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Regulatory Update –
Loans
Sam Teague
Teague Consulting Group
Overview
• Dodd-Frank Act – Provisions To Be Implemented
• Regulation Z – Mortgage Servicing
• Regulation X – Mortgage Servicing
• IRS Issues
Dodd-Frank Act
Provisions To Be
Implemented
Dodd-Frank Act – Future
Section 1032 – TILA/RESPA Disclosures
• 7/9/12 – Proposed Rule On CFPB Website
• 8/23/12 – Proposed Rule In Federal Register
• 11/6/12 – Comments Due
• 1/8/13 – CFPB Semi-Annual Agenda
– Final rule expected in September 2013
Dodd-Frank Act – Future
Section 1094 – HMDA Data Collection
• New Data Elements To Be Reported
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Age of applicants
Total points and fees
Length of prepayment period
Value of property securing the loan
Length of introductory rate period
Others
Dodd-Frank Act – Future
Section 1094 – HMDA Data Collection
• Effective Date
– The first January 1 after the end of the 9-month period following the issuance of final
regulations.
– If final regs are published on 12/31/13, the effective date could be no earlier than 1/1/15
(12/31/13 + 9 months = 9/30/14; the first January 1 after that would be 1/1/15).
• August 2013 – Further Action Expected
Regulation Z
Mortgage Servicing
Reg. Z – Mortgage Servicing
Significant Dates
• 8/10/12 – Proposed Rule On CFPB Website
– 9/17/12 – Proposed Rule In Federal Register
• 10/9/12 – Comments Due
• 1/17/13 – Final Rule Posted On CFPB Website
– 2/14/13 – Final Rule Published In Federal Register
• 1/10/14 – Effective Date
Reg. Z – Mortgage Servicing
Initial Rate Adjustments [§1026.20(d)]
• Scope
– Applies to all ARMs – not just hybrid ARMs
• Closed-end loan secured by principal dwelling
– Excludes ARMs with terms < 1 year
• Notice Requirement
– Special notice with first rate change
– Must be in writing
– Must be separate document (but may be included in same envelope with other material)
Reg. Z – Mortgage Servicing
Initial Rate Adjustments [§1026.20(d)]
• Timing
– 210-240 days before the first payment at the adjusted level is due
– At consummation if the first payment at the adjusted level is due within first 210 days
• Estimates
– May disclose an estimate if new interest rate and payment are not known
Reg. Z – Mortgage Servicing
Initial Rate Adjustments [§1026.20(d)]
• Notice Content
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Date
Statement (explanation, effective date, other changes)
Rate & Payment Information (rates, payments, date)
Rate Determination (index, margin)
Rate & Payment Change Limits
Payment Determination
Interest-Only Loans
Negatively Amortizing Loans
Reg. Z – Mortgage Servicing
Initial Rate Adjustments [§1026.20(d)]
• Notice Content (cont.)
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Prepayment Penalty
Lender Contact Information
Alternatives
Other Contact Information
• Homeownership Counselors
• State Housing Finance Authority
• Model Forms H-4(D)(3) & H-4(D)(4)
Reg. Z – Mortgage Servicing
Subsequent Rate Adjustments [§1026.20(c)]
• Scope
– Applies to all ARMs
• Closed-end loan secured by principal dwelling
– Excludes ARMs with terms < 1 year
• Notice Requirement
– Notice with a rate change that results in a payment change
– No notice if rate changes but payment does not
Reg. Z – Mortgage Servicing
Subsequent Rate Adjustments [§1026.20(c)]
• Timing
– 60-120 days before the first new payment is due
– Old rule (25-120 days) still applies to:
• ARMs with adjustments every 60 days or more often
• ARMs originated prior to 1/10/15 that require a look-back period of less than 45 days
– Early 1st Adjustment
• 1st adjustment occurs within 60 days of consummation
• Initial notice was based on an estimate
• Provide not less than 25 days before first new payment is due
Reg. Z – Mortgage Servicing
Subsequent Rate Adjustments [§1026.20(c)]
• Notice Content
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Statement (explanation, effective date, other changes)
Rate & Payment Information (rates, payments, date)
Rate Determination (index, margin)
Rate & Payment Change Limits
Payment Determination
Reg. Z – Mortgage Servicing
Subsequent Rate Adjustments [§1026.20(c)]
• Notice Content (cont.)
