CFPB Publishes Rules for Nonbank Mortgage Lenders

Posted on January 12, 2012 by Fred Rivera

On January 11, 2012, the Consumer Financial Protection Bureau (CFPB) released new procedures for regulating nonbank mortgage lenders.  The Mortgage Origination Examination Procedures apply to independent lenders, brokers, servicers, and others unaffiliated with banks and depository institutions, the bureau said in a statement.

The rules are a requirement of the Dodd-Frank Wall Street Reform and Consumer Protection Act, and were published one week after the January 4, 2012 recess appointment of Richard  Cordray as the bureau's first director. The appointment of a director was a precondition to the CFPB enforcing regulations on certain sectors, including the nonbanking financial industry such as mortgage lending.

In a statement issued with the release of the new procedures, the CFPB said that the bureau's supervision of the nonbank financial sector will be rolled out in phases.  Effective immediately, the CFPB will begin regulating nonbank entities involved in mortgage lending, including originators, brokers, servicers, and loan modification services; payday lenders; and private education lenders.  

For other nonbank financial sectors, including debt collections, consumer credit reporting, and auto financing, the CFPB may supervise "larger participants" after that term is defined.

The bureau's publication of the rules of the game for nonbank mortgage lenders is a watershed moment for the agency.  The agency now has authority to oversee entities that were a main target of the Dodd-Frank financial reform legislation, and it intends to immediatly begin its supervision program. 

The bureau took little time to issue these regulations after the director's appointment, and significant enforcement has already begun with the announcement that the CFPB is investigating New Jersey-based PHH, Corp. in connection with how the company handled mortgage insurance premiums.  (Read more here.)  

Read more about the CFPB's new regulations for nonbank mortgage lenders:  Wall Street Journal Online ; Law360.

 



 

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Financial Services Bulletin: Federal Reserve Seeks Comment on Two Proposals

Posted on April 22, 2011 by Fred Rivera

Read Perkins Coie LLP's 4/21/2011 Financial Service Bulletin regarding two proposed rules for which the Federal Reserve is seeking comment: Financial Services Bulletin (4/21/2011).

One of the proposed rules includes significant changes under Regulation Z, which implements the Truth-in-Lending Act.  Under the proposed rule, creditors must determine a consumer's ability to repay a mortgage before making a loan.  The proposed rule also implements certain other requirements under the Dodd-Frank Act, including a limitation on prepayment penalties.

The Board is soliciting comment on the proposed rule until July 22, 2011. However, general rulemaking authority for TILA is scheduled to transfer to the new Consumer Financial Protection Bureau on July 21, 2011.  Therefore, the Board acknowledged in its press release that this Regulation Z rulemaking will not be finalized by the Board.

TILA and Regulation Z have long been a significant source of consumer lending litigation.  The increased regulation of mortgages in the proposed Regulation Z amendments may lead to yet another wave of consumer protection litigation tied to residential mortgages.  How impactful the amendments will be, and how they will be enforced and regulated, are important questions that will be answered in time.

 

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President Signs Financial Reform Bill Including Increased Consumer Protections

Posted on July 20, 2010 by Fred Rivera

On July 15, 2010 the U.S. Senate passed, and on July 21 the President signed, the Dodd-Frank Wall Street Reform and Consumer Protection Act.  Included in the new legislation are a number of provisions that will impact consumer lenders, and in particular, residential mortgage lenders:

  • Lenders Must Ensure a Borrower’s Ability to Repay.  Establishes federal minimum underwriting standards for mortgages, including a requirement that lenders consider borrowers ability to repay. (Section 1411) 
  • Prohibits Unfair Lending Practices.  Prohibits a number of lending practices that are commonly associated with "predatory lending," including the payment of “yield spread premiums” that lenders pay to brokers, and pre-payment penalties.  (Section 1403) 
  • Establishes Penalties for Lending Violations.  Significantly increases penalties for lenders and mortgage brokers that violate new standards.  Also expands the statute of limitations for certain claims brought under TILA from one year to three years.  (Section 1416) 
  • Expands Consumer Protections for "High-Cost Mortgages." Expands the number of loans subject to the enhanced disclosures and protections required for high-cost loans by lowering the interest rate and the points and fees that trigger those protections.  (Section 1431) 
  • Requires Additional Disclosures. Additional disclosures are required by lenders and servicers, including disclose of the maximum a consumer could pay on a variable rate mortgage, with a warning that payments will vary based on interest rate changes.
  • Housing Counseling: Establishes an Office of Housing Counseling within HUD to boost home ownership and rental housing counseling.  (Section 1441-1445)

The Act also creates the Consumer Finance Protection Bureau, which will have broad rulemaking, enforcement and regulatory authority:

  • Independent Rule Writing.  The Bureau has rule making authority for consumer protections governing all financial institutions — banks and nonbanks — offering consumer financial services or products.
  • Examination and Enforcement. The Bureau has authority to examine and enforce regulations for banks and credit unions with assets of over $10 billion, and all mortgage-related businesses, including lenders, servicers, mortgage brokers, in addition to student lenders and other large non-bank financial companies. Banks and Credit Unions with assets of $10 billion or less will be examined for consumer complaints by their appropriate regulator.
  • Education.   Creates a new Office of Financial Literacy.
  • Consumer Hotline. Creates a national consumer complaint hotline for consumers to  report problems with financial services.
  • Consolidation.  Makes one office accountable for consumer protections over large banks and nonbank financial institutions.

 

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