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The Dodd-Frank Act There is so much more than just TRID!
---"" Copyright 2015, Michele Sloan All Rights Reserved
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Disclaimer Statements, comments and verbal information discussed in conjunction with this presentation should be interpreted as opinions, or things to consider. If legal advice is desired, consult an attorney.
Please no recording! Including video, photography or audio
Dodd-Frank Act The Wall Street Reform and Consumer Protection Act (AKA Dodd-Frank Act or the DFA)
• Is a law that places major regulations on the financial industry. It grew out of the Great Recession of 2008 with the intention of preventing another collapse of a major financial institution. • Dodd-Frank is also geared toward protecting consumers with rules like keeping borrowers from abusive lending and mortgage practices by banks. • Re-vamp outdated, unnecessary and burdensome regulations. • Government transparency.
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Dodd-Frank Act The Dodd-FrankAct was named after the two legislators who sponsored the bill. o Senator Christopher Dodd o Congressman Barney Frank
Dodd-Frank Act Represents some of the most comprehensive financial regulatory reform since the Great Depression.
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Consumer Financial Protection Bureau The Dodd-Frank Act granted rule-making authority to the newly formed Consumer Financial Protection Bureau (CFPB).
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The director 01the CFPS Richard Cordray
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Rulemaking
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Update
398 Action Items required by the Dodd-Frank Act
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Consumer Financial Protection Bureau
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• Mortgages and Banks • Pay Day Loans • College Financial Aid • Automobile
Financing
• Credit Cards • Debt Collectors • Credit ReportingAgencies • Foreclosure Relief Services
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Dodd-Frank Act
Pracnces Act S.A.F.E. Mortgage Llcenslng Act - Federal Registration of Residential Mortgage Loan Originators Regulation H: S.A.F.E. Mortgage ticensingAct - State compliance and Bureau Regulation
Registration System t: Disclosure Requirements
for Depository Institutions
lacking Federal
Insurance
Practices-Advertising Relief Services Financial Information
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Consumer Financial Protection Bureau
Office of Thrift Supervision
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Consumer Financial Protection Bureau • $5,000 per day for the violation of a eFPB rule • $25,000 per day for the reckless violation of a federal consumerprotection law • $1,000,000 per day for a knowing violation of a federal consumer financial law
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Consumer Financial Protection Bureau So what! who is the CFPBchasing?
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Consumer Financial Protection Bureau • HUDmoved 1,500 cases to the CFPB • CFPBis all over the country
No one is immune! In 4 short years$10.1 billion in penalties 650,000complaints No one is immune from the CFPB! Real Estate Brokerages Individual Agents Mortgage Companies Individual Loan Officers Title Companies
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Real Estate Settlement
Procedures Act
• Been in effect since 1975 • Was regulated by HUD • Now enforced by the (FPB • Also known as Regulation X
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Real Estate Settlement
Procedures Act
RESPA'spurpose is twofold: 1.
To help consumers
become better shoppers for settlement
services 2. To eliminate kickbacks and referral fees that unnecessarily increase the costs of certain settlement services
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Real Estate Settlement
Procedures Act
Services that occur at, or prior to, the purchase of a home are generally considered settlement services. These services include: • Real estate licensees, including principal brokers • Mortgage bankers and mortgage brokers • Title companies and title agents • Home warranty companies • Home insurance agents • Property appraisers • Flood and tax service providers • Property survey providers, home, pest and environmental inspectors
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Real Estate Settlement
Procedures Act
Bottom line if it involves a settlement service provider and a loan is involved
and its something
you would normally
have to
pay for it is probably a RESPAviolation!
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Real Estate Settlement Procedures Act
In response
to RESPA,The National Association of REALTORS"
and it's legal counsel have developed
a list of Do's and Don'ts
and a FAQ white paper. REALTOR.org
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Real EstateSettlement Procedures Act
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MSA's
• JV's • AFBA's
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AFBAOR MSA?
