Perhaps in some remote corner of an alternate dimension a small specter is giggling over the irony known as mortgage reform and the fact that Dodd-Frank threatens to choke out the credit industry in the name of fair lending. Sort of like telling a doctor he can’t properly diagnosis patients based on their symptoms because the doctor already diagnosed too many in a particular demographic group.
Or perhaps mortgage reform is simply necessary to keep the universe in balance after the tort reform movement. But, I digress. In looking to the future, one date stands out from the others: January 21, 2013. This is the deadline set for the Consumer Financial Protection Bureau (CFPB) to issue a number of ‘final rules’ needed to implement various parts of the massive Dodd-Frank legislation. Here’s the short list of rules due on the 21st:
- Ability to Repay and “Qualified Mortgages.” We wrote about this one recently in our article, “Dear Magic Eight-Ball, Will Joe the Plumber Be Able to Qualify for a Mortgage Under Dodd-Frank?” The final rule is expected to establish standards for a “qualified mortgage,” which in turn will become the benchmark test for determining which mortgages meet the ability to repay requirements imposed by Dodd-Frank.
- Servicing. The CFPB’s mortgage services rules are expected to create requirements regarding periodic statements, rate reset notices, error resolution, loss mitigation, and other servicing topics. Proposed rules to date have been criticized for being overly broad and too costly to implement for small banks and mortgage servicers.
- High Cost Mortgage Provisions. The CFPB’s proposed rule consisting of 295 pages generally bans balloon payments, prepayment penalties, and late fees, and requires borrowers receive housing counseling before entering into the mortgage agreement.
- Higher-Risk Mortgage Appraisal Documentation. Higher-risk mortgages are defined similarly to “Higher-Priced Mortgage Loan” triggers under current law. Six federal agencies collaborated in issuing the proposed rule, if that tells you anything. (The Board of Governors of the Federal Reserve System, the Consumer Financial Protection Bureau, the Federal Deposit Insurance Corporation, the Federal Housing Finance Agency, the National Credit Union Administration, and the Office of the Comptroller of the Currency.) For mortgages with an annual percentage rate that exceeds the average prime offer rate by a specified percentage, the proposed rule would require creditors to obtain an appraisal or appraisals meeting certain specified standards, provide applicants with a notification regarding the use of the appraisals, and give applicants a copy of the written appraisals used.
- Appraisal Disclosure. The CFPB’s proposed rule would require creditors to provide free copies of all written appraisals and valuations in loans secured by a first lien on a dwelling.
- Loan Origination Compensation. The CFPB proposed rule says that a creditor may charge consumers discount points and origination points or fees in connection with a transaction only if the creditor makes available to the consumer a “comparable, alternative loan” that does not include discount points and origination points or fees that are retained by the creditor, broker or an affiliate of either. Unless heavily revised, the rule as proposed is expected to damage the availability of financing alternatives for consumers.
As January 21, 2012 approaches, we are watching for the final rules and assessing the impact the rules are expected to have on our clients. The attorneys at Glass & Goldberg will keep a weather eye on the horizon with the ultimate goal of helping our clients’ meet their goals.
If you are a financial institution or loan servicer, be certain you have a plan in place to comply with ever-changing state and federal law. The attorneys at Glass & Goldberg provide high quality and cost-effective legal services and advice for clients in all aspects of business litigation and transactional law. Call us at (818) 888-2220, email us at email@example.com, or visit us on the web at www.glassgoldberg.com to learn more about the firm and to sign up for future newsletters.