethnicity and race subcategories).
  • Quarterly reporting.  Beginning in 2020, a covered institution that reported a combined total of at least 60,000 applications and covered loans in the preceding calendar year must submit quarterly HMDA reports.
  • Disclosure.  A financial institution will be able to fulfill its obligation to publicly disclose HMDA data by providing a notice that its disclosure statement and modified loan/application register are available on the CFPB’s website.  The CFPB has not yet determined which new information items will be made publicly available and has stated that it plans use “a balancing test  to determine whether, and if so, how HMDA data should be modified prior to its disclosure in order to protect applicant and borrower privacy while also fulfilling HMDA’s disclosure purposes.”

We are currently preparing a legal alert that will contain a more detailed discussion of the final rule and will share the alert with our blog readers.