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AFBA- Arrangement where someone refers settlement business or has an affiliate relationship or an ownership interest MSA - Arrangement where someone agrees to promote and market another provider's servicesin exchangefor payment
Affiliated BusinessArrangements • Disclose in writing that it may benefit from the referral. • Disclose an estimate of market prices for the referred service. • Advise the consumer that there may be lower prices available and that he/she should shop around. • Obtain a written acknowledgment from the home buyer that he/she has reviewed these disclosures. • Not require the use ofthe affiliated service. • Not payor receive any referral fees from the affiliated company.
This is a partial re-print of the regulatory rules. Consult an attorney before entering into any type of agreement.
Surveys Show .... According to the CFPBConsumers:
• Don't know they can select their own providers • Tend to go along with what their lender/agent says • Don't understand the conflict of interest • Could save money by shopping around
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Civil Investigative Demand A Quick Overview If you or your company receives a CID you typically have a very short period of time to respond.
Ability to Repay If you apply for a mortgage, you have to be able to prove that you can afford to repay it in full.
Creditor must verify financial income, employment history and credit history. Even if the mortgage has a lower initial interest rate (ARM)the ability to repay is based on the higher rate.
Ability to Repay / Qualified Mortgage Rules
Back to Basics Approach to Lending QM loans generally cannot: • Contain risky features • Carry more than 3% in upfront points and fees • Push a borrower's total debt load above 43% of his or her monthly income
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Ability to Repay Goodbye 40 year mortgages Interest only loans Negative amortization loans No-doc loans f--3S f----
Ability to Repay Appendix Q - Standards for determining monthly debt and income under Ability to Repay / QM. *HQM offer Safe Harbor protections which makes its harder fer a consumer to sue a lender cannot
for giving a loan they
afford.
Ability to Repay Seller FinancingMay be subject to Ability to Repay requirements! Generally if a seller finances more than 3-5 sales a year ATR applies as under the SAFEACTthe seller is defined as a lender.
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Know Your Role! SAF.E Mortgage licensing Act (Regulation G and H) Requires licensing
and registration
NMl5 - Nationwide
of mortgage
Mortgage
loan originators
Licensing System
MLO- Mortgage Loan originator LO - Loan originator
Know Your Role! Regulation Z - Broadens the role of a Loan Originator
You may be considered a loan originator: Offers, arranges or assists a consumer in obtaining, applying or negotiating an extension of consumer credit
TRID
The Dodd-Frank Act integrates the TILA and RESPA disclosures. (Reg X and Reg Z)
T1LA-RESPAIntegrated Disclosure",
(TRID)
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Know Before You Owe The Truth in Lending Act (TILA)and the Real Estate Settlement Procedures Act. Each required two separate disclosures. Dodd-Frank Act integrates the TILAand RESPAdisclosures. TILA-RESPAIntegrated Disclosure (TRIO) October 3rd, 2015 ***
***Loan applications after October 3rd 43
Why New Disclosures? Basedon consumer feedback! Not enough time to review the documents large amount of documents Errors in document
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The Loan Estimate Replaces the GFE • Creditor is responsible for ensuring the LEis received by the borrower • If a mortgage broker is involved it is still the ultimate responsibility of the bank to ensure it was received by the borrower • Must be provided within 3-business days after the loan application ------4S
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Triggers ... A loan Estimate is required - Six items (was Seven) • Consumersname • Consumersincome • ConsumersSocialSecurity number • Address of the property • Estimate ofthe value of the property • The mortgage loan amount sought
Tolerances on the LE loan originators charges including origination, processing and underwriting fees, property transfer taxes, credit or charge for interest rate
Zero Tolerance -
Ten percent tolerance - Government recording charges, loan originator required services, title servicers (when borrower selects a provider affiliated with loan originator) No tolerance restriction - borrower selected services
Obtaining a Home Loan • Borrower makes a loan application • Creditor must send the LEwithin 3 business days • The LEmust be good for '10 days' • Consumersare urged to 'shop' around
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Obtaining a Home Loan If a consumer decides to accept the lE (begin the loan process) the consumer MUSTacknowledge the lE with the creditor by the io» day - Notice with Intent to Proceed
Once the consumer
has acknowledged
the
lE the loan process
officially begins ie; • Appraisal is ordered • Documents begin being processed
What is a Business Day? "A day on which the creditor's office is open to the public for carrying out substantially all of its business functions," *** Saturday moy or may not be a business day! "'Applies
to lE not CD
Proof of Delivery • Mail *** • Electronically
*** (consumer consent required)
• Hand deliver • Pick-up • Fed-Ex- UPS (signature confirmation)
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Federal Mail Box Rule Applies to: • Mail Delivery
• Electronic Delivery
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Consumer Acknowledgement Consumers should respond to all creditor / title company requests immediately f---54 c---
Disclosures! • The closing statement (HUD 1) goes away and is replaced with the Closing Disclosure!
