Fall 2010 - Regulatory Roundup
Mortgage Loan Transactions
The Federal Reserve Board on August 16, 2010 proposed2 enhanced consumer protections and disclosures for home mortgage transactions. The proposal would:
- Improve the disclosures consumers receive for reverse mortgages and impose rules for reverse mortgage advertising to ensure advertisements contain accurate and balanced information;
- Prohibit certain unfair practices in the sale of financial products with reverse mortgages;
- Improve the disclosures that explain a consumer's right to rescind certain mortgage transactions and clarify the responsibilities of the creditor if a consumer exercises the right; and
- Ensure that consumers receive new disclosures when the parties agree to modify the key terms of an existing closed-end mortgage loan.
In addition, the Board is proposing amendments pertaining to all types of mortgages that would ensure that for all mortgage loans, consumers have time to review their loan cost disclosures before they become obligated for fees, by requiring lenders to refund the fees if the consumer decides to withdraw the application within three days after they receive the disclosures. Furthermore, the Board's proposed amendments clarify that when a consumer requests information from their loan servicer about the owner of the loan, the servicer must provide the information within a reasonable time, which generally would be 10 business days.
The first phase of the Board's regulatory review of mortgage lending rules commenced with the publication of two proposals in August 2009 that would significantly enhance disclosures for closed–end home mortgage loans and open–end home equity lines of credit. The Board plans to ultimately issue final rules that combine the 2009 and 2010 proposals.
On October 19, 2010, the Federal Reserve Board proposed a rule3 amending Regulation Z (Truth in Lending) to clarify aspects of the Board's rules protecting consumers who use credit cards. The proposal is intended to enhance protections for consumers and to resolve areas of uncertainty so that card issuers fully understand their compliance obligations. In particular, the proposal would clarify that:
- Promotional programs that waive interest charges for a specified period of time are subject to the same protections as promotional programs that apply a reduced rate for a specified period. For example, a card issuer that offers to waive interest charges for six months would be prohibited from revoking the waiver and charging interest during the six–month period unless the account becomes more than 60 days delinquent.
- Application and similar fees that a consumer is required to pay before a credit card account is opened are covered by the same limitations as fees charged during the first year after the account is opened. Because the total amount of these fees cannot exceed 25 percent of the account's initial credit limit, a card issuer that, for example, charges a $75 fee to apply for a credit card with a $400 credit limit generally would not be permitted to charge more than $25 in additional fees during the first year after account opening.
- When evaluating a consumer's ability to make the required payments before opening a new credit card account or increasing the credit limit on an existing account, card issuers must consider information regarding the consumer's independent income, rather than his or her household income.
The proposal would clarify portions of the Federal Reserve's final rules implementing the Credit Card Accountability Responsibility and Disclosure Act of 2009 (Credit Card Act), which was enacted in May 2009. The last of these rules went into effect on August 22, 2010.
Community Reinvestment Act
On September 29, 2010, the federal banking and thrift regulatory agencies announced a final Community Reinvestment Act (CRA) rule to implement a provision of the Higher Education Opportunity Act.4
The provision requires the agencies to consider low–cost higher education loans to low–income borrowers as a positive factor when assessing a financial institution's record of meeting community credit needs under the CRA. The rule also incorporates a CRA statutory provision that allows the agencies to consider a financial institution's capital investment, loan participation, and other ventures with minority–owned financial institutions, women–owned institutions and low–income credit unions as factors in assessing the institution's CRA record.
Mortgage Originator Licensing
On July 28, 2010, Federal agencies issued final rules5 requiring residential mortgage loan originators who are employees of national and state banks, savings associations, Farm Credit System institutions, credit unions, and certain of their subsidiaries (agency–regulated institutions) to meet the registration requirements of the Secure and Fair Enforcement for Mortgage Licensing Act of 2008 (S.A.F.E. Act).
The S.A.F.E. Act requires residential mortgage loan originators who are employees of agency–regulated institutions to be registered with the Nationwide Mortgage Licensing System and Registry (registry). The registry is a database created by the Conference of State Bank Supervisors and the American Association of Residential Mortgage Regulators to support the licensing of mortgage loan originators by the states. As part of this registration process, residential mortgage loan originators must furnish to the registry information and fingerprints for background checks. The S.A.F.E. Act generally prohibits employees of agency–regulated institutions from originating residential mortgage loans unless they register with the registry.
The agencies' final rules establish the registration requirements for residential mortgage loan originators employed by agency–regulated institutions and requirements for these institutions, including the adoption of policies and procedures to ensure compliance with the S.A.F.E. Act and final rules. As required by the S.A.F.E. Act, the final rules also require that each residential mortgage loan originator obtain a unique identifier through the registry that will remain with that residential mortgage loan originator, regardless of changes in employment. This will enable consumers to easily access employment and other background information about registered mortgage loan originators from the registry. Under the final rules, registered mortgage loan originators and agency–regulated institutions must provide these unique identifiers to consumers.
These rules took effect on October 1, 2010.
Loan Originator Compensation Practices
On August 16, 2010, the Federal Reserve Board announced final rules6 to protect mortgage borrowers from unfair, abusive, or deceptive lending practices that can arise from loan originator compensation practices. The new rules apply to mortgage brokers and the companies that employ them, as well as mortgage loan officers employed by depository institutions and other lenders.
Currently, lenders commonly pay loan originators more compensation if the borrower accepts an interest rate higher than the rate required by the lender (commonly referred to as a "yield spread premium"). Under the final rule, however, a loan originator may not receive compensation that is based on the interest rate or other loan terms. Loan originators can continue to receive compensation that is based on a percentage of the loan amount, which is a common practice.
