June 25 - The Consumer Financial Protection Bureau has proposed clarifications and some narrow revisions to its January 2013 mortgage rules. The proposal would resolve questions that have been identified during the implementation process and would help the rules deliver their intended value for consumers.
“When we published our mortgage rules, we pledged to be attentive to issues that arose through the implementation process,” said CFPB Director Richard Cordray. “Today’s proposal revises and clarifies certain aspects of our rules to ease implementation and to pave the way for more effective consumer protections in the marketplace.”
The CFPB finalized several mortgage rules in January 2013 that are addressed by the proposal. The Ability-to-Repay rule protects consumers from irresponsible mortgage lending by requiring that lenders make a reasonable, good-faith determination that prospective borrowers have the ability to repay their loans. The mortgage servicing rules established strong protections for homeowners facing foreclosure, and the loan originator compensation rules address certain practices that incentivized steering borrowers into risky and/or high-cost loans. The CFPB also finalized rules that strengthened consumer protections for high-cost mortgages, and instituted a requirement that escrow accounts be established for a minimum of five years for certain higher-priced mortgage loans.
The proposal issued involves clarifications and some narrow revisions to those mortgage rules. Among other things, the proposal would:
Outline procedures for obtaining follow-up information on loss-mitigation applications: According to the CFPB’s servicing rule, within five days of receipt of a loss mitigation application, a servicer must acknowledge receipt of the application and inform the borrower whether it deems the application complete or incomplete. If incomplete, the servicer must identify for the borrower what is needed to complete it. The proposal would outline procedures for servicers to follow, if, after conducting an initial review and sending the notice to the borrower, they discover that they do not have the information needed to complete an assessment.
Facilitate servicers’ offering of short-term forbearance plans: The proposal would make it easier for servicers to offer short-term forbearance plans for delinquent borrowers who need only temporary relief without going through a full loss-mitigation evaluation process. For example, under the proposal, a servicer could provide a two-month forbearance to a borrower who is suffering a short-term hardship.
Facilitate lending in rural or underserved areas: Some of the bureau’s mortgage rules contain provisions applicable to certain small creditors that operate predominantly in “rural” or “underserved” areas. The bureau recently announced that it would reexamine the definitions of rural or underserved over the next two years. This proposal would clarify how existing definitions may apply while that re-examination process is underway for purposes of two exceptions under the existing rules.
Make clarifications about financing of credit insurance premiums: The Dodd-Frank Act prohibition on creditors financing credit insurance premiums in connection with certain mortgage transactions was adopted in the bureau’s loan originator compensation rule. Questions have arisen during the regulatory implementation process concerning the application of that prohibition. This proposal seeks to answer those questions.
Clarify the definition of a loan originator: Under the CFPB’s new rules, persons classified as loan originators are required to meet qualification requirements, and are also subject to certain restrictions on compensation practices. Creditors and loan originators have expressed concern that tellers or other administrative staff could be unintentionally classified as loan originators for engaging in routine customer service activities. Today’s proposal would clarify the circumstances under which a loan originator’s or creditor’s administrative staff acts as loan originators.
Clarify the points and fees thresholds for manufactured housing employees: For retailers of manufactured homes and their employees, the proposal would clarify what compensation must be counted toward certain thresholds for points and fees under the ability-to-repay and high-cost mortgage rules.
Revise effective dates of Loan Originator rule and ban on financing of credit insurance: Currently, the 2013 Loan Originator Compensation Final Rule is scheduled to take effect on Jan. 10, 2014.
The CFPB is committed to assisting with the mortgage industry’s compliance with the new consumer protections. Throughout 2013, the CFPB has been working for a smooth transition. In addition to clarifying critical questions about the new mortgage rules, the bureau has also published plain-language guides for each rule and some interim examination procedures. The CFPB also plans to educate the public about their protections under the rules.
The bureau recently published a new Regulatory Implementation web page, which consolidates all of the new 2013 mortgage rules and related implementation materials, and can be found here: www.consumerfinance.gov/regulatory-implementation.
Comments on the proposal must be received on or before July 22, 2013.
A copy of the proposal can be found at: http://files.consumerfinance.gov/f/201306_cfpb_proposed-modifications_mortgage-rules.pdf.