The 4 CFPB Final Rules
of the
Dodd-Frank Wall Street Reform
and Consumer Protection Act
December 2013
Agenda
1. LO Compensation
2. ATR / QM / TQM
3. ECOA & HPML
4. HOEPA & Home Counseling
Agenda
In the 2010 Dodd-Frank Wall Street Reform and Consumer
Protection Act (Dodd-Frank Act aka DFA), Congress
adopted Ability to Repay (ATR) requirements on closed-end
mortgage loans and also established a presumption of
compliance with certain mortgages called Qualified
Mortgages (QM), and other changes affecting the
origination of mortgage loans, such as LO Compensation,
ECOA, HPML, and Home Ownership Counseling.
In January 2013, the CFPB adopted a rule implementing
them with a mandatory effective date of:
January 10, 2014
CFPB Implementation Dates
The CFPB has issued the following effective dates:
Subject
1. LO Compensation Rule
Loan Originator Compensation Rule
 New LO Comp rules are effective with loan applications taken on or
after January 1, 2014.
 In the aftermath of the mortgage crisis, regulators and lawmakers
imposed a number of new requirements concerning loan originator’s
licensing and registration, training, screening, and compensation
practices.
 The regulations also implement Dodd-Frank Act (DFA) requirements
concerning LO qualifications that build upon existing requirements
under the Secure and Fair Enforcement for Mortgage Licensing Act
of 2008 (SAFE Act).
Am I A Loan Originator?
Activities of a Loan Originator include:
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Taking a loan application
Arranging a credit transaction
Assisting a consumer in applying for credit
Offering or negotiating credit terms
Making an extension of credit
Referring a consumer to a particular loan originator or creditor
Advertising or communicating to the public that you can or will
perform any loan origination services
 See commentary to Regulation Z § 1026.36(a) for further info
Am I A Loan Originator?
Activities of a Loan Originator DO NOT include:
 A servicer or servicer’s employee, unless you perform LO activities
on replacing an existing obligation with a new debt as listed below:
 To avoid application of the LO Comp Rule, do not engage in LO
activities, such as handling a refinance or assisting in adding a
different consumer on an existing debt.
 The LO Comp Rule will not apply to the renegotiation or modification
of an existing mortgage.
 An employee of a manufactured home retailer who does not take
applications, offer or negotiate terms, or advise consumers on credit
terms.
 A seller financer who meets certain requirements of the LO Comp
Rule, under Reg. Z § 1026.36(a)(4) and (5).
Am I A Loan Originator?
Activities of a Loan Originator DO NOT include:
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Real estate brokers, who do not receive LO or referral compensation
Management, clerical, and administrative staff
Loan processors
Underwriters
Closers
Other LO Comp Rule Requirements
Prohibition on mandatory arbitration clauses and single premium
credit insurance:
 Prohibits the inclusion of clauses requiring the consumer to submit
disputes concerning a residential mortgage loan or HELOC to
arbitration.
 Prohibits the financing of any premiums or fees for credit insurance
(such as credit life insurance) in connection with a consumer credit
transaction secured by a dwelling, but allows for credit insurance to
be paid for on a monthly basis.
Loan Documentation Requirements
The following data must be listed on the Note and the Mortgage:
 Loan Originator Organization (LOO) company name
 Name and NMLS ID of the individual Loan Originator who is primarily
responsible for the transaction
Special Note:
 Names of the LOO and LO registered on NMLS must appear on the
documents as they appear on NMLS
 The LOO and LOO ID must be on the specified docs when they are
delivered to the borrower to sign and cannot be added post-closing
 The LO name and LO ID must also be on the specified docs when
they are delivered to the borrower to sign and cannot be added postclosing
Subject
2. ATR / QM / TQM Rule
Ability to Repay / Qualified Mortgage
 New ATR-QM-TQM rules are effective with loan applications taken
on or after January 10, 2014.
 However, in alignment with Fannie Mae DU 9.1 release, the max DTI
and min FICO score for DU Refi+ HPML transactions are effective
with loans submitted to DU after November 16, 2013.
 Key Concept: lender has protections from challenge that the loan
was made without regard to the borrower’s ability to pay if at time of
loan closing:
 a) lender has determined the borrower is able to repay the loan
using the criteria in the regulation
 b) all QM requirements regarding loan terms and characteristics
have been satisfied
Ability to Repay / Qualified Mortgage
 What is ATR? - that the lender must make a reasoned
determination that the borrower has the ability to repay the loan; thus
a sound underwriting decision.
