What’s New in Mortgage Lending Compliance?

Michael R. ChristiansSenior Federal Compliance CounselCredit Union National Association

Copyright © 2016 by Credit Union National Association. All rights reserved. These materials may not be reproduced in whole or in part, in any form whatsoever, without the express written permission of Michael Christians and Credit Union National Association.

Disclaimer

• Information provided in this presentation, including all materials, should not be construed as legal services, legal advice, or in any way establishing an attorney-client relationship. Credit unions should contact their own legal counsel for advice. Information may have changed since this presentation was prepared. This information is intended to only be a summary and is not all inclusive.

Today’s Agenda

• Regulation Z 2017 Threshold Adjustments• Amendments to the Definition of Small Creditor• Upcoming Changes to the Home Mortgage Disclosure Act• The CFPB’s Revised Mortgage Servicing Rules

Regulation Z2017 Threshold Adjustments

Home Ownership and Equity Protection Act

• There are 3 ways in which a loan can be classified as a high-cost mortgage

• Based on APR• Based on points and fees• Based on prepayment penalty

Home Ownership and Equity Protection Act

• Current (2016)• If total points and fees charged in

connection with the transaction exceed:

• 5% of the loan amount for loans greater than $20,350

• The lesser of 8% of the loan amount or $1,017 for loans less than $20,350

• Beginning January 1, 2017• If total points and fees charged in

connection with the transaction exceed:

• 5% of the loan amount for loans greater than $20,579

• The lesser of 8% of the loan amount or $1,029 for loans less than $20,579

Ability to Repay / Qualified Mortgages

• Qualified mortgages have certain requirements:• Regular periodic payments• A term not to exceed 30 years• A limitation on points and fees charged in connection with the transaction• A maximum debt-to-income ratio of 43%

Ability to Repay / Qualified Mortgages

Qualified Mortgage Points and Fees Limitation (current 2016)

Loan Amount Points and Fees Cap

>$101,749 3% of the total loan amount

$61,050 to $101,749 $3,052

$20,350 to $61,050 5% of the total loan amount

$12,719 to $20,350 $1,017

<$12,719 8% of the total loan amount

Ability to Repay / Qualified Mortgages

Qualified Mortgage Points and Fees Limitation (beginning January 1, 2017)

Loan Amount Points and Fees Cap

>$102,894 3% of the total loan amount

$61,737 to $102,894 $3,087

$20,579 to $61,737 5% of the total loan amount

$12,862 to $20,579 $1,029

<$12,862 8% of the total loan amount

Amendments to theDefinition of Small Creditor

Small Creditors

• A credit union classified as a small creditor may originate a qualified mortgage (QM) with a debt-to-income ratio of greater than 43%

Small Creditors

• Previous Definition• During the preceding calendar year,

the credit union and its affiliates together originated 500 or fewer covered transactions secured by a first lien; and

• At the end of the preceding calendar year, the credit union had total assets of less than $2.052 billion

• New Definition• During the preceding calendar year,

the credit union and its affiliates together originated 2,000 or fewer covered transactions secured by a first lien; and

• Excludes loans held in portfolio by the credit union

• At the end of the preceding calendar year, the credit union had total assets of less than $2.052 billion

Small Creditors in Rural and/or Underserved Areas• There are additional benefits available to small creditors operating in

rural and/or underserved areas:• The small creditor may originate a qualified mortgage with a balloon payment• The small creditor may originate a high-cost mortgage with a balloon

payment; and• The small creditor is exempt from the requirement to establish an escrow

account in connection with a higher priced mortgage loan in first lien position

Small Creditors in Rural and/or Underserved Areas • Prior to March 31, 2016

• The small creditor had to predominantly operate in a rural and/or underserved area to qualify for the exceptions

• Meaning over 50% of the small creditor’s covered transactions must have been originated in a rural and/or underserved area

• After March 31, 2016• The predominantly requirement was

removed• Now, so long as the small creditor

originates one or more covered transactions in a rural and/or underserved area, it qualifies for the exceptions

Upcoming Changes to theHome Mortgage Disclosure Act

Overview of the Final Rule

• Institutional Coverage Test• Transactions Subject to HMDA• Data Collection• Recording HMDA Data• Reporting HMDA Data • Public Disclosure• Implementation Resources

Institutional Coverage Test

• Phase One• Beginning January 1, 2017, a credit union is NOT subject to HMDA unless it

meets all of the following:• Assets in excess of $44 million• Home or branch office in a Metropolitan Statistical Area (MSA)• Federally insured or regulated • Originated at least 25 home purchase and/or refinance transactions in both 2015 and

