4 Webinars, 4 Perspectives
Implications of Dodd-Frank Act
PART 1:
ANTI-STEERING & LOAN OFFICER
COMPENSATION
PART 2:
IMPACT TO HEDGING
PART 3:
IMPLICATIONS FOR DOCUMENT
COMPLIANCE
PART 4:
IMPACT TO YOUR LOS
December 21
Implications of Dodd-Frank Act
Part 4: Impact to your Loan Origination Software
What you should be asking – and telling – your LOS Vendor
December 21, 2010
Ask Questions
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www.dmdinc.com
Serving mortgage bankers since 1991
End-to-end solutions for mortgage origination activities
Leading provider of mortgage banking software
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Mark Todd
DMD – Del Mar DataTrac
Product Marketing Manager
mtodd@dmdinc.com
Mark Todd has over 18 years of mortgage banking experience, 8 of those years at the C-level of mid-sized
mortgage lenders. Mark has a specialty for creating competitive advantage through technology, and has consulted
various mid-sized lenders on building scalable operations that support growth. Much of his experience has
specifically focused on the use of technology to assure loan quality and compliance standards.
Among his duties as Product Marketing Manager for DMD, Mark gathers market information and provides analysis
to the DMD product team.
Mark graduated magna cum laude with a Bachelor of Business Administration from Abilene Christian University, in
Abilene, Texas in 1992.
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The attorneys said I should say:
Mark, well intentioned though he may be, is not a licensed attorney in
this state (or any state), and nothing he says should be construed as
legal advice. When making decisions impacting your compliance
efforts, it’s always a good idea to seek the advice of legal counsel.
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Special thanks to Google
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JIM MILANO WBSK
James M. Milano
Weiner Brodsky Sidman Kider PC
Washington, DC
202-628-2000
milano@wbsk.com
Jim’s focuses on federal and state regulatory compliance matters related to the financial services industry. He
represents and advises mortgage companies, consumer finance companies, financial institutions and secondary market
investors, and their settlement service provider vendors, on issues such as:
• State mortgage licensing and S.A.F.E. Act related compliance
• FHA lending programs, rules and guidelines
• Responding to federal and state regulatory audits and administrative enforcement actions
• State laws and regulations concerning loan disclosures, allowable fees, and prohibited practices
• Federal preemption of state lending laws
• Federal laws and regulations including, but not limited to TILA, RESPA, ECOA, FDCPA, HMDA, FCRA, GLBA
• Implementation of the Dodd-Frank Act
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Salvation or Devastation?
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Confused?
Dodd-Frank Act?
…or is it TILA / Reg Z?
Some provisions already in place & others not yet in force…
…what does & does not apply?
The Barney Frank enigma
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3 goals
Dodd-Frank overview relative to mortgage origination
Identify what you should be working on
Help you prepare for the road ahead
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What is Dodd-Frank?
Effects various segments of financial
services industry; not just mortgage
2300+ pages
No actionable compliance
Basically a big “to-do” list
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What does Dodd-Frank do?
Consolidates certain agencies and agency responsibilities
Creates new agencies
Sets timeframes for agencies to accomplish directives
Grants agencies certain flexibilities in implementing provisions
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Skip to the good part…
Title IX
Risk retention for mortgage lenders
Title X
There’s a new sheriff in town
Title XIV
“Tweaks” to mortgage industry practices
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Title IX: Risk Retention For Mortgage Lenders
Establishes enforcement agency &
provides for the regulation of credit ratings
agencies
Requires lenders who securitize loans to
retain 5% capital risk
Possible “sharing” of 5% risk retention
between originators and securitizer
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Potential exemptions from risk retention
Existence of mortgage insurance coverage
Government-insured loans (FHA, VA, USDA)
“Qualified” mortgages to be defined based on:
- DTI ratio benchmarks; calculation standards
- Documentation standards
- Opportunity for payment shock
- Loan attributes that contribute to mortgage risk
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Title X: Meet the new boss
CFPB to be created by July 21, 2011
Rule Making Entity responsible for
implementing mortgage-related
provisions of Dodd-Frank
Consolidates & streamlines
responsibilities of various agencies
Responsible for examination &
enforcement for mortgage lending
activity
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To protect consumers from abusive practices
Truth in Lending Act (TILA)
Home Ownership and Equity Protection Act (HOEPA)
Truth in Savings Act
Real Estate Settlement Procedures Act (RESPA)
Secure and Fair Enforcement for Mortgage Licensing Act (SAFE)
Interstate Land Sales Full Disclosure Act
Telemarketing and Consumer Fraud and Abuse Prevention Act
Inspector General Act
Privacy Act
Alternative Mortgage Transaction Parity Act (AMTPA)
Electronic Fund Transfer Act (EFTA)
Equal Credit Opportunity Act (ECOA)
Expedited Funds Availability Act
Fair Credit Billing Act
Fair Credit Reporting Act (FCRA)
Fair Debt Collection Practices Act
Federal Deposit Insurance Act (FDIA)
Federal Financial Institutions Examination Council Act
Federal Trade Commission Act
Gramm-Leach Bliley Act (GLB)
Omnibus Appropriations Act, 2009
Right to Financial Privacy Act
Agencies to transfer
over-lapping
responsibilities:
•
•
•
•
•
•
•
FRB
FTC
OCC
OTS
FDIC
NCUA
HUD
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Same as the old boss?
