Three Additional Rules From CFPB

Agency targets mortgage originations, escrow accounts, and high-cost loans.

July 20, 2012

In May, I summarized three rules the Consumer Financial Protection Bureau (CFPB) is working on: The consolidation of Truth in Lending Act (TIL)/Real Estate Settlement Procedures Act disclosures, the TIL Ability to Repay final rule, and the mortgage servicing proposed rule.

Following are three additional rules the agency is addressing.

Mortgage originator standards

CFPB is developing proposed regulations to implement amendments the Dodd-Frank Act made to TIL and to Regulation Z’s loan originator compensation standards.

Before the Dodd-Frank Act, the Federal Reserve Board, as part of its August 2009 proposed rule pertaining to closed-end credit, sought to protect consumers from unfair or abusive lending practices that can arise from certain loan originator compensation practices.

The Fed published a final rule on loan originator compensation in September 2010. It prohibits making certain compensation payments to loan originators based on loan terms (i.e., annual percentage rate [APR]) and steering consumers to loans not in their best interest because doing so would result in greater compensation for the loan originator. The rule became effective in April 2011.

As added by the Dodd-Frank Act, many of the new provisions in TIL section 129B(c) have largely codified the approach taken in the Fed’s rules concerning loan originator compensation. However, section 129B(c) also has some provisions the Fed’s rules didn’t address.

Dodd-Frank Act requirements in some cases impose new or different requirements than the Fed’s loan originator rule. Under Dodd-Frank Section 1400(c), certain provisions concerning loan originator qualifications and compensation automatically take effect Jan. 21, 2013, unless final rules issued on or before that date say otherwise.

CFPB expects to issue proposed regulations clarifying the use of the loan originator’s unique identifier (from the Nationwide Mortgage Licensing System and Registry) on all loan documents, payment of discount and origination points, and antisteering rules sometime after midyear 2012.

High-cost mortgages

CFPB is developing proposed regulations to implement the Dodd-Frank Act’s amendments to TIL and, specifically, to the high-cost mortgage provisions the Home Ownership and Equity Protection Act of 1994 (HOEPA) added to TIL. HOEPA imposes restrictions on, and requires additional disclosures for, certain high-cost mortgages.

Among other changes, the amendments expand the scope of HOEPA coverage by:

 Including home purchase loans and home equity lines of credit;
► Revising the thresholds that trigger HOEPA coverage, including the APR and “points and fees” triggers; and
Covering loans with prepayment penalties that exceed certain thresholds or that extend more than 36 months after the loan closing.

The amendments also add certain restrictions and requirements with regard to HOEPA loans, such as prohibiting the financing, directly or indirectly, of any points and fees; prohibiting prepayment penalties and, in most circumstances, balloon payments; and requiring pre-loan counseling for consumers.

The agency expects to issue proposed regulations by July 2012.

Escrow accounts

The Fed issued a proposed rule in March 2011 to implement amendments the Dodd-Frank Act made to TIL that lengthen the time for which a mandatory escrow account established for a higher-priced mortgage must be maintained.

In addition, the Fed’s proposal would implement the Dodd-Frank Act’s disclosure requirements regarding escrow accounts. The Fed’s proposal also would exempt certain loans from the statute’s escrow requirement, including mortgages extended by creditors that operate predominantly in rural or underserved areas and meet certain other prerequisites.

CFPB plans to issue a final rule on this in the second half of 2012.

Check for final rule analyses and comment call requests as these rules, and those covered in the May column, are issued by CFPB.

MICHAEL McLAIN is CUNA’s assistant general counsel and senior compliance counsel. Contact him at 608-231-4185.