• CFPB Releases 2013 Dodd-Frank Mortgage Rules Readiness Guide
  • July 12, 2013 | Authors: David N. Anthony; Nicola Harrison; John C. Lynch; S. Mohsin Reza; Alan D. Wingfield
  • Law Firms: Troutman Sanders LLP - Richmond Office ; Troutman Sanders LLP - Tysons Corner Office ; Troutman Sanders LLP - Virginia Beach Office ; Troutman Sanders LLP - Tysons Corner Office ; Troutman Sanders LLP - Richmond Office
  • The Consumer Financial Protection Bureau released the first version of the 2013 Dodd-Frank Mortgage Rules Readiness Guide (“Guide”) on July 8, 2013. The Guide is intended to aid regulated entities in achieving compliance with new mortgage rules that are becoming effective between June 2013 and January 2014 by summarizing important issue areas that may be closely examined during a review and by helping regulated entities progress through steps toward compliance. The CFPB will periodically update the Guide as amendments are finalized, new issues are identified, and additional rule clarifications are provided.

    Richard Cordray, Director of the Consumer Financial Protection Bureau, has recently stated that the CFPB has no plans to delay the effective dates of the new mortgage rules. The Guide covers eight key new mortgage rules:

    • Ability-to-Repay and Qualified Mortgage Standards (Regulation Z) - effective January 10, 2014: Regulation Z currently prohibits a creditor from making a higher-priced mortgage loan without regard to a consumer’s ability to repay. The final rule requires creditors to make a reasonable, good faith determination of a consumer’s ability to repay any consumer credit transaction secured by a dwelling. Open-end credit plans, timeshare plans, reverse mortgages, and temporary loans are exempted from the reach of the final rule. The final rule also limits prepayment penalties and requires creditors to retain evidence of compliance for three years after consummation of a covered loan.
    • Escrow Requirements under Truth in Lending Act (Regulation Z) - effective June 1, 2013: Regulation Z formerly required creditors to establish escrow accounts for higher-priced mortgage loans secured by a first lien on a principal dwelling. The final rule now lengthens the time during which escrow accounts for higher-priced mortgage loans must be maintained, while exempting certain types of transactions.
    • High-Cost Mortgage and Homeownership Counseling (Regulation Z and X) - effective January 10, 2014: The final rule amends Regulation Z by increasing the types of mortgage loans that are subject to the protections of the Home Ownership and Equity Protections Act of 1994 (“HOEPA”), expanding the test for coverage under HOEPA, and imposing additional restrictions on mortgages covered by HOEPA. The final rule amends Regulations Z and X by requiring that consumers receive information about homeownership counseling providers.
    • Mortgage Servicing Rules (Regulation Z and X) - effective January 10, 2014: The Regulation X final rule implements sections of Dodd-Frank that address a servicer’s obligations to correct errors asserted by mortgage loan borrowers, to provide certain information requested by borrowers, to provide protections to borrowers in regard to force-placed insurance, and to evaluate applications for available loss mitigation options. The Regulation Z final rule implements Dodd-Frank sections that address the initial rate adjustment notices for adjustable-rate mortgages, periodic statements for residential mortgage loans, timely crediting of mortgage payments, and responses to requests for payoff amounts.
    • ECOA Appraisals for Higher-Priced Mortgage Loans (Regulation B) - effective January 18, 2014: The Regulation B final rule requires that creditors provide applicants free copies of appraisals and other written valuations obtained in connection with an application for a loan that will be secured by a first lien on a dwelling.
    • TILA Appraisals for Higher-Priced Mortgage Loans (Regulation Z) - effective January 18, 2014: The final rule amends Regulation Z to require appraisals for “higher-risk mortgages.” Creditors must also provide applicants with a notification regarding the use of appraisals and a copy of any written appraisal used.
    • Loan Originator Compensation Requirements (Regulation Z) - amendments to § 1026.36(h) effective June 1, 2013; all other provisions effective January 10, 2014: The final rule implements restrictions regarding loan originator compensation, registration and licensing of loan originators, compliance procedures for depository institutions, mandatory arbitration, and financing of single-premium credit insurance.

    Part II of the Guide contains a “Readiness Questionnaire” for institutions. The questionnaire serves as a self-assessment that regulated entities can use to evaluate their progress towards compliance with the new rules. Entities analyze their progress by answering a series of questions pertaining to: (i) the development of their implementation plans, (ii) policies and procedures, (iii) training, (iv) audit, compliance review, and internal control, (v) complaints, and (vi) third party and vendor management.

    The Guide also contains “Frequently Asked Questions” that address topics such as how to contact the CFPB, which entities are covered, expectations on the effective dates, compliance monitoring, and coordination of regulators. Finally, the Guide provides a list of websites that can serve as useful resources for regulated entities to consult throughout the implementation process.

    Practical Impact

    Regulated financial institutions should be implementing procedures so that they are in compliance with the final rules by their effective dates. The Guide is designed to offer information to aid financial institutions in their efforts to comply with the new rules. However, the CFPB has cautioned in the Guide that it is not “intended to encompass all details of a comprehensive compliance program.” Also, the CFPB is likely to update the Guide periodically. Thus, financial institutions must be aware that only compliance with the rules and not simply the Guide will be satisfactory for the CFPB.