 If the ATR requirements are not met, the borrower can sue the
lender for money damages or to stop a foreclosure, even in the loan
is then owned by a subsequent purchaser/lender.
 The ATR requirement is presumed to be satisfied if the loan is a
“qualified mortgage”
ATR-QM Overview
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Applicability:
Primary residence
Second Homes
Investment – if not for business purpose (e.g., borrower intends to
occupy for greater than 14days in the year)
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Ineligible Risky Product Features:
Payments with deferred principal
Negative amortization
Interest-only payments
Balloon payment
Terms in excess of 30 years
Irregular payments (except ARMs and Step rate loans)
ATR-QM Overview
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Exempt categories:
Open-end credit plans (HELOCs)
Time-share plans
Reverse mortgages
Temporary or bridge loans with terms of 12 months or less
A construction phase of 12 months or less of a construction-topermanent loan
 Consumer credit transactions secured by vacant land
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Exempt types of lenders:
Community Development Financial Institutions
Community Housing Development Organizations
Downpayment Assistance Providers of Secondary Financing
501(c)(3) Nonprofit Organizations that meet specific requirements
ATR-QM Overview
 ATR Verifications:
 PITI monthly payment, and any payment on simultaneous mortgages
 Income, assets and debt obligations including alimony and child
support
 Employment
 Credit History
 DTI max 43% using Appendix Q requirements; and
 Points/fees are 3% or less of the total loan amount (cures not
permitted)
 Special Note:
 The Temporary QM provision allows for a higher DTI% for loans
eligible for sale to the GSEs (must meet Agency investor guidelines
and receive an Approve/Eligible or Accept/Eligible AUS findings
result) and government insurance transactions (including manually
underwritten loans as long as it meets FHA/VA/RHS investor
guidelines)
 Currently valid until 2021 or unless GSE’s
provide their own QM rules sooner.
Safe Harbor vs. Rebuttable Presumption
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QM Safe Harbor (QM non-HPML loans):
No prohibited terms (no risky loan features)
Does not exceed the point/fees limit
Meets agencies’ guidelines regarding DTI, etc.
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QM Rebuttable Presumption (QM HPML loan):
Max DTI 45%
Min FICO 680-740 depending on LTV and transaction type
FHA Streamlines and VA IRRRLs;
Max DTI 50%
3% Points and Fees Limit
The loan must pass the QM Points and Fees Test. Points/Fees are the
same as outlined under the updated HOEPA regulation. However, QM
thresholds differ from the HOEPA regulation. The table below outlines
thresholds for QM Points and Fees:
3% Points and Fees Limit
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Points and fees include:
Compensation paid to a mortgage broker by a borrower or lender
Any origination charges paid by a borrower to the broker or lender
LLPA’s that are not included in the interest rate of the loan
Discount points that do not lower the interest rate
Non-refundable PMI
Fees paid to a lender affiliate (e.g., credit reports, appraisals, or
escrow services)
7) All prepayment penalties, including prepayment penalty paid in a
refinance payoff
8) Credit life or similar insurance payable at closing if the lender is the
beneficiary
3% Points and Fees Limit
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5)
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Points and fees exclude:
Prepaid interest charges
Govt MI (UFMIP) or VA Funding Fee
UFMIP if premium is less than or equal to FHA premium amount
(currently 1.75%) and borrower receives a pro-rated refund upon
early payoff
Bona fide 3rd party fees not retained by lender or an affiliate (e.g.,
title exam, title insurance, escrow survey, credit report or appraisal)
Bona fide Discount Points
Up to 2 points if interest rate without discount does not exceed the
APOR by more than 1%
1 point if interest rate exceeds APOR by more than 1% but less
than 2%
2% Lender Paid vs. cap example
Loan
Amount
$70,000
$110,000 $140,000 $225,000 $275,000
Allowable
Fee
$3,000
$3,300
$4,200
$6,750
$8,250
LPC 2%
Comp
$1,400
$2,200
$2,800
$4,500
$5,500
UW Fee
$895
$895
$895
$895
$895
Affiliated
Title/AMC
$175
$175
$175
$175
$175
Remaining
3%
$530
$30
$330
$1,180
$1,680
QM
Approved
YES
YES
YES
YES
YES
2.50% Lender Paid vs. cap example
Loan
Amount
$70,000
$110,000 $140,000 $225,000 $275,000
Allowable
Fee
$3,000
$3,300
$4,200
$6,750
$8,250
LPC 2.50%
Comp
$1,750
$2,750
$3,500
$5,625
$6,875
UW Fee
$895
$895
$895
$895
$895
Affiliated
Title/AMC
$175
$175
$175
$175
$175
Remaining
3%
$180
-$520
-$370
$55
$305
QM
Approved
YES
NO
NO
YES
YES
Borrower Paid Compensation
 PHE Retail LO’s cannot perform Borrower Paid Comp loans.
