Dodd-Frank Act - Title XIV: Mortgage Reform and Anti-Predatory Lending Act
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Subtitle A: Residential Mortgage Loan Origination Standards
Duty of Care (Section 1402) – Requires all loan originators, subject to regulations prescribed by federal banking agencies in consultation with HUD and FTC to:
Prohibition on Steering Incentives Prohibition
Prohibits mortgage originator from receiving from any person, or any person from paying mortgage originator, directly or indirectly, compensation that varies based on terms of loan (other than amount of principal).
With the exceptions below, generally prohibits a mortgage originator from receiving from any person other than consumer, who knows or has reason to know that a consumer has directly compensated or will directly compensate mortgage originator, from paying mortgage originator any fee or charge except bona fide third-party charges not retained by creditor, mortgage originator, or affiliate of creditor or mortgage originator.
Intended to prohibit yield spread premiums or other similar compensation based on terms including rate that would cause originator to “steer” borrower to particular mortgage products.
Exceptions
Does not limit compensation to originator based on principal amount of loan. Also, does not restrict person other than consumer from receiving, or person other than consumer from paying, origination fee or charge if
Regulations
Liability
Establishes mortgage originators are liable for violations of new Section 129B of Truth in Lending Act including duty of care and prohibition against steering incentives. Maximum amount of liability to originators is greater of actual damages or an amount equal to 3 times total amount of direct and indirect compensation or gain accruing to mortgage originator for loan involved in violation, plus costs and reasonable attorney’s fees.
Regulations and Discretionary Regulatory Authority
Grants broad discretionary regulatory authority to CFPB to prohibit or condition terms, acts or practices relating to residential mortgage loans that CFPB finds abusive, unfair, deceptive, predatory, necessary or proper to ensure responsible affordable mortgage credit remains available to consumers, necessary or proper to ensure that responsible, affordable mortgage credit remains available to consumers in manner consistent with sections 129 B and C of TILA to prevent circumvention or evasion or facilitate compliance with sections or are not in interest of borrower.
Study of Shared Appreciation Mortgages
Requires HUD to conduct comprehensive study to determine prudent statutory and regulatory requirements for wide-spread use of shared appreciation mortgages and report to Congress within 6 months after date of enactment.
Subtitle B: Minimum Standards for Mortgages
Ability to Repay Loans
Under regulations to be prescribed, CFPB would prohibit creditors from making residential mortgage loans unless creditor makes good faith determination, based on verified and documented information, that at time loan was consummated, consumer had reasonable ability to repay loan according to its terms, and all applicable taxes, insurance and assessments. Provides nothing in title should be construed as requiring depository institution to apply mortgage underwriting standards that do not meet minimum underwriting standards required by appropriate regulator of depository.
Multiple Loans
Provides if creditor knows or has reason to know that 1 or more loans secured by same dwelling will be made to consumer, also requires creditor to make reasonable and good faith determination based on verified and documented information that consumer has reasonable ability to repay combined payments of all loans on same dwelling according to terms of loans and all applicable taxes, insurance and assessments.
Basis for Determination
Requires that determination of consumer’s ability to repay residential mortgage loan shall include consideration of credit history, current income, expected income consumer is reasonably assured of receiving, current obligations, debt-to-income ratio or residual income after paying non-mortgage debt and mortgage-related obligations, employment status and other financial resources other than consumer’s equity in dwelling or real property that secures repayment of loan. The creditor requires to determine ability of consumer to repay using payment schedule fully amortizing loan over its term.
Verification of Income
Requires creditor to verify amounts of income or assets including expected income or assets, by reviewing Internal Revenue Service Form W–2, tax returns, payroll receipts, financial institution records, or other third-party documents that provide reasonably reliable evidence of consumer’s income or assets. Exempts certain streamlined loans made, guaranteed or insured by federal departments or agencies from verification requirements as long as certain conditions are met including:
The title Includes rules for determining ability to repay for: nonstandard loans including loans that defer principal and interest and interest-only loans; calculations for negative amortization; calculation process for loans which do and do not have substantially equal monthly payments; and refinancing of hybrid loans with current lender. Also defines fully indexed rate as index rate at time loan is made plus margin. If documented income, creditor can consider seasonality and irregularity of income in underwriting process.