2016

Institutional Coverage Test

• Phase Two• Beginning January 1, 2018, a credit union is NOT subject to HMDA unless it

meets all of the following:• Assets in excess of $XX million• Home or branch office in a Metropolitan Statistical Area (MSA)• Federally insured or regulated • Originated at least 1 home purchase and/or refinance transaction in both 2015 and 2016• For closed-end reporting: originated at least 25 closed-end mortgage loans in each of the

two preceding calendar years • For open-end reporting: originated at least 100 open-end mortgage loans in each of the

two preceding calendar years

Transactions Subject to HMDA

• Applications for, originations of and purchases of all loans secured by a dwelling, now including:

• Reverse mortgages • Home equity lines of credit • Business purpose loans secured by a dwelling

Data Collection

• Legal Entity Identifier (LEI): identifier issued to the credit union

• Universal Loan Identifier (ULI): identifier assigned to identify and retrieve a loan or application

• Application date

• Loan type: whether the loan or application is insured by the FHA or guaranteed by the VA, RHS or FSA

• Loan purpose: home purchase, home improvement, refinancing, cash-out or other

• Preapproval: was the application a preapproval request?

• Construction method: is the dwelling site-built or a manufactured home?

• Occupancy type: principal residence, second residence or investment property

• Loan amount

• Action taken

Data Collection

• Date action was taken

• Property address

• State the property is located in

• County the property is located in

• Census tract the property is located in

• Ethnicity of the applicant or borrower

• Race of the applicant or borrower

• Sex of the applicant or borrower

• Age of the applicant or borrower

• Income: gross annual income of the applicant or borrower

Data Collection

• Purchaser: type of entity that purchased the loan

• Rate spread: difference between the APR and the average prime offer rate (APOR)

• HOEPA status: is the loan a high-cost mortgage under the Home Ownership and Equity Protection Act?

• Lien status: first or subordinate lien

• Credit score: credit score and the version of the credit scoring model used

• Reason(s) for denial (if applicable)

• Total loan costs or total points and fees

• Total borrower-paid origination charges

• Discount points

• Lender credits

Data Collection

• Interest rate

• Prepayment penalty: term of prepayment penalty in months

• Debt-to-income ratio

• Combined loan-to-value ratio

• Loan term: term of the loan in months

• Introductory interest rate: number of months that an introductory interest rate is in effect (if applicable)

• Non-amortizing features: does the transaction have a balloon payment, interest-only payments or negative amortization?

• Property value

• Manufactured home secured property type: is the loan secured by a manufactured home AND land or a manufactured home with no land (if applicable)

Data Collection

• Manufactured home land property interest: information about the applicant or borrower’s ownership or leasehold interest in the land where the manufactured home is located (if applicable)

• Number of individual dwelling units in the property

• Multifamily affordable housing units: number of individual dwelling units in the property that are income-restricted under a Federal, state or local affordable housing program

• Application channel: was the application submitted directly to the credit union?

• NMLS identifier for the mortgage loan originator

• Name of any automated underwriting system used by the credit union and the result generated by that system (if applicable)

• Is the loan a reverse mortgage?

• Is the loan an open-end line of credit?

• Is the loan primarily for a business or commercial purpose?

Data Collection – Transition Rules

• Data collection requirement is based on when final action is taken

• Final action taken BEFORE January 1, 2018

• Collect and report HMDA data under the current requirements

• Final action taken AFTER January 1, 2018

• Collect and report HMDA data under the new requirements

• Collection of government monitoring information (GMI) is based on the date the credit union is in a position to collect the information (e.g. application date)

Recording HMDA Data

• Data must be transferred from the application/loan file to your credit union’s Loan Application Register (LAR) within 30 calendar days after the end of the quarter in which final action was taken

Reporting HMDA Data

• Credit unions who reported LESS than 60,000 covered transactions in the previous year

• Report annually by March 1st in the year following data collection

• Credit unions who reported MORE than 60,000 covered transactions in the previous year

• Report quarterly

Reporting HMDA Data – Transition Rules

Effective Dates

In calendar year 2017: Submit 2016 data as required under the current rule and submit to the FRB

In calendar year 2018: Submit 2017 data as required under the current rule and submit to the CFPB

In calendar year 2019: Submit 2018 data as required under the new rule and submit to the CFPB

In calendar year 2020: Submit 2019 data as required under the new rule and submit to the CFPB

Quarterly reporters submit Q1 2020 data to the CFPB

Public Disclosure

• If a member of the general public requests your credit union’s HMDA data, refer them to the Consumer Financial Protection Bureau’s website

Revised Lobby Notice

Home Mortgage Disclosure Act Notice

The HMDA data about our residential mortgage lending are available online for review. The data show geographic distribution of loans and applications; ethnicity, race, sex, age and income of applicants and borrowers; and information about loan approvals and denials. These data are available online at the Consumer Financial Protection Bureau’s Web site (www.consumerfinance.gov/hmda). HMDA data for many other financial institutions are also available at this Web site.