 TPO submitted loans are acceptable up to a max of 2.50%
compensation.
 Note: if switching from lender paid comp to borrower paid comp the
TPO origination cannot exceed what was initially disclosed under the
lender paid comp plan disclosure.
 Note: PHE does not allow switching from borrower paid comp to
lender paid comp.
Subject
3. ECOA & HPML Valuation Rule
ECOA and HPML
 New ECOA Appraisal and Valuation rules are effective with loan
applications taken on or after January 10, 2014.
 Covered transactions:
 All first liens on dwellings, including closed-end mortgage loans and
open-end loans.
 New standards: previously Reg. B required only that lenders provide
copies of appraisals to applicants upon request and notify them of
their right to make a request. The changes to ECOA broaden the
scope to include property valuation and requires lenders to:
 Disclose to applicants that they have the right to receive copies of
appraisals and written valuations
 Automatically send a free copy of the home appraisal and other
written valuations promptly after the valuation is complete,
regardless of whether credit is extended, denied, incomplete, or
withdrawn.
ECOA and HPML
 Special Note: the new ECOA rule applies to all written valuations
(not just appraisals) that the lender develops or obtains in connection
with an application for covered transactions.
 Covered transactions:
 All first liens on dwellings, including closed-end mortgage loans and
open-end loans.
ECOA and HPML
 New HPML Appraisal requirements are effective with applications
taken on or after January 18, 2014.
 Current requirements effective June 1, 2013:
 Reg. Z defines Higher Priced Mortgage Loans (HPML) as a
mortgage secured by the borrower’s principal dwelling with an
annual percentage rate (APR) that is at least:
 1.50% higher than the Average Prime Offered Rate (APOR)
 2.50% higher than the APOR for a Jumbo loan (first lien)
 As of the rate lock date (with the borrower).
 Validation of repayment ability
 Verification of income and assets
 Establishment of Escrow accounts for taxes and insurance
premiums for a period of 1year after closing
 Non-financing of closing costs / points & fees
 ARM loans of 7/1 terms or greater
 FHA Streamlines and VA IRRRLs require
ATR and income/assets are verified.
ECOA and HPML
 NEW requirements effective January 18, 2014:
 A full interior appraisal by a certified or licensed appraiser is
required. Note: QM loans are exempted, but TQM are not.
 Lender disclosure must provide applicant with a statement that any
appraisal or state of value prepared or obtained for the mortgage is
for the sole use of the lender, and
 Applicant may choose to have a separate appraisal conducted at the
applicant’s expense which must be given within three business days
of application (or, it at application was not a HPML, within three
business days of when it becomes a HPML).
ECOA and HPML
 A 2nd appraisal is required, by a different non-affiliated appraiser
from the 1st appraisal, if the loan will be used to finance the purchase
of a dwelling and either:
 Seller is reselling the property within 90days of acquiring it and the
resale price exceeds the seller’s acquisition price by more than 10%,
OR
 Seller is reselling the property within 91 to 180 days of acquiring it
and the resale price exceeds the seller’s acquisition price by more
than 20%.
ECOA and HPML
 When a 2nd appraisal is required the following requirements also
apply:
 One of the 2 required appraisals must include an analysis of:
 Difference between the price the seller acquired the property and the
price the consumer is obligated to pay for the property as outlined in
the Purchase Contract
 Changes in market conditions
 Any improvements made to the property between date acquired and
resale date
 Cost of the 2nd appraisal cannot be charged to the borrower
ECOA and HPML
 2nd appraisal exclusions:
 A 2nd appraisal is not required when the seller:
 Is a local, state or federal government agency or acquired title:
 Through Foreclosure or Deed-in-Lieu of Foreclosure when the seller
was the foreclosing holder of the mortgage
 By inheritance or through court-ordered dissolution of marriage, civil
union, or domestic partnership, or through the partition of the seller’s
joint or marital assets
 From an employer or relocation agency in connection with the
relocation of an employee
 From a service member who received deployment or change of
station order after purchasing the property area
 Or the property is: (1) located in a disaster area and a regulatory
waiver is issued and available, or (2) located in a defined rural area
Subject
4. HOEPA & Home Counseling
HOEPA & Home Counseling
 The new HOEPA Regulations are effective with applications taken
on or after January 10, 2014.
