As we face a deluge of required regulatory promulgations, the cost of compliance will increase. The powers transferred to the new Consumer Financial Protection Bureau (CFPB) by the Dodd-Frank Act, and the number of new regulations that it must issue will continue to overwhelm the mortgage industry, including the reverse mortgage industry.
The Dodd-Frank Act consolidated various federal agencies’ powers and transferred them to the CFPB in order to implement the “enumerated consumer laws.” These laws include such federal consumer credit statutes as the Equal Credit Opportunity Act; the Fair Credit Reporting Act; the Fair Debt Collection Practices Act; portions of the Gramm-Leach-Bliley Act (which governs consumer financial privacy); the Home Ownership and Equity Protection Act; the Home Mortgage Disclosure Act (or HMDA); the Real Estate Settlement Procedures Act; the S.A.F.E. Act; and the Truth in Lending Act. Authority over these laws passed to the CFPB on the designated transfer date, July 21, 2011.
While the mortgage industry successfully digested “revised RESPA” (effective January 1, 2010) and new loan originator compensation rules (effective April 2011), the Dodd-Frank Act also
made significant changes to some of these enumerated consumer laws. Some
statutory changes include an “ability to repay” underwriting requirement for forward mortgages (and a qualified mortgage safe harbor exception to those requirements), additional loan originator compensation rules, new servicing disclosures for variable rate loans, “qualified written requests” and forced placed insurance, and a significant increase in the number and types of data elements to be reported under HMDA. These statutory changes become effective in January 2013, unless the CFPB implements final regulations prior to then, in which case the effective date of the statutory changes could be pushed back to as late as January 2014. However, in order to finalize regulations before January 2013, the CFPB must first propose and then receive comments on such rules. The Dodd-Frank Act also requires the CFPB to engage in “RESPA/TILA reform” and propose for comment a combined RESPA TILA disclosure by July 2012. In short, the CFPB is in the midst of massive amounts of rule writing, and those proposed rules are coming to the email inboxes of mortgage company compliance officers soon.
New rules, while designed to further inform and implement statutory changes, often raise questions about the very laws they are designed to implement, thus creating unintended side effects.
One area or law that did not transfer to the CFPB is the authority and administration of FHA-insured loan programs by HUD, which maintains authority over mortgagees for FHA program-related lending items, such as approval and program compliance. In the experience of the reverse mortgage industry, however, HUD auditors continue to struggle with new rules, such as the interplay of revised RESPA and FHA lending programs. For instance, some HUD auditors continue to be confused over the difference between a RESPA origination charge and a HECM origination fee. Mortgage Letter 2009-53 clearly recognizes, however, that the sum of all fees and charges from origination-related services in box 1 on page 2 of the new Good Faith Estimate (GFE) may exceed the specific origination fee caps set for government programs (such as a HECM origination fee). When a government program requires that lenders provide more detailed information to specify distinct origination fees and charges, lenders may itemize these charges in the empty 800 lines of the HUD-1, to the left of the column.
One can only hype that, as the CFPB issues new regulations, other regulators and administrators such as HUD adapt with the mortgage industry to properly understand and correctly implement these new rules in their review of government lending programs. While the cost of compliance will increase due to the new CFPB regulations required by the Dodd-Frank Act, that cost should not be further increased due to a lack of understanding or an incorrect view of these new rules by administrators reviewing mortgagee compliance in government lending, such as the FHA HECM program.
