Overview of Dodd-Frank Provisions for Residential Mortgage Lending Presented January 19, 2011 by Marjorie A. Corwin, Esquire Gordon, Feinblatt, Rothman, Hoffberger & Hollander, LLC 233 East Redwood Street Baltimore, Maryland 21202 [email protected] 410-576-4041 Copyright, 2011 Dodd-Frank Financial Reform The Law: Dodd-Frank Wall Street Reform and Consumer Protection Act (Public Law 111-203, enacted July 21, 2010) Regulations: Many statutory provisions require regulations before they become effective Some provisions become effective on the “designated transfer date” which, at present, is July 21, 2011 Dodd-Frank Financial Reform Today’s Presentation Because we are waiting for numerous regulations, today’s presentation is merely a simple overview There is much more we need to know before full implementation is possible Not discussing new liability provisions or enforcement powers Dodd-Frank Financial Reform Of greatest interest to the mortgage industry: 9Title X, Bureau of Consumer Financial Protection 9Title XIV, Mortgage Reform and Anti- Predatory Lending Dodd-Frank: Title X Title X, Consumer Financial Protection Bureau (CFPB) ¾CFPB will write the rules for nearly all federal consumer protection laws applicable to mortgage lending. CFPB will be the enforcement agency for some mortgage entities and laws Dodd-Frank: Title X ; Title X contains a number of substantive changes to the mortgage lending laws ; Title X includes provisions that significantly affect preemption for banks Dodd-Frank: Preemption Dodd-Frank dramatically narrows the federal preemption over "state consumer financial laws" for national banks, federal thrifts, their subsidiaries, and agents. It also impacts interstate activities of state- chartered banks. Practice Point: Institutions need to implement an action plan now to ensure their operations and products do not violate state law beginning on the “designated transfer date” (July 21, 2011). Check the publications section our website for more information: http://www.gfrlaw.com/pubs/GordonPubDetail.aspx?xpST=PubDetail&pub=805 Dodd-Frank: Title X Some Title X substantive changes include: Fair Credit Reporting Act. Expands information given to consumer (including numerical credit score) when a consumer report is used as a basis for adverse action (§1100F). This requirement appears to become effective on July 21, 2011. Practice Point: This change needs to be coordinated with the Risk-Based Pricing Notice. Dodd-Frank: Title X Some Title X substantive changes include: Home Mortgage Disclosure Act. Prescribes new categories of information to be collected and reported under HMDA (§1094). Most of the new HMDA data need not be reported until the first calendar year that begins following 9 months after the date final regulations are issued. (For example, if final HMDA regulations are issued November 2011, the first year new data needs to be reported is 2013 for data from 2012). Dodd-Frank: Title X Some Title X substantive changes include: Equal Credit Opportunity Act. Imposes new obligations to collect data regarding women-owned, minority-owned, and small business loan applicants (§1071). This requirement appears to become effective on July 21, 2011. Note: The statute of limitations for ECOA liability has been lengthened from 2 years to 5 years (§1085). Dodd-Frank: Title X Some Title X substantive changes include: S.A.F.E. Act. Puts the CFPB in charge of S.A.F.E. Act implementation (§1100). Requires the registration system to be effective by July 20, 2011 (but note, the registration system for bank employees is expected to be available by the end of January 2011). Title XIV: Mortgage originators will need to place their unique identifiers on all mortgage loan documents (§1402). Licensing and registration will be required by the Truth in Lending Act (§1402). Dodd-Frank: Title X Some Title X substantive changes include: Truth in Lending Act and Real Estate Settlement Procedures Act. Requires the Bureau to publish a single, integrated model disclosure form for mortgage transactions which includes the disclosure requirements of RESPA (HUD settlement statement and good faith estimate) and TILA disclosure requirements (§§1098 and 1100A). This combined disclosure must be proposed for public comment by July 21, 2012 (§1032). Dodd-Frank: Title X Some Title X substantive changes include: Alternative Mortgage Transactions Parity Act. Narrows the scope of the law so that only adjustable rate loans will be deemed “alternative mortgage transactions” (§1083). This limitation on the scope of AMTPA becomes effective on July 21, 2011. Practice Point: In Maryland, this will result in a prohibition on balloon payment HELOCs. Dodd-Frank Financial Reform As stated earlier, of greatest interest to the