Section does not apply to any reverse mortgage or bridge loan with a term of 12 months or less.
Safe Harbor and Rebuttable Presumption of Ability to Repay for Qualified Mortgage
Permits creditor and any assignee of a residential mortgage loan subject to liability under title to presume loan meets ability to repay requirement if loan is a “qualified mortgage.” However, presumption is rebuttable.
3 Percent Limit – Calculation of Points and Fees – Qualified Mortgages
For purposes of calculating points and fees subject to 3% of loan amount limit for qualified mortgages, definition at section 103 (aa) (4) of TILA is used with following exclusions:
Smaller Loans – Qualified Mortgages
Requires CFPB to prescribe rules adjusting 3 percent of loan amount limitation on points and fees to permit lenders that extend smaller loans to meet requirements of presumption of compliance. Directs CFPB in prescribing rules to consider impact of rules on rural and other areas where home prices are lower.
Balloon Payment – Qualified Mortgages
Authorizes CFPB to determine qualified mortgage includes balloon loan under specified circumstances.
Discretion – Qualified Mortgages
Authorizes CFPB to prescribe regulations to revise, add to, or subtract from criteria that define qualified mortgage upon finding that such regulations are necessary or proper to ensure that affordable mortgage credit remains available to consumers in manner consistent with bill’s purposes.
Government Loans – Qualified Mortgages
Authorizes HUD, VA, Agriculture and Rural Housing Service in consultation with CFPB to prescribe rules defining types of loans they insure, guarantee or administer that are qualified mortgages which may revise add to, or subtract from criteria used to define qualified mortgages.
Defense to Foreclosure
Permits borrower to assert a defense to foreclosure against creditor or assignee or other holder of mortgage loan in judicial or nonjudicial foreclosure or any other action to collect debt in connection with mortgage loan when there is a violation of anti-steering and ability to repay provisions. Claim can lead to actual damages, statutory damages and enhanced damages including return of finance charges.
Additional Standards and Requirements
Prohibition on Prepayment Penalties
Prohibits prepayment penalties for all loans that are not qualified mortgages**.** Prepayment penalties must be phased out for qualified mortgages so during first year following consummation, prepays do not exceed three percent of outstanding loan balance, second year - two percent and third year - one percent, with no prepayment penalty imposed on a qualified mortgage after three years. Also, requires offering of loan without a prepayment penalty along with loan with prepayment penalty.
Single Premium Credit Life Insurance
Prohibits creditors from directly or indirectly financing any single premium credit life, credit disability, credit property insurance, or similar insurance in connection with any residential mortgage loan or open-end line of credit. Exempts unemployment insurance where lender or affiliate receives no compensation. Permits insurance premiums or debt cancellation or suspension fees calculated and paid in full monthly.
Arbitration
Prohibits provisions for mandatory arbitration in residential mortgages and open-end consumer credit secured by principal dwellings.
Negative Amortization
Requires disclosure and counseling for first-time borrowers prior to consummation of loans with negative amortization secured by “dwelling.”
Loss of Anti-Deficiency Protection
Requires creditors subject to state anti-deficiency law to provide notice before consummation describing protection provided by law and significance of loss of protection.
Disclosures Regarding Partial Payments
Requires disclosure prior to settlement (or upon becoming a creditor) creditor’s policy regarding acceptance of partial payments and if such payments are accepted, how they will be applied to mortgage and if they will be placed in escrow.
Rule of Construction
Clarifies that any amendments to TILA under this legislation are not to be construed as superseding or affecting any other rights or remedies of any person under any other provisions of TILA or other federal or state law.
Amendments to Civil Liability Provisions
Increases civil money penalties for certain violations under TILA and provides three-year statute of limitations for TILA Section 129 violations.
