New Federal Residential Mortgage Loan Regulations:
Quick Glance Guidance and Today’s Action Items for Small Lenders
prepared by Marjorie A. Corwin, Esquire
Gordon Feinblatt LLC ■ 233 E. Redwood Street ■ Baltimore, Maryland 21202-3332
(410) 576-4041 ■ mcorwin@gfrlaw.com
May 6, 2013
Final Reg. Effective Date
Loan Originator Prohibited Terms
78 Fed. Reg. 11280 (2/15/13)
Effective Date: June 1, 2013
Escrow Requirements for “Higher
Priced Mortgage Loans”
78 Fed. Reg. 4726 (1/22/13)
Effective Date: June 1, 2013
Who/What Loans Are Covered1
Closed-end loan secured by
consumer’s dwelling
HELOC secured by consumer’s
principal dwelling
Closed-end first lien loan secured
by consumer’s principal dwelling
that exceeds the applicable
“higher priced” threshold
Exclusions: construction loan;
bridge loan; reverse mortgage;
loans by “small, rural lenders”
Note: No exclusion for
manufactured homes
What Reg. Generally Requires2
Prohibits mandatory arbitration in any
document arising out of the credit
transaction
Prohibits creditor from financing
credit insurance premiums (except on
a monthly basis)
Must establish, before consummation,
an escrow account for taxes and
insurances required by lender
Must maintain escrow account for not
less than 5 years
Liability for Violation3
Standard TILA liability
3-year statute of limitations for private
actions
State A.G. may bring action under a 3-year
statute of limitations
Standard TILA liability
State A.G. may bring action under a 3 year
statute of limitations
Thoughts On Today’s Action Items
Review all consumer mortgage loan
documents for arbitration provisions
Consider if credit insurance is sold in
connection with mortgage products and, if
so, determine compliance
Revisit if any “higher priced mortgage
loans” will be made
Determine if any new exclusion applies
that would allow changes in current
escrowing practices (e.g., construction
loans, “small, rural lender”, etc.)
Change existing procedures to reflect new,
longer period for maintaining escrow
accounts
“Stay tuned” for additional escrow
account requirements when TILA-RESPA
Disclosure Integration is implemented
1
In this chart, unless stated otherwise, loans are assumed to be primarily for personal, family, or household purposes. This chart does not address loans secured by “timeshare” interests.
2
The descriptions of what the regulations require are very imprecise. All regulations contain numerous requirements, limitations, and restrictions not mentioned in this chart. The information in this chart cannot be relied
upon as legal advice.
3
For private actions, the normal Truth in Lending Act (TILA) liability will apply to all violations of TILA provisions. This “Standard TILA liability” is the sum of: (1) actual damages; (2) twice the amount of finance charge but (i)
for HELOCs, not less than $200 nor greater than $2,000, and (ii) for closed-end mortgage loans, not less than $400 nor greater than $4,000; and (3) costs and attorney fees (to consumer, if successful). Class action liability
will differ. TILA normally has a 1-year statute of limitations except as follows: 3-year statute of limitations for violation of Loan Originator Compensation rule and for Ability to Repay rule; and TILA violations may be raised
as a defense (set off or recoupment) in a debt collection action at any time.
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Final Reg. Effective Date
Appraisal Requirements for
“Higher Priced Mortgage Loans”
78 Fed. Reg. 10368 (2/13/13)
Issued by multiple regulators
Effective Date: January 18, 2014
Who/What Loans Are Covered1
Closed-end loan secured by
consumer’s principal dwelling
that exceed the applicable
“higher priced” threshold
Exclusions: “qualified mortgage”
(see 12 CFR 1026.43(e)); credit
secured by new manufactured
home; credit secured by mobile
home, boat, or trailer;
construction loan; bridge loan;
reverse mortgage
What Reg. Generally Requires2
Liability for Violation3
Must obtain, before consummation, a
written appraisal performed by
certified or licensed appraiser who
conducts physical visit of the interior
of property
Standard TILA liability, plus: if creditor
willfully fails to obtain required appraisal,
there will be liability to the applicant or
borrower for $2,000
Some purchase money transactions
require two appraisals (but can only
charge borrower for cost of one
appraisal)
Thoughts On Today’s Action Items
Revisit if any “higher priced mortgage
loans” will be made
Begin to examine current appraisal
practices to identify need for changes
State A.G. may bring action under a
3- year statute of limitations
Specific disclosure must be provided
to loan applicant at time of application
(very similar to ECOA appraisal
disclosure)
Must provide copy of all appraisals
performed no later than 3 business
days before consummation or, if not
consummated, within 30 days of
determination that loan will not close
Appraisal Delivery and Disclosure
under ECOA
Loan secured by first lien on a
dwelling
78 Fed. Reg. 7216 (1/31/13)