HMDA Implementation Resources

• Consumer Financial Protection Bureau’s HMDA Implementation Page• http://www.consumerfinance.gov/policy-

compliance/guidance/implementation-guidance/hmda-implementation/• Includes:

• Text of the final rule• A key dates timeline• The CFPB’s small entity compliance guide• Institutional coverage charts• A summary of HMDA reportable data

The CFPB’s RevisedMortgage Servicing Rules

Overview of the Final Rule

• Effective Date(s)• Successors in Interest• Standardized Definition of Delinquency• Early Intervention Requirements• Loss Mitigation Applications• Periodic Statements• Other Technical Corrections and Amendments• Implementation Resources

Effective Date(s)

• October 19, 2017• All provisions of the rule except:

• Provisions related to successors in interest

• Provisions related to periodic statements for borrowers in bankruptcy

• April 19, 2018• Provisions of the rule related to:

• Successors in interest • Periodic statements for borrowers in

bankruptcy

Successors in Interest

• The following provisions of Regulation Z are applicable to a confirmed successor in interest:

• 1026.20 – Disclosure requirements regarding post-consummation events

• 1026.36 – Prohibited acts or practices and certain requirements for credit secured by a dwelling

• 1026.39 – Mortgage transfer disclosures• 1026.41 – Periodic statements for

residential mortgage loans

• The following provisions of Regulation X are applicable to a confirmed successor in interest:

• Subpart C – Mortgage Servicing• Includes: mortgage servicing transfers,

error resolution procedures, requests for information, force-placed insurance requirements, early intervention requirements, continuity of contact provisions and loss mitigation procedures

• 1024.17 – Escrow accounts

Successors in Interest

• A person to whom an ownership interest in property securing a mortgage loan is transferred from a borrower, provided that the transfer is:

• A transfer by devise, descent or operation of law upon the death of a joint tenant or tenant by the entirety;

• A transfer to a relative resulting from the death of a borrower;• A transfer where the spouse or child(ren) of the borrower become an owner of the property; • A transfer resulting from a decree of dissolution of marriage, legal separation agreement, or

property settlement agreement by which the spouse of the borrower becomes an owner; or • A transfer into an inter vivos trust in which the borrower is and remains a beneficiary

Successors in Interest

• Confirming a Successor in Interest• The credit union must maintain policies and procedures reasonably designed to:

• Facilitate communication with any potential successor(s) in interest• Notify any potential successor(s) in interest of the documents the credit union will

require to confirm the person’s identity and ownership interest in the property; and• Notify the successor(s) in interest that either:

• Their status has been confirmed or denied; or• Additional documentation is required to confirm their status

Standardized Definition of Delinquency

• Many of the servicing provisions found in Regulation X are triggered by a borrower becoming delinquent

• 1024.39 – Early Intervention Requirements• 1024.40 – Continuity of Contact Provisions• 1024.41 – Loss Mitigation Procedures

• As a result, it is appropriate to have a standardized definition of delinquency applicable to all servicing provisions

Standardized Definition of Delinquency

• Delinquency defined:• A borrower and a borrower’s mortgage loan are delinquent beginning on the

date a periodic payment sufficient to cover principal, interest, and, if applicable, escrow becomes due and unpaid

• Delinquency continues until such time as no periodic payment is due and unpaid

Early Intervention Requirements

• Remember that Section 1024.39 of Regulation X requires your credit union to:

• Make a good faith effort to establish live contact with a delinquent borrower no later than their 36th day of delinquency

• Provide written notice to the delinquent borrower no later than their 45th day of delinquency

Early Intervention Requirements

• Modified early intervention requirements when dealing with a borrower who has filed for bankruptcy protection:

• The credit union is exempt from the 36-day live contact requirement • The credit union is exempt from the 45-day written notice requirement IF:

• No loss mitigation options are available to the delinquent borrower; or• The borrower has made a cease communication request under the Fair Debt Collection

Practices Act (FDCPA)

Early Intervention Requirements• IF required to send the 45-day written notice of delinquency:

• The written notice need only be sent once during a single bankruptcy case• If the borrower is represented by a person authorized to communicate with

the credit union on their behalf, the credit union may provide the written notice to the borrower’s representative

• In general, bankruptcy counsel would be considered the borrower’s representative• A modified written notice of delinquency must be used

• It cannot contain a request for payment• It must contain the following: This is a legally required notice. We are sending this notice to you because you

are behind on your mortgage payment. We want to notify you of possible ways to avoid losing your home. We have a right to invoke foreclosure based on the terms of your mortgage contract.