Lender Right Regarding Borrower Deception
Exempts creditors and assignees from TILA liability if borrower or co-borrower is convicted of obtaining residential mortgage loan by actual fraud.
Six Month Notice Before Hybrid ARM Reset
Amends TILA by requiring written notices to consumers at closing and during one-month period that ends six months prior to end of introductory period of hybrid ARM, that includes: index, explanation of new interest rate calculated, estimated monthly payment, etc.
Consumer Disclosures
Adds several new TILA disclosures for consumers including:
Monthly Statements
Amends TILA §128 to require monthly statements noting principal balance, interest rate, next reset date, description of late fees, servicer’s telephone number or email, contact information for counseling agencies but exempts coupon books for fixed rate loans that provide substantially same information from requirement. Charges CFPB with developing and prescribing standard form to carry out requirement.
GAO Report
Requires Comptroller General to conduct study and report to Congress within one year on effects of legislation on availability and affordability of credit for consumers, small businesses, homebuyers and mortgage lending and effects of risk retention provisions on non-qualified mortgages and credit markets.
Subtitle C: High-cost Mortgages
HOEPA High-Cost Mortgages
Amends HOEPA and expands its coverage to home purchase loans. Revises APR triggers for HOEPA loans to greater than 6.5 percent above APOR for comparable transactions for first lien loans (8.5 percent if dwelling is personal property and transaction is less than $50,000) and greater than 8.5 percent above for subordinate lien loans. Also, lowers point and fees trigger from 8 percent of total loan amount to 5 percent (lesser of 8 percent or $1000 for loans under $20,000). Also, creates new HOEPA trigger for loans with prepayment penalties beyond 36 months and exceeding two percent. Allows FRB to increase or decrease APR triggers within limits. Calculates APR for loans where rate varies with index using current index and maximum contractual margin.
Expands definition of points and fees to include all compensation paid by consumer or creditor directly or indirectly to mortgage originator, premiums for credit life, disability, unemployment and property insurance not paid on monthly basis, maximum prepayment penalty that can be collected under new loan and prepayment penalties incurred by consumer if loan refinances previous loan made by or held by same creditor or affiliate of creditor. Excludes from point and fees trigger up to two bona fide discount points under specific conditions. Also, excludes any government insurance premium and any private insurance premium up to amount of FHA insurance premium, provided PMI premium is refundable on pro rata basis, and any premium paid by consumer after closing.
Amendments to Existing Requirements for Certain Mortgages Prohibits balloon payments and prepayment penalties for high-cost mortgage loans.
Additional Requirements for Certain Mortgages
TILA §129 is amended as follows regarding high-cost loans:
Subtitle D: Office of Housing Counseling
Establishment of Office of Housing Counseling
Establishes Office of Housing Counseling within HUD headed by Director to perform wide range of activities including research, public outreach, and policy development related to counseling as well as establishment, coordination and administration of HUD counseling related programs and other activities authorized under Act.
Counseling Procedures
Adds new section that provides Secretary is responsible for establishing, coordinating, and monitoring administration of counseling procedures for homeownership and rental counseling. This includes standards and performance measures related to homeownership and rental housing counseling. It also provides that Secretary, in consultation with advisory committee establishes standards for materials and forms used by organizations providing homeownership counseling services. Makes Secretary responsible for providing certification of various computer software programs for consumers to evaluate different residential mortgage loan proposals. These functions will happen in tandem while Director develops, implements, and conducts public service multimedia campaigns concerning availability of homeownership counseling that provide contact information.
Grants for Housing Counseling Assistance
Authorizes up to $45 million for financial assistance to HUD-approved counseling agencies and state housing finance agencies for efficient and successful counseling programs.
Requirements to Use HUD-Certified Counselors under HUD Programs
Limits assistance for counseling activities to HUD certified counselors or counseling organizations.
Study of Defaults and Foreclosures
Requires HUD to conduct an extensive study of root causes of foreclosures using empirical data.
