CFPB/Regulatory Changes Impacting Residential Real Estate Sales CFPB Background Qualified Mortgage (Ability to Repay) Qualified Res. Mortgage (Risk Retention) Mortgage Servicing Standards High Cost Mortgages and Appraisals HUD/FHA/Other Current Federal Legislation Resources for Regulatory Updates/Engagement RESPA/TILA Integration

Disclaimer Neither IMBA or Chicago Title are representing legal positions for or using this presentation to inform attendees how to address the regulations/issues discussed. Rather, this is an informational presentation to the attendees of certain aspects of the regulations presented and to promote thoughtful and constructive discussion.

Overview Washington, D.C. impacting mortgage business in three ways*: – Regulations: access to credit & consumer protections – Enforcement: loan level, systemic and the CFPB – Determining the role of government in housing going forward *Brian Chappelle/Potomac Partners

CFPB Background Created through Dodd-Frank Act in 2010 (House Fin. Svcs. Cmte. estimate of 24M hours/year to comply with!) Mission: Make markets work for consumers Conducts rule-making, supervision and enforcement Restrict unfair, deceptive or abusive practices Take consumer complaints Monitor financial markets Enforce laws that outlaw discrimination and other unfair treatment

Qualified Mortgage (Ability to Repay) Issued 1/10/13 and effective with applications as of 1/10/14 (804 pages) Qualified Mortgage – ‘Safe Harbor’ and presumption of compliance with lower priced loans [LT 1.5% above Average Prime Offer Rate (4.38% 7/29/13)] and ‘Rebuttable Presumption’ if higher Max. 43% DTI and fully documented No; balloon, interest only, or, GT 30 years

Qualified Mortgage (cont’d) Max. lender fees of 3% (includes affiliated co’s, private MI above FHA, and, lender payments to brokers) if $100,000 +, $3,000 if $60,000 - $99,999, and, 5% if $20,000 - $59,999 Seller paid charges currently included in 3% (MBA letter 7/13) Referral fees from affiliated companies prohibited Seller financing excluded if LT 6/yr. Borrower qualified at max rate in 1 st 5 years

Qualified Mortgage (cont’d) Temporary provision (7 years) for loans that qualify for; FNMA, FHLMC, FHA, VA and Rural FHFA limiting Fannie/Freddie purchases to QM loans (5/6/13) Small Creditor Exemption - Rural/underserved counties list (Fulton, LaGrange and Starke) Also exempt; hsg. finance agencies (IHCDA) and not-for-profit creditors focused on low/mod. income hsg. (Habitat for Humanity)

Qualified Mortgage (cont’d) HELOCs, bridge financing (LT 12 months), CP loans (LT 12 months), loans for vacant land and multi-family over 4 units exempt Legal costs estimated by MBA for a non QM loan lawsuit are in excess of $70,000/loan, limiting loan options in future! National Association of Federal Credit Unions – Survey indicating 44% of members stopping to originate non QM loans

Qualified Residential Mortgage (QRM) FDIC, FHFA, Federal Reserve, HUD, OCC and SEC proposed August 28 th (505 pages) Requires lenders to retain 5% of the risk for securitized loans for non-QRM loans FNMA, FHLMC, FHA, VA and Rural Housing loans exempt Aligns with QM for risk retention purposes Regulators considering alternative proposal with 30% down payment/equity requirement

High Cost Mortgages Issued 7/9/12, Amended 1/10/13 and Effective 1/10/14 (295 pages) APR 6.5% or more higher than APOR Lender notification to borrower in advance with terms and fees identified Borrowers must receive homeownership counseling (Trade Ass’n Letter to CFPB 6/28) Banned features include; pre-payment penalties, and, late charges over 4%

HPML Mortgage Appraisals Issued 1/18/13 and Effective 1/18/14 (311 pages and excludes QM loans) FDIC, Federal Reserve, FHFA, NCUA and OCC Borrower must receive copy 3 days before closing A 2 nd appraisal required if home sold in within 180 days and SP 10% higher, or, if sold in LT 91 days and 20% higher (QM loans excluded) 2 nd appraisal at no cost to borrower

National Servicing Standards Issued 1/17/13 and Effective 1/10/14 (753 pages) Impacts all servicers with GT 5,000 loans Servicer must provide accurate payoff to consumer in LT 8 business days after written request Restricts ‘dual tracking’ of both modification and foreclosure Servicer must respond to written notices of errors in 5 days and resolve in LT 46 days

National Servicing Stds. (cont’d) Will increase costs associated with servicing Also: Single Point of Contact (SPOC) – $25B national mortgage settlement with state AG’s early 2012 in 49 states with 5 largest servicers FHA settlements approaching $1B

HUD/FHA MMI fund current negative economic value of -$13.48B (heavy reliance on home prices) 4/1/13 loans with credit scores LT 620 manually underwritten MIP raised multiple times recently and again including 2013 MIP will be for life of loan for many borrowers Recent ruling on ‘disparate impact’ (Effective 3/18/13 and focuses on results vs intent!)

Current Legislation H.R Consumer Mortgage Choice Act S Housing Finance Reform and Taxpayer Protection Act of 2013 Protecting American Taxpayers and Homeowners Act (PATH) FHA Solvency Act of 2013

Other FNMA/FHLMC buybacks estimated at $84B since 2007, impacting lenders financially as well as underwriting of current loans U/W productivity/loan slowed dramatically New guideline allowing lender protection after 36 payments on time LO Compensation and CFPB Enforcement – Unforeseen costs and Castle & Cooke Mortgage

Other (cont’d) CFPB ‘Hot Buttons’: steering, fair lending, 3 rd party providers, and, marketing/advertising CFPB Complaint Database: ~58,000 mortgage related with 75% servicing-related and only 2% related to credit/underwriting 2013 CFPB Readiness Guide (22 pages)

Resources for Regulatory Updates NAR Web site ( CFPB ( MBA ( IMBA ( ILTA( tPage.aspx?Site=ILTA&WebCode=HomePage) tPage.aspx?Site=ILTA&WebCode=HomePage Local lender/title business partners

Industry Engagement!!! Industry PAC’s – Contribute to both state and federal Invite state and federal legislators and regulators to industry meetings Calls and s to legislators and regulators Meeting with legislators and regulators MBA Mortgage Action Alliance ADVOCATE AND EDUCATE!

Thanks and questions! Alan Thorup