Dodd-Frank and Your Business A snapshot of the Consumer Financial Protection Bureau’s proposed rules Marianne Collins, Executive Director & Chief Operating Officer Ohio Mortgage Bankers Association

Consumer Financial Protection Bureau (CFPB) Proposed Rules Qualified Mortgage Qualified Mortgage Qualified Residential Qualified Residential Mortgage Mortgage Integrated Good Faith Estimate/Truth-in- Lending/Closing Statement Integrated Good Faith Estimate/Truth-in- Lending/Closing Statement Home Owner’s Equity Protection Act Changes Home Owner’s Equity Protection Act Changes Servicing Rules Servicing Rules Loan Originator Compensation Loan Originator Compensation

Qualified Mortgage (QM) Ability to Repay Proposal by the Federal Reserve Board, Proposal by the Federal Reserve Board, Final rule by the CFPB Final rule by the CFPB Two proposed alternatives Two proposed alternatives Coverage: Dwelling secured 1-4 family (including 2 nd homes) 1st & 2 nd mortgages, sold and portfolio Coverage: Dwelling secured 1-4 family (including 2 nd homes) 1st & 2 nd mortgages, sold and portfolio Exempt: HELOC, timeshare, reverse, temporary Exempt: HELOC, timeshare, reverse, temporary Includes sold and portfolio loans. No exemptions for GSE’s or government loans Includes sold and portfolio loans. No exemptions for GSE’s or government loans

QM Alternative 1 Safe Harbor Safe Harbor No Negative-amortization, interest only, balloon payments (w/narrow exception) No Negative-amortization, interest only, balloon payments (w/narrow exception) Maximum term of 30 years Maximum term of 30 years Maximum of 3% in points & fees Maximum of 3% in points & fees Must be underwritten at maximum rate permitted in the first 5 years Must be underwritten at maximum rate permitted in the first 5 years Income & assets must be verified Income & assets must be verified

QM Alternative 2 Rebuttable Presumption Rebuttable Presumption Loan must meet all of the requirement of Alternative 1 Loan must meet all of the requirement of Alternative 1 Verify employment status Verify employment status Consideration of DTI and credit history Consideration of DTI and credit history

QM 3% Points and Fee Limit Direct and indirect payments by a consumer to a creditor and mortgage broker as well as their originator employees (double count) Affiliate fees Mortgage insurance premiums in excess of the FHA premium The prepayment penalty on the covered transaction or on an existing loan if it is refinanced by the same creditor.

QM Fees Not Included in 3% 3 rd party fees 3 rd party fees Bone fide discount points Bone fide discount points

QM Failure to Comply Actual damages All fees paid by the consumer and up to three years of finance charges paid by the consumer Court costs and reasonable attorney’s fees associated with the enforcement action Defense against foreclosure

Qualified Residential Mortgage (QRM) Sold loans only Sold loans only Coverage: Principal Dwelling 1 st lien, closed end loan that does not finance initial construction, not a bridge or timeshare, not a reverse mortgage Coverage: Principal Dwelling 1 st lien, closed end loan that does not finance initial construction, not a bridge or timeshare, not a reverse mortgage Exemptions: 2 nd liens, Fannie/Freddie (as long as they are in conservatorship), Government Loans Exemptions: 2 nd liens, Fannie/Freddie (as long as they are in conservatorship), Government Loans Non QRM/Non Exempt=Risk Retention Non QRM/Non Exempt=Risk Retention

QRM Credit Requirements Cannot be currently past due on any debt Cannot be currently past due on any debt No 60 day late payments in the past 24 months No 60 day late payments in the past 24 months No bankruptcy, foreclosure deed-in-lieu, short sale or repossession of personal property in last 36 months No bankruptcy, foreclosure deed-in-lieu, short sale or repossession of personal property in last 36 months

QRM Loan Requirements No Balloons, Negative Amortization, or interest only No Balloons, Negative Amortization, or interest only ARM increases may not exceed 2/6 Caps, underwritten at max rate in 1 st 5 years ARM increases may not exceed 2/6 Caps, underwritten at max rate in 1 st 5 years 3% Maximum points and fees 3% Maximum points and fees Maximum ratios 28/36% Maximum ratios 28/36% Max LTV: 80% purchase, 75% rate/term refi, 70% cash-out refinance Max LTV: 80% purchase, 75% rate/term refi, 70% cash-out refinance Closing costs and down payment paid cash from borrower’s funds Closing costs and down payment paid cash from borrower’s funds Written appraisal Written appraisal No loan assumptions No loan assumptions

