CFPB Update

This presentation is for informational purposes only and is not and may not be construed as legal advice. North American is not a law firm and does not offer legal services of any kind. No third-party entity may rely upon anything contained herein when making legal and/or other determinations regarding title practices. You should consult with an attorney prior to embarking upon any specific course of action.

CFPB Update

Looking Ahead

ABOUT THE CFPB

WHAT IS THE CFPB?

• Consumer Financial Protection Bureau

• Independent bureau within Federal ReserveSystem

• Regulates offering and provision of consumer financial products or services under Federal consumer financial laws

• Created by Dodd-Frank Wall Street Reform and Consumer Protection Act1

1Dodd-Frank § 1011(a), 12 United States Code § 5491(a)

WHAT DOES THE CFPB REGULATE?

• Credit Cards

• Mortgages

• Bank Accounts & Services

• Credit Reporting

• Money Transfers

• Debt Collection

• And More

2014 MORTGAGE RULES

THE 2014 MORTGAGE RULES

• Issued: January 2014 (thereafter amended)

• Effective: January 2014 (most provisions)

• Location:– CFPB Website:

• http://www.consumerfinance.gov

– Published in Federal Register– Amend Code of Federal Regulations

THE 2014 MORTGAGE RULES (CONT.)

• Ability to Repay and Qualified Mortgage StandardsUnder the TILA1 (Reg. Z)– Effective: 1/10/14; Issued: 1/10/13 (Amended: 5/29/13 & 7/10/13)

• High-Cost Mortgage and Homeownership Counseling Amendments to the TILA (Reg. Z) and Homeownership Counseling Amendments to the RESPA2 (Reg. X)

– Effective: 1/10/14; Issued: 1/10/13 (Amended: 9/13/13 &10/15/13; Interpretive Rule & Summary: 11/8/13)

• Escrow Requirements under the TILA (Reg. Z)– Effective: 6/1/2014; Issued: 1/10/13 (Amended: 5/16/13, 7/10/13 &9/13/13)

1Truth In Lending Act2Real Estate Settlement Procedures Act

THE 2014 MORTGAGE RULES(cont.)

• 2014 RESPA (Reg. X) & TILA (Reg. Z) MortgageServicing Final Rules– Effective: 1/10/2014; Issued: 1/17/13 (Amended: 7/10/13, 9/13/13 & 10/15/13)

• Appraisals for Higher-Priced Mortgage Loans– Effective: 1/18/2014; Issued: 1/18/13

• Disclosure and Delivery Requirement for Copies of Appraisals and Other Written Valuations Under Equal Credit Opportunity Act (Reg. B)

– Effective: 1/18/14; Issued: 1/18/13 (Amended: 9/13/13)

• Loan Originator Compensation Requirements under TILA (Reg. Z)– Effective: § 1026.36(h) – 6/1/13; Remainder 1/10/14; Issued: 1/20/13 (Amended 5/29/13 & 9/13/13)

THE IMPACT

• Lender’s activities in 2014– Review the regulations– Upgrade systems– Train employees

• Lender’s activities in 2014– Implement the regulations– Comply

QM AND QRM RULES

The Dodd-Frank Act mandated that, for a residential mortgage, a creditor must make a reasonable and good faith determination based on verified and documented information that a consumer has a reasonable ability to repay an owner-occupied, residential mortgage loan according to its terms. The Ability To Repay Rule provided a series of factors to be considered when making a determination about a borrower’s ability to repay. It also provided a conclusive presumption, or safe harbor against litigation, for QM loans that are not higher-priced loans, and a rebuttable presumption of a borrower’s ability to repay QM loans that are higher-priced loans.

