REGULATION Z – THE END OF THE WORLD AS WE KNOW IT

Over the next six months Regulation Z will undergo the most extensive revisions in its 43 year history. The rules will primarily impact mortgage loan rules, for both open-end and closed-end credit. For mortgage loan disclosures, it will be the end of the world as we know it and the beginning of a brave new world of Regulation Z.
Following is a summary of each piece of the revision process.
Ability to Repay– A final rule was scheduled to be published during April 2012, but the content has become such a political hot potato that the rule is now delayed until after the Fall elections. The proposal will:
>  Implement statutory changes made by the Dodd-Frank Act that expand the scope of the ability-to-repay requirement to cover any consumer credit transaction secured by a dwelling (excluding an open-end credit plan, timeshare plan, reverse mortgage, or temporary loan);
>  Establish standards for complying with the ability-to-repay requirement, including by making a “qualified mortgage;”
>  Implement the Dodd-Frank Act’s limits on prepayment penalties; and
>  Require creditors to retain evidence of compliance with these new requirements for three years after a loan is consummated.
The proposed rule is expected in November, with a final rule following in January 2013, with an effective date of January 2014.
Revisions to HOEPA Loans – This proposed rule, expected in July 2012, will implement amendments made by the Dodd-Frank Act:
>  Expand the scope of certain high-cost mortgage loans (loans made under the Home Owners Equity Protection Act (HOEPA)) coverage, by, among other changes:

  • Including home-purchase loans and open-end credit plans (including home equity lines of credit);
  • Revising the thresholds that trigger HOEPA coverage including the annual percentage rate triggers and the “points and fees” trigger;
  • Covering loans with prepayment penalties that exceed certain thresholds or that extend beyond 36 months after the closing of the loan.

>  Add certain restrictions and requirements with regard to HOEPA loans including:

  • Prohibiting the financing, directly or indirectly, of any points and fees;
  • Prohibiting prepayment penalties and, in most circumstances, balloon payments; and
  • Requiring pre-loan counseling for consumers.

We expect a 60 – 90 day comment period, with a final rule by no later than January 2013, with an effective date of no later than January 2014.
Mortgage Originator Standards – This proposed rule, expected in July 2012, will implement amendments made by the Dodd-Frank Act, to Regulation Z’s loan originator compensation standards. Many of the Dodd-Frank provisions are already included in the Board’s rules. The CFPB expects to issue proposed regulations clarifying the use of the unique identifier, payment of discount points and origination points, and anti-steering rules. We hope the rule will also clarify issues surrounding the payment of profit sharing bonuses.
We expect a 60 – 90 day comment period, with a final rule by no later than January 2013, with an effective date of no later than January 2014.
Mortgage Servicing – This proposed rule, expected in July 2012, will add requirements that:
>  Require consumers to receive periodic statement disclosures regarding their mortgage loans;
>  Impose various requirements regarding the:

  • Imposition and cancellation of force-placed hazard insurance;
  • Handling of payoff amount requests; and
  • Other topics related to mortgage servicing.

We expect a 60 – 90 day comment period, with a final rule by no later than January 2013, with an effective date of no later than January 2014.
Combined Truth in Lending/RESPA disclosures – This proposed rule, expected in  July 2012, will  amend and integrate portions of Regulation Z (Truth in Lending) and Regulation X (Real Estate Settlement Procedures Act), which currently require mortgage lenders and brokers to provide separate sets of disclosures to consumers. The proposed model forms are designed to enhance consumer understanding and provide guidance to lenders and brokers on compliance with the amended disclosure requirements. The new forms may include some new disclosure requirements imposed by the Dodd-Frank Act and address some elements of the Federal Reserve Board’s August 2009 and September 2010 proposals concerning closed-end mortgages
We expect a 60 – 90 day comment period, with a final rule by no later than January 2013, with an effective date of no later than January 2014.
Requirements for Escrow Accounts – This final rule, expected in September 2012, will complete rules proposed by the Federal Reserve Board (Board) on March 2, 2011 to:
>  Implement amendments to the Truth in Lending Act (TILA) made by the Dodd-Frank Act that lengthen the time for which a mandatory escrow account established for a higher-priced mortgage loan must be maintained;
>  Implement the Dodd Frank Act’s disclosure requirements regarding escrow accounts.
>  Exempt certain loans from the statute’s escrow requirement, pursuant to authority in the Dodd-Frank Act. The primary exemption would apply to mortgage loans extended by creditors that operate predominantly in rural or underserved areas and meet certain other prerequisites.
We expect an effective date of no later than January 2014.
Amendments Concerning Appraisals – This final rule, expected no later than October 2012, will implement the amendments made by the Dodd-Frank Act to the Truth in Lending Act (TILA) and the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA) concerning appraisals. The amendments made by the Dodd-Frank Act to:
>  TILA

  • Require creditors to obtain an appraisal, including a physical property visit by a certified appraiser, before extending higher-risk mortgage credit; and
  • Impose various new requirements for appraisal independence, the portability of appraisal reports, and charging of customary and reasonable fees.

>  FIRREA

  • Require new minimum requirements to be applied by states in the registration, reporting, and supervision of appraisal management companies;
  • Require implementing regulations for new quality control standards for automated valuation models to ensure a high level of confidence in the estimates produced by the valuation models, protect against the manipulation of data, seek to avoid conflicts of interest; and
  • Require random sample testing and reviews.

As required by the Dodd-Frank Act, the Board published an interim final rule implementing some of these requirements on October 28, 2010. We expect an effective date of no later than January 2014 for the final rule.
Members of Jack’s Compliance Masters Groups will receive Director/Senior Management Updates, risk assessments, policies, procedures and training materials for each piece of the Regulation Z  revisions. For information about becoming a member of one of the Compliance Masters Groups click here.
 

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