United States

More modifications to the mortgage rules


On Sept. 13, 2013, the Consumer Financial Protection Bureau (the Bureau) finalized a proposed rule issued back in June 2013 that amends and clarifies the January 2013 mortgage rules. The rules that are updated by this final rule are the mortgage servicing rules, Ability-to-Repay rule, high-cost mortgage rule and the loan originator compensation rule.

Under the mortgage servicing rules, the final rule provides clarifications in the following areas:

  • Servicer activities that are prohibited within the first 120 days: The rules include a general ban on foreclosure proceedings in the first 120 days of being delinquent. Specifically, section 1024.41(f) "prohibits a servicer from making the first notice or filing required by applicable law for any judicial or non-judicial foreclosure process unless a borrower's mortgage loan is more than 120 days delinquent. A servicer also is prohibited from making such a notice or filing while a borrower's complete loss mitigation application is being evaluated." The final rule sets out to clarify what the phrase "first notice or filing" includes. It revises comment 41(f)-1 by adding four new subparts as follows:
  1. When the foreclosure procedure under applicable state law requires commencement of a court action or proceeding, a document is considered the first notice or filing if it is the earliest document required to be filed with a court or other judicial body to commence the action or proceeding.
  2. When the foreclosure procedure under applicable state law does not require a court action or proceeding, a document is considered the first notice or filing if it is the earliest document required to be recorded or published to initiate the foreclosure process.
  3. Where a foreclosure procedure does not require initiating a court action or proceeding or recording or publishing of any document, a document is considered a "first notice or filing" if it is the first document that establishes, sets or schedules the foreclosure sale date.
  4. A document provided to a borrower that initially is not required to be filed, recorded or published is not considered the first notice or filing solely on the basis that the foreclosure procedure requires a copy of the document to be included as an attachment to a subsequent document required to be filed or recorded to carry out the foreclosure process.
  • Servicer procedures for obtaining follow-up information on loss mitigation applications: This final rule allows more flexibility than the existing rule when it comes to specifying a date by which the borrower should provide missing loss mitigation application information. Previously, the regulation required the servicer to specify the earliest of four dates, but now the servicer is required to give the borrower a "reasonable" date to provide the missing information with the four previously specified dates as milestones for the servicer to consider.
  • Servicer offerings of short-term forbearance plans: Again, more flexibility is given to servicers in providing forbearance plans. Based on a review of an incomplete loss mitigation application, servicers are now allowed to evaluate the incomplete application and provide a six-month forbearance plan. It will be easier for delinquent borrowers, because they won't have to go through a full loss mitigation application process to obtain temporary relief.
  • Servicer best practices for informing borrower of address for error resolution documentation: Per the existing final rule, if the servicer established an exclusive address the borrower must use to submit information, then the servicer must provide that address to the borrower in any communication in which the servicer provides the borrower with contact information for assistance. This final rule clarifies that the exclusive address only need be given in communications in which the servicer provides the borrower with an address for assistance, and does not need to be given for all communication of contact information. For example, if the financial institution was providing a phone number or Web address, then the exclusive address for providing error resolution documentation would not have to be conveyed.

Under the high-cost mortgage loan rule, the final rule provides clarifications in the following area:

  • Lending in rural or underserved areas: This final rule expands the balloon-payment exception for high-cost mortgages to allow small creditors, regardless of rural or underserved areas status, to continue to originate high-cost mortgages with balloon payments. In opening up this opportunity, the Bureau is adding the following requirements for these types of loans: the loan must meet the balloon-payment qualified mortgage provisions outlined in 1026.43(e)(6) and (f), and the creditor must hold the loans in portfolio for a specified time. Currently, small creditors are able to originate balloon-payment qualified mortgages from Jan. 10, 2014, to Jan. 10, 2016, while the Bureau studies the definition of "rural or underserved areas."

