Previously we had published an article detailing the changes we will be making to our documents in order to comply with the new CFPB regulations which will take effect in January of 2014 (see http://www.docutechcorp.com/the-january-2014-cfpb-regulations). After receiving client feedback and reviewing more of the CFPB’s new regulations, we will be making the following additional changes:
California Appraisal Notice
Under Cal. Bus. & Prof. Code § 11423 (West 2013), a lender is required to provide to a borrower a notice of their right to receive a copy of an appraisal report upon the borrower’s request for such a copy within a certain time period.
This notice requirement is substantially similar to the Federal Reserve Board’s Regulation B under 12 CFR § 202.14 and compliance with such is also deemed compliance with California’s appraisal requirements (see Supra § 11423[h]).
However, the new appraisal requirements under 12 CFR §§ 1002.14 and 1026.35(c) as described in our previous article conflict with California’s requirements, as they extend to primary lien loans and “higher-risk mortgages.”
We are currently attempting to receive clarification from certain California agencies (particularly the Bureau of Real Estate Appraisers) to see whether providing the new appraisal notices required by the CFPB is satisfactory for fulfilling California’s appraisal notice requirements.
Until further clarification is provided, we will be providing a new variant of our current Copy of Appraisal Report Notice (Cx6), with a disclaimer at the beginning of the document, which will print for primary lien and “higher-risk mortgages,” stating the following:
“PLEASE NOTE: This disclosure is being given to you pursuant to the provisions of Cal. Bus. & Prof. Code § 11423(h) (West 2013). Under Federal law, you will automatically receive a copy of the appraisal report pursuant to 12 CFR §§ 1024.14 and/or 1026.35(c) (West 2013). Details concerning this have or will be provided to you in a separate disclosure. You may still request a copy of your appraisal, as set forth in this document.”
This disclaimer will not print in connection with junior lien loans which are not “higher-risk mortgages,” because the new Federal regulations do not extend to such loans and, absent such extension, California’s appraisal notice requirements apply to them without any conflict.
California Automated Valuation Model Notice ( x11978)
Similar to the above scenario, Cal. Fin. Code § 22317.2 requires a notice to be provided by licensees under the California Finance Lenders Law to borrowers, informing them that they may request a copy of any automated valuation model (AVM) result used in connection with their loan. Under the new CFPB appraisal notice regulations in Regulation B (12 CFR § 1002.14), borrowers are entitled to receive an automatic copy of any valuation conducted on the property, including AVM results (see 12 CFR Pt. 1002, Supp. I Paragraph 14[b][3] – [iv]). There is, therefore, a conflict between these two laws, with one requiring that the borrower obtain an automatic copy of the results and the other stating that the borrower should request a copy.
To circumvent this conflict, we will be printing the following disclaimer at the end of the document for all primary lien loans:
“IMPORTANT: The Federal Equal Credit Opportunity Act (ECOA) does require the Lender to automatically and promptly provide you with a copy of the automated valuation model, regardless of the foregoing provisions which are made pursuant to California law. A disclosure containing more details of this right under ECOA has or will shortly be provided to you.
12 CFR § 1002.14(a) (West 2013)”
New Prepayment Penalty Alternative Offer Certification (Cx17949)
Under the new ATR/QM rules, 12 CFR § 1026.43(g) will prohibit a covered transaction (as defined in Ibid. § 1026.43[b][1]) from containing a prepayment penalty (PPP) unless permitted by law and the transaction:
- Has an APR that does not increase after consummation (i.e. a fixed- or stepped-rate loan);
- Is a QM; and
- Is not a HPML.
Such a covered transaction may not be offered to a consumer unless the creditor (directly or indirectly) offers a borrower an alternative loan which contains certain features, including the same type of interest rate, same loan terms, it satisfies the periodic payment and points and fees conditions of a QM, and is one in which the creditor has a good faith belief that the consumer qualifies for.
What makes this requirement interesting is the fact that the latest final rule from the CFPB, published by them on their website on September 13, 2013 (Docket No. CFPB-2013-0018; RIN 3170-AA37), amends 12 CFR § 1026.23(a)(3)(ii) to now make such an offer a part of the “material disclosures” used in the Right to Rescind rules to determine when the Right to Rescind period begins.
Since most (if not all) of our clients provide such alternative offers through in-house publications which describe the terms and features of alternative loans which borrowers may qualify for, we will be providing a certification in Closing packages for the type of covered transaction described above, in which borrowers will certify that the lender offered them an alternative transaction which does not contain a prepayment penalty. This will help clients by providing them with written documentation that they complied with Regulation Z in this regard.
Revised Notices on ARM Disclosures (e.g. Cx13457)
12 CFR § 1026.19(b)(2)(xi) (West 2013) requires a creditor to provide to a borrower, in connection with a variable-rate transaction, a disclosure of “the type of information that will be provided in notices of adjustments and the timing of such notices.” The referenced notices are required in 12 CFR § 1026.20(c).
However, due to the CFPB’s new regulations, there are now actually two notices of adjustments under Section 20 of Regulation Z. One is to be provided in connection with upcoming adjustments to the interest rate, which result in a corresponding change in the loan payment; the other (which is described in our previous article) is to be provided before the first initial rate adjustment, regardless of any payment change.
