Fredric J. Gooch – General Counsel/VP Compliance, DocuTech Corporation
Summer is here and the temperatures are heating up across the country. The regulatory environment also continues to heat up as new rules and regulations seem to be coming at a hot summer pace. Congress continues to debate issues related to oversight of the new Consumer Financial Protection Bureau as we move quickly toward the July 21, 2011 designated transfer date. If things proceed outlined in the regulations pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act, rulemaking authority and oversight of most laws regulating the mortgage lending industry will be transferred to the new bureau. Meanwhile the new bureau is busy floating new versions of a combined RESPA/TILA disclosure form for feedback. A new final rule setting forth minimum standards for state implementation of the SAFE Act has been set forth by HUD and the Federal Reserve has released final rules amending disclosure requirements for Adverse Action and Risk-Based Pricing Notices. Things are heating up, indeed. Let’s take a brief look at these developments.
HUD SAFE ACT RULE
On June 29, 2011 HUD announced publication of a final rule that set minimum standards that states must meet to comply with the Secure and Fair Enforcement for Mortgage Licensing Act of 2008 (SAFE Act). The SAFE Act directs states to enact licensing standards that meet the requirements of the law. All fifty states have enacted legislation to support the federal law. Responsibility for interpretation, implementation and compliance with the Act was delegated to HUD and will be subsequently transferred to the CFPB pursuant to the requirements of the Dodd-Frank Act. This rule promulgated by HUD is intended to set minimum standards and offer clarification regarding state implementation of the Act.
The rule clarifies that it only sets minimum standards for implementation and that a state may impose additional requirements for regulation of loan originators. The rule offers clarification on when an individual is “engaged in the business of a loan originator.” The rules states that an individual is engaged in the business of a loan originator when acting as a residential mortgage originator with respect to financing that is provided in a commercial context and with some degree of “habitualness and repetition.” It states that the SAFE Act does not require licensure as loan originators for qualifying employees of government agencies, housing finance agencies or bona fide nonprofit organizations. HUD’s rule leaves the issue of licensing of loan modification activity to be resolved by the new CFPB, and defers the definition of “Employee” to the federal banking agencies. It clarifies that loan processors and underwriters that are directed or supervised by licensed loan originators do not need to be licensed.
The new rule merits careful consideration and more information can be found at: http://portal.hud.gov/hudportal/HUD?src=/press/press_releases_media_advisories/2011/HUDNo.11-133. The rule is effective August 29, 2011.
DODD-FRANK ADVERSE ACTION AND RISK BASED PRICING REQUIREMENTS
On July 6, 2011 the Federal Reserve Board and the Federal Trade Commission issued final rules to implement additional credit score disclosure requirements mandated by the Dodd-Frank Act. The new rules require the disclosure of credit score information if a credit score is used in setting material terms of credit or in taking adverse action. These notices are required under the Fair Credit Reporting Act (FCRA) and the Equal Credit Opportunity Act (ECOA). More details on the proposed rules can be found in an article from the June 2011 newsletter located at: http://www.docutechcorp.com/revisions-to-the-fcraecoa-adverse-action-notices. In short, the new notices require the disclosure of (1) the numerical credit score used in making the credit decision; (2) the range of possible scores under the model used; (3) the key factors that adversely affected the credit score of the consumer model used; (4) the date on which the credit score was created; and (5) the name of the person or the entity that created the score.
The final rules contain new model forms that may be used to comply with the new requirements. The final rules will become effective thirty days after the rules are published in the federal register. As of the date of this article the rules have not yet been published, but they are expected to be published soon. DocuTech will have revised forms available for use before the effective date. If you have questions or concerns regarding the adverse action or risk-based pricing notices, please contact your DocuTech client support representative. You can also access the final rules at: http://www.federalreserve.gov/newsevents/press/bcreg/20110706a.htm.
DON’T SAY NO TO KNOW BEFORE YOU OWE
The Consumer Financial Protection Bureau has been hard at work getting ready for the July 21, 2011 designated transfer date when they will assume regulatory authority over several consumer protection statutes. High on the list of priorities for the CFPB is simplifying the disclosure process for residential mortgage transactions. The Bureau has been hard at work circulating drafts of a combined TILA/RESPA disclosure for comment by consumers and industry participants. The most recent drafts of these disclosures were released on June 27, 2011. The new versions “Redbud Credit Union” and “Dogwood Credit Union” focus on the back page of the disclosure which deals with settlement costs. The Bureau is looking for feedback on whether these forms will help consumers understand closing costs. If you haven’t seen these forms they can be found on the Bureau’s website located at: http://www.consumerfinance.gov/know-before-you-owe-were-back/. DocuTech encourages everyone to not say no to know before you owe. While the comment period on this round of proposed disclosures expired on July 5, 2011, there are sure to be other opportunities to help improve these disclosures so they are beneficial to consumers and the industry. Be sure to make your voice heard.
The regulatory compliance environment is rapidly and constantly changing. These changes are expected to continue as authority is transferred to the CFPB. The changes on the federal level will force changes at the state level as states examine their consumer protection statutes in light of all the new rules. DocuTech is committed to keep you compliant with the changes in this turbulent environment. If you have any questions or concerns with these changes or any other issues related to mortgage documentation please contact your DocuTech client support representative.