Examination & enforcement exception for depository institutions with
less than $10BB in assets
Will continue to have same examination & enforcement regulator
CFPB is, nonetheless, the new rule-maker, but enforced by their
examiner for purposes of consolidated auditing
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Title IX & X: “Nothing to see here…”
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Title XIV, Subtitles A thru H
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Title XIV Subtitles
Subtitle A – Loan Origination Standards
Subtitle B – Minimum Mortgage Standards
Subtitle C – High-cost mortgages
Subtitle D – Office of Housing Counseling
Subtitle E – Mortgage Servicing
Subtitle F – Appraisal Activities
Subtitle G – Mortgage Resolution & Modification
Subtitle H – Misc. Provisions
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Title XIV Subtitles
Subtitle A – Loan Origination Standards
Subtitle B – Minimum Mortgage Standards
Subtitle C – High-cost mortgages
Subtitle D – Office of Housing Counseling
Subtitle E – Mortgage Servicing
Subtitle F – Appraisal Activities
Subtitle G – Mortgage Resolution & Modification
Subtitle H – Misc. Provisions
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Title XIV, Subtitle A
Loan Origination Standards
Requires loan officer licensing
Elimination of loan officer “overage” compensation
Prohibition against steering for higher lender-paid compensation
Prohibition against broker comp paid by borrower AND others
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Title XIV, Subtitle B
Minimum Mortgage Standards
New TILA disclosure requirements; seeks to create consolidated
RESPA /TILA disclosure
Must establish borrowers ability to repay
-Maximum DTI’s
-DTI calculation standards
-Determination of qualifying payments
-Define acceptable documentation
-“Safe harbor” provision
PPP Restrictions: maximum PPP terms & loans ineligible for PPP
(risky attributes to be defined…such as neg-am)
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Foreclosure defense
Subtitle A “steering” infractions
Subtitle B “ability to repay” infractions
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Title XIV, Subtitle C
High-Cost Mortgages
Amends HOEPA as follows:
Expands coverage to include purchase mortgages
Lowers APR trigger to 6.5% over APOR
(8.5% for < $50k & subordinates liens)
Lowers Points & Fees trigger to 5%
(8% or $1000 for < $20,000)
Expands definition of “points & fees”
No Balloon or PPP features for high-cost loans
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Title XIV, Subtitle E
Mortgage Servicing
Mandatory impounds for higher-cost loans & loans above a certain
LTV (TBD… 78%?)
Disclosure of impound setup information 3 days prior to closing
Impounded taxes are to be based off of improved tax rates (if new
construction)
Disclosure for non-escrowed loans
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Stay calm…
CFPB to be created by
7/21/2011
Final Title XIV rules by
1/21/2013
Effective date by 1/21/2014
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Wake me up in 2014?
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I thought this was supposed to take a while?
MDIA final rules implement TILA changes - 1/30/2011
Restrictions on Loan Steering & LO Compensation – 4/1/2011
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MDIA interim final rule for loans with variable
payments
Amends TILA
Directive of MDIA
Improves disclosures
Model Format
Model Clauses
Effective January 30, 2011
What does “interim final” even mean?
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Payment Table “clause”
Fixed Rate
ARM
Neg Am
Interest Only
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Other TILA form model “clauses”
Discounted initial rate
Balloon loans
“No Refinance Guarantee”
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What you should be asking about your LOS
When does my LOS vendor intend to deliver the new TILA form for
testing?
Do my LOS capabilities & procedures give me high confidence of
ARM data accuracy at disclosure?
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Restrictions on Steering and Loan Officer
Compensation
Effective 4/1/2001
• Elimination of compensation based on overage
• No compensation from borrower AND another party
• No steering for higher compensation
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Loan Officer Compensation
Big change for lenders with “wholesale pricing model”
Lender indifferent to amount or discretion of LO mark-up
New rules imply that buy-up/buy-down should directly impact
borrower closing costs
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Glass is half-full?
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What you should be asking
Can my LOS link loan pricing directly to Discount / Lender credit at
closing?
If not, have I told my vendor how I’d like that to function?