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What About a Pre-Approval? The Truth in Lending Act (T1LA)now states:
"Thecreditor or other person sholl not require 0 consumer to submit documents verifying information related to the
cansumer's application before providing the disclosures required by RegulationZ."
• Information
is also required
to be entered
into the HMDA
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Closing Disclosure In the regulation the 3-day rule is defined differently between the LEand the CD. Business day is all calendar days except Sundays and the legal public holidays specified by federal law.
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New 3-day Waiting Period • The APR becomes inaccurate • The loan product changes • Prepayment
penalty is added
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Consummation
Consummation occurs when the consumer becomes contractually obligated to the creditor on the loan - settlement occurs when the consumer becomes contractually obligated to
a seller on a real estate transaction.
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Implementation
Costs
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Implementation of the new mortgage disclosure rules is expected to cost settlement service providers $67.8 million and lenders $207 million over the next five years, bringing the total cost to $1.3 billion.
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What is Your Grade? Welcome to the new world of score cards and grading
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Disclosure of Consumer Complaints Consumerfinance.gov • Breakdown by state • Zip code • Name or feature • Term
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Home Mortgage Disclosure Act HMDA (hum-da) RegulationC is now regulated by the CFPS Requires lending institutions to report public loan data This Act tracks loan data statistics: Toview loan trends and needs in various communities
Toidentify discrimination practices To give public officials information so
they can market and attract private investment Also identifies underserved counties
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The eClosing Pilot Project This Pilot Project launched in late 2014 (limited areas) with the goals of: • Enableconsumer understanding • Allow the consumer to review all documents s-davs in advance • Facilitate error protection
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Tips Develop an in-house
policy and procedures
dealing with consumer
program
for
complaints
Loans will take longer to process - closings need to be at least 45 days if not longer •
Warn your buyers that this is the land of change and to expect more paperwork, more scrutiny and the importance of responding
to all requests from the lender
Talk to your Settlement Service Provider Friends - they may not be aware of the RESPArules •
If someone
offers you something
for free or at a substantially
lower cost (that you would normally have to pay for) - just say NO! • Be patient
Plain Writing Act Clear government understand
communication
that the public can
and use
What is a Flip The eFPB defines a 'flip' when: • You buy a home from a seller who bought the home less than six months ago and; • You pay a certain amount more than the seller paid for the home: _____ percent more if the seller bought the home within the past 90 days. _____ past 91 to
percent more
if the seller bought the home in the
180 days. --
**Depending on the type of loan, the lender may need more than one appraisal!
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Equal Credit Opportunity
Act
Also known as Regulation B (ECOAValuations Rule) and Regulation Z? Conflict!? New appraisal standards! The Consumer must receive notice within 3 business days of application of right to receive copies of the appraisal ** The Applicant must receive all copies of appraisals and property valuation reports promptly upon completion BUTno more than 3 business days prior to dosing =no matter the loan status
Appraiser Standards • Generally must be done by a licensed appraiser under the USPAP(appraisalstandards) • Appraiser must conduct a physical inspection of the interior of the property • No more 'drive -by' appraisals • Appraisal reports are longer and more involved - not a fast process
Additional RegulationX Reforms • Error resolution and information requests • Forced placed insurance guidelines • Servicing policies, procedures and requirements • Early intervention with delinquent consumers requirements • Continuity of contact with delinquent consumers requirements • Loss mitigation requirements
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Additional Regulation Z Reforms • Interest rate adjustment notice for ARM's • Prompt crediting of mortgage payments and responses for payoff amounts • Periodic statements for mortgage loans
Additional Regulations
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