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Interest Only Loans
Negatively Amortizing Loans
Alternatives
Prepayment Penalty
• Model Forms H-4(D)(1) & H-4(D)(2)
Reg. Z – Mortgage Servicing
Payment Processing [§1026.36(c)(1)]
• Periodic Payments [§1026.36(c)(1)(i)]
– Old Rule: must credit a payment as of the date of receipt
– New Rule: must credit a periodic payment (PP) as of the date of receipt
– PP: an amount sufficient to cover principal, interest, and escrow for a given billing cycle (does
not include late fees, other fees, or non-escrow payments a servicer advanced on the
borrower’s behalf)
Reg. Z – Mortgage Servicing
Payment Processing [§1026.36(c)(1)]
• Partial Payments [§1026.36(c)(1)(ii)]
– Unapplied Funds: must disclose on periodic statement
– Subsequent Application: must apply when sufficient funds accumulate to cover a “periodic
payment”
Reg. Z – Mortgage Servicing
Payoff Statements [§1026.36(c)(3)]
• Old Rule: provide within a reasonable time after receiving a borrower’s request
(Commentary said 5 business days)
• New Rule: provide within 7 business days after receiving a borrower’s written
request
• May provide within a reasonable time in situations where 7 days is not feasible
(bankruptcy, foreclosure, reverse mtg., natural disasters, etc.)
Reg. Z – Mortgage Servicing
Periodic Statements [§1026.41]
• Scope
– Closed-end loan secured by a dwelling
– Provide a statement for each billing cycle
• May use “monthly” if billing cycle is shorter than 31 days (e.g., bi-weekly loans).
• Timing
– Provide within a reasonably prompt time after payment due date or end of courtesy period
for previous cycle (the Commentary says 4 days)
Reg. Z – Mortgage Servicing
Periodic Statements [§1026.41]
• Form
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Clear
Conspicuous
In writing
Form to keep
Sample forms – Appendix H-30
Reg. Z – Mortgage Servicing
Periodic Statements [§1026.41]
• Content & Layout
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Amount Due (due date, late fee, amount due)
Explanation Of Amount Due (pmt amt, fees, past due)
Past Payment Breakdown (current cycle, YTD)
Transaction Activity (date, description, amount)
Partial Payment Message (if applicable)
Contact Information (toll-free #, e-mail)
Account Information (balance, rate, next rate chg date)
Delinquency Information
Reg. Z – Mortgage Servicing
Periodic Statements [§1026.41]
• Exemptions
– Reverse Mortgages
– Timeshare Plans
– Fixed-Rate Loans With A Coupon Book
• If certain requirements are met
– Small Servicers
• 5,000 or fewer mortgages
• Only service loans they own or originated
Regulation X
Mortgage Servicing
Reg. X – Mortgage Servicing
Significant Dates
• 8/10/12 – Proposed Rule On CFPB Website
– 9/17/12 – Proposed Rule In Federal Register
• 10/9/12 – Comments Due
• 1/17/13 – Final Rule Posted On CFPB Website
– 2/14/13 – Final Rule Published In Federal Register
• 1/10/14 – Effective Date
Reg. X – Mortgage Servicing
• Regulation X – Mortgage Servicing
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Error Resolution Procedures
Information Requests
Force-Placed Insurance
General Servicing Policies, Procedures, & Requirements
Early Intervention Requirements
Continuity Of Contact
Loss Mitigation Procedures
IRS Issues
IRS Issues – Overview
• Information Reporting
– Tax Year 2013 Form Changes
– TIN Truncation
• Fiscal Cliff Legislation
• IRPAC Recommendations To IRS
Tax Year 2013
Form Changes
(as of 4/21/13)
Changes Impacting All Forms
• Payer’s Name Box – Caption Expanded
– 1099-INT caption now reads: PAYER’S name, street address, city or town, province or state,
country, ZIP or foreign postal code, and telephone no.
• Recipient’s Name Box – Last Address Line Caption Expanded
– 1099-INT last address line caption now reads: City or town, province or state, country, and ZIP
or foreign postal code.
• Web Links
– 1099-INT web link reads: www.irs.gov/form1099int
1099-C – Cancellation Of Debt
• No Changes To The Form
• Box 6 – Identifiable Event Code
– 2012
• If Code “A” (Bankruptcy) applied, it was required to be reported.
• If other codes applied, reporting was optional.
– 2013
• The code that applies must be reported.
• There is no more “optional” reporting.
1099-C – Cancellation Of Debt
• Box 6 – Identifiable Event Code
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A—Bankruptcy
B—Other judicial debt relief
C—Statute of limitations or expiration of deficiency period
D—Foreclosure election
E—Debt relief from probate or similar proceeding
F—By agreement
G—Decision or policy to discontinue collection
H—Expiration of nonpayment testing period
I—Other actual discharge before identifiable event.
