Meeting the Challenge of Regulatory Compliance

2013 Federation Annual
Mortgage Compliance
Presented by:
Keith Rhodes-Director of Education
and Training
West Virginia Credit Union League
In 2013 there have already been
3,500 pages of mortgage
regulations from the CFPB
How did this all start?
2008 – Mortgage Crisis
2010 - Dodd-Frank Act
2011 - CFPB
Statutory objectives of CFPB
To ensure that consumers have timely and
understandable information to make responsible
decisions about financial transactions;
To protect consumers from unfair, deceptive, or
abusive acts or practices, and from discrimination;
To reduce outdated, unnecessary, or overly
burdensome regulations;
To promote fair competition by enforcing the Federal
consumer financial laws consistently; and
To advance markets for consumer financial products
and services that operate transparently and efficiently
to facilitate access and innovation.
CFPB’s Jurisdiction
Alternative Mortgage Transaction Parity
Act of 1982
Consumer Leasing Act of 1976
Electronic Fund Transfer Act
Equal Credit Opportunity Act
Fair Credit Billing Act
Fair Credit Reporting Act
Home Owners Protection Act of 1998
Fair Debt Collection Practices Act
Federal Deposit Insurance Act
Gramm-Leach-Bliley Act
Home Mortgage Disclosure
Home Ownership and Equity
Protection Act of 1994
Real Estate Settlement and
Procedures Act of 1974
S.A.F.E. Mortgage Licensing
Act of 2008
Truth in Lending Act
Truth in Savings Act
Omnibus Appropriations Act
Interstate Land Sales Full
Disclosure Act
CFPB Mortgage Rules
Ability to Repay (ATR) and
Qualified Mortgage (QM) Rule
Effective Jan. 10, 2014
The rule applies to closed-end loans
secured by a dwelling except:
Reverse mortgages
Temporary or bridge loan (term 12 months or
Construction phase of construction to
Ability to Repay (ATR)
Must make a reasonable and good
faith determination that the consumer
has the ATR using the eight factors
 The ATR will depend on the creditor’s
standards and how they are applied to
each individual’s facts and
Ability to Repay (ATR)
Current income or assets;
Current employment status;
Credit history;
The monthly payment of the mortgage;
The monthly payment on any other loans associated
with the property;
The monthly payment for other mortgage related
obligations (such as property taxes);
Other debt obligations; and
The monthly debt-to-income ratio or residual income
the borrower would be taking on with the mortgage
Qualified Mortgage
Includes product and underwriting
 Compliance standard differs if the QM
is higher-priced
Not higher-priced = safe harbor
 Higher-priced = presumption
Higher-priced mortgage loan
Defined as a covered transaction with
an APR that exceeds the average
prime offer rate for a comparable
transaction as of the date the interest
rate is set by 1.5 or more percentage
points for a first-lien covered
transaction, or by 3.5 or more
percentage points for a subordinatelien transaction
Qualified Mortgage
A QM must generally provide for regular periodic
payments that are substantially equal.
A QM may not have the following features:
Negative amortization
Interest-only payments
Balloon payments
A term exceeding 30 years
Points and fees in excess of rule limits
QM Points and Fees
Different thresholds for points and fees
depending on loan amount.
Maximum: If loan amount is greater than
or equal to $100,000, then points and
fees cannot exceed 3% of the total loan
Minimum: If loan amount is less than
$12,500, then points and fees cannot
exceed 8% of the total loan amount
QM Underwriting
Periodic payment
 Verification of current or reasonably
expected income or assets
 Verification of current debt obligations,
alimony, and child support
 Debt-to-income ratio not to exceed
Ok, this only one new mortgage
regulation with more to come…
CFPB: Upcoming Mortgage
Mortgage Servicing (Reg X & Reg
Z) - nine provisions
High Cost Mortgages
Homeownership Counseling
Reg B Appraisal
Reg Z Appraisal
Loan Originator Compensation
CFPB's “Small Servicer”
Small Servicer = a creditor (and its affiliates) that
originated 500 or fewer first lien covered transactions
in the preceding calendar year AND had total assets of
less than $2 Billion
So what is a “Small Servicer” and what are they
exempted from? A credit union that services 500 or
fewer mortgage loans where it is the creditor or
assignee will be exempt from certain (not all) of the
requirements of CFPB’s new mortgage servicing
CFPB's “Small Servicer”
1. Even if a credit union qualifies for the
small servicer exemption, it may retain
liability for compliance with the rule if it is
using a sub-servicer that does not qualify
for the exemption
 If a credit union use a sub-servicer, NCUA’s
regulations require the institution to conduct
sufficient due diligence to determine that the
third-party servicer is compliant with the
new servicing rules.
CFPB's “Small Servicer”
2. The exemption applies only to some
aspects of the servicing rule. Significant
portions apply to all mortgage servicers.
 All credit unions servicing mortgages must
adopt new standards for error resolution
and information requests, comply with
new restrictions on forced-placed hazard
insurance, credit payments promptly,
comply with new restrictions on starting
foreclosure procedures, and provide
new interest-rate change notices with
adjustable-rate mortgages.
CFPB's “Small Servicer”
3. Beware the inevitable regulatory creep that may
require small servicers to adopt the entire mortgage
servicing rule despite the exemption. Credit union
regulators at the state and federal level will still
examine the servicing policies and procedures for all
credit unions servicing mortgages regardless of
whether they qualify as small servicers.
 NCUA and state regulators may end up requiring de
facto compliance with all of the servicing rule
provisions as the means for small servicers to
demonstrate the safety and soundness of their
mortgage servicing portfolios.
Feeling Overwhelmed!!!
Compliance Best Practices
View CFPB’s website for compliance information
Form an in-house credit union team that meets regularly
regarding compliance
Involve credit union management
Hold your third party vendors accountable
Stay informed through CUNA and your State
League/Association for compliance assistance
Review all policies and procedures regularly
Establish a timetable with achievable deadlines – for
upcoming compliance regulations and stick to it
Share compliance resources with other credit unions
YouTube, yes I said YouTube!
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