Monday, July 23, 2012

FYI: CFPB's Homeownership Counseling and HOEPA Proposed Rule - Highlights

As widely reported, the CFPB recently issued a proposed rule and request for comment to: 
(1) implement the Dodd-Frank Act's pre-loan homeownership counseling-related requirements, separate from the HOEPA amendments; and 
(2)  implement the Dodd-Frank Act's expansion of HOEPA, as to purchase-money loans and HELOCslower high-cost triggers, the new prepayment penalty trigger, and additional new limitations and requirements on high-cost mortgages.
The full text of the proposed rule is available at:
The proposal rule would implement the Dodd-Frank Act's non-HOEPA pre-loan homeownership counseling-related requirements. 
Generally, and among other things, the proposed rule would require lenders to provide a list of homeownership counselors to applicants within a three business days of application.
More specifically, the proposed rule would amend Regulation X to require lenders to provide a "a list of federally certified or approved homeownership counselors or organizations to consumers within three business days of applying for any mortgage loan" (except for HECMs, when a similar list is provided).  The proposed rule provides a new definition of "application."
If the mortgage broker provides the list, the lender is not required to provide an additional list, but the lender remains liable for not providing a correct list.  The list may be provided to the loan applicant in electronic form, subject to the consumer consent and other applicable provisions of ESIGN.  "The lender is not required to provide the list if, before the end of the three business day period, the lender denies the loan application or the loan applicant withdraws the application."  The CFPB indicates that it "expects to create a website portal to make it easy for lenders and consumers to obtain lists of homeownership counselors in their areas."

In addition, the proposed rule also would implement a Dodd-Frank Act requirement that first-time borrowers receive homeownership counseling before taking out a negatively amortizing loan.
More specifically, the proposed rule would amend Regulation Z to require lenders to "obtain confirmation that a first-time borrower had received homeownership counseling from a federally certified or approved homeownership counselor or counseling organization before making a negative amortization loan to the borrower." 
The CFPB also proposes to amend Regulation Z to implement the Dodd-Frank Act amendments to HOEPA.
HOEPA would no longer exclude purchase money mortgage loans, or open-end credit plans (i.e., home-equity lines of credit, or HELOCs).  However, reverse mortgages would still be excluded.
Under the proposed rule, HOEPA would be triggered where:
(1)  The APR exceeds the average prime offer rate by 6.5% for most first-lien mortgages (8.5% for personal property dwellings with a total loan amount less than $50k), and 8.5% for subordinate lien mortgages; or
(2)  The total points and fees "payable in connection with the transaction" exceed:  (a) 5.0% of the total loan amount if the total loan amount is $20,000 or more; or  (b) the lesser of 8% of the total loan amount, or $1,000 for a transaction (adjusted for inflation), with a total loan amount of less than $20,000; or
(3)  The loan has a prepayment penalty feature that:  (a) is chargeable more than 36 months after loan consummation or account opening, or  (b) can exceed more than 2 percent of the amount prepaid.
In addition, and among other things, the proposed rule also would implement additional new Dodd-Frank Act restrictions and requirements for high-cost mortgages, such as:
• Restrictions on balloon payments
• Restrictions on late fees
• Restrictions on payoff statement fees
• Prohibitions on fees for loan modification or loan deferral 
• Prohibitions on prepayment penalties
• Prohibitions on financing points and fees  
• Extension ability to repay requirements to HELOCs
• Prohibitions on recommending or encouraging a consumer to default on a loan
• Prohibitions on recommending or encouraging a consumer to refinance into a high-cost mortgage
• Homeownership counseling requirements
Comments are generally due on or before September 7, 2012.  Among other things, the CFPB seeks comment on:
• When a final rule should be effective, including consideration of how much time the industry needs to make the proposed changes;
• Whether to to make changes to the HOEPA regulations if the CFPB adopts a broader definition of "finance charge" under Regulation Z;
• The potential effect of the proposal on access to homeownership counseling generally, and the effect of increased consumer demand for counseling on existing counseling resources; 
• The costs and benefits of providing the list of homeownership counselors to applicants for refinances and home-equity lines of credit, as opposed to only purchase-money applicants.

Ralph T. Wutscher
McGinnis Tessitore Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct: (312) 551-9320
Fax: (312) 284-4751
Mobile: (312) 493-0874

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