QM AND QRM RULES

Broadly defined, a QM loan has the following requirements:• no negative amortization• no interest-only payments• no balloon payments• no terms in excess of thirty years• verification and documentation of the borrower’s financial resources• points and fees must be less than three percent of the principal amount of the loan (but certain bona fide discount points excluded from this calculation in certain cases)• monthly payments, for purposes of calculations used in determining QM status, based on the highest payment in first five years• total debt to income ratio cannot exceed 43%, except in the case of loans meeting certain government affordability or other standards (e.g., loans meeting Fannie Mae or Freddie Mac requirements, or loans that are eligible for government insurance or guarantees)

QM AND QRM RULES

Under Dodd-Frank, securitizers of asset-backed securities are required to retain an economic risk (no less than 5%) in the assets collateralizing the asset-backed securities. However, among the exceptions in the proposed rule is that the risk retention requirements do not apply if all of the assets collateralizing the securities are QRMs. Dodd-Frank requires that the definition of QRM be “no broader” than the definition of QM adopted by CFPB. In the proposed rule, issued on April 29, 2011, the QRM Agencies defined QRM as “a closed-end credit transaction to purchase or refinance one-to-four family property at least one unit of which is the principal dwelling of a borrower” and that meets certain criteria. While the criteria for a QRM in the proposed rule are similar to the criteria for a QM set forth in the Ability-to-Repay Rule, there are some significant differences. In particular, the proposed rule defining QRM:

(a) capped the interest rate increases for adjustable rate mortgages whereas the QM definition merely clarified how the adjustment should be factored into an Ability-to- Repay determination,

(b) contains a maximum loan-to-value ratio of 80% for a purchase money mortgage whereas the QM definition does not establish loan-to-value limits,

(c) required a 20% down payment for a purchase money mortgage whereas the QM definition does not require a specific down payment amount, and (d) required a debt-to-income ratio of 36% in contrast to the QM limit of 43%.

THE IMPACT – SELLER FINANCING

• Seller Financers

– Have legal obligations

– Should seek legal counsel

– May receive notices and disclaimers from settlement service providers

– May be asked to sign acknowledgments of notice and disclaimers or releases of liability

INTEGRATED MORTGAGEDISCLOSURES RULE

IN GENERAL

• Dodd-Frank Mandate1:– Replace existing RESPA and TILA disclosures

with single disclosure to include information previously contained in two separate ones

• Proposed Rule - Issued: 7/9/12

• Final Rule - Issued: 11/20/13

• Implementation Date: 8/1/15

1Dodd-Frank § 1032(f), 12 United States Code § 5532(f).

RULE FORMS

• New “Loan Estimate”

– Replaces current GFE and initial TIL

– Three pages long

• New “Closing Disclosure”

– Replaces current HUD-1 and final TIL

– Five pages long

LOAN ESTIMATE

• Required by 12 CFR § 1026.19(e)

• Contents in 12 CFR § 1026.37

• Provided by lender or mortgage broker

• Deliver or place in mail within 3 “businessdays” of application (incl. Saturday if Lender open)

• With estimated settlement & transactionCharges

• Estimates subject to tolerances

Loan Estimate Page 1§ 1026.37(a)-(c)

(a) General Information

(b) Loan Terms• If answers to questions in

this section were “YES” different information would be provided

(c) Projected Payments• Includes payment schedule

& estimated taxes, insurance & assessments

Loan Estimate Page 1§ 1026.37(d)-(e) (cont.)

(d) Costs at Closing

(e) Website reference

• Statement about & link to CFPB website

LOAN ESTIMATE PAGE 2 1026.37(F)-(J)§(f)Loan Costs

(g)Other Costs

(h)Calculating Cash to Close(i)Adjustable Payment (AP)Table*

(j)Adjustable InterestRate (AIR) Table*

*To reduce confusion, these tables are only included if applicable

LOAN ESTIMATEPAGE 3 1026.37(K)-(N)

§

(k)Contact Information

(l)Comparisons

(m)Other Considerations

(n)Signature Statement• Signatures not required• Different statements required

depending on whether signatureline is or is not included.

