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From Banking and Finance Law Daily, May 3, 2013

CFPB Guides on HOEPA, ECOA, and TILA Appraisals

By Katalina M. Bianco, J.D.

The Consumer Financial Protection Bureau has published three Small Entity Compliance Guides. The guidance targets the 2013 Homeownship and Equity Protection Act rule, Equal Credit Opportunity Act Valuations rule, and Truth in Lending Act Higher-Priced Mortgage Lending Appraisal rule. In its announcement, the CFPB said that its goal in producing the guidance is to provide an overview of the rules in a plain language format. Frequently Asked Questions, a format included in the guides, helps to further clarify the rules.

HOEPA guide. HOEPA was enacted to address abusive practices in refinances and closed-end home equity loans with high-interest rates or high fees. Since HOEPA’s enactment, refinances or home equity mortgage loans meeting any of HOEPA’s high-cost coverage tests have been subject to special disclosure requirements and restrictions on loan terms.

The Dodd-Frank Act amended TILA by expanding the scope of HOEPA coverage to include purchase-money mortgages and open-end credit plans such as home equity lines of credit, and it amended HOEPA’s coverage tests. The Dodd-Frank Act also added new protections for high-cost mortgages, including a requirement that consumers receive homeownership counseling before obtaining a high-cost mortgage.

In January 2013, the bureau issued a rule amending TILA’s Regulation Z (12 CFR 1026) to implement the Dodd-Frank Act’s HOEPA revisions. The rule applies to transactions for which an application is received on or after Jan. 10, 2014.

The rule also implements two additional Dodd-Frank Act counseling requirements that may apply to creditors regardless of whether they make high-cost mortgages. The provisions require or encourage consumers to obtain homeownership counseling for other types of loans. The guidance stresses that these homeownership counseling-related requirements are not amendments to HOEPA, but are separate amendments to the Real Estate Settlement Procedures Act’s Regulation X (12 CFR 1024) and Regulation Z that apply to different types of transactions. The guidance addresses these requirements in Part 5.

The CFPB’s small entity compliance guidance provides answers to:

  1. the definition of high-cost mortgage and which transactions are covered by HOEPA or exempt from it;
  2. how to determine if a transaction is a high-cost mortgage; and
  3. what is a points-and-fees coverage test.

ECOA valuations guide. The Dodd-Frank Act amended ECOA provisions to provide guarantees that applicants receive important information about their home value estimates. In January 2013, the CFPB adopted a rule outlining disclosure and delivery requirements for copies of appraisals and other written valuations under Regulation B (12 CFR 1002).

Before the rule, Regulation B required only that creditors provide copies of appraisals to applicants upon request and notify them of their right to make a request. The final ECOA rule changes both of these requirements. Under the rule, creditors are required to disclose to applicants that they have the right to receive copies of appraisals and written valuations. Creditors also are required to automatically send a free copy of home appraisals and other written valuations promptly after they are completed, regardless of whether credit is extended, denied, incomplete, or withdrawn.

The CFPB small-entity compliance guide answers questions such as:

  1. what loans are covered by the rule;
  2. what is a valuation of a dwelling; and
  3. how to comply with the rule.

Higher-priced mortgage loan appraisals guide. In 2010, TILA was amended by the Dodd-Frank Act to require rules for appraisals on principal residences securing higher-priced loans. The CFPB adopted a final rule implementing the TILA amendments in February 2013.

The CFPB stresses in the guidance that when a lender originates a higher-priced first-lien or subordinate-lien loan covered by the rule, the lender must:

  1. use a licensed or certified appraiser who certifies that the appraisal complies with the Uniform Standards of Professional Appraisal Practice and the Financial Institutions Reform, Recovery and Enforcement Act;
  2. have the appraiser physically visit the property, view the interior, and produce a written appraisal report;
  3. obtain an additional appraisal at the lender’s expense if the property’s seller acquired the dwelling within the past 180 days and is reselling it for a price that exceeds certain thresholds;
  4. provide a disclosure within three business days of application explaining the consumer’s rights with regard to appraisals; and
  5. give consumers free copies of the appraisal reports performed in connection with the loan at least three days before consummation of the transaction.

Additional topics covered in the small compliance entity guide include:

  1. an overview of the appraisal rule;
  2. loans the rule does and does not cover;
  3. how to qualify for the safe harbor provision of the rule; and
  4. consumer disclosures.

RegulatoryActivity: CFPB EqualCreditOpportunity Loans Mortgages

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