2 CFPB Update Looking Ahead This presentation is for informational purposes only and is not and may not be construed as legal advice. North American is not a law firm and does not offer legal services of any kind. No third-party entity may rely upon anything contained herein when making legal and/or other determinations regarding title practices. You should consult with an attorney prior to embarking upon any specific course of action.
4 What Is the CFPB? Consumer Financial Protection Bureau Independent bureau within Federal ReserveSystemRegulates offering and provision of consumer financial products or services under Federal consumer financial lawsCreated by Dodd-Frank Wall Street Reform and Consumer Protection Act11Dodd-Frank § 1011(a), 12 United States Code § 5491(a)
5 What Does the CFPB Regulate? Credit CardsMortgagesBank Accounts & ServicesCredit ReportingMoney TransfersDebt CollectionAnd More
7 The 2014 Mortgage Rules Issued: January 2014 (thereafter amended) Effective: January 2014 (most provisions)Location:CFPB Website:Published in Federal RegisterAmend Code of Federal Regulations
8 The 2014 Mortgage Rules (cont.) Ability to Repay and Qualified Mortgage StandardsUnder the TILA1 (Reg. Z)– Effective: 1/10/14; Issued: 1/10/13 (Amended: 5/29/13 & 7/10/13)High-Cost Mortgage and Homeownership Counseling Amendments to the TILA (Reg. Z) and Homeownership Counseling Amendments to the RESPA2 (Reg. X)– Effective: 1/10/14; Issued: 1/10/13 (Amended: 9/13/13 &10/15/13; Interpretive Rule & Summary: 11/8/13)Escrow Requirements under the TILA (Reg. Z)– Effective: 6/1/2014; Issued: 1/10/13 (Amended: 5/16/13, 7/10/13 &9/13/13)1Truth In Lending Act2Real Estate Settlement Procedures Act
9 The 2014 Mortgage Rules 2014 RESPA (Reg. X) & TILA (Reg. Z) Mortgage (cont.)2014 RESPA (Reg. X) & TILA (Reg. Z) MortgageServicing Final Rules– Effective: 1/10/2014; Issued: 1/17/13 (Amended: 7/10/13, 9/13/13 & 10/15/13)Appraisals for Higher-Priced Mortgage Loans– Effective: 1/18/2014; Issued: 1/18/13Disclosure and Delivery Requirement for Copies of Appraisals and Other Written Valuations Under Equal Credit Opportunity Act (Reg. B)– Effective: 1/18/14; Issued: 1/18/13 (Amended: 9/13/13)Loan Originator Compensation Requirements under TILA (Reg. Z)– Effective: § (h) – 6/1/13; Remainder 1/10/14; Issued: 1/20/13(Amended 5/29/13 & 9/13/13)
10 The Impact Lender’s activities in 2014 Review the regulations Upgrade systemsTrain employeesImplement the regulationsComply
11 QM and QRM RulesThe Dodd-Frank Act mandated that, for a residential mortgage, a creditor must make a reasonable and good faith determination based on verified and documented information that a consumer has a reasonable ability to repay an owner-occupied, residential mortgage loan according to its terms. The Ability To Repay Rule provided a series of factors to be considered when making a determination about a borrower’s ability to repay. It also provided a conclusive presumption, or safe harbor against litigation, for QM loans that are not higher-priced loans, and a rebuttable presumption of a borrower’s ability to repay QM loans that are higher-priced loans.
12 QM and QRM RulesBroadly defined, a QM loan has the following requirements:• no negative amortization• no interest-only payments• no balloon payments• no terms in excess of thirty years• verification and documentation of the borrower’s financial resources• points and fees must be less than three percent of the principal amount of the loan (but certain bona fide discount points excluded from this calculation in certain cases)• monthly payments, for purposes of calculations used in determining QM status, based on the highest payment in first five years• total debt to income ratio cannot exceed 43%, except in the case of loans meeting certain government affordability or other standards (e.g., loans meeting Fannie Mae or Freddie Mac requirements, or loans that are eligible for government insurance or guarantees)
13 QM and QRM RulesUnder Dodd-Frank, securitizers of asset-backed securities are required to retain an economic risk (no less than 5%) in the assets collateralizing the asset-backed securities. However, among the exceptions in the proposed rule is that the risk retention requirements do not apply if all of the assets collateralizing the securities are QRMs. Dodd-Frank requires that the definition of QRM be “no broader” than the definition of QM adopted by CFPB. In the proposed rule, issued on April 29, 2011, the QRM Agencies defined QRM as “a closed-end credit transaction to purchase or refinance one-to-four family property at least one unit of which is the principal dwelling of a borrower” and that meets certain criteria. While the criteria for a QRM in the proposed rule are similar to the criteria for a QM set forth in the Ability-to-Repay Rule, there are some significant differences. In particular, the proposed rule defining QRM:(a) capped the interest rate increases for adjustable rate mortgages whereas the QM definition merely clarified how the adjustment should be factored into an Ability-to- Repay determination,(b) contains a maximum loan-to-value ratio of 80% for a purchase money mortgage whereas the QM definition does not establish loan-to-value limits,(c) required a 20% down payment for a purchase money mortgage whereas the QM definition does not require a specific down payment amount, and (d) required a debt-to-income ratio of 36% in contrast to the QM limit of 43%.
