CFPB Amends TILA and ECOA Examination Manuals to Cover New Rules

On June 4^th, the CFPB updated its TILA and ECOA examination manuals to encompass rules it issued this past January governing appraisals, escrow accounts, and compensation and qualifications for loan originators.¹  The new sections seek to enhance banks and mortgage lenders’ understanding about how the exams will test compliance with the new rules. Among other things, the new rules:

• Set qualification and screening standards for loan originators; 

• Prohibit steering incentives;

• Prohibit “dual compensation” for loan originators;

• Protect borrowers of higher-priced mortgage loans by increasing the duration of escrow accounts to a minimum of five years;

• Prohibit the waiver of federal claims;

• Generally prohibit mandatory arbitration;

• Require lenders to provide free appraisal reports and written valuations to the consumer; and

• Prohibit a creditor from financing single premium credit insurance with certain mortgage loans.

The CFPB noted these revisions are the first of “what will likely be multiple updates” to the examination manual. The CFPB eventually intends to incorporate all interim examination procedures into the general supervision and examination manual.²

HUD Revises MIP Requirements on FHA Loans

On June 3^rd, HUD issued Mortgagee Letter 2013-04, which increased the duration for mortgage insurance premiums (MIP) on single-family FHA loans (excluding Title I and home equity conversion mortgages).³    Specifically, on FHA loans with loan to value (LTV) exceeding 90%, the MIP now lasts for the entire loan term. The MIP was previously cancelled when the loan amortized to a 78% LTV at five years. Loans with LTV equal to or less than 90%, the MIP will remain for 11 years. HUD also increased the basis points on the annual MIP for each category of FHA loans.

FHA Commissioner Carol Galante later issued a clarification to alleviate concerns that the MIP change would increase the APR on FHA loans, and cause many FHA loans to meet the higher priced mortgage loan (HPML) threshold in Regulation Z, which triggers additional disclosure by the creditor at closing. Galante distinguished HPML and FHA requirements with regard to (1) escrow accounts, (2) appraisals, (3) ability to repay, and (4) prepayment penalties. Among other things, Galante noted that monthly interest accrual amortization, which is permitted by the FHA, is deemed a prepayment penalty under Regulation Z for FHA loans consummated on or after January 21, 2015.⁴  Galante also assured the industry that the FHA is working on its own version of a qualified mortgage to advance “the needs of the marketplace for lender and investor certainty.”

 FDCPA Revisions on the Horizon?

On June 4^th, Senator Sherrod Brown of Ohio (D) sent a letter to Director Cordray urging the CFPB to “take prompt action to correct the innumerable consumer abuses from both creditors and third-party actors in the industry.” Senator Brown specifically advocated that the CFPB consider the following actions to curtail abusive debt collection:

• Require debt collectors, whether primary creditors or third-party collectors, to hold all relevant documentation before issuing their first debt collection notice to the consumer;

• Require that information on prior collection attempts travel with the debt;

• Prohibit the sale of unverifiable debts;

• Eliminate the sale or collection of time-barred debt;

• Issue updated guidance for consumer dispute procedures reflecting the new technological possibilities for documented consumer disputes; and

• Prohibit manipulative issuances of credit products in exchange for the payment of debts.

Senator Brown, the Chair of the Senate Banking Subcommittee on Financial Institutions and Consumer Protection, will hold a hearing in July devoted to alleged abusive practices prevalent in the debt collection industry and potential amendments to the FDCPA.

On June 6^th, the CFPB and FTC hosted a joint debt collection roundtable in Washington, D.C. The panel voiced concern that creditors were failing to verify records that debt collectors rely upon in demanding repayment from the debtor.  Industry groups in attendance urged the CFPB to adopt a national standard as to the paperwork the debt collector must furnish to the debtor prior to litigation. The panel also suggested that further safeguards were warranted to allow consumers to dispute information believed to be inaccurate, and suggested that while the CFPB can tighten oversight, the FDPCA must be amended.

CFPB Releases Proposed Questionnaire to Study Prevalence of Arbitration in Consumer Contracts. There is an August 6 Deadline for Comments

On June 7^th, the CFPB announced it would survey 1,000 credit card holders nationwide in conjunction with its comprehensive study of mandatory, pre-dispute arbitration provisions in consumer financial products. Section 1028 of Dodd-Frank requires the CFPB to conduct a study and report to Congress on the use of arbitration provisions in consumer financial products and to prohibit or limit arbitration if it advances “the public interest and for the protection of consumers.” The CFPB also seeks feedback on its proposed survey questionnaire. Among other things, the draft questionnaire probes the consumer’s familiarity with arbitration, and whether an inability to seek relief in court -- whether in an individual lawsuit or as a member in a class action -- impacts the consumer’s decision to apply for a credit card with that financial institution. The CFPB set August 6^th as the deadline to submit comments.

CFPB Releases Small Entity Compliance Guides for Loan Originator and Mortgage Servicing Rules

On June 7^th, the CFPB published small entity compliance guides for its loan originator and mortgage servicing rules.⁵   The CFPB cautioned that the guides are not a substitute for the underlying rules but merely provide a user-friendly overview to assist those entities with limited resources in compliance.⁶  The small entity compliance guides consistently note the official citation when discussing particular provisions and remind the reader to review the Official Interpretations for each rule.

The CFPB notes that the loan originator small entity compliance guide is primarily intended for: (1) loan originators that receive compensation for originating closed-end mortgage loans; (2) third parties that pay compensation to loan originators; (3) creditors of closed-end mortgage loans; and (4) creditors of HELOCs secured by a lien on the consumer’s principal dwelling. Among other things, the loan originator small entity compliance guide summarizes the following aspects of the new rule: (1) the type of loans covered; (2) what constitutes compensation to loan originators; (3) mandatory qualifications for loan originators; (4) recordkeeping requirements; (5) policies and procedures that creditors must institute to monitor compliance; (6) permissibility of arbitration and federal claims waiver; (7) the scope of the prohibition on financing credit insurance premiums; and (8) general compliance considerations.

The mortgage servicing small entity compliance guide is directed at creditors, servicers and assignees of mortgage loans and notes the mortgage servicing rules “generally apply to mortgage loans.” The guide provides an initial overview of the major changes to Regulation Z (TILA) and Regulation X (RESPA) and the small servicer exemption. The guide then reviews in detail the mortgage servicing rules as to (1) periodic statements; (2) interest rate adjustment notices; (3) prompt payment crediting and payoff statements; (4) force-placed insurance; (5) error resolution and information requests; (6) general servicing policies and procedures; (7) early intervention with delinquent consumers; (8) continuity of contact with delinquent consumers; (9) loss mitigation procedures; and (10) general compliance considerations.

Earlier this year the CFPB published small entity compliance guides for (1) the ability to repay and qualified mortgage rules and (2) HOEPA.  

_{1  The interim ECOA examination manual is available here, while the TILA interim examination manual is available here.}

_{2  Specifically, incorporation will occur once the interim examination procedures have been amended to address all new mortgage rules issued by the CFPB.}

_{3  The entire letter is available here.}

_{4  Monthly interest accrual amortization refers to the FHA practice where the lender requires the consumer to pay interest for the balance of the month after the loan is paid in full.}

_{5   The small entity compliance guides can be found here and here.}

_{6   The CFPB issued the loan originator rule (12 CFR § 1026.25 and 12 § CFR 1026.36) and mortgage servicing rule (Regulation X at 78 FR 10696; Regulation Z at 78 FR 10902) on January 17-18, 2013.}