Forms With No Changes
• 1098…………….Mortgage Interest Statement
• 1098-E........... Student Loan Interest Statement
• 1098-T………... Tuition Statement
• 1099-A…........Acquisition or Abandonment of Secured Property
• 1099-S…........ Proceeds From Real Estate Transactions
TIN Truncation
(a/k/a TIN Masking)
TIN Truncation
• 10/16/08 – IRPAC Report To IRS
– Recommends that filers be allowed to truncate (mask) taxpayer TINs on information returns.
– Objective: To help prevent identity theft.
• 11/19/09 – IRS Notice 2009-93
– TIN truncation permitted on taxpayer copies (generally Copy “B”)
TIN Truncation
• Pilot Program
– Tax years 2009 & 2010.
• Forms Covered
– 1098 series (except 1098-C – Contributions of Motor Vehicles, Boats, & Airplanes)
– 1099 series
– 5498 series
NOTE: Forms1042-S & Form W-2 are not included
TIN Truncation
• Media Covered
– “Paper” payee statements (not “electronic” statements)
• TINs Covered
– SSNs, ITINs, & ATINs (not EINs)
• Format
– ***-**-6789
– xxx-xx-6789
OR
TIN Truncation
• 1/5/10 – IRS Clarifications
– Scope – may truncate the TIN on all copies of the form that are furnished to the payee.
– Disclosure – may include a note on the 2009 forms stating that the TIN has been truncated.
2010 forms included this information already.
• 4/14/11 – IRS Notice 2011-38
– Pilot program extended for 2 more years (2011 & 2012)
TIN Truncation
• 1/7/13 – Proposed Rule Published In Federal Register
– 2/21/13 – Comments Due
– Pilot Program: would be made permanent.
– Participation: would continue to be voluntary.
– Scope: would be expanded to include forms that are delivered “electronically”
– New Terminology: the truncated TIN would be referred to as a “TTIN”
• TTIN = Truncated Taxpayer Identification Number
Fiscal Cliff Legislation
Fiscal Cliff Legislation
• American Taxpayer Relief Act of 2012 (H.R. 8)
– 1/1/13 – Passed the House & Senate
– 1/2/13 – Signed Into Law (P.L. 112-240)
• Signed by autopen while President on vacation in Hawaii
– 1/3/13 – 1st Day Of 113th Congress
• Tax Brackets
– Added the 39.6% bracket for high-income individuals
– Made permanent the other existing tax brackets (Bush-era tax cuts)
Tax Brackets
Bracket #
Old Tax Brackets
New Tax Brackets
1
10%
10%
2
15%
15%
3
25%
25%
4
28%
28%
5
33%
33%
6
35%
35%
7
39.6%
Backup Withholding Tax Rate
• Economic Growth & Tax Relief Reconciliation Act of 2001
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6/7/01 – Signed Into Law (P.L. 107-16)
Changed The BWH Tax Rate
Old BWH Tax Rate: flat 31%
New BWH Tax Rate: tied to the 4th lowest tax rate for single individuals
• Impact Of New Tax Bracket Added By “Fiscal Cliff” Legislation
– BWH Tax Rate Remains At 28%
Backup Withholding Tax Rate
Bracket #
Old Tax Brackets
New Tax Brackets
1
10%
10%
2
15%
15%
3
25%
25%
4
28%
28%
5
33%
33%
6
35%
35%
7
39.6%
MIP Deduction
• Tax Relief & Health Care Act
– 12/20/06 – Signed Into Law (P.L. 109-432)
– New tax deduction for Mortgage Insurance Premiums (MIP) – 2007 only
– Tax year 2007 only
• Mortgage Forgiveness Debt Relief Act
– 12/20/07 – Signed Into Law (P.L. 110-142)
– Extends the deduction for 3 years (2008, 2009, and 2010)
MIP Deduction
• Tax Relief, Unemployment Ins. Reauthorization & Job Creation Act
– 12/17/10 – Signed Into Law (P.L. 111-312)
– Extends the deduction for 1 year (2011)
• Fiscal Cliff Legislation
– Extends the deduction for 2 years (2012 & 2013)
– 2012 Form 1098 Reporting – last minute scramble
IRPAC
Recommendations
To IRS
IRPAC Recommendations To IRS
• Information Reporting Program Advisory Committee
• Form 1099 Corrections
– IRS should adopt a $50 de minimis threshold
– Net change less than +/- $50 would not require a corrected form
– The theory is that this would have minimal to no impact on tax liability
THANK YOU
Sam Teague
Teague Consulting Group
Sam.Teague@RegCompliance.com