Default and Foreclosure Database
Requires HUD in consultation with Federal financial regulatory agencies to establish and maintain data base on foreclosures and defaults that would be collected, aggregated and made available on census tract basis.
Definitions for Counseling-Related Programs
Includes definitions for counseling-related programs including assistance recipients.
Accountability and Transparency for Grant Recipients
Requires HUD to track counseling assistance and requires reimbursement of misused funds.
Updating and Simplification of Mortgage Information Booklet
Requires HUD every five years to prepare booklet in various languages and cultural styles concerning mortgage process to help consumers applying for federally related mortgage loans that includes information prescribed in section including nature and purpose of costs, lending practices, questions consumers should ask as well as other information identified or deemed necessary by Secretary.
Home Inspection Counseling
Requires HUD to take necessary actions to inform potential homebuyers of importance of obtaining independent home inspection.
Warnings to Homeowners of Foreclosure Rescue Scams
Provides assistance to Neighborhood Reinvestment Corporation to provide notice to delinquent borrowers concerning rescue scams.
Subtitle E: Mortgage Servicing
Escrows for Certain Mortgages
Amends TILA to require creditors to establish escrow accounts for certain first lien mortgages for minimum of five years, unless and until sufficient equity is reached comparable to that required under PMI cancellation laws, borrower is delinquent, and other conditions.
Requires mandatory escrows when:
required by state law;
Interest
Creditors shall pay interest on amounts held in escrow if prescribed by state or federal law.
Penalty Coordination with RESPA
A violation of RESPA does not result in TILA penalties unless TILA as amended is also violated.
Disclosures Prior to Closing
Requires creditors to disclose to consumer at least 3 days prior to consummation that escrows will be established, amount required at closing to fund escrow account, amount to be collected in first year (based on improved value); estimated monthly amount payable to escrow, and consumer’s obligation to pay such items if consumer chooses to terminate account in future.
Disclosure Notice Required for Non-Escrowed Loans
Amends TILA to require disclosures to consumers who do not establish escrow accounts advising them of their responsibilities of paying escrow items and implications of non-payment.
Miscellaneous RESPA Amendments
Force-placed insurance - Prohibits servicers from: obtaining force-placed insurance unless there is reasonable basis to believe borrower has failed to comply; charging fees for valid qualified written requests (to be defined by regulation); failing to take timely action to respond to borrower’s requests to correct errors; failing to respond within 10 days to requests from borrower for information about owner/assignee of loan; failing to comply with any other obligation required by CFPB. For force-placed insurance, servicer must provide two notices to borrower prior to placing coverage and must terminate and refund force-placed premiums within 15 days of confirmation of borrower obtained coverage. Acceptable demonstration of insurance is a written confirmation of existing coverage, which includes policy number and contact information for insurance company or agent, or requirement to be determined by CFPB. Requires charges, other than those subject to state regulation as business of insurance, imposed on borrower by or through servicer to be bona fide and reasonable.
Penalties
Increases penalties for certain violations of RESPA from $1,000 to $2,000 per violation and $500,000 to $1 million for class actions.
Qualified Written Requests
Shortens required time frames for acknowledging qualified written requests (QWRs) under RESPA from 20 to 5 business days and reduces timeframe for a final response from 60 to 30 business days. Permits additional 15-day extension if borrower is notified.
Escrow Refunds
Requires escrow refunds (or credits) within 20 business days of payoff.
Truth in Lending Act Amendments
Prompt Crediting of Payments
Creates new TILA § 129F. Requires servicers to credit payments as of date of receipt except when a delay does not result in a charge or negative credit reporting. If servicer accepts non-conforming payment, it shall be credited within five days of receipt.
Pay-off Statements
Creates new TILA §129G. Pay-off statements must be sent within reasonable time, but no more than seven business days after receipt of written request.
Escrows Included in Repayment Analysis
For first lien mortgages on principal dwellings, requires TILA repayment analysis to include taxes and insurance payments and “other periodic payments.” Requires use of taxable assessed value of real property including improvements (versus raw land). Excluded from requirement are open-end-lines of credit and reverse mortgages.
