Compliance Blog

Written by Bernadette Clair, Regulatory Compliance Counsel

Last week, the CFPB finalized amendments to its ability-to-repay and mortgage servicing rules. These amendments clarify, correct, or amend provisions on:

• The relation to State law of Regulation X’s servicing provisions;

• Implementation transition requirements for adjustable-rate mortgage disclosures;

• The small servicer exemption from certain of the new servicing rules;

• Exclusions from the repayment ability and prepayment penalty requirements for higher-priced mortgage loans (HPMLs);

• The use of government sponsored enterprise (GSE) and Federal agency purchase, guarantee or insurance eligibility for determining qualified mortgage (QM) status; and

• The determination of debt and income for purposes of originating QMs.

The CFPB's press release highlights some of the changes, and the final rule may be found here.

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Implementation Dates for ARM Notices. One particular item that I want to bring to your attention – which is not a revision to the rule itself or the official commentary – is clarification that the CFPB has included in the section-by-section analysis regarding implementation dates for ARM Notices.

When the CFPB issued its final mortgage servicing rules amending Regulation Z back in February, it did not provide guidance regarding its expectations for providing ARM disclosure notices required by amended sections 1026.20(c) and 1026.20(d) for ARMs that would be adjusting shortly after the January 10, 2014 effective date (and for which the timing requirements could not be complied with unless institutions sent out notices before the effective date of the rule).

Well, the CFPB must have received quite a few requests for clarification on the issue, and includes this clarification:

"Implementation Date. In its proposal, the Bureau did not seek to revise or clarify § 1026.20(c) and (d), the adjustable-rate mortgage (ARM) servicing regulations issued by the Bureau in the 2013 TILA Servicing Final Rule. Nevertheless, the Bureau received unsolicited queries regarding the implementation dates for these rules. Despite the unsolicited nature of these comments, the Bureau believes it would be helpful to clarify the ARM implementation dates.

ARM regulations § 1026.20(c) and (d) generally apply to ARMs originated both prior to and after the January 10, 2014, effective date. However, no servicer is required to comply with the rule until the effective date.

Implementation Date for § 1026.20(d). Because the notice required by § 1026.20(d) must be provided to the consumer between 210 and 240 days before the first payment is due after the initial interest rate adjustment, servicers will not be required to provide the § 1026.20(d) notice when such payment is due 209 or fewer days from the effective date. However, payments due 210 or more days from the effective date are subject to the rule.

Implementation Date for § 1026.20(c). Because the notice required by § 1026.20(c) must be provided to the  consumer between 60 and 120 days before the first payment is due after an interest rate adjustment causing a corresponding change in payment, servicers will not be required to provide the § 1026.20(c) notice when such payment is due 25 to 59 days from the effective date. Note that, under the time frame of current § 1026.20(c), notices are required 25 to 120 days before the first payment is due after the interest rate adjustment. Thus, servicers already will have provided the § 1026.20(c) notices required by the current rule when such payment is due 24 or fewer days from the January 10, 2014, effective date.” (Emphasis added)