Friday, September 25, 2015

The CFPB's fines, Final rules, Defining rural lenders, Updates on exam procedures...


  

The Consumer Financial Protection Bureau (CFPB) and the Department of Justice (DOJ), after an investigation that begin in early 2014, announced a joint action against Hudson City Savings Bank for discriminatory redlining practices that denied residents in majority-Black-and-Hispanic neighborhoods fair access to mortgage loans. The complaint filed by the CFPB and DOJ alleges that Hudson City illegally provided unequal access to credit to neighborhoods in New York, New Jersey, Connecticut, and Pennsylvania. The bank located branches and loan officers, selected mortgage brokers, and marketed products to avoid and thereby discourage prospective borrowers in predominantly Black and Hispanic communities. If the proposed consent order is approved by the court, Hudson City will pay $25 million in direct loan subsidies to qualified borrowers in the affected communities, $2.25 million in community programs and outreach, and a $5.5 million penalty. This represents the largest redlining settlement in history to provide such direct subsidies.

The Equal Credit Opportunity Act (ECOA) prohibits creditors from discriminating against applicants in credit transactions on the basis of characteristics such as race, color, and national origin. In the complaint, the CFPB and DOJ alleged that from at least 2009 to 2013, Hudson City violated the law when it engaged in illegal redlining by offering unequal access to credit based on the race and ethnicity of prospective borrowers' neighborhoods. Specifically, Hudson City structured its business to avoid and thereby discourage residents in majority-Black-and-Hispanic neighborhoods from accessing mortgages. The DOJ also alleges that Hudson violated the Fair Housing Act, which also prohibits discrimination in residential mortgage lending. 

Remember that last week the CFPB also took legal action against World Law Group. The lawsuit against World Law names individuals responsible for running a debt-relief scheme that charged consumers exorbitant illegal upfront fees. The CFPB alleges the debt-relief scheme falsely promised consumers a team of attorneys to help negotiate debt settlements with creditors, failed to provide legal representation, and rarely settled consumers' debts. 

No, the CFPB has not been sitting on its hands. Using enforcement actions to effectively run an entire industry is not a good way to run residential lending, and everyone is certainly waiting for "another head to be put on a stake on the castle wall" regarding MSAs. That being said, the CFPB issued a final rule amending threshold adjustments for 2016 HOEPA and QM loans, effective January 1st, 2016. The final rule regarding various annual adjustments is required to make under provisions of Regulation Z (TILA) that implement the CARD Act, HOEPA, and the ability to repay/qualified mortgage provisions of Dodd-Frank. The adjustments made by the final rule are effective January 1, 2016. The revised loan amount threshold for HOEPA loans is $20,350 and the adjusted statutory fee trigger is $1,017. 

HOEPA requires the CFPB to annually adjust the total loan amount thresholds that determines whether a transaction is a high cost mortgage when the points and fees are either 5 percent or 8 percent of such amount.  In the final rule, the CFPB decreased the current dollar thresholds from, respectively, $20,391 to $20,350 and $1,020 to $1,017.

And helping every borrower better shop their lender (I didn't say that!), "As part of our Know Before You Owe mortgage initiative there is now a Loan Estimate that makes shopping for a mortgage easier than ever. The Loan Estimate uses clear language and design to help you understand the key features, costs, and risks of a loan offer you've received from a lender. Starting October 3, lenders will give you the Loan Estimate for most mortgages you apply for. The new design also makes it easier to compare Loan Estimates. Shopping for the best deal on your mortgage could save you money over the years. You should get Loan Estimates from at least three lenders and compare them to find the loan that's best for you and your family."

The CFPB also issued a rule that will increase the number of financial institutions that are able to offer certain types of mortgages in rural and underserved areas. "The rule also gives small creditors time to adjust their business practices to comply with the new rules. We will update some of the Title XIV implementation materials on our website to reflect the changes, and will send an email to let you know when we have posted those updates." Yes, it issued a final rule that revises the definitions of "small creditor" and "rural areas" under Regulation Z of the Truth in Lending Act (TILA). The final rule is effective January 1, 2016 and creates special small creditor provisions with regard to certain Regulation Z requirements. Certain provisions apply to small creditors in general, while other provisions apply to small creditors that operate predominantly in rural or undeserved areas.

Additionally, the annual percentage rate ceiling for a first lien loan to be a non-higher priced mortgage loan that is eligible for the qualified mortgage safe harbor under the ATR rule is higher for small creditors than other creditors (i.e., less than 3.5 percentage points above a benchmark rate as opposed to less than 1.5 percentage points above the benchmark rate). To increase the number of financial institutions eligible for these special provisions under Regulation Z, the final rule revises the definition of "small creditor" by increasing the loan origination limit for determining eligibility for small-creditor status from 500 originations of covered transactions secured by a first lien to 2,000 originations. Significantly, originated loans held in portfolio by the creditor and its affiliates are excluded from the 2,000 loan cap. 

In addition it includes the assets of the creditor's affiliates that regularly extended covered transactions in the calculation of the $2 billion asset limit for small-creditor status. The CFPB took this step to prevent larger creditors from attempting to fit within the small creditor provisions through organizational changes. It also expands the definition of "rural area" to include either: (a) a county that meets the current definition of a rural county; or (b) a census block that is not in an urban area as defined by the U.S. Census Bureau. Additionally, the rule allows creditors to rely on a new automated tool provided on the CFPB website to determine whether properties are located in rural or underserved areas, or on the Census Bureau's website to assess whether a particular property is located in an urban area (based on the Census Bureau's definition). For more details definitely click on the link a few paragraphs up! 

The CFPB updated two regulatory examination procedures, the Real Estate Settlement Procedures Act (88 pages) and the Truth in Lending Act (323 pages). Yes, 323 pages of simplification.

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