The more things change, the more they stay the same. And so it is with credit unions’ compliance load, which continues to get heavier. The bulk of last year’s regulatory changes focused on open-end lending and Credit Card Accountability, Responsibility, and Disclosure (CARD) Act implementation—changes that were largely intended to benefit consumers. This year, the focus shifts to amending mortgage regulations also in favor of consumers (but the CARD Act isn’t going away either).
• Mortgage changes this year affect all types of home-secured loans.
• The Dodd-Frank Act’s interchange regulation could have serious bottom-line consequences.
• Board focus: Take a strategic view of your compliance duties, and give staff the tools they need to keep your CU in compliance.
Major regulatory changes in 2011 will fall into three general categories:
1. Mortgage compliance;
2. The Dodd-Frank Wall Street Reform and Consumer Protection Act regulations; and
3. National Credit Union Administration (NCUA) actions.
Mortgage compliance changes are coming fast and furiously, affecting all types of home-secured loans, including closed-end, open-end, and reverse mortgages. The Federal Reserve has issued interim and final rules effective in 2011, including those relating to appraisals, payment schedules, and loan originator compensation.
In this month alone, credit unions must:
• Revise their closed-end mortgage loan disclosure under Regulation Z to provide for the payment schedule in a tabular format;
• Begin an evaluation of their mortgage loan officer compensation structure; and
• Provide risk-based pricing notices when members will receive credit that’s materially less favorable.
Credit unions also should be preparing to register mortgage loan originators under the Safe and Fair Enforcement for Mortgage Licensing Act (SAFE Act). Registration begins this month (barring any unforeseen delays with the registry) and runs through July.
In addition to the final mortgage rules effective this year, two sets of proposed rules—issued by the Fed in 2009 and 2010—are still pending. The 2009 proposal pertains to the disclosures credit unions provide for home equity lines of credit and closed-end home-secured loans at application and closing. These disclosures look entirely different from the current disclosures, but continue the Fed’s current trend of putting disclosures in a “tabular format.”
The 2010 proposed rule provides for changes to the right of rescission, credit protection disclosures, and reverse mortgages. The credit protection disclosures are intended to favor consumers, but the disclosure makes the credit protection product appear to be unfavorable.
It’s unlikely that a final rule based on these proposals will be issued until authority is transferred to the Consumer Financial Protection Bureau (CFPB) under the Dodd-Frank Act (the transfer is set to occur on July 21, 2011). And Dodd-Frank contains additional mortgage rule-making provisions, one of which is to combine the Truth-in-Lending and Real Estate Settlement Procedures Act disclosures so that one disclosure requirement exists for closed-end mortgages.
It’s critical for credit unions to carefully consider the state of mortgage compliance from a strategic planning perspective. These new rules will require changes to documents, processes, and staff training—all of which cost credit unions time and money.