The CFPB has published a final rule regarding various annual adjustments it is required to make under provisions of Regulation Z (TILA) that implement the CARD Act, HOEPA, and the ability to repay/qualified mortgage provisions of Dodd-Frank.  The adjustments reflect changes in the Consumer Price Index in effect on June 1, 2016 and will take effect January 1, 2017.

The CARD Act requires the CFPB to calculate annual adjustments of (1) the minimum interest charge threshold that triggers disclosure of the minimum interest charge in credit card applications, solicitations and account opening disclosures, and (2) the fee thresholds for the penalty fees safe harbor.  The calculation did not result in a change to the current $1.00 minimum interest charge threshold. The first violation penalty and subsequent violation penalty fees will also remain unchanged at $27 and $38, respectively. However, the latter figure remains “unchanged” because the CFPB corrected its 2016 fee notice, which had erroneously calculated the subsequent violation penalty safe harbor fee as $37. The CFPB is amending the provision to preserve a list of historical thresholds and the corrected figure is effective immediately upon publication in the federal register.

Pursuant to its ability to repay/QM rule, the CFPB must annually adjust the points and fees limits that a loan must not exceed to satisfy the requirements for a QM.  The CFPB must also annually adjust the related loan amount limits.  In the final rule, the CFPB increased these limits to the following:

  • For a loan amount greater than or equal to $102,894 (currently $101,749), points and fees may not exceed 3 percent of the total loan amount
  • For a loan amount greater than or equal to $61,737 (currently $61,050) but less than $102,894, points and fees may not exceed $3,087
  • For a loan amount greater than or equal to $20,579 (currently $20,350) but less than $61,737, points and fees may not exceed 5 percent of the total loan amount
  • For a loan amount greater than or equal to $12,862 (currently $12,719) but less than $20,579, points and fees may not exceed $1,029
  • For a loan amount less than $12,862 (currently $12,719), points and fees may not exceed 8 percent of the total loan amount

The CFPB has published a final rule regarding various annual adjustments it is required to make under provisions of Regulation Z (TILA) that implement the CARD Act, HOEPA, and the ability to repay/qualified mortgage provisions of Dodd-Frank.  The adjustments made by the final rule are effective January 1, 2016.

The CARD Act requires the CFPB to calculate annual adjustments of (1) the minimum interest charge threshold that triggers disclosure of the minimum interest charge in credit card applications, solicitations and account opening disclosures, and (2) the fee thresholds for the penalty fees safe harbor.  The calculation did not result in a change to the current $1.00 minimum interest charge threshold.  However, in the final rule, the CFPB did not change the current penalty fee safe harbor of $27 for a first late payment but decreased the safe harbor for a subsequent violation within the following six months by one dollar to $37.

HOEPA requires the CFPB to annually adjust the total loan amount thresholds that determines whether a transaction is a high cost mortgage when the points and fees are either 5 percent or 8 percent of such amount.  In the final rule, the CFPB decreased the current dollar thresholds from, respectively, $20,391 to $20,350 and $1,020 to $1,017.

Pursuant to its ability to repay/QM rule, the CFPB must annually adjust the points and fees limits that a loan must not exceed to satisfy the requirements for a QM.  The CFPB must also annually adjust the related loan amount limits.  In the final rule, the CFPB decreased these limits to the following :

  • 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

The CFPB’s final rule amending certain provisions of the 2013 Title XIV final mortgage rules which includes a post-consummation points and fees cure mechanism for qualified mortgage loans, became effective on Monday, November 3, when it was published in the Federal Register.  (The only exception is a commentary revision in the final rule dealing with the relationship between the QM cure and the RESPA/Regulation X tolerance cure under the
TILA-RESPA integrated disclosure rule that becomes effective next year.)  The cure provision will apply to loans consummated on or after November 3, 2014 and on or before January 10, 2021.

The CFPB’s final rule also includes an amendment to the exemption in the ability-to-repay rule for certain nonprofits that make mortgage loans to low or moderate income borrowers from certain provisions of the rule if they make no more than 200 dwelling-secured loans per year and meet other specific requirements.  The rule amended the exemption so that subordinate lien loans for down payment assistance and certain other purposes that are interest-free, forgivable, and meet certain other conditions (so-called “soft seconds”) would not count toward the annual 200 loan limit.