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Monitoring Broker Origination Charges
Consistent origination charges at the broker level
Broker’s standard charge rates not historically monitored
Wholesalers to establish tracking methods
Brokers to establish standard charges
Must be in place 4/1/2011
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LOS to the rescue?
Store charge at the broker level
Pre-populate broker fees at the loan level
% of loan amount with maximum & minimum
Charges can change but not indiscriminately; retain historical record
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Will it take case law to know?
Processing fee plus origination charge?
Max/Min $ applies to origination only? Or sum with processing?
Could a single broker/branch have geographical differences in pricing
within their branch activity?
What date determines charge? Broker app? Creditor App? Lock?
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What you should be asking
Can my LOS help me control the consistency of my broker’s
charges?
If not, have I told them what I would like to see in such a feature?
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Retail Compliance Concerns
Control of commission calculation compliance emerges as concern
Common for production to have a hand in commission calcs
Now a serious matter of compliance, and such managers might
unwittingly place company in jeopardy
Mortgage bankers will control the commission process more closely,
but this increases back-shop costs
Opportunity for LOS vendors to build commission calculation and
workflow features
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What you should be asking
Can my LOS help me control compliance relative to commissions
without burdening my back shop efficiency?
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Broker charges paid by borrower AND others
Broker must be entirely paid by borrower, or lender, but not both
Consumers apparently unable to understand sharing of broker’s
charges through direct payment and YSP
Does limit options broker is able to present to borrower
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What you should be asking
Can my LOS detect & prevent the simultaneous payment of broker
charges paid by borrower and another party?
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I’ve been wrong before…
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Reasons to avoid lender-paid comp
Broker may have received compensation POC unbeknownst to
lender
Later determined that improperly retained POC’s for other parties
resulted in compensation paid to borrower
Steering as a foreclosure defense
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That’s a big “if”… or is YSP dead?
YSP changes to “broker compensation”
Today “YSP” paid to broker is a factor of loan buy pricing
Broker CAN be paid based on quality, volume, or other acceptable
measure
LOS’s may need a feature to drive broker comp NOT based on loan
pricing
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What a wholesaler should be asking
(a)Do we even want to offer direct compensation to brokers?
(b)If so, can my LOS store & deliver that compensation outside the
normal “YSP” model
(c)If not, have I told my LOS what I need in such a feature?
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Just that once…
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Worth the risk?
Add to foreclosure risks in this environment?
May be a secondary marketing consideration if investors don’t
approve?
Safer to offer enhanced rate sheets for quality brokers and not pay
comp directly to broker?
Is there a justifying up-side for lender-paid broker compensation?
I’ve been wrong before?
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Just that once…
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Anti-steering safe harbor
For each type of transaction in which the borrower expresses an interest (fixed,
arm, reverse mortgage), originator must present the following scenarios:
•
Lowest total dollar amount for discount points and origination points or
fees; and,
•
Lowest interest rate without negative amortization, a prepayment penalty,
a balloon payment in the first seven years of the loan term, shared equity
or shared appreciation.
•
For a reverse mortgage, a loan without a prepayment penalty, shared
equity or shared appreciation.
For a loan with an initial rate that is not fixed for at least five years:
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If the interest rate varies based on changes to an index, the originator
shall use the fully-indexed rate that would be in effect at consummation
without regard to any initial discount or premium.
•
For a step-rate loan, the originator shall use the highest rate that would
apply during the first five years.
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Safe harbor challenges
Not all LOS’s can store & track multiple scenarios
Not an easy task to automate among disparate wholesalers
Significant time to properly comply
Compliance would be documentation-intensive
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What you should be asking
Does my company view the anti-steering harbor as worthy of pursuit?
If so, can my LOS store & track disclosure of multiple scenarios?
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Goals
Dodd-Frank overview relative to mortgage origination
Identify what you should be working on
Help you prepare for the road ahead
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The road ahead
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I see opportunities in your future!
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You want a checklist?
Timing of provisions unknown
Still awaiting proposed or final rules
Flexibilities granted to CFPB lead to
unknowns
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Checklist, anyone?
Unhide the following 9 slides for a discussion of future rule-making
that is likely to impact your LOS
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Collaborate with vendors and peers
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DMD User Group
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DMD User Group
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Implications of Dodd-Frank Act
Part 4: Impact to your Loan Origination Software
What you should be asking – and telling – your LOS Vendor
December 21, 2010
4 Webinars, 4 Perspectives
Implications of Dodd-Frank Act
PART 1:
ANTI-STEERING & LOAN OFFICER
COMPENSATION
PART 2:
IMPACT TO HEDGING
PART 3:
IMPLICATIONS FOR DOCUMENT
COMPLIANCE
PART 4:
IMPACT TO YOUR LOS
December 21