Effective Date: January 18, 2014
Note: Applies to HELOCs
Note: Applies to consumer and
commercial purpose loans
Requires creditor to provide copy of
all appraisals to applicant promptly
upon completion of appraisal but not
later than 3 business days before
consummation (closed-end) or
account opening (open end)
Applies regardless of whether loan
closes
Also requires notice within 3 business
days of application of applicant’s right
to receive copy of all appraisals
2
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Standard ECOA liability is actual damages
and, if appropriate, punitive damages up
to $10,000, plus costs and attorney fees to
an aggrieved applicant in a successful
action
5-year statute of limitations
Consider how to implement process for
providing copies of all appraisals and
written valuations routinely on all loans
secured by a first lien on a dwelling
Final Reg. Effective Date
Who/What Loans Are Covered1
What Reg. Generally Requires2
Liability for Violation3
Thoughts On Today’s Action Items
High-Cost (HOEPA) Mortgage
Loans
Transaction secured by
consumer’s principal dwelling
that meets either the APR
“trigger” or points & fees
“trigger” or new prepayment fee
“trigger”
High-cost (HOEPA) mortgage loans are
subject to additional disclosure
requirements and limits on loan terms
Standard TILA liability, plus: an amount
equal to the sum of all finance charges and
fees paid by the consumer (unless creditor
demonstrates that failure to comply is not
material)
New definitions in Reg. Z §32 need careful
consideration
78 Fed. Reg. 6857 (1/31/13)
Effective Date: January 10, 2014
3-year statute of limitations for private
actions
Exclusions: reverse mortgage;
construction loan
Consider effect of lowering the APR
“triggers”
Consider effect of lowering the points &
fees “trigger” and expanding the scope of
points & fees
State A.G. may bring action under a 3-year
statute of limitations
Note: Applies to HELOCs
Significant assignee liability
Ability to Repay/Qualified
Mortgage
78 Fed. Reg. 6408 (1/30/13)
Effective Date: January 10, 2014
Loan secured by a dwelling
Exclusions: HELOC; reverse
mortgage; bridge loan; standalone construction loan;
construction phase (12 months or
less) of construction-topermanent loan
Prohibits making loan unless lender
makes determination of borrower’s
ability to repay (“ATR”)
Creditor is deemed to have complied
with ATR obligation if loan is not
“higher priced” and complies with
“qualified mortgage” requirements
(called “safe harbor”)
3-year statute of limitations for private
actions
State A.G. may bring action under a 3-year
Creditor is presumed to have complied statute of limitations
with ATR obligation if loan is “higher
priced” and complies with “qualified
mortgage” requirements
Exceptions: No ATR obligation for
certain refinancing of “non-standard”
to “standard” mortgage loan; certain
balloon-payment loans can be
“qualified mortgages” but only if made
by “small, rural lender”
3
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Standard TILA liability, plus: an amount
equal to the sum of all finance charges and
fees paid by the consumer (unless creditor
demonstrates that failure to comply is not
material)
Consider if non-qualified mortgage loans
will be made
Underwriters need to begin understanding
ATR obligations and “qualified mortgage”
obligations
Final Reg. Effective Date
Loan Originator Compensation
78 Fed. Reg. 11280 (2/15/13)
Effective Date: January 10, 2014
Mortgage Servicing – RESPA
General Servicing Policies, Early
Intervention Requirements,
Continuity of Contact, Loss
Mitigation Procedures
78 Fed. Reg. 10696 (2/14/13)
Effective Date: January 10, 2014
Who/What Loans Are Covered1
What Reg. Generally Requires2
Closed-end loan secured by
consumer’s dwelling
Makes some changes to loan
originator compensation structures
Applies to (i) individuals who are
employees of lenders or brokers
and (ii) entities that act as
brokers
Imposes obligations on bank
employers of loan originators to
consider employee “credentials”
Applies to RESPA-defined
“federally related mortgage
loans” except not HELOCs
Exclusions: reverse mortgage;
servicing 5,000 or fewer loans all
of which are owned by the
servicer or were originally made
by the servicer
Requires NMLS ID information on
credit applications, note, and deed of
trust
Must establish certain specific written
policies and procedures
Regarding delinquent borrower, must
make live contact quickly, followed by
written contact soon after, and
establish continuity of contact
Must have a specific loss mitigation
process and cannot start any
foreclosure activities unless borrower
is at least 120 days delinquent (note:
the 120 delay applies to “small
servicers”)
4
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Liability for Violation3
Standard TILA liability
TILA liability expressly applies to loan
originators even though they are not
“creditors”, however, there is a maximum
liability for loan originators of 3 times the
total amount of the originator’s
