Rebecca Chase

MGIC Regional Training Director

Presented ByRebecca Chase

MGIC Regional Training Director

A Dramatic Review of the CFPB

F i n a n c i a l R e f o r mF i n a n c i a l R e f o r m

Source: Deutsche Bank July 2010

R e s t r u c t u r e d O v e r s i g h tR e s t r u c t u r e d O v e r s i g h t

The Dodd-Frank Wall Street Reformand Consumer Protection ACT

Signed into law July 21, 2010

FederalInsurance

Office(FIO)

ConsumerFinance

ProtectionBureau (CFPB)

FinancialStability

OversightCouncil(FSOC)

Closer Look at the CFPBCloser Look at the CFPB

The Dodd-Frank Act defines five objectives for the CFPB:

• to ensure that consumers have timely and understandable information tomake responsible decisions about financial transactions;

• to protect consumers from unfair, deceptive, or abusive acts or practices,and from discrimination;and from discrimination;

• to reduce outdated, unnecessary, or unduly burdensome regulations;

• to promote fair competition by consistent enforcement of the consumerprotection laws in the Bureau’s jurisdiction; and

• to encourage markets for consumer financial products and services thatoperate transparently and efficiently and to facilitate access andinnovation.Consumer Financial ProtectionConsumer Financial Protection

Who the CFPB OverseesWho the CFPB Oversees

Jurisdiction over banks and non-banks, including:

• Payday Lenders

• Auto Dealerships• Auto Dealerships

• Large debt collectors

• Credit Reporting Firms

• Student lenders

• Servicers

What the CFBP OverseesWhat the CFBP Oversees

Rulemaking Authority transferred from 7 other FederalAgencies

• The Consumer Leasing Act• The Consumer Leasing Act

• Electronic Fund Transfer Act

• ECOA- Equal Credit Opportunity Act

• FCRA-Fair Credit Reporting Act

• FDCPA-Fair Debt Collection Practices Act

• HMDA-Home Mortgage Disclosure Act

• RESPA-Real Estate Settlement Procedures Act

• SAFE ACT-Secure and Fair Enforcement Mortgage LicensingAct

T h e C F P B ’s S t r u c t u r eT h e C F P B ’s S t r u c t u r eRichard Cordray

M a i n D i v i s i o n sM a i n D i v i s i o n s

• Research, Markets & Regulations

• Supervision, Enforcement and Fair Lending &Equal OpportunityEqual Opportunity

• Consumer Education & Engagement

A b o u t t h e C F P BA b o u t t h e C F P B

• Prior to the appointment of the director, Richard Cordray,the bureau was limited in rulemaking to banks with assetsless than $10B, and did not apply to non-bank.

• With the appointment of the new director the CFPB nowhas oversight of banks with greater than $10 billion inassets and non-banks.

• The CFPB operating budget is 12 % of the Federal Reserve’sannual operating expense. This year they have a budget of$548 million

• For the next year, their focus will be on mortgage reformdue to a statutory deadline of January 2013

C F P B ’s A g e n d aC F P B ’s A g e n d a

Finalizing proposed rules:

– Ability to Pay

– Loan Officer Compensation

– Qualified Mortgage (QM)– Qualified Mortgage (QM)

– Qualified Residential Mortgage (QRM)

A b i l i t y t o P a yA b i l i t y t o P a y

K n ow B e f o r e Yo u O w eK n ow B e f o r e Yo u O w e

• Dodd-Frank requires within one year aftertransfer date or July 21, 2012, CFPB mustpropose combined and integrated RESPA/TILAdisclosuredisclosure

• Loan estimate combining the GFE and earlyTILA disclosure has been developed throughiterative comment process

• Nine rounds of loan estimate prototypes forcomment ahead of proposed rule

F i n a l P r o p o s e dF i n a l P r o p o s e dL o a n E s t i m a t e Fo r mL o a n E s t i m a t e Fo r m