In an announcement also published in the November 3 Federal Register, HUD announced that it was adopting the CFPB’s amendment to the nonprofits exemption for purposes of HUD’s QM rule that applies to FHA-insured mortgages.  However, HUD also announced that it was not adopting the CFPB’s post-consummation QM cure mechanism for purposes of HUD’s QM rule.  Among the reasons given by HUD is that FHA loans must meet all eligibility requirements, including the QM points and fees limit, prior to insurance endorsement and the CFPB’s cure is inconsistent with this requirement because it would allow a points and fees cure beyond insurance endorsement.

 

The CFPB has issued a final rule amending certain provisions of the 2013 Title XIV final mortgage rules.  While in its press release the CFPB describes the amendments as “minor adjustments to its mortgage rules,” the final rule contains several major changes from the CFPB’s proposal.

QM Points and Fees Cure.  Generally, to be considered a qualified mortgage (QM), a mortgage loan must not contain points and fees that exceed three percent (3%) of the loan if the principal is $100,000 or more.  The final rule addresses the scenario when a lender discovers post-consummation that a loan it originated is not a QM because the points and fees exceeded the 3% (or other applicable) cap.

As proposed, the rule creates a procedure permitting the lender to refund the overage amount of points and fees to the borrower within 210 days of consummation and keep the loan’s QM status.  However, while allowing a longer cure period than the proposal’s 120 day period, the final rule only allows a cure for loans consummated on or after the final rule’s effective date and on or before the sunset date of January 10, 2021.  Also unlike the proposal, the final rule includes events that cut off the ability to cure.  The cure is only available prior to the occurrence of any of the following events: (1) the consumer’s institution of an action in connection with the loan; (2) the creditor, assignee or servicer receiving written notice from the consumer that the loan’s points and fees exceed the applicable limit, or (3) the consumer becoming 60 days past due.  And in another significant change from the proposal, the final rule requires the lender to pay interest on the points and fees overage at the contract rate applicable during the period from consummation until payment is made to the consumer.

The final rule includes a requirement for the lender to maintain and follow policies and procedures for “post-consummation review of points and fees” (but expressly does not require a full loan review as some commenters thought the proposal would have mandated).  However, the final rule does not include the CFPB’s proposed requirement that the lender must have originated the mortgage loan in good faith as a QM.

Alternative Small Servicer Definition.  Under the RESPA-TILA mortgage servicing rules, “small servicers” (as defined by the servicing rules) are exempt from certain provisions of the rules if they service 5,000 or fewer mortgage loans annually and meet other requirements.  The CFPB proposed an alternative definition of a small servicer to address concerns that nonprofits that receive fees to service loans for other associated nonprofits might not be able to qualify for the small servicer exemption.  As proposed, the final rule expands the definition of a small servicer to include a nonprofit entity that services 5,000 or fewer mortgage loans, including any mortgage loans services on behalf of associated nonprofit entities, for all of which the servicer or an associated nonprofit is the creditor.

Nonprofit Lender Exemption from ATR Provisions.  The ability-to-repay (ATR) rule exempts certain nonprofits that make mortgage loans to low or moderate income borrowers from certain provisions of the rule if they make no more than 200 dwelling-secured loans per year and meet other specific requirements.  As proposed, the final rule amends the exemption so that subordinate lien loans for down payment assistance and certain other purposes that are interest-free, forgivable, and meet certain other conditions (so-called “soft seconds”) would not count toward the annual 200 loan limit.

