Thursday, January 30, 2014

Homeownership Counseling and High Cost Mortgages

Are the homeownership counseling list requirements set forth in the High-Cost Mortgage and Homeownership Counseling Amendments to the Truth in Lending Act and RESPA (“HOEPA Final Rule) only applicable to high-cost loans? 

No. As of January 10, 2014 all lenders are required to provide consumers who apply for a federally-related mortgage with a list of HUD-approved housing counseling agencies.  This list must be in writing. The CFPB has provided two ways for a lender to fulfill its obligations as set forth in the HOEPA Final Rule. 
1) A lender may obtain the lists of HUD-approved housing counseling agencies through the CFPB’s website;[1] or
2) A lender may generate the lists of the HUD-approved housing counseling agencies by independently using the same HUD data that the CFPB uses on HUD-approved counseling agencies in accordance with the CFPB’s list instructions.[2] The CFPB published the list instructions and clarified how lenders can provide their own lists on November 8, 2014.[3]
In addition, in Bulletin 2013-13 (the “Bulletin”) the CFPB acknowledged that the second option referenced above will require lenders to “undertake significant development of their compliance systems” to ensure that lists of the HUD-approved housing counseling agencies are compliant. The CFPB also advised that lenders will not be able to provide approved agency lists under the second option for up to six month’s following the January 10, 2014 effective date.

As such, the Bulletin provides that lenders may direct borrowers to the CFPB’s housing counseling website to obtain a list of housing counselors.[4] The CFPB suggests the following text to be provided by lenders.  If followed, the CFPB suggests that the goals of the regulation would be achieved and would not raise supervisory or enforcement concerns. 
“Housing counseling agencies approved by the U.S. Department of Housing and Urban Development (HUD) can offer independent advice about whether a particular set of mortgage loan terms is a good fit based on your objectives and circumstances, often at little or no cost.

If you are interested in contacting a HUD-approved housing counseling agency in your area, you can visit the Consumer Financial Protection Bureau’s (CFPB) website,  and enter your zip code.

You can also access HUD’s housing counseling agency website via

For additional assistance with locating a housing counseling agency, call the CFPB at 1-855-411-CFPB (2372).”

Michael Barone
Director / Legal and Regulatory Compliance
Lenders Compliance Group

[1] See:
[2] See: Section 1024.20(a)
[3] See:
[4] See:

Thursday, January 23, 2014

Quality Control Audit Timeframe

What is the timeframe requirement with regard to post-closing quality control audits? In short, when must they be completed?

HUD and VA require that FHA and VA loans be reviewed within 90 days of closing. For example, loans originated in October 2013 must be audited by January 29, 2014.

Freddie Mac says the “the results of quality control reviews must be reported in writing to the Sellers’ senior management within 90 days of selection of the mortgage files for review”. (Freddie Mac Single Family Seller/ Servicer Guide, Section 48.10) For example, the results of the audit of loans originated in October 2013 must be reported to senior management by the end of January 2014.

Fannie Mae, with their release of SEL-2013-05 on July 30, 2013, requires that the entire post closing quality process be completed within 120 days from the month of loan closing, with the following breakdown: Loans must be selected for audit within 30 days, the quality control review and rebuttal must be completed within 60 days, and the results of the audits must be reported to senior management within 30 days. For example, for loans originated in the month of October 2013, the file selection must be made by the end of November 2013, the quality control audit and rebuttal must be completed by the end of January 2014, and the reporting of the results to senior management must be completed by the end of February 2014.

At Lenders Compliance Group, we provide our clients with a Preliminary Quality Control Audit Report in no later than 50 days from the date we received the selected files and then we release the Final Quality Control Audit Report in no later than 60 days from the date we received the selected loan files. This ensures that our clients are always in compliance with respect to the quality control time frame requirements.

Bruce Culp
Director/Loan Analytics & Quality Control
Lenders Compliance Group

Thursday, January 16, 2014

New Fee Tolerance Requirements for the RESPA/TILA Disclosure

Does the final RESPA/TILA integration rule (the “Rule”) under Regulation Z (TILA) released by the CFPB on November 20, 2013 change the current fee tolerances under Regulation X (RESPA)?

Yes. Initially, the Rule does not refer to “tolerance” but the concept remains intact. In addition, the Rule refers to the document which will be provided to the borrower within three days of application as a “Loan Estimate” and not a GFE.

The most substantial change in this regard is that the Rule expands upon those fees where no increase is permitted (the “zero tolerance” bucket) to include the following:  (a) all charges paid to an affiliate of the lender or broker; (b) all charges for required services where the lender does not permit the borrower to choose the service provider (i.e., appraisal, credit report); and (c) “lender credits”.  Transfer taxes and charges paid to the lender or broker for their own services remain as fees where no increase is permitted.

Currently, RESPA permits lenders to modify zero tolerance charges on the GFE and to provide a revised GFE if there is a “changed circumstance”. The Rule also sets forth precise situations where zero tolerance fees may be modified, but these situations do not mirror “changed circumstances” as currently defined in RESPA. Under the Rule charges may be increased if (a) the borrower requests a change that affects fees previously disclosed [Part 1026.19(e)(3)(iv)(C)]; (b) the Loan Estimate expires, in that no intent to proceed is indicated by the borrower within 10 days of the lender providing the Loan Estimate [Part 1026.19(e)(3)(iv)(E)]; (c) the interest rate is locked [Part 1026.19(e)(3)(iv)(D)]; or (d)  there is a “changed circumstance” affecting a settlement charge. 

