Category Archives:TILA

CFPB Amending 2013 Mortgage Rules

The Consumer Financial Protection Bureau (CFPB) is amending certain mortgage rules issued in 2013 that took effect in January 2014. The final rule provides an alternative small servicer definition for nonprofit entities that meet certain requirements and amends the existing exemption from the ability-to-repay rule for nonprofit entities that meet certain requirements. The final rule also provides a cure mechanism for the points and fees limit that applies to qualified mortgages.

Defining nonprofit small servicers: Certain small servicers are exempt from some of the Bureau’s new mortgage servicing rules, so long as they—together with their affiliates—service 5,000 or fewer mortgage loans and meet other requirements. But the Bureau learned that some nonprofit organizations may service loans, for a fee, from other associated nonprofit lenders. Because of their unique structure, these organizations may not be able to consolidate their servicing activities and still meet the current requirements for the small servicer exemption. The changes finalized today provide an alternative definition of a small servicer applicable to certain 501(c)(3) nonprofit organizations so that they can consolidate their servicing activities while maintaining their exemption from some of the servicing rules.

Nonprofit Ability-to-Repay exemption amendment: Certain 501(c)(3) nonprofit organizations that lend to low- and moderate-income consumers were already exempt from the Ability-to-Repay rule if the organization makes no more than 200 mortgages a year, among other limitations. The adjustments finalized today include an amendment to this provision so that certain nonprofit groups, such as Habitat for Humanity, can continue to extend certain interest-free, forgivable loans, also known as “soft seconds,” without regard to the 200-mortgage loan limit.

Refunding excess points and fees: Under the Ability-to-Repay rule, certain loans called Qualified Mortgages are subject to certain requirements that protect consumers. The points and fees charged to a consumer on a Qualified Mortgage generally cannot exceed 3 percent of the loan principal at the time the loan is made. Under the amendments finalized today, if a lender discovers after the loan has closed that it has exceeded the 3 percent cap, there are limited circumstances where lenders can pay a refund of the excess amount with interest to the consumer, to have the loan still meet the legal requirements of a Qualified Mortgage. The refund must occur within 210 days after the loan is made. The creditor must also maintain and follow policies and procedures for reviewing points and fees and providing refunds to consumers. The provision also allows secondary market participants to provide these refunds. The change is designed to encourage lenders to provide access to credit to consumers seeking loans that are at or near the points and fees limit. This provision will expire on January 10, 2021.

The final rule did not address a possible cure for the debt-to-income ratio limit that applies to certain qualified mortgages and to the credit extension limit that applies to small creditor exemptions and special provisions in certain of the regulations adopted by the Bureau in the 2013 Title XIV Mortgage Rules.

Community Banks Urge CFPB to Review Title XIV Mortgage Rules

The Independent Community Bankers of America (ICBA) and a 45-member coalition of state and regional banking associations submitted a letter to the Consumer Financial Protection Bureau (CFPB) on July 15th urging the agency to review and revise the current ability-to-repay/qualified mortgage (QM) rules and escrow requirements for higher-priced mortgage loans to allow community bank loans held in portfolio for the life of the loan to receive automatic QM safe harbor status and an exemption from the escrow requirements if the loans are higher priced.


Based on the rules’ current requirements, there are community banks that would be considered small financial institutions due to their asset size but that still do not qualify for the small creditor exemption because they exceed the loan volume threshold. A threshold of 500 total first lien originations per year is only 41 first lien mortgages per month, or nine per week, an amount that easily can be exceeded by a smaller creditor. For community banks that wish to grow their mortgage business, this low number is restrictive since some banks will not provide loans that do not have QM safe harbor status, so they stop providing mortgage loans all together after they reach this low threshold.

Also, they believe community bank loans held in portfolio should be exempt from new escrow requirements for higher-priced mortgage loans because portfolio lenders have every incentive to protect their collateral by ensuring the borrower can make tax and insurance payments. For many community banks, establishing and maintaining escrow accounts is expensive and impracticable and, again, will only deter lending to consumers who have no other options.

Lastly, the current exceptions for community banks in the escrow and QM requirements to be pedantic and cumbersome, because community banks must constantly consider their current loan volume and where and to whom they are lending to in order not to lose exemption status, if indeed they qualified for it to begin with.

The coalition asks CFPB to expand small creditor exemptions so they can continue to serve the consumers in their communities by underwriting based on firsthand knowledge of their customers, which is a contrast to how larger financial institutions operate.


CFPB Works to Improve Mortgage Closing Experience

“Buying a home is one of the biggest financial decisions most people will make in their lifetimes, but navigating the closing process can be a challenge, ” said Director Corday of the Consumer Finance Protection Bureau (CFPB). The package of closing documents is large, and the process is overly complex and stressful for consumers. Therefor, the  CFPB has been committed to work on improving the mortgage closing experience and last year’s “Know Before You Owe” rule that integrated the Truth in Lending Act (TILA) and Real Estate Settlement Procedures Act (RESPA) disclosures, which will take effect in August 2015. The goal of the new rule was to help improve consumer empowerment and avoid surprises at the closing table by requiring that the new closing disclosure be provided at least three business days prior to closing.  .

This month, The CFPB published a report summarizing the results of its Request for Information about the challenges consumers face when closing on a home.  The Bureau identified several “pain points” consumers regularly experience during the closing process.  Consumers reported being frustrated by:

  • The lack of time they have to review a large number of closing documents, even when they did not understand the terms;
  • The lack of resources capable of providing explanations about closing documents, which are often full of legalese and technical jargon; and
  • Minor errors in paperwork resulting in long delays affecting multiple parties.

In addition, the Bureau released guidelines for an upcoming eClosing pilot project to study how eClosings can benefit consumers and address some of the challenges borrowers face at closing. The Bureau hypothesizes that technology-enabled electronic closing (eClosing) solutions may have the potential to improve consumer understanding and empowerment and efficiency for all involved. The intention of this pilot is for the CFPB to conduct targeted research on eClosing solutions and to release the findings publically. To achieve both of these goals, the CFPB will dictate certain terms of the research environment, including specific tests, defined test groups, and a minimum number of loans to close during the pilot. The loan-level data relevant to this study may include data on cost, time, and/or process (e.g., errors, consumer interaction) that will help the CFPB to evaluate the use or impact of eClosing features.