Effective Date.  Except for a commentary revision dealing with the relationship between the QM cure and the RESPA/Regulation X tolerance cure under the TILA-RESPA integrated disclosure rule that becomes effective next year, the final rule becomes effective upon its publication in the Federal Register.  Under Regulation X, if any charges at settlement exceed the charges listed in the good faith estimate by more than the permitted tolerance, the lender can cure the tolerance violation by reimbursing the amount by which the tolerance was exceeded on or within 30 calendar days after settlement.  The final rule adds a comment that provides that amounts paid to a consumer pursuant to the QM cure can be offset by amounts paid to the consumer pursuant to the RESPA/Regulation X tolerance cure to the extent the amount paid to cure the tolerance violation is being applied to points and fees.  Effective August 1, 2015, to coincide with the effective date of the CFPB’s final rule integrating the TILA and RESPA application and closing disclosures, that comment will be replaced with a substantially similar new comment that references the tolerance cure provision in the TILA-RESPA integrated disclosure rule.

Unaddressed Issues.  In its proposal, the CFPB requested comments on two additional issues: (1) whether and how to provide for a cure provision for QM loans that inadvertently exceed the 43% debt-to-income ratio required under the ATR rule; and (2) the credit extension limit applicable to the small creditor exemption under various Dodd-Frank rules.  The final rule does not address these issues.  In the final rule’s supplementary information, the CFPB states that it is considering comments submitted on these issues and whether to address them in a future rulemaking.

 

 

 

The CFPB has published a final rule regarding various annual adjustments it is required to make under provisions of Regulation Z (TILA) that implement the CARD Act, HOEPA, and the ability to repay/qualified mortgage provisions of Dodd-Frank.  The adjustments made by the final rule are effective January 1, 2015. 

The CARD Act requires the CFPB to calculate annual adjustments of (1) the minimum interest charge threshold that triggers disclosure of the minimum interest charge in credit card applications, solicitations and account opening disclosures, and (2) the fee thresholds for the penalty fees safe harbor.  The calculation did not result in a change to the current $1.00 minimum interest charge threshold.  However, in the final rule, the CFPB increased the current penalty fee safe harbor of $26 for a first late payment and $37 for a subsequent violation within the following six months to, respectively, $27 and $38. 

HOEPA requires the CFPB to annually adjust the total loan amount threshold that determines whether a transaction is a high cost mortgage when the points and fees are either 5 percent or 8 percent of such amount.  In the final rule, the CFPB increased the current dollar thresholds from, respectively, $20,000 to $20,391, and $1,000 to $1,020.  

Pursuant to its ability to repay/QM rule, the CFPB must annually adjust the points and fees limits that a loan must not exceed to satisfy the requirements for a QM.  The CFPB must also annually adjust the related loan amount limits.  In the final rule, the CFPB increased these limits to the following :

  • For a loan amount greater than or equal to $101,953 (currently $100,00), points and fees may not exceed 3 percent of the total loan amount
  • For a loan amount greater than or equal to $61,172 (currently $60,000) but less than $101,953 (currently $100,000), points and fees may not exceed $3,059 (currently $3,000)
  • For a loan amount greater than or equal to $20,391 (currently $20,000) but less than $61,172 (currently $60,000), points and fees may not exceed 5 percent of the total loan amount
  • For a loan amount greater than or equal to $12,744 (currently $12,500) but less than $20,391 (currently $20,000), points and fees may not exceed $1,020 (currently $1,000)
  • For a loan amount less than $12,744 (currently $12,500), points and fees may not exceed 8 percent of the total loan amount

While Director Cordray’s appearance at the House Financial Services Committee’s hearing on the CFPB’s fifth Semi-Annual Report yesterday was accompanied by the usual dose of political theater, his testimony did yield the following items of noteworthy information: 