Under the high-cost mortgage loan rule and the Ability-to-Repay rule, the final rule provides clarifications in the following area:

  • Points and fee thresholds: This rule clarifies and revises the definition of points and fees for purposes of the qualified mortgage points and fees cap and the high-cost mortgage points and fees threshold. The Bureau clarifies that compensation paid by a retailer of manufactured homes to its employee would not need to be included in points and fees. Third-party payments were also clarified by this rule which provides that a third-party payment of a charge is included in points and fees if it falls within the definition of points and fees. Keep in mind, while a third-party paid charge may be excluded from the finance charge under ยง 1026.4 of Regulation Z, it may be included in the points and fees calculation under 1026.32(b)(1)(ii) through (vi) of Regulation Z.

    The Bureau modified a comment to clarify that creditors may rely on written statements from the borrower or third party, including the seller, as to the source of the funds and the purpose of the payment, in calculating the points and fees involving third-party payments.

    A comment was modified regarding charges that are paid by the creditor. Other than loan originator compensation paid by the creditor that is required to be included in points and fees, charges paid by the creditor are excluded from points and fees.

Under the loan originator compensation rule, the final rule provides clarifications in the following areas:

  • Financing of credit insurance premiums: This rule clarifies the provision in the loan originator compensation rule, which prohibits creditors from financing credit insurance premiums on closed-end loans secured by a dwelling or an extension of open-end consumer credit secured by the consumer's principal dwelling. They have struck the term single premium from the heading, since the prohibited financing of credit insurance premiums is not limited to the addition of a single, lump-sum premium to the loan amount by the creditor at consummation. The term financing was clarified as when the creditor allows the consumer to defer payment of the premium past the month in which it is due. It was clarified that any premium calculated on a monthly basis would not be considered financed if it was also paid in full on a monthly basis. In addition, this final rule noted that a creditor will not be considered to have financed a credit insurance premium if, upon the close of the month, the consumer has failed to make the premium or fee payment, but the creditor does not incorporate that amount into the amount owed by the consumer.
  • Definition of loan originator: Should tellers or other administrative staff be considered loan originators, and be subject to certain compensation restrictions? The final rule clarifies the circumstances under which administrative staff acts as loan originators. The term loan originator is defined as a person "who, for or in expectation of direct or indirect compensation or other monetary gain, engages in a defined set of activities or services." The rule clarifies an activity involving credit terms, for purposes of determining when a person is a loan originator, by including the following example: "a person who discusses with a consumer that, based on the consumer's financial characteristics, a creditor should be able to offer the consumer an interest rate of 3 percent, would be considered a loan originator. However, a person who merely states general information such as 'we offer rates as low as 3 percent to qualified consumers' would not have been considered a loan originator, because the person is not offering particular credit terms that are or may be available to that consumer selected based on the consumer's financial characteristics."

    The rule further clarifies that a person performing the administrative task of simply providing an application from a loan originator for which he or she works should not be considered a loan originator, unless they are not employed by that loan originator or assist the consumer in completing the loan application or otherwise influence his or her decision. Also, a person providing a consumer with creditor contact information as an employee of that creditor would not be considered a loan originator "provided that the employee does not discuss particular credit terms available from a creditor and does not direct the consumer, based on the employee's assessment of the consumer's financial characteristics, to a particular loan originator or creditor seeking to originate particular credit transactions to consumers with those financial characteristics."

    The rule adopts examples of persons who describe other product-related services (optional monthly payment methods, etc.), and those who perform clerical tasks of coordinating the closing process as those that are excluded from the definition of loan originator.

  • Effective date for loan originator compensation rule: The brunt of the loan originator compensation rule was set to go into effect on Jan. 10, 2014; however, the new rule changes the effective date of some of the provisions to Jan. 1, 2014, to coincide with compensation plans, training and licensing and registration that are often structured on an annual basis.

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Kelly Housh
Regulatory Compliance National Support
Minneapolis, MN


Ty Beasley
Regulatory Compliance National Leader
Dallas, TX