mortgage industry: 9Title X, Bureau of Consumer Financial Protection 9Title XIV, Mortgage Reform and Anti- Predatory Lending Dodd-Frank: Title XIV Title XIV is “all mortgage, all the time” Subtitle A: Residential Mortgage Loan Origination Standards Subtitle B: Minimum Standards for Mortgages Subtitle C: High-Cost Mortgages Subtitle D: Office of Housing Counseling Subtitle E: Mortgage Servicing Subtitle F: Appraisal Activities Subtitle G: Mortgage Resolution and Modification Subtitle H: Miscellaneous Provisions Dodd-Frank: Effective Dates Many Title XIV provisions require regulations before they become effective ` Most mortgage reform regulations must be final by no later than 18 months after the “designated transfer date” (December 22, 2012) ` Most mortgage reform regulations must take effect not later than 12 months after made final (e.g., December 22, 2013) Dodd-Frank: Effective Dates Many Title XIV provisions require regulations before they become effective ` But if regulations are required and are not final, then the statutory provisions become effective 18 months after the “designated transfer date” without regulations (December 22, 2012) Dodd-Frank: Title XIV Subtitle A: Residential Mortgage Loan Origination Standards `Applies to “mortgage originators” which has a lengthy definition but basically means mortgage loan brokers, broker employees, and (I believe) creditor employees who originate “residential mortgage loans,” namely consumer closed-end mortgage loans (§1401) `The definition of “residential mortgage loans” is not limited to owner-occupied loans. Dodd-Frank: Title XIV Subtitle A: “Residential Mortgage Loan” Origination Standards ` Requires licensing and registration of mortgage originators (§1402) ` Prohibits “steering” incentives (§1403) ` Imposes TILA liability on mortgage originators (§1404) Dodd-Frank: Title XIV Subtitle A: Prohibits “steering” incentives (§1403) ` No compensation based on loan terms (other than loan amount) ` Compensation may be paid by borrower or by lender, but not both (and if compensation is paid by lender, borrower cannot pay points or fees to creditor) ` Identifies practices that will be prohibited by forthcoming regulations Dodd-Frank: Title XIV Subtitle B: Minimum Standards for “Residential Mortgage Loans” (§1411) ` Ability to repay: Requires creditor to make a determination that consumer has a “reasonable ability to repay the loan” ` Statute includes ridiculous amount of detail on how this determination must be made ` There is a presumption that this requirement is met if the loan is a “qualified mortgage” Dodd-Frank: Title XIV Attributes of a “Qualified Mortgage” (§1412) ` No negative amortization ` No balloon payment (with limited exceptions) ` Income and financial resources are verified and documented ` Underwriting based on fully amortizing loan payments ` Meets debt to income ratios set by regulation ` No greater than 30 year term (with limited exceptions) ` Maximum “points and fees” of 3% Dodd-Frank: Title XIV Attributes of a “Qualified Mortgage” (§1412) ` For purposes of the maximum fees of 3%, “points and fees” is defined as in HOEPA with some “wiggle room” for certain fees paid by the borrower to buy down the interest rate (discount points) ` However, there is a new definition of HOEPA “points and fees” which is expanded and includes all mortgage originator compensation (e.g., YSP) and the maximum amount of prepayment fees, if any (§1431) Dodd-Frank: Title XIV “Qualified Mortgage” (§1412) Practice Point: This definition might be similar to what the regulators come up with for “qualified residential mortgage” in connection with the exemption for risk retention by “securitizers” (§941) Dodd-Frank: Title XIV Subtitle B: Minimum Standards for Mortgages Law prohibits: ` Certain prepayment penalties ` Financing single premium credit insurance ` Mandatory arbitration ` Certain negative amortization provisions (§1414) Dodd-Frank: Title XIV Subtitle B: Minimum Standards for Mortgages: New Disclosures (§1414) Imposes disclosure obligations if loan is subject to “anti-deficiency protection” (Comment: this protection is not provided by current Maryland law) Must disclose prior to settlement, and at the time a person becomes owner of the loan, creditor’s policy regarding acceptance of partial payments and if partial payments are not accepted, what will happen when partial payments are made Dodd-Frank: Title XIV Subtitle B: Minimum Standards for Mortgages: New Disclosures (§1418) New disclosures when interest rates will adjust for loans that have introductory fixed rate periods, after which the rate becomes variable (e.g., 5-1 ARM) Dodd-Frank: Title XIV Subtitle B: Minimum Standards for Mortgages: New Disclosures (§1419) New disclosures added to TILA