  • The CFPB will be issuing a white paper later this summer regarding use of the proxy methodology for identifying discrimination in indirect auto financing.  In March 2013, the CFPB issued its bulletin warning banks and finance companies that purchase motor vehicle installment sales contracts that, under existing law, any dealer finance charge participation may violate the Equal Credit Opportunity Act and Regulation B.  Since that time, industry and numerous members of Congress have been pressing the CFPB for information as to how it determines that practices that are neutral on their face are nonetheless discriminatory.
  • The CFPB is considering the issuance of advisory opinions “in appropriate cases,” with Director Cordray acknowledging that the CFPB “can probably do more in this area” and stating that “you will see more from us in this area.”  During the hearing, both Democratic and Republican committee members voiced support for the CFPB’s use of advisory opinions to provide guidance to industry.  (Among the CFPB-related bills passed last week by the House Financial Services Committee was H.R. 4662, titled the “Bureau Advisory Opinion Act,” which would require the CFPB to establish a process for issuing advisory opinions.)
  • In the fall, the CFPB will begin the process of convening panels under the Small Business Regulatory Enforcement Act in connection with a proposed small dollar loan rule.
  • By the end of this summer, the CFPB plans to also issue a white paper on issues related to manufactured housing loans.  Both Republican and Democratic committee members, as well as the manufactured housing industry, have charged that the CFPB’s new mortgage rules have severely restricted the ability of moderate and low income consumers to obtain financing to purchase manufactured homes.  Director Cordray acknowledged at the hearing that the CFPB had received data from leading manufactured housing lenders.
  • The Department of Defense (DOD) will soon be sending a proposed rule to the Office of Management and Budget to implement amendments to the Military Loan Act (MLA) enacted in January 2013.  The amendments directed the DOD to consult with the CFPB, FTC and federal banking regulators, in developing the proposal.  The proposal is expected to include an expansion of MLA coverage.  Current MLA regulations impose a 36% rate cap on, and prohibit the use of certain terms in connection with, extensions of “consumer credit,” which as currently defined, only includes tax refund loans and certain closed-end payday and auto title loans made to active duty armed forces members and their dependents. 

During the hearing, Director Cordray defended the CFPB’s ability-to-repay/qualified mortgage rule against claims that it has reduced the availability of mortgage credit.  He attributed the rule’s “success” in part to the CFPB’s creation of a temporary QM category for mortgage loans that are backed by the GSEs.  (The temporary category covers mortgages that satisfy certain QM criteria and are eligible for purchase, insurance, or guarantee by, Fannie Mae or Freddie Mac while they operate under federal conservatorship or receivership (or a limited-life regulatory entity that is a successor to Fannie Mae or Freddie Mac), the Federal Housing Agency (FHA), the Department of Veterans Affairs, or the Rural Housing Service.)

Several Republican committee members focused their questions on the National Mortgage Database which the CFPB is developing jointly with the FHA.  The database is being built using a nationwide sampling of credit bureau files on mortgage loans.  As did members of the Senate Committee on Banking, Housing and Urban Affairs when Director Cordray appeared before that committee at its hearing last week on the CFPB’s fifth semi-annual report, several House Republicans expressed their concern to Director Cordray regarding the breadth of the information to be collected.  They also expressed concern over the security of the data, a concern that was shared by a Democratic committee member. 

When asked whether the CFPB is working with the FDIC and Department of Justice in connection with Operation Choke Point, Director Cordray responded by saying that the CFPB works regularly with the other agencies on issues involving “know your customer.”  

Not surprisingly, Director Cordray was taken to task by Republican committee members, and defended by Democratic members, as to the amounts the CFPB is spending on its Washington, D.C. office renovations.

 

 

 

H.R. 3211, which amends the Truth in Lending Act’s definition of “points and fees,” was passed by a voice vote in the House of Representatives on June 9, 2014.  

The “points and fees” definition is used to determine whether a mortgage loan triggers application of the TILA high-cost mortgage loan provisions under the points and fees test, and whether a loan satisfies the points and fees limitation to be a qualified mortgage loan under the TILA ability to repay provisions.  The bill amends the definition to clarify that amounts escrowed for insurance are excluded, and to reverse the existing requirement that title charges must be included in points and fees if paid to an affiliate of the creditor.  As amended, title charges are excluded from points and fees, whether paid to an affiliate of the creditor or a non-affiliated company, as long as the charges are reasonable and the creditor receives no direct or indirect compensation from the charges (except as permissible returns under the RESPA affiliated business arrangement provisions). 

The focus now turns to the Senate, in which a companion bill (S. 1577) is under consideration.

