Dodd-Frank and Your Dodd-Frank and Your BusinessBusiness

A snapshot of the A snapshot of the Consumer Financial Protection Bureau’s Consumer Financial Protection Bureau’s

proposed rulesproposed rules

Marianne Collins, Executive Director & Chief Operating Marianne Collins, Executive Director & Chief Operating OfficerOfficer

Ohio Mortgage Bankers AssociationOhio Mortgage Bankers Association

Consumer Financial Protection Bureau Consumer Financial Protection Bureau (CFPB) (CFPB)

Proposed RulesProposed Rules

Qualified MortgageQualified Mortgage Qualified ResidentialQualified Residential MortgageMortgage Integrated Good Faith Integrated Good Faith

Estimate/Truth-in-Estimate/Truth-in-Lending/Closing Lending/Closing StatementStatement

Home Owner’s Equity Home Owner’s Equity Protection Act ChangesProtection Act Changes

Servicing RulesServicing Rules Loan Originator Loan Originator

CompensationCompensation

Qualified Mortgage (QM)Qualified Mortgage (QM)Ability to RepayAbility to Repay

Proposal by the Federal Reserve Board,Proposal by the Federal Reserve Board, Final rule by the CFPBFinal rule by the CFPB Two proposed alternativesTwo proposed alternatives Coverage: Dwelling secured 1-4 family Coverage: Dwelling secured 1-4 family

(including 2(including 2ndnd homes) 1st & 2 homes) 1st & 2ndnd mortgages, sold and portfoliomortgages, sold and portfolio

Exempt: HELOC, timeshare, reverse, Exempt: HELOC, timeshare, reverse, temporarytemporary

Includes sold and portfolio loans. No Includes sold and portfolio loans. No exemptions for GSE’s or government exemptions for GSE’s or government loansloans

QMQMAlternative 1Alternative 1

Safe HarborSafe Harbor No Negative-amortization, interest No Negative-amortization, interest

only, balloon payments (w/narrow only, balloon payments (w/narrow exception)exception)

Maximum term of 30 yearsMaximum term of 30 years Maximum of 3% in points & feesMaximum of 3% in points & fees Must be underwritten at maximum Must be underwritten at maximum

rate permitted in the first 5 yearsrate permitted in the first 5 years Income & assets must be verifiedIncome & assets must be verified

QMQMAlternative 2Alternative 2

Rebuttable PresumptionRebuttable Presumption Loan must meet all of the Loan must meet all of the

requirement of Alternative 1requirement of Alternative 1 Verify employment statusVerify employment status Consideration of DTI and credit Consideration of DTI and credit

historyhistory

QMQM3% Points and Fee Limit3% Points and Fee Limit

Direct and indirect payments by a consumer to a creditor and mortgage broker as well as their originator employees (double count)

Affiliate fees Mortgage insurance premiums in

excess of the FHA premium The prepayment penalty on the

covered transaction or on an existing loan if it is refinanced by the same creditor.

QMQMFees Not Included in 3%Fees Not Included in 3%

33rdrd party fees party fees Bone fide discount pointsBone fide discount points

QMQMFailure to ComplyFailure to Comply

Actual damages All fees paid by the consumer and up

to three years of finance charges paid by

the consumer Court costs and reasonable attorney’s

fees associated with the enforcement action

Defense against foreclosure

Qualified Residential Qualified Residential Mortgage Mortgage

(QRM)(QRM) Sold loans onlySold loans only Coverage: Principal Dwelling 1Coverage: Principal Dwelling 1stst lien, lien,

closed end loan that does not finance closed end loan that does not finance initial construction, not a bridge or initial construction, not a bridge or timeshare, not a reverse mortgagetimeshare, not a reverse mortgage

Exemptions: 2Exemptions: 2ndnd liens, Fannie/Freddie (as liens, Fannie/Freddie (as long as they are in conservatorship), long as they are in conservatorship), Government LoansGovernment Loans

Non QRM/Non Exempt=Risk RetentionNon QRM/Non Exempt=Risk Retention

QRM Credit RequirementsQRM Credit Requirements

Cannot be currently past due on any Cannot be currently past due on any debtdebt

No 60 day late payments in the past No 60 day late payments in the past 24 months24 months

No bankruptcy, foreclosure deed-in-No bankruptcy, foreclosure deed-in-lieu, short sale or repossession of lieu, short sale or repossession of personal property in last 36 monthspersonal property in last 36 months

QRM Loan RequirementsQRM Loan Requirements No Balloons, Negative Amortization, or No Balloons, Negative Amortization, or

interest onlyinterest only ARM increases may not exceed 2/6 Caps, ARM increases may not exceed 2/6 Caps,

underwritten at max rate in 1underwritten at max rate in 1stst 5 years 5 years 3% Maximum points and fees3% Maximum points and fees Maximum ratios 28/36%Maximum ratios 28/36% Max LTV: 80% purchase, 75% rate/term Max LTV: 80% purchase, 75% rate/term

refi, 70% cash-out refinance refi, 70% cash-out refinance Closing costs and down payment paid cash Closing costs and down payment paid cash

from borrower’s fundsfrom borrower’s funds Written appraisal Written appraisal No loan assumptionsNo loan assumptions

Penalty for Making a Non-QRM Penalty for Making a Non-QRM LoanLoan

Risk retention in the amount of Risk retention in the amount of 5% of the loan5% of the loan

Integrated Good Faith Estimate Integrated Good Faith Estimate (GFE) Truth-in-Lending (TIL) (GFE) Truth-in-Lending (TIL) Closing Statement (HUD1)Closing Statement (HUD1)

All-in APR (not a Dodd-Frank All-in APR (not a Dodd-Frank requirement)requirement)

0% tolerance for affiliate fees and 30% tolerance for affiliate fees and 3rdrd party services that borrower cannot shopparty services that borrower cannot shop

A 5-page closing disclosure would A 5-page closing disclosure would replace the HUD1. Borrower must receive replace the HUD1. Borrower must receive completed form 3 days prior to closing. completed form 3 days prior to closing. Changes of more that $100 require Changes of more that $100 require another 3 day periodanother 3 day period

Integrated GFE/TIL/HUD1Integrated GFE/TIL/HUD1ConcernsConcerns

All-in APR would cause more loans to All-in APR would cause more loans to become a HPML or HOEPAbecome a HPML or HOEPA

0% tolerance on 30% tolerance on 3rdrd party fees will party fees will mean more lender curesmean more lender cures

3-day wanting period will cause 3-day wanting period will cause purchase contract and rate loan purchase contract and rate loan expirations expirations

Home Owner’s Equity Home Owner’s Equity Protection Act (HOEPA)Protection Act (HOEPA) (High (High

Cost Loans)Cost Loans) Adds purchases and Home Equity Lines of Adds purchases and Home Equity Lines of

Credit (HELOC), previously refinance onlyCredit (HELOC), previously refinance only Excludes reverse mortgagesExcludes reverse mortgages Triggers when Annual Percentage Rate Triggers when Annual Percentage Rate

(APR) exceeds prime offer rate by 6.5% (APR) exceeds prime offer rate by 6.5% (8.5% for 2(8.5% for 2ndnd lien), points and fees exceed lien), points and fees exceed 5%, or a pre-payment penalty applies for 5%, or a pre-payment penalty applies for more than 36 months or exceeds 2% of more than 36 months or exceeds 2% of the amount pre-paid. the amount pre-paid.

Requirement to provide list of federally Requirement to provide list of federally approved homeownership counselors to approved homeownership counselors to ALL mortgage applicantsALL mortgage applicants

Servicing ProposalServicing Proposal Monthly statements required, to include:Monthly statements required, to include:Explanation of amount due,Explanation of amount due,Past payment breakdown,Past payment breakdown,Transaction activity,Transaction activity,Message section,Message section,Contact information,Contact information,Account information section,Account information section,Delinquency information,Delinquency information,Housing counselor informationHousing counselor information Coupon books acceptable for fixed rate loans, if Coupon books acceptable for fixed rate loans, if

all information is somewhere in the bookall information is somewhere in the book Exception for small servicers for loans they Exception for small servicers for loans they

originated or own, and reverse mortgagesoriginated or own, and reverse mortgages

Servicing Proposal (cont.)Servicing Proposal (cont.) 60-120 day notice of rate/payment changes 60-120 day notice of rate/payment changes

to Adjustable Rate Mortgages (ARM)to Adjustable Rate Mortgages (ARM) Payments credited on the day of receiptPayments credited on the day of receipt Payoffs must be sent within 7 days of Payoffs must be sent within 7 days of

receipt of written requestreceipt of written request Complaints: Acknowledged within 5 days, Complaints: Acknowledged within 5 days,

respond/correct within 30 days (5 days for respond/correct within 30 days (5 days for pay-off resolutions)pay-off resolutions)

Force-placed insurance: refund to borrower Force-placed insurance: refund to borrower within 15 days of confirmation that he had within 15 days of confirmation that he had insuranceinsurance

Servicers must establish information Servicers must establish information management policies and proceduresmanagement policies and procedures

Servicing Proposal Servicing Proposal Delinquent BorrowersDelinquent Borrowers

At least 3 separate calls on 3 separate days At least 3 separate calls on 3 separate days must be made before the 30must be made before the 30thth day of day of delinquencydelinquency

Assign contact personnel within 5 days of Assign contact personnel within 5 days of oral notice. Response within 3 days of oral notice. Response within 3 days of customer contactcustomer contact

Early loss mitigation intervention required Early loss mitigation intervention required with 1with 1stst 30 day late payment 30 day late payment

Written notice by the 40Written notice by the 40thth day of day of delinquencydelinquency

Establish formal policies and proceduresEstablish formal policies and procedures Small servicers are not exemptSmall servicers are not exempt

Loan Originator Loan Originator CompensationCompensation

Loans with points and fees can only Loans with points and fees can only be made if an option at no points and be made if an option at no points and fees is offeredfees is offered

No affiliate fees can be charged in a No affiliate fees can be charged in a no points and fees optionno points and fees option

Reduction in loan officer’s Reduction in loan officer’s commission allowed if a fee exceeds commission allowed if a fee exceeds tolerances and the loan officer could tolerances and the loan officer could not have known this ahead of timenot have known this ahead of time

Record retention goes from 2 years Record retention goes from 2 years to 3to 3

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