by Timothy Raty, Compliance Specialist – DocuTech
While a justifiable amount of attention is being paid by the mortgage industry to the new Loan Estimate and Closing Disclosure proposed under the Consumer Financial Protection Bureau’s (CFPB) mammoth dual set of proposed regulations, these regulations also created other new disclosure requirements, as well as amending existing disclosure requirements in significant ways. The most significant of these changes are as follows:
List of Homeownership Counselors: A new section to Regulation X has been proposed (12 CFR §1024.20), which requires either a lender, broker, or dealer to provide a list of approved homeownership counselors to a loan applicant, no later than three business days after receiving either an application or information sufficient enough to complete an application.
This list must disclose the name, business address, telephone number, email address, and website (the latter two, if available) for five homeownership counselors or counseling organizations (who must be listed in the most current lists of counselors and counseling organizations from the CFPB or the Department of Housing and Urban Development [HUD]) located within the zip code of the applicant’s current address. If there are not five such entities within this zip code, then such entities from the zip codes closest to the applicant must be listed.
This seemingly daunting requirement, which would normally necessitate mortgage industry professionals to create and maintain separate lists of counselors for approximately 43,000 zip codes, is mitigated by the fact that the CFPB is expecting to develop a website portal, wherein the zip code of the applicant can be entered and a list automatically generated. Nevertheless the CFPB is not required under its own regulations to provide this portal and they may at some future date decide to only provide a general list, similar to what HUD provides now.
In addition to information about the counselors, the homeownership counselor list must also disclose the website addresses and telephone numbers of the CFPB and HUD, where applicants can obtain information about counseling.
As with most of the newly proposed CFPB requirements, a broker or dealer may provide this list to the applicant instead of the lender providing it, but the lender is responsible for making sure it is given in compliance with all applicable laws. The list may be given in person, via mail, delivery, or in electronic form. For home equity line of credit loans, the timing and delivery requirements set forth in 12 CFR §1026.40(b) may be used instead. If there is more than one applicant, the list may only be given to the applicants who will be primarily liable under the loan. If there is more than one lender, all lenders may agree to have only one of them provide the list – and be responsible for it.
Compliance with this proposed new section under Regulation X also extends “safe harbor” protection in regards to the provisions of newly proposed 12 CFR §§1026.34(a)(5)(vii) & 1026.36(k)(4), which require a list of counselors to be provided in connection with high-cost mortgages and negative amortization loan transactions, respectively. A lender potentially extending a home equity conversion mortgage (HECM), as defined by 12 USCA §1715z-20(b)(3), is not obliged to provide this list, if it provides a list of counselors for these types of loans as required by HUD.
HELOC Example Payments and Credit Limits Disclosures: Two new disclosures may be required under 12 CFR §1026.32, which governs high-cost home mortgage transactions. The first disclosure is set forth in Ibid. §1026.32(c)(3)(ii), which was created by splitting the current Subsection (c)(3), which requires disclosures concerning periodic payments and balloon payments, into two clauses. The first of these clauses continues to require the disclosures currently promulgated, albeit it will only apply to closed-end high cost home mortgage transactions, whereas the second clause requires substantially similar disclosures for open-end high cost home mortgage transactions. Under this second clause, four things need to be disclosed:
- “An example showing the first minimum periodic payment for the draw period, the first minimum periodic payment for any repayment period, and the balance outstanding at the beginning of any repayment period.” All of these examples must be based on certain assumptions, namely: (i)the consumer is borrowing the full credit line when the account is opened (and no additional extensions of credit are made); (ii) the consumer will only be making minimum payments during the draw and repayment periods; and (iii) the annual percentage rate (APR) used to calculate the example payments remains the same during any draw or repayment period.
- If applicable, a disclosure of any balloon payment under the plan, as well as an example showing the amount of the payment based on the assumptions set forth above.
- A statement explaining that the examples show the first periodic payments at the current APR if the consumer borrows the maximum credit available when the account is opened and does not obtain any additional extensions of credit.
- A statement explaining that the examples are not the consumer’s actual payments and that the minimum payments will depend on the amount borrowed, the interest rate that is applicable, and whether the consumer will need to pay more than the minimum payment.
The requirements for the second disclosure are set forth in a Ibid. §1026.32(c)(5)(ii), which also splits Subsection (c)(5) into two clauses. Originally, this subsection required disclosure of the total amount the consumer will borrower in a high-cost refinance transaction, as well as a statement (when applicable) that premiums or other charges for optional credit insurance or debt-cancellation coverage are included in that amount. Under the new proposed Subsection(c)(5), the first clause will continue to require this disclosure (but only for closed-end high-cost home mortgages) and the second clause will require disclosure of the credit limit of an open-end high-cost home mortgage, as of the time the credit account is opened.
Partial Payment Policy Statement on Mortgage Transfer Disclosures: A new clause is being proposed for 12 CFR §1026.39(d), which currently requires certain content to be disclosed in the mortgage transfer disclosures required under this section. Under proposed new Ibid. §1026.39(d)(5), a statement is required if the mortgage being sold, assigned, or transferred is a closed-end transaction which is not a reverse mortgage. The statement must be captioned, “Partial Payment Policy” and state whether the person acquiring the mortgage will accept payments that are less than the amount due and if such payments are accepted, how they will be applied to the amount due and whether they will be placed into escrow. In addition, the statement must state that if the loan is sold, the person acquiring it (who must be referred to as “lender”) has a different policy than the current lender.
With the exception of the “Partial Payment Policy,” the CFPB will be closing the comment periods on these disclosures on September 7, 2012 and final rules are expected to be issued by January 21, 2013. Comments on the “Partial Payment Policy” statement should be made by November 6, 2012, though it is currently unknown as to when final rules concerning it will be issued. Copies of these proposed rules can be accessed on the CFPB’s website (http://www.consumerfinance.gov/regulations/; “Integrated Mortgage Disclosures” and “High-Cost Mortgage and Homeownership Counseling Amendments”).