Penalty for Making a Non-QRM Loan Risk retention in the amount of 5% of the loan

Integrated Good Faith Estimate (GFE) Truth-in-Lending (TIL) Closing Statement (HUD1) All-in APR (not a Dodd-Frank requirement) All-in APR (not a Dodd-Frank requirement) 0% tolerance for affiliate fees and 3 rd party services that borrower cannot shop 0% tolerance for affiliate fees and 3 rd party services that borrower cannot shop A 5-page closing disclosure would replace the HUD1. Borrower must receive completed form 3 days prior to closing. Changes of more that $100 require another 3 day period A 5-page closing disclosure would replace the HUD1. Borrower must receive completed form 3 days prior to closing. Changes of more that $100 require another 3 day period

Integrated GFE/TIL/HUD1 Concerns All-in APR would cause more loans to become a HPML or HOEPA All-in APR would cause more loans to become a HPML or HOEPA 0% tolerance on 3 rd party fees will mean more lender cures 0% tolerance on 3 rd party fees will mean more lender cures 3-day wanting period will cause purchase contract and rate loan expirations 3-day wanting period will cause purchase contract and rate loan expirations

Home Owner’s Equity Protection Act (HOEPA) (High Cost Loans) Adds purchases and Home Equity Lines of Credit (HELOC), previously refinance only Adds purchases and Home Equity Lines of Credit (HELOC), previously refinance only Excludes reverse mortgages Excludes reverse mortgages Triggers when Annual Percentage Rate (APR) exceeds prime offer rate by 6.5% (8.5% for 2 nd lien), points and fees exceed 5%, or a pre- payment penalty applies for more than 36 months or exceeds 2% of the amount pre-paid. Triggers when Annual Percentage Rate (APR) exceeds prime offer rate by 6.5% (8.5% for 2 nd lien), points and fees exceed 5%, or a pre- payment penalty applies for more than 36 months or exceeds 2% of the amount pre-paid. Requirement to provide list of federally approved homeownership counselors to ALL mortgage applicants Requirement to provide list of federally approved homeownership counselors to ALL mortgage applicants

Servicing Proposal Monthly statements required, to include: Monthly statements required, to include: Explanation of amount due, Past payment breakdown, Transaction activity, Message section, Contact information, Account information section, Delinquency information, Housing counselor information Coupon books acceptable for fixed rate loans, if all information is somewhere in the book Coupon books acceptable for fixed rate loans, if all information is somewhere in the book Exception for small servicers for loans they originated or own, and reverse mortgages Exception for small servicers for loans they originated or own, and reverse mortgages

Servicing Proposal (cont.) day notice of rate/payment changes to Adjustable Rate Mortgages (ARM) day notice of rate/payment changes to Adjustable Rate Mortgages (ARM) Payments credited on the day of receipt Payments credited on the day of receipt Payoffs must be sent within 7 days of receipt of written request Payoffs must be sent within 7 days of receipt of written request Complaints: Acknowledged within 5 days, respond/correct within 30 days (5 days for pay- off resolutions) Complaints: Acknowledged within 5 days, respond/correct within 30 days (5 days for pay- off resolutions) Force-placed insurance: refund to borrower within 15 days of confirmation that he had insurance Force-placed insurance: refund to borrower within 15 days of confirmation that he had insurance Servicers must establish information management policies and procedures Servicers must establish information management policies and procedures

Servicing Proposal Delinquent Borrowers At least 3 separate calls on 3 separate days must be made before the 30 th day of delinquency At least 3 separate calls on 3 separate days must be made before the 30 th day of delinquency Assign contact personnel within 5 days of oral notice. Response within 3 days of customer contact Assign contact personnel within 5 days of oral notice. Response within 3 days of customer contact Early loss mitigation intervention required with 1 st 30 day late payment Early loss mitigation intervention required with 1 st 30 day late payment Written notice by the 40 th day of delinquency Written notice by the 40 th day of delinquency Establish formal policies and procedures Establish formal policies and procedures Small servicers are not exempt Small servicers are not exempt

Loan Originator Compensation Loans with points and fees can only be made if an option at no points and fees is offered Loans with points and fees can only be made if an option at no points and fees is offered No affiliate fees can be charged in a no points and fees option No affiliate fees can be charged in a no points and fees option Reduction in loan officer’s commission allowed if a fee exceeds tolerances and the loan officer could not have known this ahead of time Reduction in loan officer’s commission allowed if a fee exceeds tolerances and the loan officer could not have known this ahead of time Record retention goes from 2 years to 3 Record retention goes from 2 years to 3

THE ROAD AHEAD