This week, the CFPB published an update to its examination procedures to account for the new mortgage regulations going into effect in January 2014. The update includes Interim TILA Examination Procedures and Interim ECOA Examination Procedures, which address the subject matter areas listed below. According to the CFPB’s press release, the updated exam procedures were created to provide “valuable guidance on what the CFPB will be looking for as the rules become effective.” However, the revised procedures appear to do little more than summarize the requirements as stated in the regulations.
Requirements to provide appraisal reports and valuations: The Interim ECOA Examination Procedures include additional language regarding the requirement for creditors to provide applicants with a copy of all appraisals and other written valuations, under 12 CFR 1002.14. These new provisions essentially recite the language in the rule regarding timing for providing the copies, waiver of the timing requirement, disclosure of the applicant’s rights, permissible charges for the cost of the appraisal or written valuation, withdrawn, denied, or incomplete applications, and providing copies in electronic form. The ECOA examination procedure checklist is also amended to better detail these requirements.
Escrow account requirements for higher-priced mortgage loans: The Interim TILA Examination Procedures add language regarding the requirement for higher-priced mortgage loans to establish before consummation an escrow account for the payment of property taxes and premiums for mortgage-related insurance. The new provision details the various exemptions from the escrow account requirement, and the requirements to terminate an escrow account.
Loan originator compensation prohibitions on payments based on a term of a transaction: The Interim TILA Examination Procedures add language to the existing loan originator compensation section to define what constitutes a “term of transaction”, and examples of permissible loan originator compensation. Again, the new provisions largely summarize the requirements as stated in the revised loan originator compensation rule and commentary.
Prohibition on loan originator dual compensation: The Interim TILA Examination Procedures add a narrative section summarizing the prohibition on dual compensation as stated in the revised loan originator compensation rule.
Prohibition on steering: The Interim TILA Examination Procedures add a narrative section detailing the prohibition against steering a consumer to a creditor from which the loan originator will receive greater compensation. The new provision states that a loan originator complies with the prohibition by obtaining loan options from a significant number of creditors with which the loan originator regularly does business, and presenting the consumer with loan options, for each loan type in which the consumer has expressed interest, where the loan options presented cover a specified range of cost options for the consumer.
Loan originator qualification requirements: The Interim TILA Examination Procedures add a section detailing the character, fitness, financial responsibility, licensing, background check, testing, and education requirements for loan originators, as mandated by the 2008 federal SAFE Act. The procedures also add a section noting the requirement that lenders and loan originators include their name and NMLSR ID on applications and loan documents.
Policies and procedures for loan originator compliance: The Interim TILA Examination Procedures highlight the requirement that depository institutions (including credit unions) establish and maintain policies and procedures to ensure compliance with the various loan originator requirements and prohibitions discussed above.
Prohibition on mandatory arbitration or waivers on certain consumer rights: The Interim TILA Examination Procedures add a section summarizing the prohibition against mandatory arbitration provisions in a contract for a consumer credit transaction secured by a dwelling. The section also states the prohibition on contracts relating to a consumer credit transaction being used as, or interpreted as, a bar to a consumer’s right to bring a claim in court in connection with an alleged violation of federal law.
Single premium credit insurance prohibition: The Interim TILA Examination Procedures add a section summarizing the prohibition on financing premiums for credit insurance in connection with a consumer credit transaction secured by a dwelling. The introductory section to the Procedures notes that the CFPB delayed the effective date of the rule until January 2014.
The requirements listed above were also integrated into the step-by-step procedures and checklists sections found at the end of the Interim ECOA and Interim TILA Examination Procedures sections. We note that these step-by-step guides again generally recite the language in the regulations, and do not provide much detailed, substantive guidance for examiners to interpret what constitutes a violation.
Ballard Spahr, through its CFPB Monitor Blog, Mortgage Banking Update, and Legal Alerts, has reported extensively on the new mortgage rules discussed above. For further information, please review the articles linked below:
TILA ban on mandatory arbitration in mortgage loans takes effect
CFPB proposes delay effective date of Reg Z prohibition on financing credit insurance premiums
CFPB issues more small entity compliance guides for mortgage-related rules
CFPB proposes amendments to final mortgage escrow account rule
CFPB final ECOA appraisal rule issued
CFPB issues final rules on mortgage servicing, appraisals and loan originator compensation
CFPB issues final mortgage escrow account and high-cost loan rules