Magazine article Mortgage Banking

The Big 'C' CFPB

Magazine article Mortgage Banking

The Big 'C' CFPB

Article excerpt

How time flies. After its initial beginnings under the guidance of Elizabeth Warren in her role as assistant to the president and special adviser to the secretary of the Treasury, the Consumer Financial Protection Bureau (CFPB) went "live" slightly more than one year ago.

Created as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act, the CFPB took over a huge swath of rulemaking and enforcement responsibilities from seven separate federal regulators, as well the responsibility to draft new rules and regulations required by the Dodd-Frank Act itself.

Wielding unprecedented authority and power, the CFPB has, in its brief life, become the L'enfant terrible of the consumer finance universe as bankers and consumer groups grapple to define terms that will set and limit the scope of residential mortgage lending for decades to come.

According to the most recent regulatory agenda posted to its website, the CFPB is currently working on a broad sweep of regulatory changes. They include: Supervision of Larger Depository Institutions and Affiliates; the Home Mortgage Disclosure Act (Regulation C); Requirements for Prepaid Cards (Regulation E); Amendments to the Truth in Lending Act (TILA) and Financial Institutions Reform, Recovery and Enforcement Act (FIRREA) Concerning Appraisals, Disclosure Rules and Substantive Protection for Certain High Cost Mortgage Loans (Regulation Z); Mortgage Originator Standards (Regulation Z); Mortgage Servicing (Regulation X and Regulation Z); TILA/Real Estate Settlement Procedures Act (RESPA) Mortgage Disclosure Integration (Regulation X and Regulation Z); Credit Card Pre-Opening Account Fees (Regulation Z); Procedural Rule To Establish Supervisory Authority Over Certain Nonbank Covered Persons Based on Risk Determination, Supervision of Certain Nonbank Covered Persons--Defining Larger Participants in Certain Consumer Financial Product and Service Markets; Copies of Appraisals or Other Valuations To Be Furnished by Creditor (Regulation B); Disclosure of Records and Information, State Official Notification Rule, Rules Relating to Investigations, Rules of Practice for Adjudication Proceedings, Restatement of Federal Consumer Financial Law Regulations, Requirements for Escrow Accounts (Regulation Z); TILA Ability to Repay (Regulation Z); Confidential Treatment of Privileged Information, Disclosure Rules for Remittance Transactions (Regulation E); Alternative Mortgage Transaction Parity (Regulation D); Business Lending Data (Regulation B); and TILA Mortgage Amendments (Regulation Z).

Two of the hottest issues for mortgage lenders at the moment concern the definition of the Qualified Mortgage (QM) described in Title XIV of the Dodd-Frank Act, and the extent of the legal protections available for QM-compliant loans.

According to the rules set out in Dodd-Frank, at a minimum, QMs cannot contain negative amortization, interestonly or balloon payments, and cannot have a term exceeding 3o years. Points and fees will also be capped.

The QM underwriting requirements are of great concern to the industry because the more stringent they are in terms of the hurdles a borrower must meet, the lower the number of borrowers who will be able to qualify. This is especially worrisome because of the CFPB's recent announcement that it will apply a "disparate impact" approach to analyzing lenders' compliance with the Fair Housing and Equal Credit Opportunity Acts Under this theory, violations can be found if facially non-discriminatory lending policies inadvertently lead to adverse effects on minorities. While the CFPB has not yet assigned numerical values to items such as the loan-to-value (LTV) or debt-to-income (DTI) ratios, the Mortgage Bankers Association (MBA) and the CFPB are discussing those issues as well as specific borrower-creditwor-thiness standards, level of required assets and the amount of residual income a borrower will be required to have. …

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