Loss Mitigation Applications

• Remember that Section 1024.41 of Regulation X requires your credit union to consider a borrower’s application for loss mitigation assistance

• The new rule requires your credit union to consider a borrower’s application for loss mitigation assistance each and every time the borrower experiences a delinquency

• So long as the borrower has brought the loan current since the last time the credit union considered an application for loss mitigation assistance

Loss Mitigation Applications

• Other Loss Mitigation Application Rules:• The credit union must provide written notice to a borrower within 5 days of receiving a completed

application for loss mitigation assistance• The credit union may stop collecting documents and information for a particular loss mitigation option

once it has determined that the borrower is ineligible for that particular option • The credit union may not deny a loss mitigation application solely because it lacks required documents

or information from a third-party• If a foreclosure action is pending and the credit union receives a completed application for loss

mitigation assistance, it must take necessary steps to delay the foreclosure proceeding• A transferee servicer must comply with the timing requirements of Section 1024.41 within the same

timeframes that were applicable to the transferor servicer• If an offer of loss mitigation assistance is pending at the time servicing of a mortgage loan is transferred,

the transferee servicer must provide the borrower with an opportunity to accept or reject that offer of loss mitigation assistance

Periodic Statements

• For Accelerated Loans:• If the balance of a delinquent mortgage loan has been accelerated but the

credit union will accept a lesser amount to reinstate the loan, the amount due as shown on the periodic statement must identify only the lesser amount that will be accepted to reinstate the loan

Periodic Statements

• For Borrowers in Bankruptcy:• A credit union must continue to provide a periodic statement on residential

mortgage loans, even if the borrower has filed for bankruptcy protection, unless an exception applies

• Exceptions• If the borrower has agreed to surrender the property as part of the bankruptcy proceeding; or • The borrower has requested in writing that the credit union cease providing a periodic

statement

Periodic Statements

• For Borrowers in Bankruptcy:• If providing a periodic statement on a residential mortgage loan to a borrower

who has filed for bankruptcy protection, the modified periodic statement must include

Bankruptcy Message

Our records show that you are a debtor in bankruptcy. We are sending this statement to you for informational and compliance purposes only.

If you want to stop receiving statements, write to us.

Periodic Statements

• For Charged Off Loans:• A credit union may cease providing a periodic statement on a residential

mortgage loan that has been charged off so long as• The credit union will charge no additional fees and/or interest on the loan; and• The credit union has provided the member with a final periodic statement on the loan

Periodic Statements

• Sample periodic statement for a charged off loan

Periodic Statement

Suspension of Statements and Notice of Charge Off

• Your loan has been charged off and no additional interest and/or fees will be charged

• We will no longer be providing a periodic statement in connection with this loan

• A lien remains on your property and you remain liable for the mortgage obligation

• The outstanding balance on the mortgage obligation is not being cancelled or forgiven and you may be required to pay the outstanding balance in the future

• The charged off loan may be purchased, assigned or transferred

Other Technical Corrections and Amendments

• The following servicing provisions of Regulation X no longer apply to a mortgage loan if the property securing the loan ceases to be the borrower’s principal residence:

• 1024.39 – Early Intervention Requirements• 1024.40 – Continuity of Contact Provisions• 1024.41 – Loss Mitigation Procedures

Other Technical Corrections and AmendmentsSection 1024.37 of Regulation X pertaining to force-placed insurance notices

• Current• Must contain a statement that the

borrower’s hazard insurance is expiring or has expired and that the credit union does not have evidence that the member has hazard insurance coverage past the expiration date

• New• Must contain a statement that the

borrower’s hazard insurance is expiring, has expired or provides insufficient coverage and that the credit union does not have evidence that the member has hazard insurance coverage past the expiration date or evidence that the member has hazard insurance that provides sufficient coverage

Implementation Resources

• Text of the Final Rule• http://s3.amazonaws.com/files.consumerfinance.gov/f/documents/20160804_cfpb_

Final_Rule_Amendments_to_the_2013_Mortgage_Rules.pdf

• Consumer Financial Protection Bureau’s Mortgage Servicing Implementation Page• http://www.consumerfinance.gov/policy-compliance/guidance/implementation-

guidance/mortserv/• Includes:

• Rules by publication date• Mortgage servicing compliance guide• Executive summary of the 2016 mortgage servicing rule• Fact sheet on the 2016 mortgage servicing rule

Questions?

Thanks for your attendance!

Michael R. ChristiansSenior Federal Compliance CounselCredit Union National Association

202-508-6797mchristians@cuna.coop

@michaelc_CUNAMichael Christians

Read Michael’s posts on CUNA’s CompBlog