compensation plus costs and attorney fees
3-year statute of limitations for private
actions
RESPA liability for servicing errors is actual
damages, plus any additional damages the
court allows not to exceed $2,000, plus
costs and attorney fees for any successful
action
Thoughts On Today’s Action Items
Identify who gets compensation for
mortgage loans and what are current
compensation structures
Consider if compensation comes from any
affiliates
Get human resources involved with new
“credentialing” and loan originator
employee training
“Stay tuned” for regulations restricting
loan steering by mortgage loan originators
Consider if TILA “small servicer” exception
applies (if not, get help immediately)
Even if “small servicer” exception applies,
cannot start any foreclosure activities –
which I believe includes sending
Maryland’s Notice of Intent to Foreclose –
until borrower is at least 120 days
delinquent
Final Reg. Effective Date
Mortgage Servicing – RESPA Error
Resolution Procedures, Requests
for Information, Forced-Placed
Hazard Insurance
Who/What Loans Are Covered1
Applies to RESPA-defined
“federally related mortgage
loans” except not HELOCs
78 Fed. Reg. 10696 (2/14/13)
Effective Date: January 10, 2014
What Reg. Generally Requires2
Liability for Violation3
Thoughts On Today’s Action Items
Must acknowledge, within 5 days of
receipt, borrower’s notice of servicing
error and must investigate, if
necessary, correct error, and respond
within 30 days of receipt (or sooner in
some circumstances)
RESPA liability for servicing errors is actual
damages, plus any additional damages the
court allows not to exceed $2,000, plus
costs and attorney fees for any successful
action
Work on process for sending written
notice to borrowers of address where
notices of error and information requests
must be sent
Must send accurate payoff statement
not more than 7 business days after
receiving written request from
borrower or person acting on behalf
of borrower
Standard TILA liability
Get help immediately to begin establishing
processing and procedures to comply with
servicing requirements
Standard TILA liability
Must acknowledge, within 5 days of
receipt, borrower’s information
request and must provide requested
information and contact information
or investigate and advise no requested
information is available within 30 days
of receipt (or sooner for
“identification information”)
Get help immediately to begin establishing
processing and procedures to comply with
servicing requirements
Must provide specific notices before
force-placing hazard insurance
Mortgage Servicing – TILA Payoff
Statements
Loan secured by consumer’s
dwelling
78 Fed. Reg. 10902 (2/14/13)
Effective Date: January 10, 2014
Note: Applies to HELOCs
Mortgage Servicing – TILA
Crediting Payments and Late Fee
Provisions
Loan secured by consumer’s
principal dwelling
Imposes restrictions and obligations
regarding application of payments
Note: Applies to HELOCs
Prohibits pyramiding late fees
78 Fed. Reg. 10902 (2/14/13)
Effective Date: January 10, 2014
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State A.G. may bring action under a 3-year
state of limitations
State A.G. may bring action under a 3-year
state of limitations
Review systems to ensure payment
processing and crediting requirements can
be met
Final Reg. Effective Date
Who/What Loans Are Covered1
What Reg. Generally Requires2
Closed-end loan secured by a
dwelling
78 Fed. Reg. 10902 (2/14/13)
Effective Date: January 10, 2014
Exclusions: reverse mortgages;
loans where borrowers get very
specific information in coupon
book; servicing 5,000 or fewer
loans all of which are owned by
the servicer or were originally
made by the servicer
Mortgage Servicing - TILA ARM
Disclosures
Closed-end loan secured by
consumer’s principal dwelling in
which APR may increase after
consummation
Requires a new initial rate change
disclosure and makes changes to
periodic rate change disclosures
Standard TILA liability
Work with forms vendors to ensure
disclosures are available by effective date
RESPA-covered (i.e., federallyrelated) mortgage loans
Must provide list of homeownership
counseling organizations
No private cause of action
Consider how to implement this disclosure
requirement (will forms vendor provide?)
Homeownership Counseling
78 Fed. Reg. 6857 (1/31/13)
Effective Date: January 10, 2014
Consider if TILA “small servicer” exception
applies (if not, get help immediately)
Note: Periodic statement sent to
delinquent borrower needs to include up
to 6 months’ past payment history (will
systems be in place by July 2013 to ensure
compliance with this disclosure
requirement beginning in January 2014)
Exclusions: reverse mortgage
Note: Applies to HELOCs
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Standard TILA liability
Thoughts On Today’s Action Items
Mortgage Servicing – TILA
Periodic Billing Statements
78 Fed. Reg. 10902 (2/14/13)
Effective Date: January 10, 2014
Must provide periodic statement
meeting specific requirements
Liability for Violation3