Due to this change, the CFPB has amended its Official Staff Commentary to 12 CFR Pt. 1026, Supp. I, Paragraph 19(b)(2)(xi), so that it states the following:
“A creditor must disclose to the consumer the type of information that will be contained in subsequent notices of adjustments and when such notices will be provided. (See the commentary to § 1026.20(c) and (d) regarding notices of adjustments.) For example, the disclosure provided pursuant to § 1026.20(d) might state, ‘You will be notified at least 210, but no more than 240, days before the first payment at the adjusted level is due after the initial interest rate adjustment of the loan. This notice will contain information about the adjustment, including the interest rate, payment amount, and loan balance.’ The disclosure provided pursuant to § 1026.20(c) might state, ‘You will be notified at least 60, but no more than 120, days before the first payment at the adjusted level is due after any interest rate adjustment resulting in a corresponding payment change. This notice will contain information about the adjustment, including the interest rate, payment amount, and loan balance.’” (see also 78 FR 11017)¬
Currently, our generic ARM disclosures generally disclose the following information for these requirements:
“You will be notified in writing at least 25 days before the due date of a payment at a new level. This notice will contain information about the interest rate, payment amount, loan balance, and other information required by law.”
We will be replacing this language with the model language set forth in the aforementioned Commentary – with the exception that the “60 days” language for the Section 20(c) notice may actually be “25 days” instead, based on the following conditions:
- For an ARM with interest rate adjustments occurring every 60 days or less.
- For an ARM:
- Originated prior to January 10, 2015; and
- The adjusted rate and payment is calculated on an index available less than 45 days prior to the adjustment date {“look-back period”}.
- For an ARM if the first adjustment to the interest rate (which changes the payment) occurs within 60 days of closing.
New Appraisal Waiver/Receipt Form
Currently, we provide Appraisal Independence Requirement Verification of Receipt of Appraisal forms (Cx14078 & 15224), due to investor requirements, in order for clients to provide documentation that they complied with the provisions of FNMA’s Appraisal Independence Requirements (AIR). These documents contain language allowing the borrower to waive certain timing requirements and receive copies of their appraisals at closing. They also contain language in which the borrower acknowledges receipt of such appraisals.
Due to the new appraisal requirements under Regulations B and Z, it has become necessary to create a new document which still follows the basic purpose of the AIR forms, but with updated language to match the provisions of Federal regulations.
This document will contain dynamic text, with the waiver language printing only in connection with first lien, non-higher risk mortgages (since a borrower is not allowed to waive the standard timing requirements for receiving appraisals for higher risk mortgages, according to new 12 CFR Pt. 1026, Supp. I, Paragraph 35[c][6][ii] – [3]). It is also anticipated that the document will contain two types of waivers (one for the timing requirements for most appraisals, another for appraisals containing only clerical changes from a previous appraisal) and that it will print in Initial, Appraisal, TILA Redisclosure, and Closing document packages.
Updates to the Prohibition Against Financing Credit Insurance Premiums
The CFPB finalized their prohibitions against the financing of credit insurance premiums (see rules published September 13, 2013; Docket No. CFPB-2013-0018, RIN 3170-AA37). 12 CFR § 1026.36(i) will prohibit the financing, directly or indirectly, of most credit insurance premiums. A creditor will be considered to have financed the premiums if the borrower has the right to defer payment of the premium past the monthly period on which it is due. If the premiums are calculated and paid in full on a monthly basis, such an action is not considered a financing of the premiums.
This finalized change does require modifications to the four state-specific documents mentioned in our previous article. We have been attempting to work with state regulatory agencies, in order to find a solution to these conflicts. It does appear that we will be able to modify the MA High Cost Loan Insurance Disclosure (Cx3745) without any trouble, since specific-language is not required in the document.
We may also be able to modify the OK Insurance Notice to Obligor (Cx3324) and PA Optional Insurance Notice (Cx1027) without much trouble, since the specific-language in such documents need only be “substantially similar” to the language promulgated in the states laws which require these documents. We are, however, double-checking with the regulatory agencies in these states to make sure that any minor modifications will be acceptable to them.
The TX Insurance Notice to Applicant (Cx3715), however, is difficult because it is supposed to have state-specific language, which is to be exact without modifications. Compounding this problem is the fact that the requirements for this notice can only be changed by the Texas state legislature rather than regulatory agencies (since it is required by statutory law), and the legislature will not be in session again until 2015. We are currently trying to work with Texas’ regulatory agencies on this matter and figure out a solution to this predicament.
A Note About the List of Counseling Agencies
There have been many questions concerning our List of Counseling Agencies and when this form will be available for testing. We have made a shell of the document (Cx17874), which contains introductory text and columns of the types of information which are disclosed by HUD on their website of counseling agencies (see http://www.hud.gov/offices/hsg/sfh/hcc/hcs.cfm). We do not expect that the CFPB will require more items of information than these (they may actually require less).
Unfortunately, this form is very dependent upon the data which will be available on the CFPB’s counseling website, which is still under construction – so the document is not yet ready to be test printed. We are reserving resources to help ensure that when the final website is created that we will be able to make the form as quickly as possible for client testing.