Subtitle F: Appraisal Activities
Property Appraisal Requirements
Requires physical appraisal for higher-risk mortgage by certified appraiser that performs work in accordance with Uniform Standards of Professional Appraisal Practice (USPAP). Also, requires second appraisal if property was previously purchased within 180 days of subject purchase. Additionally, requires creditors to provide to consumer one copy of each appraisal conducted for higher-risk mortgage, at least three days prior to closing, without charge. Higher-risk mortgage means any first lien residential mortgage loan with an APR that exceeds APOR for a comparable transaction by 1.5 percentage points or more for mortgage loan having original principal obligation that does not exceed conforming loan limit, 2.5 percentage points or more for jumbo loan having a principal obligation that is greater than conforming loan limit, and 3.5 percentage points or more for subordinate lien residential mortgage loan. Rules are to be promulgated by FRB, OCC, FDIC, NCUA, FHFA and CFPB.
Appraisal Independence Requirements
Prohibits any act or practice of extending credit or in providing services for consumer credit transaction that violates appraiser independence including compensating, coercing, extorting, colluding, instructing, inducing, bribing or intimidating appraiser for purpose of causing appraised value assigned to property to be based on any factor other than independent judgment of appraiser but allows person with interest in real estate transaction to ask appraiser to consider additional information, provide further detail or correct errors. Requires lenders, brokers, AMCs and others involved in real estate transaction to report any appraiser who is believed to be violating USPAP.
Rules are to be promulgated by FRB, OCC, FDIC, NCUA, FHFA and CFPB. Requires FRB to prescribe interim final regulations no later than 90 days after date of enactment of section defining with specificity acts or practices that violate appraisal independence in provision of mortgage lending services for consumer credit transaction secured by principal dwelling of consumer or mortgage brokerage services for such transaction and defining any terms. At issuance of interim regulations, Home Valuation Code of Conduct (HVCC) shall sunset.
Also, OCC, FDIC, NCUA, FHFA and CFPB may jointly issue regulations that address issue of appraisal report portability including regulations that ensure portability of appraisal report between lenders or mortgage brokerage services for transaction. Establishes civil penalties of up to $10,000 per day for first violations and $20,000 for subsequent violations.
Amendments Relating to Appraisal Subcommittee of FFIEC, Appraiser Independence Monitoring, Approved Appraiser Education, Appraisal Management Companies, Appraiser Complaint Hotline, Automated Valuation Models, and Broker Price Opinions
A****ppraisal Subcommittee and Appraiser and Appraiser Independence Monitoring
Amends FIRREA to require Appraisal Subcommittee of Federal Financial Institutions Examination Council (FFIEC) to annually report to Congress on its assigned functions. Also, assigns Appraisal Subcommittee responsibility to monitor requirements established by states for certification and licensing of individuals who are qualified to perform appraisals including code of professional responsibility and for operations and activities of appraisal management companies.
Appraiser Independence Monitoring
Requires Appraisal Subcommittee to monitor each state appraiser certifying and licensing agency to determine whether such agency’s policies and practices are consistent with maintaining appraiser independence.
Appraiser Education and Complaint Hotline
Requires Appraisal Subcommittee to encourage states to accept courses approved by Appraiser Qualification Board’s Course Approval Program and to establish appraisal complaint hotline if it determines within 6 months after enactment that no national hotline exists to receive complaints regarding appraisal independence and USPAP practices.
Appraisal Management Companies
Requires FRB, OCC, FDIC, NCUA, FHFA and CFPB to establish minimum requirements to be applied by state in registration of Appraisal Management Companies (AMCs), including that they be registered with and subject to supervision by state appraiser certifying and licensing agency, only licensed or certified appraisers are used for federally related transactions, AMC appraisals coordinated by an appraisal management company comply with USPAP, and appraisals are conducted independently and free of inappropriate influence and coercion. Rules apply to subsidiaries of institutions regulated by federal regulatory agency but such subsidiaries are not required to register with state. Provides nothing in section shall be construed as preventing states from establishing requirements in addition to agencies’ rules.