 

On May 9, 2014, the Department of Veterans Affairs (VA) issued an interim final rule defining a qualified mortgage (QM) for VA insured and guaranteed loans.  Under the proposed rule, all purchase money origination loans and refinances other than certain interest rate reduction refinance loans (IRRRL) guaranteed or insured by the VA are defined as safe harbor QM loans.  The interim final rule also designates as a QM: (1) any loan that the VA makes directly to a borrower; (2) Native American direct loans; and (3) vendee loans, which are made to purchasers of properties the VA acquires as a result of foreclosures in the guaranteed loan program.  The rule is effective May 9, 2014. 

The VA’s rule will replace the CFBP’s temporary QM rule that exempts VA loans from the strict 43 percent DTI ratio threshold that applies to general QM loans.  In general, all VA loans are safe harbor QM loans regardless of whether the loan is a high cost mortgage or exceeds the CFPB’s DTI ratio limit, subject to certain exceptions pertaining to VA IRRRLs.  Consequently, the APR and DTI ratio on a VA loan has no effect on its safe harbor status.

Note that while all VA IRRRLs (also known as streamlined refinance loans) are considered QM loans, not all such IRRRLs are safe harbor QM loans.  However, the VA IRRRLs that are not classified as safe harbor QM loans are still entitled to a rebuttable presumption that they meet the ability-to-repay requirements.  In order for a VA IRRRL to be considered a safe harbor QM, the loan must meet the following conditions:

  • The loan being refinanced was originated at least 6 months before the new loan’s closing date
  • The veteran has not been more than 30 days past due during the 6 months preceding the new loan’s closing date
  • The recoupment period for all allowable fees and charges financed as part of the loan or paid at closing does not exceed 36 months
  • All other VA requirements for guaranteeing an IRRRL are met.

In addition, VA IRRRLs are excluded from the CFPB’s income verification requirements if seven enumerated criteria are met, including the condition that the total points and fees do not exceed 3% of the total loan amount.  Note that the VA did not incorporate the higher point and fee limits for streamlined refinance loans below $100,000.  The VA estimates that the exemption will shorten the closing time for qualifying streamlined refinances by 2-4 weeks.

In adopting the interim final rule, the VA noted that of the loans that the VA guaranteed in FY 2013 over 95,000 would have exceeded the CFPB’s strict 43% DTI ratio, and nearly 5,000 would have exceeded the APR limit to qualify for the QM safe harbor. The VA stated that it needed to address and ease concerns of veterans, lenders, and investors on the potential effect of the QM requirements on the VA’s programs, and issued this interim final rule to provide legal certainty and re-stabilize the market for VA loans.

Please note that the VA has provided a short, 30-day comment period for the interim final rule.  Comments are due on or before June 9.

The House Financial Services Committee has announced that on Tuesday, January 14, it will hold a hearing entitled “How Prospective and Current Homeowners Will Be Harmed by the CFPB’s Qualified Mortgage Rule.” 

The witnesses scheduled to appear are: (1) Jack Hartings, President and Chief Executive Officer, The Peoples Bank Co., on behalf of the Independent Community Bankers of America, (2) Bill Emerson, Chief Executive Officer, Quicken Loans, Inc., on behalf of the Mortgage Bankers Association, (3) Daniel Weickenand, Chief Executive Officer, Orion Federal Credit Union, on behalf of the National Association of Federal Credit Unions, (4)  Frank Spencer, President and Chief Executive Officer, Habitat for Humanity Charlotte, and (5) Michael D. Calhoun, President, Center for Responsible Lending.

With the January 10 effective date imminent, the CFPB has issued what it labels a “fact vs. fiction guide” on its ability-to-repay/qualified mortgage rule.  According to the CFPB, the guide is intended “to help dispel some of the most common misconceptions about what this new rule actually means for consumers.”  

It appears that the primary “misconception” the CFPB seeks to dispel is that the rule’s requirements, which the guide describes as “basic guidelines that lenders can follow,” will make it more difficult for consumers to obtain credit.  In the guide, the CFPB shoots down various “fictions” with “facts” designed to show why lenders should not find the rule’s requirements particularly burdensome and will continue to have wide leeway in their lending practices.  Thus, the CFPB’s presentation appears to portend the defense the CFPB plans to use should the rule prove to have a materially adverse effect on credit availability—namely that any such effect was the result of lender overreaction to the rule rather than the requirements of the rule itself.