 The current HOEPA (Section 32-industry nickname) Reg. Z (12 CFR
1026.32) was enacted in 1994 to address abusive practices in
refinancing of home-equity mortgages with high interest rates or
fees. Loans that meet HOEPA’s high-cost tests are subject to
special disclosure requirements and restrictions on loan terms, and
borrowers in high-cost mortgages have enhanced remedies for
violations of the law.
 In 2010, Congress passed the Dodd-Frank Act, which made
changes to the high-cost provisions of the Truth in Lending Act.
 Special Note: PHE does not originate Section 32 loans. Rate/fees
must be adjusted under the limits of Reg. Z 12 CFR 1026.32 before
signup of the consumer’s mortgage loan.
Cures are not permitted.
HOEPA & Home Counseling
 Section 32 loans apply to consumer credit transactions secured by a
consumer’s principal residence. Excluded from coverage are:
 Reverse mortgages
 Loans to finance the initial construction of a dwelling
 Loans originated and financed by a Housing Finance Agency (HFA)
 Loans originated through the USDA Rural Development section502
Direct Loan Program
 New inclusions: purchase loans, HELOCs, bridge loans
 Certification of counseling: a written certification that the consumer
has obtained counseling on the advisability of the mortgage from a
counselor that is approved to provide such counseling by HUD or by
a State housing finance authority.
 Homeownership Counseling changes: a lender must provide an
applicant with a list of Homeownership Counseling organizations in
the applicant’s area within three business days after the application
is received.
HOEPA & Home Counseling
 The HOEPA changes are made to the following thresholds:
 APR Test: the annual percentage rate applicable to the transaction
exceeds the Average Prime Offered Rate (APOR) by more than:
1) 6.5% on a 1st lien transaction
2) 8.5% on a 1st lien transaction if the dwelling is personal property
and the loan amount is less than $50,000; or
3) 8.5% on a 2nd lien transaction
 Points and Fees Test: the transactions total points and fees
exceed either:
1) 5% of the total loan amount of $20,000 or greater (subject to
change annually); or
2) The lesser of 8% of the total loan amount or $1,000 (subject to
change annually) for a loan amount less than $20,000.
 Prepayment Test: loan documents showing a prepayment penalty
more than 36 months after closing, or more than 2% of the amount
prepaid.
 Special Note: PHE does not allow
prepayment penalties to be charged.
HOEPA & Home Counseling
 Scope of the included and excluded fees has changed.
 Points and Fees include:
 All items required to be disclosed in §1026.4(a) and §1026.4(b);
except for the interest or time-price differential; and any Federal or
State agency guaranty or MI; optional credit insurance of nonAgency MI payable at or prior to closing (e.g., credit life,
disability, unemployment, property insurance, or other life,
accident, health or loss-of-income insurance if the lender is the
beneficiary; the amount in excess of FHA UFMIP
 Less excludable discount points (Bona Fide limits)
 All compensation or fees paid by the borrower or lender to a
mortgage broker or its affiliates known at closing
 Prepayment penalties charged on a refinance payoff
 Prepayment penalties charged on the new loan, if any
 HELOCs – participation fees charged at or before account
opening
 HELOCs – draw fees charged to the
borrower from the credit line
HOEPA & Home Counseling
 Special Note: a number of State high-cost loan laws have been
impacted by these HOEPA changes as they use HOEPA definitions;
be sure to know your State laws for which you are licensed to
originate loans.
 See attached HOEPA comparison chart describing current
parameters through January 9, 2014 vs. new parameters effective
on January 10, 2014.
QUESTIONS?
Contact the PHE Compliance Committee for questions:
 Phone: 615-872-0220 x603
 Email: compliance@peopleshomeequity.com
 Mail: 5205 Maryland Way, Ste100
Brentwood, TN 37027