F i n a l P r o p o s e dF i n a l P r o p o s e dS e t t l e m e n t D i s c l o s u r eS e t t l e m e n t D i s c l o s u r e

Fo r u mFo r u m

Q u a l i f y i n g M o r t g a g e ( Q M )Q u a l i f y i n g M o r t g a g e ( Q M )

• Proposed rule published early 2011, revising Reg Z– Requires creditors to determine consumer’s ability to repay

– Establishes minimum underwriting standards and restricts loan types

– Limits prepayment penalties

– Imposes record retention requirement

– Asks questions regarding optional implementations of rule– Asks questions regarding optional implementations of rule

• Statutory definition of criteria, Safe Harbor

• Statutory definition plus additional ability-to-pay requirements, RebuttablePresumption

• Non-QM loans generally expected to be equivalentto unsecured lending

• CFPB is now responsible for final rule– Comment period reopen and extended to July 9th, 2012

– QM rule expected to be released for comment on or about election day November 2012

S i g n i f i c a n t L i a b i l i t y f o rS i g n i f i c a n t L i a b i l i t y f o rF a i l i n g t o M e e t A b i l i t y t oF a i l i n g t o M e e t A b i l i t y t o

R e p ayR e p aySec. 1413 – Allows consumer to assert violation of

ability to repay by creditor in foreclosure action by

creditor, assignee or other mortgage holder

Also under TILA - Mortgage creditor who fails to

comply with the ability to repay requirements may be

liable for (1) actual damages; (2) statutory damages (3)

up to three years of finance charges; and (4) court

costs and reasonable attorneys’ fees

R i s k R e t e n t i o n /R i s k R e t e n t i o n /Q u a l i f i e d R e s i d e n t i a lQ u a l i f i e d R e s i d e n t i a l

M o r t g a g eM o r t g a g e• Proposed rule published early 2011

– Loans higher than 80 LTV are not QRM and require retention

– FHA\VA loans are exempt

– Asks for comment on a number of issues:

• Alternative QRM definition – loans up to 90 LTV with MI (or alternatives)

• Demonstrating that MI reduces the risk of default• Demonstrating that MI reduces the risk of default

• MGIC and MICA formally responded July 2011

• Broad support against proposed rule

• Regulators next move is unknown– Widely expected to be another proposal later this year

– Secretary Donovan has suggested a 10% down payment

– Is dependent on the QM definition

Q R M P r o p o s a lQ R M P r o p o s a l

35%

30%

25%

20%

Percent of all Mortgages that Would Have Met all Requirements under the Proposed QRM Standard, by Year of Origination

20.4%

23.3%

19.5% 19.4%

22.4%

24.6%

30.5%

More than 80 Percent of GSE Business 1997–2009 Would Not Have Been QRM

20%

15%

10%

5%

0%

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Source:FHFA. “Mortgage Market Note 11-02: Quali ed Residential Mortgages.” April 11, 2011.

17.0%

14.4%

11.5%10.7%

17.4%16.4%

O t h e r M o r t g a g e R e l a t e dO t h e r M o r t g a g e R e l a t e dP r i o r i t i e sP r i o r i t i e s

• Loan originator compensation and anti-steering rules

• Data reporting requirements

• Restrictions on high-cost loans

• Other servicing practices

• Part of interagency process to consider:– Mortgage servicing standards– Various regulations concerning appraisals

I n C o n c l u s i o nI n C o n c l u s i o n

• Reform isn’t easy or quick

• CFPB is having a direct effect on you

• Proposed & forthcoming reforms• Proposed & forthcoming reformspromise more change

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Questions

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Questions

T h a n k yo u f o rT h a n k yo u f o rs u p p o r t i n g yo u r l o c a ls u p p o r t i n g yo u r l o c a l

M B A c h a p t e r !M B A c h a p t e r !

Suzanne LaCariaMGIC Senior Account ManagerPhone: 561.271.4436Email: Suzanne.LaCaria@mgic.com