Automated Valuation Models (AVMs)
Requires FRB, OCC, FDIC, NCUA, FHFA and CFPB in consultation with staff of Appraisal Subcommittee and Appraisal Standards Board of Appraisal Foundation to establish regulations implementing quality control standards for AVMs.
Broker Price Opinions
Prohibits use of broker price opinions for purchase of consumer’s principal dwelling as primary basis to determine value of property for purpose of loan secured by property.
Equal Credit Opportunity Act Amendment
Requires creditor to furnish applicant copy of any and all written appraisals and valuations developed in connection with applicant’s application for loan upon appraisal’s completion, but no later than 3 days prior to closing.
RESPA Amendment Relating to Appraisal Management Company Fees
Provides HUD-1 may—but is not required to—include in case of an appraisal coordinated by an appraisal management company, clear disclosure of fee paid directly to appraiser by appraisal management company and administration fee charged by such company.
GAO Study on the Effectiveness and Impact of Various Appraisal Methods
Requires that GAO conduct study of effectiveness and impact of appraisal methods, appraisal valuation models, appraisal distribution channels including appraisal management companies and independent appraisers, HVCC and Appraisal Subcommittee’s functions. Requires GAO to submit a status report and any preliminary findings to Committees of Congress within 90 days after enactment and submit study 12 months after enactment.
Subtitle G: mortgage resolution and modification
Multifamily Mortgage Resolution Program
Authorizes development of HUD administered program to provide foreclosure assistance to promote transfer of properties with five or more units that are at risk of foreclosure. As result of foreclosure, tenants would be protected from losing their homes. Section calls for Secretary to develop program that can provide financing, addresses affordability, and might include subsidies, rehabilitation and reserves for property. The goal of program would be to transfer property to new, responsible and lawful owners committed to continued affordability of property and to maintain services to existing tenants.
HAMP Guidelines
Treasury must revise its guidelines to require servicers to provide borrower with data inputs it used to obtain NPV determination if borrower is denied HAMP. Requires creation of website for borrowers to conduct NPV analysis, submit applications for HAMP and get Treasury’s NPV calculation methodology.
Public Availability of Information of MHA Program
Increases data reported to public and Congress and breaks such information down by servicer and by individual record level.
Protecting Tenants at Foreclosure Act (PFTA) (Section 1484) – Expands scope of PTFA to now protect tenants who sign leases prior to “complete” title transfer to successor or person. Extends PTFA from year 2012 to 2014.
Subtitle H: Miscellaneous Provisions
Sense of Congress Regarding The Importance Of GSE Reform
Sets forth several findings about government-sponsored enterprises and sense of Congress that meaningful structural reform of government-sponsored enterprises is necessary to enhance protection, limitation and regulation of terms and practices of residential mortgage credit.
GAO Study on Government Efforts to Combat Mortgage Foreclosure Rescue Scams Comptroller General must report to Congress on effectiveness of inter-agency task force to combat mortgage foreclosure rescue and modification fraud scams, recommendations for legislative protections, sufficiency of resources to crackdown on scams.
Reporting of Mortgage Data by State
Requires modification data currently collected by OCC and OTS to be reported to Congress quarterly by state**.**
Study on Effect of Drywall Presence on Foreclosures
Requires HUD, in consultation with Treasury, to conduct study on effects of drywall imported from China between 2004 - 2007 on residential mortgage loan foreclosures and availability of property insurance for properties.
Legal Assistance for Foreclosure Related Issues
Authorizes $35 million for FY 2011 and 2012 for Secretary to establish program to make grants available to state and local organizations to provide foreclosure related legal services to low- and moderate-income homeowners and tenants. Priority consideration for grants would be given to 125 metropolitan areas with highest foreclosure rates. Funds cannot be used to support class actions. Effective date is date of enactment.