Dodd-Frank Wall Street Reform and Consumer Protection Act

Congress has completed the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act). Next, the 2,300 page bill moves to the White House for the President’s signature, which is expected by July 21st. Then the real action begins:
• An entire bureaucracy must be built for the new Bureau of Financial Protection and the new Financial Stability Oversight Counsel; and
• Thousands of pages of regulations will be written.

An area of particular concern for readers of this blog is Title XIV of the Dodd-Frank Act, which is entitled The Mortgage Reform and Anti-Predatory Lending Act (MRAPLA). This one section of the law encompasses 205 pages and creates many new requirements for mortgage lenders and revises several existing laws including the Truth in Lending, Equal Credit Opportunity and Real Estate Settlement Procedures Acts. The new MRAPLA rules, which will significantly impact your mortgage lending operations for years to come, will unfold over the next three years.

Various MRAPLA provisions:
 Require policies and procedures to assure that consumers are offered and receive residential mortgage loans on terms that reasonably reflect their ability to repay the loans and that are understandable and not unfair, deceptive or abusive.
 Contain a prohibition against providing compensation that varies based on the terms of the loan (other than the amount of the principal).
 Prohibit mortgage originators from steering any consumer to a residential mortgage loan that:
• the consumer lacks a reasonable ability to repay; or
• has predatory characteristics or effects.
 Add to the liability provisions of the Truth in Lending Act.
 Provide that no creditor may make a residential mortgage loan unless the creditor makes a reasonable and good faith determination based on verified and documented information that, at the time the loan is consummated, the consumer has a reasonable ability to repay the loan, according to its terms, and all applicable taxes, insurance (including mortgage guarantee insurance), and assessments.
• A creditor shall determine the ability of the consumer to repay using a payment schedule that fully amortizes the loan over the term of the loan.
• The creditor is required to verify income.
 Place restrictions on the financing of single premium credit insurance.
 Require new disclosures related to state anti-deficiency laws.
 Require disclosures of the creditor’s policy on the acceptance of partial payments.
 Require new disclosures for hybrid adjustable rate mortgages.
 Require a periodic statement for residential mortgage loans.
 Establish new coverage rules for high cost mortgages (APR exceeds APOR by 6.5 percentage points in a first lien transaction or 8.5 percentage points in a subordinate lien transaction or the total points and fees exceed a new threshold) and new restrictions on balloon payments, late charges, fees to obtain a payoff statement, and other provisions.
 Establish expanded housing counseling provisions.
 Update and simplify the RESPA Settlement Costs booklet.
 Expand escrow requirements;
 Establish a new notice and other procedures related force-placed insurance.
 Establish new appraisal standards (effective within 90 after enactment).

These new provisions should keep us busy for the next few years. Stay tuned for more details, and more details, and more details, on and on forever.

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