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From Banking and Finance Law Daily, September 13, 2013

Modifications to mortgage rules ensure smoother implementation process

By John M. Pachkowski, J.D.

The Consumer Financial Protection Bureau has issued a final rule that amends some of the final mortgage rules issued in early 2013.

2013 Mortgage Rules. The bureau’s mortgage rules, which implemented provisions of the Mortgage Reform and Anti-Predatory Lending Act—Title XIV of the Dodd-Frank Act—included:

  • the Ability-to-Repay rule which protects consumers from irresponsible mortgage lending by requiring that lenders generally make a reasonable, good-faith determination that prospective borrowers have the ability to repay their loans;
  • the mortgage servicing rules—Reg. X and Reg. Z—which established strong protections for homeowners facing foreclosure;
  • the Loan Originator Compensation rules which address certain practices that incentivized steering borrowers into risky or high-cost loans;
  • strengthened consumer protections for high-cost mortgages; and
  • a requirement that escrow accounts be established for a minimum of five years for certain higher-priced mortgage loans.

Clarifications and modifications. These latest amendments made by the CFPB will:

  • clarify what servicer activities are prohibited in the first 120 days of delinquency by allowing servicers to send certain early delinquency notices required under state law that may provide borrowers beneficial information about legal aid, counseling, or other resources;
  • provide specific procedures for servicers to use for obtaining follow-up information on loss-mitigation applications;
  • facilitate servicers’ offering of short-term forbearance plans by permitting the servicer to provide a six-month forbearance to a borrower who is suffering a short-term, temporary hardship;
  • clarify best practices for informing borrowers about the address for error resolution documents by allowing servicers to inform borrowers about the address by listing it on certain documents, such as an initial notice and a periodic statement or coupon book;
  • facilitate lending in rural or underserved areas;
  • make clarifications to the bureau’s loan originator compensation rule concerning the financing of credit insurance premiums and the definition of “loan originator;” and
  • clarify the points and fees thresholds and loan originator compensation rules for manufactured housing employees.

Simplifying compliance. The final rule also changed the effective date for certain provisions of the Loan Originator Compensation Final Rule from Jan. 10, 2014, to Jan. 1, 2014, in order to simplify compliance since compensation plans, training, and licensing and registration are often structured on an annual basis.

Commenting on the final rule, CFPB Director Richard Cordray noted, “Our mortgage rules were designed to eliminate irresponsible practices and foster a thriving, more sustainable marketplace. Today’s rule amends and clarifies parts of our mortgage rules to ensure a smoother implementation process, which is helpful to both businesses and consumers.”

RegulatoryActivity: CFPB DoddFrankAct EqualCreditOpportunity Loans Mortgages RESPA TruthInLending

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