Compliance Blog

Written by Steve Van Beek

The latest issue of NAFCU's The Federal Credit Union (TFCU) is now available.  Included in each issue is a Compliance Central article that might be useful to pass along to your management team and Board.  We usually try to identify issues that are coming up next and highlight areas of potential concern.  

In this month's issue we've looked at the Upcoming Regulatory Changes to the Mortgage Market.  In the article, I examine the CFPB's mortgage servicing proposals as well as their high-cost/HOEPA proposal.  Again, these are meant as higher-level overviews of the regulatory environment.  If you'll indulge me, I'll quote myself:

"Dodd-Frank and More

Many of the CFPB’s proposed changes are mandated by the Dodd-Frank Act. For example, Dodd-Frank requires the CFPB to amend the thresholds for determining whether a mortgage loan is high-cost or not. However, the CFPB is also proposing numerous additional requirements that are not mandated by Dodd-Frank.  In the majority of cases, the CFPB is proposing that all mortgage servicers or lenders comply with these additional requirements. NAFCU has urged the CFPB to focus solely on the changes required by Dodd-Frank and conduct additional due diligence — including reviewing whether exemptions are appropriate for credit unions — before finalizing any non-Dodd-Frank requirements on credit unions."

The article goes on to provide an overview of the mortgage servicing and high-cost/HOEPA proposal - including an analysis of the potential change to the definition of "finance charge" and how this would impact credit unions:

"For example, the CFPB is required to amend the annual percentage rate (APR) threshold for determining high-cost loan status. While this change seems innocuous, the CFPB has also proposed amending the definition of “finance charge,” which would have a direct impact on the high-cost APR threshold test. If the CFPB finalizes its proposed changes to the definition of finance charge, the APR on credit union mortgage loans would drastically increase and could result in numerous loans being classified as high cost. 

The CFPB has proposed softening the impact of its proposed action by creating a new metric — the transaction coverage rate (TCR) — that credit unions would need to calculate to determine whether or not a particular mortgage loan is high cost. The CFPB claims this additional metric would decrease the compliance burden on credit unions. However, the opposite is more likely as credit unions would need to calculate the new APR for disclosure purposes and the new TCR for determining whether a loan is considered high cost. To make things more confusing, the new APR would only apply to closed-end mortgages. Credit unions would still need to use the “old APR” for all other loans, such as closed-end auto loans. Thus, contrary to the CFPB’s claims, it’s clear the ongoing regulatory burden from the proposed three calculations would be an increase from the one calculation under the current regulations."

You can find the full article here.  The full issue of the TFCU is here.  Or, via PDF if you prefer.  

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Extended Early-Bird Pricing.  We've extended the deadline for registering for our November 7th webcast (next Wednesday!) on the CFPB's Latest Mortgage Proposals.  

Register today (November 2nd) to Save $100!    

Have a great weekend!