Combined mortgage disclosures, a new definition of APR, and an expansion of mortgage loans that qualify for Home Ownership and Equity Protection Act coverage were among major changes the Consumer Financial Protection Bureau proposed July 9 when it released two proposed rules.
The integrated disclosures would amend Regulations X and Z to establish new requirements and forms for most residential first mortgages. The CFPB released two new proposed disclosures: a loan estimate, which would provide information regarding key features, costs and risks associated with the mortgage within three business days of applying; and a closing disclosure, provided three business days before the close of the loan, which would further explain all costs associated with the loan.
Although the new disclosures are more consumer friendly, CUNA Mutual Compliance Manager Lauren Calhoun said they will be painful for credit unions in the short run, because the lenders will be forced to scrap their old forms and transition to the new ones.
“It will impact everyone in the industry, and lots of training will be required,” she said.
However, Calhoun credited the CFPB for doing “a pretty good job in setting forth guidance and detail” regarding how to fill out the proposed disclosure forms.
The three-page proposed loan estimate is a reduction in pages from the existing five-page truth in lending and good faith Estimates. Although the CFPB spent considerable effort redefining the components of APR, that bit of information isn’t listed until the third and final page of the proposed disclosure. A simple “interest rate” is instead provided on the first page.
The closing disclosure combines the current HUD1 settlement statement and truth in lending disclosure, which is a concern to credit unions because settlement agents provide much of the information required for the disclosure.
“The concern is credit unions might not have this information, so how can they comply?” Calhoun asked.
The proposed rule leaves open the responsibility for filling out the form–the CFPB may allow settlement agents to complete it. However, credit unions would still be responsible for the accuracy of the information regardless of whoever completes it.
A component of the new disclosures is a proposed electronic record keeping mandate, a systems issue that Calhoun said would be particularly difficult for small credit unions.
“Basically, the new disclosures must be kept electronically in a standard format for a period of time…depending upon the type of content, from three to five years,” she said. “The reason for that is the bureau said it would make them more easily traceable from a compliance perspective.”
The proposed rule also redefines APR and eliminates exceptions currently allowed in Reg Z. Basically, Calhoun said, everything is included in the proposed definition except charges that are applied after the loan closes, such as late fees or delinquency charges. That means previously exempted costs like application fees will now be included in the APR calculation.
Carrie Hunt, NAFCU’s general counsel and vice president of regulatory affairs, said her association supports streamlining mortgage disclosures but said the rule will have a huge impact on credit union operations.
The proposed disclosure rule also contains a lengthy cost-benefit analysis that addresses the impact on small entities, which NAFCU said it had been pushing for.
The CFPB also issued a proposed rule July 9 that would expand the types of mortgage loans that are subject to the protections of the Home Ownership and Equity Protection Act. It would revise and expand the triggers for HOEPA coverage and would impose new restrictions, including a pre-loan counseling requirement.
“Previously, HOEPA used to only apply to refinancing and home equity loans but now it is expanded to include purchases and home equity lines of credit,” Calhoun said. “The bottom line is more loans that will be subject to HOEPA requirements.”
Proposed adjustments to APR calculations would impact the HOEPA rule because the additional costs that would be included in APR would increase the rate, which would classify even more mortgages as “high-cost” and subject to HOEPA.
The CFPB has proposed two ways to deal with the cause and effect of the new APR rule: one would increase the APR that triggers HOEPA, and the other would define a new trigger, not based upon APR. Calhoun said the bureau prefers the latter, but is seeking comment from industry on which to include in the final rule.
Comments regarding the calculation of APR and the HOEPA rule are due to the CFPB Sept. 7. However, the majority of comments regarding the integrated disclosures have a longer period, due Nov. 6. Calhoun said the bureau has said it will not issue a final rule until after Jan. 21, 2013.