CFPB Gives Mortgage Lenders Heads-up on Exam Procedures
The Consumer Financial Protection Bureau is giving financial and mortgage companies a heads-up about what examiners will be looking for under new mortgage regulations scheduled to take affect in January 2014. It issued updates to its examination procedures today including those on appraisals, escrow accounts, compensation, and qualifications for loan originators.
"The CFPB recognizes that the easier we make it for financial institutions and mortgage companies to follow the new regulations, the better off consumers will be," said CFPB Director Richard Cordray. "By releasing details of what our examiners will be looking for well in advance of the effective date of most of the rules, we are giving industry more time to adjust."
The interim examination procedures released today update the applicable sections of the exam procedure manuals for two laws - the Truth in Lending Act (TILA) and the Equal Credit Opportunity Act (ECOA). These documents are intended for use by CFPB examiners and the financial institutions and mortgage companies subject to the new regulations. CFPB said they are the first round of what will likely be multiple updates.
The Bureau said today's release of exam procedures will help financial institutions and mortgage companies understand how they will be examined for CFPB rules that:
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Set qualification and screening standards for loan originators:
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Prohibit steering incentives, that is compensation for a loan originator that varies with the loan terms.
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Prohibit "dual compensation" wherein an originator is paid by both the consumer and another person such as the creditor.
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Protect borrowers of higher-priced mortgage loans: The required duration of an escrow account on higher-priced mortgage loans extends from a minimum of one year to a minimum of five years.
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Prohibit the waiver of consumer rights that would bar consumers from bringing a claim in court in connection with any alleged violation of federal law and prohibits mandatory arbitration for for mortgage and home equity loans.
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Require lenders provide free appraisal reports and valuations developed in connection with certain mortgage loan applications.
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Prohibit financing by creditors of single premium credit insurance in connection with certain mortgage loans.
The CFPB said it is coordinating with other federal government regulators that also conduct examinations of mortgage companies and financial institutions to ensure all regulators have a shared understanding of the CFPB's new rules. This multi-agency effort includes the interagency development of exam procedures. For example, the TILA procedures released today are based on the approved Federal Financial Institutions Examination Council procedures. This interagency effort helps promote a consistent regulatory experience for industry.
The Interim TILA Examination Procedures can be found at: http://files.consumerfinance.gov/f/201306_cfpb_laws-and-regulations_tila-combined-june-2013.pdf
The Interim ECOA Examination Procedures can be found at: http://files.consumerfinance.gov/f/201306_cfpb_laws-and-regulations_ecoa-combined-june-2013.pdf
CFPB said once these and other exam procedures have been updated with the new mortgage rule requirements, it will incorporate all amended sections, including the TILA and ECOA sections, into its General Supervision and Examination Manual.