CFPB Issues Proposed Amendments to Regulation X and Regulation Z
The Consumer Financial Protection Bureau (CFPB) has issued a rule containing proposed amendments to the Mortgage Servicing Rules under the Real Estate Settlement Procedures Act (Regulation X) and the Mortgage Servicing Rules Under the Truth in Lending Act (Regulation Z) that previously were issued on January 17, 2013. The proposed rule addresses the relationship between Regulation X’s servicing provisions and State law, the small servicer exemption from certain servicing rules, the use of government-sponsored enterprise and Federal agency purchase, guarantee, or insurance eligibility for determining qualified mortgage (QM) status, and explains how debt and income should be determined for purposes of originating QMs. The proposed rule will be published in the Federal Register on May 2, 2013.
Highlights of the proposed amendments include:
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Preemption. The CFPB proposes to amend the commentary to Regulation X to address concerns about field preemption. The proposed comment would express that State laws that conflict with the requirements of RESPA or Regulation X may be preempted, but nothing in RESPA or Regulation X should be construed to preempt the entire field of regulation of the covered practices. The CFPB does not intend that RESPA and Regulation X should preempt State laws that provide greater protection to consumers than RESPA or Regulation X provide.
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Small servicer exemption. The proposed rule sets forth which mortgage loans should not be considered when determining small servicer status and how to apply the small servicer exemption in relation to servicer/affiliate and master servicer/subservicer relationships. A small servicer is one that services 5,000 or fewer mortgage loans, for all of which the servicer or an affiliate is the creditor or assignee. The small servicer determination generally is made by evaluating the number of closed-end consumer credit transactions secured by a dwelling. The rule proposes that three types of mortgage loans be excluded from consideration in the determination of small servicer status: mortgage loans voluntarily serviced for an unaffiliated entity without remuneration, reverse mortgages, and mortgage loans secured by a consumer’s interest in timeshare plans.
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QM standards. The proposed amendments revise comment 43(e)(4)-4 by clarifying the standards that a creditor must meet when relying on a written guide or an automated underwriting system from one of the government-sponsored enterprises (GSEs), the U.S. Department of Housing and Urban Development (HUD), the Veterans Administration (VA), the U.S. Department of Agriculture (USDA), or Rural Housing Service (RHS) to determining QM status. A creditor is not required to comply with all GSE or agency requirements in order to show QM status. A creditor does not have to satisfy certain directives regarding loan delivery to the entities or other requirements unrelated to evaluating a consumer’s ability to repay the loan. However, the proposed comment requires a creditor relying on approval through an automated underwriting system to establish QM status to meet the conditions on approval that are generated by that system. The revised comment also clarifies that a loan meeting eligibility requirements set forth in a written agreement between a creditor and a GSE, HUD, VA, USDA, or RHS is eligible for purchase or guarantee by the GSEs or insured or guaranteed by the agencies, and could thus be a QM. The rule also proposes new comment 43(e)(4)-5, which indicates that a repurchase or indemnification demand by a GSE, HUD, VA, USDA, or RHS is not dispositive in determining QM status.
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Debt-to-income ratio. The proposed rule also alters appendix Q of Regulation Z to further enable compliance and to safeguard access to credit by further revising how creditors should determine a consumer’s debt-to-income (DTI) ratio for QMs. Among other revisions, the CFPB proposes to revise the criteria used in determining whether a consumer’s income is “stable” or “continuing” for purposes of the DTI by removing the requirement that creditors determine a consumer’s probability of continued employment and instead requiring consideration of past and current employment.
Practical Impact
The Ability-to-Repay and QM Rules already are altering the landscape of the U.S. mortgage industry. The CFPB offered these new proposed rules to ease or clarify some concerns regarding, especially, the potential disparate impact that these rules could create, as well as their relationship with other state and federal laws. While these clarifications may provide some comfort, many of the concerns surrounding these new laws persist. Companies need to be on the look-out for upcoming CFPB commentary regarding these issues.
A copy of the Rule is located here.
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Please do not hesitate to contact David Anthony, Virginia Bell Flynn, or Nicola Harrison if you have questions or would like additional information on the proposed amendments or compliance with the Rules.
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