On June 5, 2012, the Consumer Financial Protection Bureau (CFPB) published in the Federal Register (77 FR 33120) a “Notice of reopening of comment period and request for comment” (Notice) regarding the proposed rule the Federal Reserve Board (FRB) published in the May 11, 2011 Federal Register (76 FR 27390) addressing ability-to-repay requirements applicable to consumer credit transactions secured by a dwelling and defining a “qualified mortgage.” Although the proposed rule’s original comment period ended on July 22, 2011, the CFPB is reopening the comment period until July 9, 2012, for comment on new data and information submitted during or obtained after the close of the original comment period that is discussed in the Notice.
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Read articles below for analysis and discussion of recent trends by BM&G’s industry experts.
Regulation Z Amended to Increase Threshold Amount for (1) Exempt Transactions, and (2) HOEPA Points and Fees (76 FR 35722 – 35724)
In the June 20, 2011 issue of the Federal Register the Federal Reserve Board (FRB) published final rules increasing the threshold amounts for the following transactions: Exempt Consumer Credit Transactions Effective July 21, 2011, the Dodd-Frank Act amends TILA by increasing the threshold amount for exempt consumer credit transactions from $25,000 to $50,000 (see §226.3(b) of Regulation Z). In addition, the Dodd-Frank Act requires that this threshold be adjusted annually by any annual percentage increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers. (See our April 5, 2011 memorandum at http://www.bmandg.com/). Effective January 1, 2012, the FRB is adjusting the exemption threshold under §226.3(b) for 2012 from $50,000 to $51,800, based on the annual percentage increase in the above CPI-W as of June 1, 2011, by adding new paragraph 1.iii to comment 3(b) of the Official Staff Commentary to Regulation Z.
Regulation Z Proposed Rule on Consumer’s “Ability-to-Repay” to Implement New Section 129C of TILA (76 FR 27390)
In the above-cited May 11, 2011 issue of the Federal Register, the Board of Governors of the Federal Reserve System (FRB) published proposed rules (proposed rule) to implement Sections 1411, 1412, and 1414 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act). The Dodd-Frank Act creates new TILA Section 129C, which, among other things, establishes new ability-to-repay requirements and new limits on prepayment penalties.
Truth-in-Lending Itemization of Amount Financed in a Transaction involving Consumer Paid Loan Originator Compensation
For an application received by a creditor on and after April 1, 2011, the creditor and the broker, if applicable, are required to comply with the compensation rules promulgated by the Board of Governors of the Federal Reserve System (“FRB”) in Regulation Z §226.36(d). In a transaction in which the loan originator’s compensation is paid by the consumer, under §226.36(d), clients will need to identify the transaction as consumer paid compensation.
Regulation Z Threshold Amount Exemption Raised – Revised Section 226.3(b) of Regulation Z
Effective July 21, 2011, the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) amends the Truth in Lending Act (TILA) by increasing the threshold amount for exempt consumer credit transactions from $25,000 to $50,000. In addition, the Dodd-Frank Act provides that, on or after December 31, 2011, this threshold amount must be adjusted annually by any annual percentage increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers. Accordingly, in the April 4, 2011, issue of the Federal Register (76 FR 18354) the Board of Governors of the Federal Reserve System (FRB) published a final rule (the Final Rule) making corresponding amendments to Section 226.3(b) of Regulation Z and its accompanying official staff commentary.
Federal Reserve Board Interim Final Rule Adds Appraisal Independence Requirements – New Section 226.42 of Regulation Z
In the October 28, 2010, issue of the Federal Register (75 FR 66554), as corrected in the December 23, 2010, issue of the Federal Register (75 FR 80675), the Board of Governors of the Federal Reserve System (FRB) published an interim final rule (the Interim Rule) designed to ensure that real estate appraisers use their independent professional judgment in appraising homes without influence or pressure from parties interested in the loan transaction and that the appraiser receive customary and reasonable compensation for their services. The Interim Rule implements new Section 129E of the Truth in Lending Act (TILA), which was enacted as Section 1472 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Public Law 111-203) to establish new requirements for appraisal independence for consumer loans secured by the consumer’s principal dwelling. To implement this new TILA appraisal independence requirement, the Interim Rule adds Section 226.42 to Regulation Z, which replaces Section 226.36(b) that contained similar appraisal requirements. Pursuant to the Dodd-Frank Act, supra, the issuance of this Interim Rule renders the Home Valuation Code of Conduct of no further force or effect. (But see our October 18, 2010 memorandum on the new Fannie Mae Appraiser Independence Requirements in Fannie Mae Announcement SEL-2010-14.)