• Required by § 1026.19(f)

• Three business days before closing

• Provided by:

– Lender - § 1026.19(f)(1)(i)

– Lender may rely on Settlement Agent, but Lenderremains responsible for accuracy - § 1026.19(f)(1)(v)

• Contents in § 1026.38

CLOSING DISCLOSURE

Closing Disclosure Page 1 1026.38(a)-(d)

(b) Loan Terms

(c) Projected Payments

(d) Costs at Closing

Closing Disclosure Page 2§ 1026.38(f)

(f) Loan CostsA. Origination ChargesB. Services Borrower Did

Not Shop ForC. Services Borrower Did

Shop ForD. Total Loan Costs

Closing Disclosure Page 2§ 1026.38(g)-(h) (cont.)

(g) Other CostsF. Prepaids:

1. Homeowner’s Ins. Premium2. Mortgage Ins. Premium3. Prepaid Interest4. Property Taxes

H.Other:1. HOA Capital Contribution

****5. Real Estate Commission6. Real Estate Commission7. Title - Owners title

(h) Total Closing Costs

CLOSING DISCLOSUREPAGE 3 § 1026.38(I)-(K)

(i)Calculating Cash to Close

• Tolerance amounts shown here

(j)Summary of borrower’stransaction

(k)Summary of seller’s transaction

• Itemizations in I and J are like page 1 of today’s HUD-1 Settlement Statement

CLOSING DISCLOSUREPAGE 4 § 1026.38(L)-(N)(l)Loan Disclosures

(m)Adjustable Payment (AP) Table*

(n)Adjustable Interest Rate (AIR) Table*

* Tables are only included ifapplicable

CLOSING DISCLOSURE PAGE 5§ 1026.38(O)-(Q)

(o) Loan Calculations

(p) Other Disclosures

(q) Questions Notice

Closing Disclosure Page Five§ 1026.38(r)-(s)

(cont.)

(r) Contact information (Refinance)Contact information for:

1. Lender2. Mortgage Broker3. Settlement Agent

(r) Contact Information (Sale)Contact information for:

1. Lender2. Mortgage Broker3. Real Estate Broker (B)4. Real Estate Broker (S)5. Settlement Agent

(s) Signature Statement

Additional Model Forms & Variations

• Forms differ based on:– Sale vs. loan only– Split forms for:

• Borrower’s transaction• Seller’s transaction

– Alternative “Calculating Cash to Close” table

– Etc.

THREE DAY ADVANCE DISCLOSURE• Closing disclosure received 3 business daysbefore “consummation” (closing)

– Business day includes Saturday whether lender is open or not1

• Changes requiring a new 3 business daywaiting period2

– Annual percentage rate becomes inaccurate – most loans 1/8%; certain loans 1/4%

– Loan product changed

– Prepayment penalty added112 CFR § 1026.2(a)(6) 2nd sentence212 CFR § 1026.19(f)(2)(ii)

THREE DAY ADVANCE DISCLOSURE

(cont)

• If not provided in person (i.e. mailed), add 3business days for presumed receipt1

• Still have 3 day rescission for refinances2

• Consumer may not waive the 3 day waiting period except in the event of a “Bona Fide Personal Financial Emergency”3

112 CFR § 1026.19(f)(1)(iii)212 CFR § 1026.23 (not amended by this Final Rule)312 CFR § 1026.19(f)(1)(iv)

CHANGES & GUIDANCE

• Amendments to the Final Rule could occur– Before August 1, 2015– On or after August 1, 2015

• Official Interpretations– Found in:– Detailed

Supplement I to Part 1026

– Time consuming to issue

Thank youMichael Holden

Vice President Field Operationsand Agency Manager, Great Lakes RegionNorth American Title Insurance Company

7550 Lucerne Street, Suite 401Middleburg Heights, Ohio 44130

Direct/Cell: 440-725-8973Fax: 866-216-4381

mholden@natic.comhttp://www.natic.com/MichaelHolden