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Greetings!
Thank you for taking the time to read this Howard & Howard Credit Union Regulatory Alert. This Alert is part of a series on the Consumer Financial Protection Bureau's final rule on Integrated Mortgage Disclosures which becomes effective August 1, 2015.
If you find these Alerts helpful, please pass along to your friends and colleagues. New readers can sign-up for our Regulatory Alerts here.
If you have any questions on this Alert or any other issue, please feel free to contact Steve Van Beek or Michael Bell.
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Understanding the Scope of the CFPB's Integrated Mortgage Disclosures
On November 20, 2013, the Consumer Financial Protection Bureau (CFPB) issued its long-awaited final rule combining the mortgage disclosures required by the Truth in Lending Act and Real Estate Settlement Procedures Act.
A key initial step for credit unions is determining which loan products will be covered by the new rules - which go well beyond the new disclosure requirements. For example, the new rules amend definitions such as "application" and "business day," adjust timing requirements, and tighten tolerance levels. By understanding which loans are covered, credit unions will have a better idea of the resources needed to comply with the new requirements.
No Exemptions
It is important for all credit unions to understand that there are no exemptions from the new rules. A credit union that originates 20 closed-end home equity loans will need to comply with the rules to the same extent as a credit union originating 800 purchase-money mortgage loans.
Additionally, there are no asset size or pricing exemptions. The rule applies to all credit unions and does not depend on the pricing of the mortgage (i.e., higher-priced or high-cost).
In short, the new rules apply to any credit union receiving a covered mortgage loan application on or after August 1, 2015.
Covered Loans
The new rules apply to closed-end consumer transactions secured by real property. This includes both first lien and subordinate liens. The rules will apply to the following loans:
- Purchases;
- Refinances;
- Closed-end home equity loans;
- Second homes*;
- Vacation homes*;
- Loans on 25 or more acres*;
- Vacant-lot loans; and
- Construction-only loans.
*These loans are covered if they are for consumer purposes. Business purpose loans are excluded.
Excluded Loans
There are certain loans the CFPB specifically exempted from coverage. Those include:
- Home-equity lines of credit (HELOCs);
- Reverse mortgages; and
- Chattel-dwelling loans.
The existing regulatory requirements will continue to apply to these loans. However, the CFPB did indicate that it "plans to address integrated disclosure requirements for chattel-dwelling-secured loans, as well as reverse mortgages and HELOCs, in future rulemakings."
Key Takeaway
The new requirements will require countless hours of review, analysis, interpretation, implementation, training, and testing. Credit unions should create a strong implementation team comprised of lending, compliance, IT, legal, vendors and HR/training to understand the impact of the new rules.
By starting now, credit unions will have a better understanding of the required changes and the steps they will need to take to comply by August 1, 2015.
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About Howard & Howard
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concentrates his practice in the area of financial regulations. His intimate knowledge of the operational issues facing credit unions provides the perfect platform to recommend best practices to reduce compliance, strategic and reputation risks.
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is a Member of Howard & Howard Attorneys PLLC and concentrates his practice in credit union mergers and acquisitions, loan documentation review and strategic planning.
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