This final rule also prohibits a loan originator that receives compensation directly from the consumer from also receiving compensation from the lender or another party. The new rule seeks to ensure that consumers who agree to pay the originator directly do not also pay the originator indirectly through a higher interest rate, thereby paying more in total compensation than they realize.
Additionally, the final rule prohibits loan originators from directing or "steering" a consumer to accept a mortgage loan that is not in the consumer's interest in order to increase the originator's compensation.
The final rules become effective April 1, 2011.
Mortgage Loan Notification
On August 16, 2010, the Federal Reserve Board announced7 final rules to implement a statutory amendment to the Truth in Lending Act requiring that consumers receive notice when their mortgage loan has been sold or transferred. The new disclosure requirement became effective in May 2009, upon enactment of the Helping Families Save Their Homes Act. Under that act, a purchaser or assignee that acquires a mortgage loan must provide the required disclosures in writing within 30 days.
To provide compliance guidance and greater certainty on the new requirements, the Board published interim rules in November 2009, which were effective immediately. To allow covered parties time to make any necessary operational changes, they may continue to follow the November 2009 interim rules until the mandatory compliance date for the final rules, which is January 1, 2011.
Payday Loan Alternative
On September 24, 2010, the National Credit Union Administration: NCUA amended its general lending rule8 to enable Federal credit unions (FCUs) to offer short–term, small amount loans (STS loans) as an alternative to predatory payday loans. The amendment permits FCUs to charge a higher interest rate for an STS loan than is permitted under the general lending rule, but imposes limitations on the permissible term, amount, and fees associated with an STS loan. This final rule also requires an FCU to set a cap on the total dollar amount of STS loans it will make and to set a length of membership requirement of at least one month. Also, any loan under this rule must be fully amortized. This final rule also includes guidance in the form of "best practices" FCUs should consider incorporating into their individual STS programs.
The rule became effective on October 25, 2010.
HR 62189, the "Housing Opportunity and Mortgage Equity Act of 2010" would provide for the affordable refinancing of mortgages held by Fannie Mae and Freddie Mac. Introduced by Representative Dennis Cardoza (CA), the bill was referred to the House Committee on Financial Services.
HR 625610, "Strengthening FHA Through Shared Equity Homeownership Act of 2010" would establish a shared equity homeownership pilot program in the FHA insurance fund to analyze the effectiveness of shared equity finance methods for 1 to 4 unit family residences that stimulate the flow of private equity capital into the housing sector while mitigating borrower and insurance fund risk.
Introduced by Representative Gary G. Miller(CA), the bill was referred to the House Committee on Financial Services
SB 3888 the "End Debt Collector Abuse Act of 2010", would amend the Fair Debt Collection Practices Act by prohibiting debt collectors from seeking arrest warrants to collect on debts; giving consumers the information they need to protect themselves from unscrupulous debt collectors; requiring debt collectors to conduct thorough investigations when consumers dispute the debt; increasing penalties on debt collectors who break the law to discourage them from employing bad practices; allowing judges to provide injunctive relief to consumers when debt collectors continue to violate their rights as specified under the Fair Debt Collection Practices Act.11
Introduced by Senator Al Franken (MN), the bill was referred to the Senate Committee on Banking, Housing, and Urban Affairs.
HR 6133 the "Prompt Decision for Qualification of Short Sale Act" would require a lender or servicer of a home mortgage, upon a request by the homeowner for a short sale, to make a prompt decision (within 45 days) whether to allow the sale.
Introduced by Representative Robert Andrews (NJ), the bill was referred to the House Committee on Financial Services
4th District State Legislation
HB 54912 was introduced by Ohio State Representative Dyer on 6/9/2010 to establish licensing and regulation of debt settlement services. In part, the proposed legislation outlines licensing requirements and what needs to be disclosed to the consumer.
SB 29813 was introduced by Ohio State Senator Kearney on 8/30/2010. The bill would authorize a tax credit for the rehabilitation of owner–occupied homes built before 1950 and located in low–income census tracts. The proposed tax credit would cover residential structures that are used as the owner's primary residence.
Also introduced by Ohio State Senator Kearney in August, SB No. 28814 would provide supermarkets and grocery stores, located in a census tract with below–average density of supermarkets and groceries or containing households a majority of which are low–income households, a tax credit on taxable gross receipts.
Pennsylvania enacted SB 90015 the "Neighborhood Blight Reclamation and Revitalization Act"on October 27, 2010. This law authorizes the creation of housing courts and provides municipalities with new tools to manage blighted properties including: an "In personam action" against property owners who fail to correct code violations within six months of notification; possible extradition and prosecution of out–of state property owners; liens on property owner assets; and denial of various permits due to outstanding property code violations.
Pennsylvania enacted HB 6016 the "Pennsylvania Housing Affordability and Rehabilitation Enforcement Program" on November 23, 2010. This legislation would use federal stimulus money to create an affordable housing trust fund, which would enable the Pennsylvania Housing Finance Agency to build or rehabilitate and preserve housing for low to moderate income households, the elderly, and people with disabilities. In addition, the trust fund can be used for projects to prevent or reduce homelessness, to develop or rehabilitate projects in distressed neighborhoods, and to provide repair and improvement loans or grants to owner–occupied properties.
West Virginia State Delegate Lawrence introduced H B 420817 on 1/12/2010 that would require a landlord to give written notice to a prospective tenant or existing tenant when a property is subject to foreclosure as well as provide for damages for failure to provide notice.
- Excerpts from Regulatory Press Releases
- https://www.congress.gov/ & http://franken.senate.gov/?p=press_release&id=1122