14 THE IMPACT – SELLER FINANCING Seller FinancersHave legal obligationsShould seek legal counselMay receive notices and disclaimers from settlement service providersMay be asked to sign acknowledgments of notice and disclaimers or releases of liability
16 In General Dodd-Frank Mandate1: Proposed Rule - Issued: 7/9/12 – Replace existing RESPA and TILA disclosures with single disclosure to include information previously contained in two separate onesProposed Rule - Issued: 7/9/12Final Rule - Issued: 11/20/13Implementation Date: 8/1/151Dodd-Frank § 1032(f), 12 United States Code § 5532(f).
17 Rule Forms New “Loan Estimate” New “Closing Disclosure” Replaces current GFE and initial TILThree pages longNew “Closing Disclosure”Replaces current HUD-1 and final TILFive pages long
18 Loan Estimate Required by 12 CFR § 1026.19(e) Contents in 12 CFR §Provided by lender or mortgage brokerDeliver or place in mail within 3 “businessdays” of application (incl. Saturday if Lender open)With estimated settlement & transactionChargesEstimates subject to tolerances
19 Loan Estimate Page 1 § 1026.37(a)-(c) General Information Loan Terms If answers to questions in this section were “YES” different information would be providedProjected PaymentsIncludes payment schedule & estimated taxes, insurance & assessments
20 Loan Estimate Page 1 § 1026.37(d)-(e) Costs at Closing (cont.)Costs at ClosingWebsite referenceStatement about & link to CFPB website
21 LOAN ESTIMATE PAGE 2 1026.37(F)-(J) Loan CostsOther CostsCalculating Cash to CloseAdjustable Payment (AP)Table*Adjustable InterestRate (AIR) Table**To reduce confusion, these tables are only included if applicable
22 LOAN ESTIMATE PAGE 3 1026.37(K)-(N) Contact InformationComparisonsOther ConsiderationsSignature StatementSignatures not requiredDifferent statements required depending on whether signatureline is or is not included.
23 Closing Disclosure Required by § 1026.19(f) Three business days before closingProvided by:– Lender - § (f)(1)(i)– Lender may rely on Settlement Agent, but Lenderremains responsible for accuracy - § (f)(1)(v)Contents in §
25 Closing Disclosure Page 2 § (f)Loan CostsOrigination ChargesServices Borrower Did Not Shop ForServices Borrower Did Shop ForTotal Loan Costs
26 Closing Disclosure Page 2 § (g)-(h)(cont.)(g) Other CostsPrepaids:Homeowner’s Ins. PremiumMortgage Ins. PremiumPrepaid InterestProperty TaxesOther:HOA Capital Contribution****Real Estate CommissionTitle - Owners title(h) Total Closing Costs
27 CLOSING DISCLOSURE PAGE 3 § 1026.38(I)-(K) Calculating Cash to CloseTolerance amounts shown hereSummary of borrower’stransactionSummary of seller’s transactionItemizations in I and J are like page 1 of today’s HUD-1 Settlement Statement
28 CLOSING DISCLOSURE PAGE 4 § 1026.38(L)-(N) Loan DisclosuresAdjustable Payment (AP) Table*Adjustable Interest Rate (AIR) Table** Tables are only included ifapplicable
30 Closing Disclosure Page Five § (r)-(s)(cont.)(r) Contact Information (Sale)Contact information for:(r) Contact information (Refinance)Contact information for:LenderMortgage BrokerReal Estate Broker (B)Real Estate Broker (S)Settlement AgentLenderMortgage BrokerSettlement Agent(s) Signature Statement
31 Additional Model Forms & Variations Forms differ based on:Sale vs. loan onlySplit forms for:Borrower’s transactionSeller’s transactionAlternative “Calculating Cash to Close” tableEtc.
32 Three Day Advance Disclosure Closing disclosure received 3 business daysbefore “consummation” (closing)Business day includes Saturday whether lender is open or not1Changes requiring a new 3 business daywaiting period2Annual percentage rate becomes inaccurate – most loans 1/8%; certain loans 1/4%Loan product changedPrepayment penalty added112 CFR § (a)(6) 2nd sentence212 CFR § (f)(2)(ii)
33 Three Day Advance Disclosure (cont)If not provided in person (i.e. mailed), add 3business days for presumed receipt1Still have 3 day rescission for refinances2Consumer may not waive the 3 day waiting period except in the event of a “Bona Fide Personal Financial Emergency”3112 CFR § (f)(1)(iii)212 CFR § (not amended by this Final Rule)312 CFR § (f)(1)(iv)
34 Changes & Guidance Amendments to the Final Rule could occur Before August 1, 2015On or after August 1, 2015Official InterpretationsFound in:DetailedSupplement I to Part 1026– Time consuming to issue
35 Thank you Michael Holden Vice President Field Operations and Agency Manager, Great Lakes RegionNorth American Title Insurance Company7550 Lucerne Street, Suite 401Middleburg Heights, OhioDirect/Cell:Fax: