Community bank lenders have responded to the CFPB’s Ability-to-Repay and Qualified Mortgage rules with questions about adjustable-rate mortgages (ARMs), balloon-payment qualified mortgages, and non-standard mortgage refinances. The CFPB’s implementation of Dodd-Frank’s balloon-payment qualified mortgage concept, for example, turns on a narrow definition of the types of lenders that qualify to make such loans. ARMs may be a viable alternative to balloon mortgages, but these loan products pose compliance and operational risks of their own. Finally, lenders may still be considering the types of transactions that qualify for the special “non-standard mortgage” refinancing exemption from the general Ability-to-Pay rule.
For a uniquely focused discussion on making these types of loans in light of the CFPB’s new mortgage regulations, join attorneys John ReVeal and Barry Hester for the latest installment of Bryan Cave’s webinar partnership with compliance training leader BAI Learning & Development. This free presentation will be held on Wednesday, May 8, from 3-4 pm Eastern. More information and registration are available here. Participants should walk away with a solid roadmap for managing existing portfolio balloons and ARMs now and for originating these types of mortgages once the CFPB’s rules take effect in 2014.
CFPB Finds Limited Preemption; Gift Card Issuers Must Honor Cards
Even After Funds Have Escheated to the State
The Consumer Financial Protection Bureau (“CFPB”) recently published a final determination regarding whether the unclaimed property laws of Maine and Tennessee relating to unredeemed gift cards (“Applicable State Law”) are inconsistent with and preempted by the gift card provisions of the Electronic Fund Transfer Act and Regulation E (“Federal Law”). The applicable laws of Maine and Tennessee are quite similar for the issues at hand. In its ruling, the CFPB determined that Maine’s unclaimed property law as applied to gift cards is not inconsistent with Federal Law, and therefore no preemption was found. However, with respect to Tennessee’s unclaimed property law, the CFPB ruled in favor of preemption but only with respect to the provision permitting issuers to choose whether to honor an unclaimed gift card after the underlying funds have been escheated to the state. (A Print Version of this Alert is available.)
Background
The specific issue involves Federal Law vis à vis the abandoned property laws of Maine and Tennessee. Federal Law prohibits a gift card from containing an expiration date that is less than five years from the date of issuance or date of last load, whichever is later; Applicable State Law, however, generally requires escheatment of unused balances on certain types of gift cards after two years of card inactivity.
The Consumer Financial Protection Bureau has just released its much anticipated revisions to the Regulation E provisions governing international remittance transfers.
According to the bureau’s press release, the revised rule makes optional the requirement to disclose foreign taxes and recipient institution fees (unless the recipient institution is the remittance transfer provider’s agent). It also makes clear that a remittance transfer provider does not bear the cost of funds deposited into the wrong account because the sender provided the wrong account number or routing number and certain other conditions are satisfied, although the provider is required to attempt to recover such funds.
The final rule will become effective October 28, 2013.
We are reviewing the full text of the revisions and will provide a more detailed analysis in the coming days.
The revised rule is available here.
The mortgage servicing rules issued by the CFPB in January, 2013, implement another wave of Dodd-Frank reforms and outline best practices even for institutions not subject to these new requirements. Join Bryan Cave attorneys Barry Hester and Karen Neely Louis on Tuesday, April 9, from 3-4 pm Eastern, as they dissect these new rules and outline the higher servicing, foreclosure and eviction management expectations that follow.
More information and registration information for this free event, entitled “Servicing, Foreclosure and Eviction Management: Best Practices in the CFPB Era,” is available here.
On Tuesday, March 19 (3-4 pm Eastern), Bryan Cave attorneys John ReVeal and Barry Hester continue their 2013 webinar partnership with compliance training leader BAI Learning & Development. This free event will build on their January 22 overview of the new CFPB mortgage regulations and will specifically explore important exemptions and ambiguities within the final Ability-to-Repay and Qualified Mortgage rules.
Event and registration details are available here: http://www.bai.org/bai-events/EventDetails.aspx?ec=0767 .
As part of its recent wave of rulemaking, the CFPB issued its final rule implementing a Dodd-Frank amendment to the Equal Credit Opportunity Act (ECOA) on January 18, 2013. Under the new rule, lenders must automatically provide copies of any written appraisal reports and valuations developed in connection with an application for credit that is to be secured by a first lien on a dwelling. The current version of this rule only requires this disclosure upon an applicant’s request, although it applies to junior lien credit applications, as well. The new rule takes effect January 18, 2014. As it does now, and as the ECOA does generally, the rule will be equally applicable to business and consumer credit applications.
On the same day, the CFPB and five other financial regulatory agencies jointly issued a separate appraisal rule for “higher-risk mortgages”. The interagency rule, which implements an amendment to the Truth in Lending Act also contained in Dodd-Frank, applies to mortgages with an APR exceeding the APOR by certain statutory thresholds – what the relevant Dodd-Frank provision calls higher-risk mortgages but the rule calls “higher-priced mortgage loans” to avoid the introduction of a seemingly new class of Regulation Z mortgages. For these loans, lenders must obtain a written appraisal performed by a licensed or certified appraiser who conducts an interior site visit of the subject property and then share this appraisal with the applicant. Taking aim at fraudulent flipping, the interagency rule also requires a second, more detailed appraisal on homes that were sold in the last 6 months for less than the current purchase price. This new rule is also effective on January 18, 2014.
