2013 Federation Annual Conference Mortgage Compliance Presented by: Keith Rhodes-Director of Education and Training West Virginia Credit Union League

In 2013 there have already been 3,500 pages of mortgage regulations from the CFPB

How did this all start?

2008 – Mortgage Crisis

Dodd-Frank Act

CFPB

Statutory objectives of CFPB To ensure that consumers have timely and understandable information to make responsible decisions about financial transactions; To protect consumers from unfair, deceptive, or abusive acts or practices, and from discrimination; To reduce outdated, unnecessary, or overly burdensome regulations; To promote fair competition by enforcing the Federal consumer financial laws consistently; and To advance markets for consumer financial products and services that operate transparently and efficiently to facilitate access and innovation.

CFPB’s Jurisdiction  Alternative Mortgage Transaction Parity Act of 1982  Consumer Leasing Act of 1976  Electronic Fund Transfer Act  Equal Credit Opportunity Act  Fair Credit Billing Act  Fair Credit Reporting Act  Home Owners Protection Act of 1998  Fair Debt Collection Practices Act  Federal Deposit Insurance Act  Gramm-Leach-Bliley Act  Home Mortgage Disclosure Act  Home Ownership and Equity Protection Act of 1994  Real Estate Settlement and Procedures Act of 1974  S.A.F.E. Mortgage Licensing Act of 2008  Truth in Lending Act  Truth in Savings Act  Omnibus Appropriations Act  Interstate Land Sales Full Disclosure Act

CFPB Mortgage Rules

Ability to Repay (ATR) and Qualified Mortgage (QM) Rule Effective Jan. 10, 2014 The rule applies to closed-end loans secured by a dwelling except: HELOCs Timeshares Reverse mortgages Temporary or bridge loan (term 12 months or less) Construction phase of construction to permanent

Ability to Repay (ATR) Must make a reasonable and good faith determination that the consumer has the ATR using the eight factors The ATR will depend on the creditor’s standards and how they are applied to each individual’s facts and circumstances

Ability to Repay (ATR) Factors 1. Current income or assets; 2. Current employment status; 3. Credit history; 4. The monthly payment of the mortgage; 5. The monthly payment on any other loans associated with the property; 6. The monthly payment for other mortgage related obligations (such as property taxes); 7. Other debt obligations; and 8. The monthly debt-to-income ratio or residual income the borrower would be taking on with the mortgage

Qualified Mortgage Includes product and underwriting guidelines/restrictions Compliance standard differs if the QM is higher-priced Not higher-priced = safe harbor Higher-priced = presumption

Higher-priced mortgage loan Defined as a covered transaction with an APR that exceeds the average prime offer rate for a comparable transaction as of the date the interest rate is set by 1.5 or more percentage points for a first-lien covered transaction, or by 3.5 or more percentage points for a subordinate- lien transaction

Qualified Mortgage A QM must generally provide for regular periodic payments that are substantially equal. A QM may not have the following features: Negative amortization Interest-only payments Balloon payments A term exceeding 30 years Points and fees in excess of rule limits

QM Points and Fees Different thresholds for points and fees depending on loan amount. Maximum: If loan amount is greater than or equal to $100,000, then points and fees cannot exceed 3% of the total loan amount Minimum: If loan amount is less than $12,500, then points and fees cannot exceed 8% of the total loan amount

QM Underwriting Periodic payment Verification of current or reasonably expected income or assets Verification of current debt obligations, alimony, and child support Debt-to-income ratio not to exceed 43%

Ok, this only one new mortgage regulation with more to come…

CFPB: Upcoming Mortgage Regulations Mortgage Servicing (Reg X & Reg Z) - nine provisions High Cost Mortgages Homeownership Counseling Escrow Reg B Appraisal Reg Z Appraisal Loan Originator Compensation

CFPB's “Small Servicer” Exemption” Small Servicer = a creditor (and its affiliates) that originated 500 or fewer first lien covered transactions in the preceding calendar year AND had total assets of less than $2 Billion So what is a “Small Servicer” and what are they exempted from? A credit union that services 500 or fewer mortgage loans where it is the creditor or assignee will be exempt from certain (not all) of the requirements of CFPB’s new mortgage servicing regulation.

CFPB's “Small Servicer” Exemption” 1. Even if a credit union qualifies for the small servicer exemption, it may retain liability for compliance with the rule if it is using a sub-servicer that does not qualify for the exemption If a credit union use a sub-servicer, NCUA’s regulations require the institution to conduct sufficient due diligence to determine that the third-party servicer is compliant with the new servicing rules.

CFPB's “Small Servicer” Exemption” 2. The exemption applies only to some aspects of the servicing rule. Significant portions apply to all mortgage servicers. All credit unions servicing mortgages must adopt new standards for error resolution and information requests, comply with new restrictions on forced-placed hazard insurance, credit payments promptly, comply with new restrictions on starting foreclosure procedures, and provide new interest-rate change notices with adjustable-rate mortgages.

CFPB's “Small Servicer” Exemption” 3. Beware the inevitable regulatory creep that may require small servicers to adopt the entire mortgage servicing rule despite the exemption. Credit union regulators at the state and federal level will still examine the servicing policies and procedures for all credit unions servicing mortgages regardless of whether they qualify as small servicers. NCUA and state regulators may end up requiring de facto compliance with all of the servicing rule provisions as the means for small servicers to demonstrate the safety and soundness of their mortgage servicing portfolios.

Feeling Overwhelmed!!!

Compliance Best Practices 1. View CFPB’s website for compliance information 2. Form an in-house credit union team that meets regularly regarding compliance 3. Involve credit union management 4. Hold your third party vendors accountable 5. Stay informed through CUNA and your State League/Association for compliance assistance 6. Review all policies and procedures regularly 7. Establish a timetable with achievable deadlines – for upcoming compliance regulations and stick to it 8. Share compliance resources with other credit unions 9. YouTube, yes I said YouTube!

Thank-You!!

QUESTIONS