Regulation Z APR Threshold for Required Escrow Account Increased for “Jumbo” Loans – New Section 226.35(b)(3)(v) effective April 1, 2011
Finally, some good news from the Federal Reserve Board (FRB). In today’s issue of the Federal Register (76 FR 11319), the FRB published a final rule establishing a higher APR threshold for “jumbo” first lien, higher-priced mortgage loans in regard to the escrow account requirements implemented by §226.35(b)(3) of Regulation Z.
Regulation Z Mortgage Loan Sale Disclosure Requirements – Revised §226.39
On September 24, 2010, the Federal Reserve Board (FRB) published in the Federal Register (75 FR 58489) a final rule amending Regulation Z by revising §226.39. The final rule implements Section 131(g) of the Truth in Lending Act (TILA), which was enacted on May 20, 2009, as Section 404(a) of the “Helping Families Save Their Homes Act.” (See our July 30, 2009 memorandum discussing Section 131(g) of TILA.) Section 131(g) of TILA became effective immediately (i.e., – May 20, 2009) and established a new requirement for notifying consumers of the sale or transfer of their mortgage loans. Consistent with Section 131(g), the final rule requires a person who acquires a mortgage loan to provide disclosures in writing notifying the consumer of the sale or transfer of the consumer’s mortgage loan no later than 30 days after the date on which the loan was sold, transferred or assigned. The final rule’s revision of §226.39 is substantially similar to the interim rule published by the FRB on November 20, 2009, which initially implemented Section 131(g) of TILA by adding §226.39. The final rule’s revision of §226.39 is effective as of January 1, 2011.
Post-dated Election Not to Cancel Extends Rescission Period for Three Years – Daniels v. Equitable Bank, SSB, 2010 WL 4260600 (E.D.Wis., Oct. 29, 2010
For loans subject to the federal right of rescission (see, TILA §125(a), 15 U.S.C. §1635(a) and Regulation Z §226.23(a), (b)), the Daniels case is the latest in a long line of federal district and appellate court cases holding that requiring a consumer to sign a post-dated election not to rescind before the end of the three-business day rescission period renders the notice of the consumer’s right to rescind unclear, in violation of TILA, and extends the rescission period for up to three years after consummation. In the past, we have been made aware of instances in which a lender or a title company (without the lender’s knowledge) allowed the consumer to execute and post-date, at closing, an acknowledgment stating that “more than three business days have passed since the closing and that the consumer did not rescind the loan during that time.” We have previously advised you that Regulation Z prohibits this practice, as do the federal courts that have ruled on this issue. In light of the Daniels case, we again remind you to not allow a consumer to execute an acknowledgment within the three-business day rescission period that states the consumer did not rescind the transaction. We also recommend you inform your closing and funding staff and title companies that this practice is prohibited.
Federal Reserve Board Interim Rule Revises Prior Interim Rule Regarding Payment Schedule Disclosures -New §§226.18(s) and (t) of Regulation Z
In the December 29, 2010 issue of the Federal Register (75 FR 81836), the Board of Governors of the Federal Reserve System (FRB) published an interim rule (Dec.-Rule) making technical revisions to its September 24, 2010 interim rule (Sept.-Rule), which implemented certain requirements of the 2008 Mortgage Disclosure Improvement Act, that required disclosure of payment examples if the loan’s interest rate or payments can change. (See our memorandum dated October 28, 2010, posted on our Web site at: http://www.bmandg.com/Articles/ArticleView/tabid/94/smid/426/ArticleID/84/Default.aspx.)