Qualified mortgages under the CFPB’s final Ability to Repay rule; transactions secured by new manufactured homes, mobile homes, boats or trailers; loans on construction of new homes; and bridge loans will be exempt from the interagency rule. The agencies also announced their intent to publish a supplemental proposed rule to also exempt “streamlined” refinance programs and small dollar loans.
In addition, the agencies noted that they may consider tying the definition of “higher-priced mortgage loans” to the “transaction coverage rate” or TCR, a term which would exclude all prepaid finance charges not retained by the lender, instead of the APR. This change will likely depend on the CFPB’s final TILA-RESPA disclosure integration rule.
The CFPB announced yesterday that it will delay the effective date of its rules governing remittance transfer rules beyond the previously set February 7, 2013,effective date. The new effective date will be determined when the bureau finalizes its additional revisions to the rules based on the proposed changes published in late December. The comment period on that proposal closes January 30, 2013.
The bureau’s notice is available here, and the related blog post may be found here. The bureau’s proposed rule changes are available here.
One can’t fault the CFPB’s production level in the past two weeks. Since January 10, the Bureau has issued seven distinct final rules - the lion’s share of what it considers ”a single, comprehensive undertaking” to implement Dodd-Frank mortgage reforms. By our count, this work includes over 3,100 pages of rulemaking text not to mention the press releases and the various summary materials and social media campaigns. Final rules were issued on the following:
As a reminder, we’ll provide an overview of these rules and a focused analysis of the Ability to Repay and Qualified Mortgage Rules during a free webinar on Tuesday, January 22, at 3 pm Eastern, and future webinars will unpack the rest of these new requirements. Still to come in 2013 are the Bureau’s final rules on TILA-RESPA disclosure integration.
A couple of themes dominate this wave of rules. First, it’s an understatement to say that Dodd-Frank and these Bureau regulations institutionalize the GSEs and tight prevailing credit standards. Is anyone surprised that these rules effectively kill no-doc and NINJA loans? The rules effectively draw a box around the only mortgage loans most creditors are willing to make now anyway. This convergence may limit the Fair Lending and CRA implications of the rules themselves, as there is less room than ever for discretion and exception. Other themes include the Bureau’s efforts to accommodate the realities of rural markets and smaller creditors and servicers as well as its sensible preference for loans held in portfolio (i.e., skin in the game).
On the other hand, the new Servicing standards are going to demand a high level of customer service and multi-party coordination. We attended both the Baltimore and Atlanta release parties (a.k.a. Field Hearings) for the biggest of these new rules (including Servicing). One take-home could not be missed: in the wake of the financial crisis, the Bureau continues to emerge as a sounding board for the distressed mortgage borrower and an advocate for consumer rights both real and imagined. Its public relations efforts this year on the mortgage front are undoubtedly going to lead to more complaints and more lawsuits against lenders.
The good news is that the Bureau can’t compete with your own relationship with your customer base. And the easiest complaints to resolve are those that are never filed. So to avoid paying for the sins of crisis-era lenders and practices that are now long gone, take a lesson from the CFPB and stay ahead this year on customer service and your institution’s brand. Reinforce the distinction between your organization and the abuses that gave rise to the Bureau, and you may actually benefit from its rules.
A collection of new banking resources from around the internet:
- Doreen Eberley Appointed Director of Division of Risk Management Supervision – Former Acting Regional Director in Atlanta, Ms. Eberley will now be in charge of all risk management supervision for the FDIC.
- December 2012 TARP Monthly Report to Congress – Treasury reports that the bank investment programs under TARP have already generated $23 billion in positive returns to US taxpayers.
- Treasury Announces Another Delay to Pooled TARP Auctions – In light of “strong market receptivity” to the earlier auction rounds, Treasury is providing remaining smaller TARP entities another 90 days to opt-out of the pooled auctions. This presumably indicates that Treasury has no plans to conduct pooled auctions until May at the earliest.
- Hilarious bad lip reading of NFL players – Worth it just to hear Peyton Manning extoll the benefits of potions to make his wide receivers run faster. Rise up, Atlanta!
- Harvard Blog Post on Optimal Bank Capital Regulation – New paper concludes that BASEL III is a move in the “right direction” with regard to establishing better capital requirements in this review of the procyclical effects of bank capital.
- CFPB Publishes Revised RESPA and Truth in Lending Act Regulations – Further analysis forthcoming on BankBryanCave and a free webinar through BAI featuring Bryan Cave attorneys John ReVeal and Barry Hester on Tuesday, January 22, 2012.
- FSOC Extends Comment Period on Money Market Fund Reforms – The Financial Stability Oversight Council is providing another month for comments on for money market mutual fund reforms.
- Agencies Issue Final Rule on Appraisals for Higher-priced Mortgage Loans – The requirement for higher-priced home-purchase mortgage loans is intended to address fraudulent property flipping by seeking to ensure that the value of the property legitimately increased.
For banking-related content from around the web on a real-time basis, follow @RobertKlingler on Twitter.
The CFPB continues to finalize a high volume of new mortgage rules required by Dodd-Frank. Join compliance training leader BAI Learning & Development and Bryan Cave attorneys John ReVeal and Barry Hester as they provide an overview of final Qualified Mortgage and Ability-to-Repay rules and other new and proposed requirements. This informative webinar will be offered on Tuesday, January 22, from 3-4 pm Eastern.
Here’s also a recent bulletin John and Barry developed on some of these new rules.