Compliance Blog

Written by JiJi Bahhur, Regulatory Compliance Counsel

In case it slipped your mind, I thought I’d throw it out there that a few requirements from the Consumer Financial Protection Bureau’s (CFPB) mortgage rules – what I like to call Round One – became effective as of June 1, 2013.  Of note are the final TILA Escrow Rule and its recent amendments/clarifications – located at 12 C.F.R. 1026.35(b) – and the final Prohibition on Mandatory Arbitration – located at 12 C.F.R. 1026.36(h).

Escrow Requirements for HPMLs. The final TILA Escrow Rule lengthens from one year to at least five years the required minimum period most creditors must maintain an escrow account for first-lien higher-priced mortgage loans (HPMLs) secured by a consumer’s principal dwelling.  A creditor or servicer must either maintain the escrow account until the underlying debt obligation is terminated, or after the five-year period the consumer requests that the escrow account be cancelled.  If the consumer requests cancellation, the creditor or servicer is only permitted to cancel the escrow account if the loan’s unpaid principal balance is less than 80 percent of the original value of the property securing the underlying debt obligation and the consumer is not currently delinquent or in default on the underlying obligation. The new escrow requirements for HPMLs took effect as of June 1, 2013, and apply to applications received on or after June 1, 2013. 

Arbitration Clauses. The prohibitions on mandatory arbitration for mortgage loans – also effective as of June 1, 2013 – prohibits credit unions from including contractual or agreement terms that require mandatory arbitration or any other non-judicial procedure to resolve disputes arising out of consumer credit transactions secured by a dwelling.  This prohibition also applies to home equity lines of credit (HELOCs) secured by a consumer’s principal dwelling.  Although such a practice was never too prominent in the credit union industry – since Fannie Mae and Freddie Mac already prohibited it – loan agreements should be reviewed to ensure that a mandatory arbitration clause does not exist. 

Financing Credit Insurance. And the last CFPB mortgage requirement I wanted to mention was the prohibition on financing single-premium credit insurance.  I won’t get into details, but just wanted to mention that the original June 1, 2013 effective date has been delayed until January, 2014.  The delay will give the CFPB the ability to clarify, before the provision takes effect, its applicability to transactions other than those in which a lump-sum premium is added to the loan amount at closing.  We’ll have more on that at a later date. 

In the meantime, credit unions should prepare themselves for Round Two, which includes heftier players such as Ability to Repay and Qualified Mortgages, Regulation Z’s High-Cost Mortgage and Homeownership Counseling Amendments, Regulation X’s Homeownership Counseling Amendments, the Mortgage Servicing rules, Appraisal rules, etc. To see the list of regulations and their effective dates, view NAFCU’s Compliance Calendar, open to all.