Fed Issues Final Mortgage Rules

Mandatory compliance dates begin January 1.

January 10, 2011

In May 2009, the Helping Families Save their Homes Act of 2009 was signed into law. Section 404(a) of the Act amended the Truth in Lending Act by adding Section 131(g), which established a new requirement for notifying consumers of the sale or transfer of their mortgage.

Truth in Lending Act Section 131(g) became effective immediately and didn’t require the issuance of implementing regulations. In November 2009, however, the Federal Reserve Board issued an interim rule under Regulation Z that also became effective immediately so mortgage lenders would have guidance on how to interpret and comply with the statutory requirements.

In September 2010, the Fed issued a final rule on Consumer Notification of Mortgage Loan Sales or Transfers based on the November 2009 interim rule. This column provides additional detail about the final rule, which has a mandatory compliance date of Jan. 1, 2011.

Consistent with the statute and interim rule, the final rule applies to all consumer mortgages secured by the borrower’s principal dwelling, whether the transaction is a closed-end mortgage or a home equity line of credit.

Disclosure requirements

Under both the interim and final rule, any party that acquires ownership of an existing mortgage through purchase, assignment, or transfer must provide the required disclosure in writing within 30 days after the loan has been sold, transferred, or assigned.

Disclosures also are required when mortgages are transferred from a merging credit union to a surviving credit union as a result of a merger. The disclosures required by the final rule must state:

  • The name, address and telephone number of the new owner;
  • The transfer date;
  • The name, address, and telephone number of an agent or other party authorized to receive the consumer’s rescission notice and to resolve issues concerning the consumer’s payments on the loan (if other than the owner); and
  • Th e location where the transfer of ownership is recorded.

The final rule applies to any party that acquires more than one mortgage in any 12-month period. A party servicing the mortgage, however, isn’t treated as the owner of the loan if the loan was assigned to the servicer solely for that party’s administrative convenience.

If multiple parties acquire a mortgage, a single disclosure must be provided on behalf of all of the parties.

The interim rule refers to the date of transfer as the “acquisition date.” The final rule was revised to clarify that the date of transfer may be either the date of acquisition recognized by the acquiring party or the date of transfer recognized in the records of the transferring party.

Disclosure exceptions

Under the final rule, the disclosures need not be given if the new owner transfers or assigns all of its interest in the loan to another party on or before the 30th day. A second exception applies when the owner of the mortgage transfers the legal title subject to a repurchase agreement where the owner is obligated to repurchase the loan.

In that case, the acquiring party isn’t required to provide the disclosures. When the original owner doesn’t repurchase the mortgage, however, the acquiring party must make the disclosures within 30 days after the date that the transfer is recognized as an acquisition on its own books and records.

The final rule includes a third exception to the disclosure requirements not included in the interim rule. A party that acquires only a partial interest in the loan doesn’t have to provide the disclosures if the party authorized to receive the rescission notice and resolve loan payment issues doesn’t change as a result of the transfer.

To allow sufficient time to make necessary operational changes, credit unions were permitted to follow the interim rules until Jan. 1, 2011.

Credit unions that were already in compliance with the interim rules, however, should be able to achieve compliance with the final rules without a great deal of effort.

MICHAEL MCLAIN is assistant general counsel and senior compliance counsel for the Credit Union National Association. Contact him at 608-231-4185.