CFPB Issues Final Rules Amending Regulations B, X and Z to Clarify and Amend Earlier Dodd-Frank Rules

On July 2, 2013, the Consumer Financial Protection Bureau (the “Bureau”) published proposed rules and a request for public comment in the Federal Register to amend certain of its final mortgage rules contained in Regulation X (Real Estate Settlement Procedures) and Regulation Z (Truth in Lending), and to make certain technical corrections to these rules and to Regulation B (Equal Credit Opportunity).  See this publication on July 10, 2013.  The above final rules were published in the Federal Register at various times during the months of January and February of this year.

On Tuesday, October 1, 2013, the Board issued its final rules to amend the mortgage provisions referenced above, and to make certain technical and wording changes to the above regulations.

The final rules amend Regulations X and Z in the following six main areas:

1. Regulation X Loss Mitigation Rules.  Several changes were made to the loss mitigation provisions:
   • Currently, servicers are given very precise timeframes for acknowledging receipt of a loss mitigation application and for notifying the borrower that the application is incomplete.  In addition, the current regulation provides four dates, the earliest remaining of which is the date the servicer must give the borrower as a deadline to provide the required missing information.  The final rules provide more flexibility to servicers by treating the four dates in the regulation as milestones to be considered when giving the borrower a reasonable date to provide the missing information.
      
   • The final rules provide for procedures and requirements to be followed by the servicer in the event a facially complete application is later found to be incomplete.
      
   • Servicers are now provided more flexibility in providing short-term payment forbearance plans based on a review of an incomplete loss mitigation application.
      
   • Changes have been made to the content requirements for notices to borrowers of the outcome of their loss mitigation evaluation, and for notices to borrowers with respect to any appeals that have been filed.
      
   • The final rules address protections in cases where no foreclosure sale has been scheduled at the time when the borrower submits a loss mitigation application or when a foreclosure is re-scheduled.
      
   • Finally, the rules clarify what is meant by the “first notice or filing” for purposes of the ban on proceeding to foreclosure where the borrower is not yet 120 days delinquent, and also provide exemptions from the 120-day prohibition.
      
2. Regulation Z Definition of “Points and Fees.”  With respect to retailers of manufactured homes, the final rules clarify what compensation is to be considered loan originator compensation.  In addition, the final rules clarify the treatment of charges paid by parties other than the borrower, for purposes of loan originator compensation in “high-cost mortgages.”  Loan originator compensation is included in the calculation of points and fees for purposes of the “qualified mortgage” points and fees cap and the “high-cost mortgage” points and fees threshold.
    
3. Regulation Z Exceptions Re: “Rural” and “Underserved” Areas.  The final rules revise two exceptions applicable to small creditors operating in predominantly “rural” or “underserved” areas, pending the Bureau’s re-examination of the definitions of “rural” and “underserved” over the next two years:
   • The Board is extending an exception to the general prohibition on balloon features in “high-cost mortgages” to permit all small creditors, regardless of whether they operate in predominantly “rural” or “underserved” areas, to continue to originate “high-cost mortgages” with balloon features, so long as the loans meet the requirements for “qualified mortgages.”
      
   • The Board is also amending the exception to the requirement to establish escrow accounts for “higher-priced mortgage loans” for small creditors that extend more than 50% of their total covered transactions secured by a first-lien mortgage in “rural” or “underserved” counties in the preceding calendar year.
      
4. Regulation Z Loan Originator Compensation Rules.  In addition to several technical changes, the final rules modify the definition of “loan originator” to address the point at which an employee, contractor or agent becomes a “loan originator” and the rules on prohibited payments to loan originators.  Generally, application-related and clerical tasks (e.g., providing a credit application form, without more, or delivering an application to an originator or lender, without more, or providing loan originator or lender contact information to an applicant) will not result in an employee’s being considered a “loan originator.”
    
5. Regulation Z Credit Insurance Financing Rules.  The Bureau is adding three new provisions to the rules prohibiting the financing of credit insurance premiums by creditors.  The first clarifies what constitutes financing for these purposes.  The second clarifies when credit insurance premiums are considered to be calculated and paid on a monthly basis, for purposes of determining the availability of an exclusion from the prohibition for certain calculation methods and payment plans.  Finally, the third new provision clarifies when including the credit insurance premium or fee in the amount owed violates the regulation.
    
6. Implementation Dates.  The Bureau has changed the effective date on several of the loan originator compensation rules from January 10, 2014, to January 1, 2014.  After reviewing public comments on the proposed rule, the Bureau had decided not to change the effective date of the credit insurance premium financing prohibition from the current effective date of January 10, 2014.