By Levonick, John
Mortgage Banking , Vol. 71, No. 4
What does the Dodd-Frank Wall Street Reform and Consumer Protection Act really mean? The crux of the legislation reads like this: Welcome to the world of the "qualified mortgage"--more lending requirements, more risk to originators, less origination revenue. * There are many rules imposed by Dodd-Frank that originators are going to have to adhere to, not only as it pertains to their regulated-entity status under the Consumer Financial Protection Bureau (CFPB), but to their investors as well. This new Dodd-Frank Act is going to require originators to have origination and underwriting processes and products locked down and will require additional paperwork to move with the loan into the secondary market. * There will be much confusion in the industry with the absence of clear and definitive regulations, and most speculate this clarity won't come for months--maybe years. * Until the secondary market gets comfortable with the exact requirements placed upon the lenders and the application of assignee liability, the liquidity in the primary market will be extremely limited, and access to credit will be equally as limited. The following changes pose the most significant impact on how mortgage originators will be required to conduct operations in the future.
What is the CFPB and what authority does it have?
For those complaining about how this act has resulted in more government, the most glaring example of this is the CFPB. The CFPB is the newly minted regulatory and supervisory authority established to examine and enforce consumer-protection regulations that relate to all mortgage-related businesses, large non-bank financial companies, and banks and credit unions with greater than $10 billion in assets.
The CFPB is now the primary regulator for non-depository lenders. Excluded from CFPB oversight authority are real estate brokers, people regulated by state insurance regulators, auto dealers, accountants and tax-preparation service providers.
The CFPB will be led by a director who will be appointed by the president and confirmed by the Senate. The CFPB will consist of specific offices that will focus on fair lending, equal opportunity, financial education and consumer protection for military personnel and older Americans.
On Sept. 20, the Treasury Department announced that July 21, 2011, will be the "designated transfer date" on which the consumer financial protection functions will be transferred to the CFPB, effectively establishing the timeline for implementing the Dodd-Frank Act's mortgage reforms contained in Title XIV. As of July 21, 2011, the CFPB shall, among other grants of authority, receive its full authority to prescribe rules or issue orders pursuant to any federal consumer financial law, receive staff transfers from the other agencies and officially become responsible for the supervision of depository institutions with assets in excess of $10 billion.
For Title XIV provisions where regulations are required to implement the specific provision, the board or CFPB must issue its final rules by Jan. 21, 2013. The rules must take effect within one year of issuance, meaning that compliance with all rules would be required by Jan. 21, 2014, at the latest.
If the agencies fail to issue implementing regulations, the statutory language will take effect on Jan. 21, 2013. Prior to July 21, 2011, the CFPB will begin conducting research on consumer financial products and services. It will begin to develop its nationwide consumer complaint-response center and begin to plan implementation of its risk-based supervision of non-depository-covered institutions.
Enhancements to origination practices
What does all this mean for the originator? The traditional loan origination process itself is going to go through significant change. What do I mean? Operational and organizational enhancements will be required of mortgage originators to ensure that the Dodd-Frank Act requirements are met. …