“Changed Circumstance” means:

(1) An extraordinary event beyond the control of any interested party or other unexpected event specific to the consumer or transaction;

(2) Information specific to the consumer or transaction that the creditor relied upon when providing the Loan Estimate and that was inaccurate or changed after the disclosures were provided; or

(3) New information specific to the consumer or transaction that the creditor did not rely on when providing the original Loan Estimate. [Part 1026.19(e)(3)(iv)(A)]

As required today, only those charges which increase as a direct result of the reason for the change can be increased in the revised Loan Estimate.

Now that the countdown to QM has passed, we have a new countdown to August 1, 2015 (the effective date of the Rule).

Michael Barone
Director/Legal & Regulatory Compliance
Lenders Compliance Group

Thursday, January 9, 2014

Provision of Appraisals under ECOA Valuation Rule

Under the new appraisal rules, when must the appraisal be provided to the residential mortgage loan applicant? Also, must all versions of the appraisal be provided or just the last or “final” version? 

With respect to loan applications received on or after January 18, 2014, under the ECOA Valuation Rule, a creditor must provide an applicant with a copy of the appraisal and other written valuations “upon completion, or three business days prior to consummation of the transaction, whichever is earlier”. [12 CFR 1002.14(a)] 

“Completion” of an appraisal or written valuation occurs when the creditor receives the last version of the appraisal or when it is apparent that there will only be one version of the appraisal.

The creditor does not need to give the applicant copies of all versions of the appraisal or written valuation; only a copy of the latest version must be provided. However, if the applicant is given a copy of an appraisal or written valuation which is then revised, a copy of the updated version must be sent to the applicant. [Supplement 1 to Part 1002 - Official Interpretations, Comment 14(a)(1)] The appraisal or written valuation must automatically be provided, regardless if credit is extended, denied, incomplete or withdrawn.

Note that in order to avoid a last minute delay of closing, if there is a clerical error in the appraisal or valuation already provided to the applicant, the creditor can have the applicant waive the right to receive the revision three business days prior to consummation of the transaction. Such waiver may be oral or written.  However, in order to use this exemption, all of the following criteria must be met:
  1. The revision must be solely to correct clerical errors in the appraisal;
  2. The revisions must have no impact on the estimated value;
  3. The revisions must have no impact on the calculation or methodology used to derive the estimate;
  4. The applicant must receive the revised appraisal or valuation at or prior to the closing;
  5. The applicant must have already received the appraisal or valuation being corrected either promptly upon completion or three business days prior to consummation of the transaction. [12 CFR 1002.14(a)(1)]
Joyce Pollison
Director/Legal and Regulatory Compliance
Lenders Compliance Group

Thursday, January 2, 2014

What loan types are subject to HOEPA and Section 32 under the Dodd-Frank Act?

I know that the Dodd-Frank Act changed the rule for the types of loans that were considered HOEPA and Section 32 transactions. What loan types are now included or excluded in these transactions?

Mortgages covered by the Home Ownership and Equity Protection Act (“HOEPA”) amendments have been referred to as “HOEPA loans,” “Section 32 loans,” or “high-cost mortgages.” The Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”) refers to these loans as “high-cost mortgages.”

The Final Rule, issued January 10, 2013 - which is set to take effect on January 10, 2014 - implements Dodd-Frank’s amendments that expanded the universe of loans potentially covered by HOEPA. Under the Final Rule, most types of mortgage loans secured by a consumer’s principal dwelling, including purchase-money mortgages, refinances, closed-end home-equity loans, and open-end credit plans (i.e., home equity lines of credit or “HELOCs”) are potentially subject to HOEPA coverage.

The Final Rule retains the exemption from HOEPA coverage for reverse mortgages. Also, mortgages secured by vacation or second homes are not covered.

In addition, the Final Rule adds exemptions from HOEPA coverage for three types of loans that the Consumer Financial Protection Bureau believes do not present the same risk of abuse as other mortgage loans: (1) loans to finance the initial construction of a dwelling, (2) loans originated and financed by Housing Finance Agencies (HFA), and (3) loans originated through the United States Department of Agriculture’s (USDA) Rural Housing Service Section 502 Direct Loan Program.

Thus, the following are included:

•    Purchase-money mortgages
•    Refinances
•    Closed-end home equity loans
•    Open-end credit plans (i.e., HELOCs)

And, the following are excluded:

•    Reverse mortgages
•    Mortgages secured by vacation or second homes
•    Construction loans
NOTE: The exemption for construction loans applies only to loans that finance the initial construction of a new dwelling. It does not extend to loans that finance home improvements or home remodels. Where a construction-to-permanent loan consists of two separate transactions, the construction loan transaction is exempt, but the permanent financing transaction is not exempt. For a construction-to-permanent loan originated as a single transaction, coverage must be determined in accordance with appendix D to Regulation Z. [§ 1026.32, Comment 32(b)-1 and Appendix D]
•    Loans originated and directly financed by a Housing Finance Agency (HFA) [as defined in 24 CFR 266.5]
•    Loans originated under the U.S. Department of Agriculture’s (USDA’s) Rural Development Section 502 Direct Loan Program
NOTE: The exclusions for HFA and USDA loans apply only to loans that these organizations directly finance, not loans they guarantee or insure.

These new HOEPA requirements apply to applications received on or after January 10, 2014.

Jonathan Foxx
President & Managing Director
Lenders Compliance Group