CFPB Regulatory Onslaught: Now is the Time to Comment
This posting was written by Robert M. Jaworski.
The Consumer Financial Protection Bureau (“CFPB”) has been on a tear lately, putting out regulatory proposals seemingly on a weekly basis. In each proposal, it has requested comments from interested parties, and, based on what CFPB representatives indicated at the Mortgage Bankers Association’s recent Regulatory Compliance Conference in Washington, D.C., which I attended, the CFPB is truly interested in what the public has to say about its residential mortgage-related proposals. So, unless you prefer to sit back and allow the CFPB to make decisions concerning your business without any input from you, or you have already provided input, now is the time to review the CFPB’s proposals and submit comments.
Some of the CFPB’s most recent and important residential mortgage-related proposals are listed below:
• Servicing. Proposal to amend Regulation Z and Regulation X to address mortgage loan servicers’ obligations in the following nine areas: Periodic billing statements, adjustable-rate mortgage interest-rate adjustment notices, prompt payment crediting and payoff payments, force-placed insurance, error resolution and information requests, information management policies and procedures, early intervention with delinquent borrowers, continuity of contact with delinquent borrowers, and loss mitigation procedures. 77 Fed. Reg. 57317 (Sept. 17, 2012), 77 Fed. Reg. 57199 (Sept. 17, 2012), comments were due by October 9, 2012.
• Integrated Mortgage Disclosures. Proposed amendments to Regulation Z and Regulation X to create an integrated TILA/RESPA disclosure form for closed-end residential mortgage loans, and to change the current “some-in, some-out” definition of “finance charge” (and APR) to an “all-in” definition. 77 Fed. Reg. 51115 (August 23, 2012), comments due by November 6, 2012.
• High-Cost Mortgage and Homeownership Counseling. Proposed amendments to Regulation Z to expand the triggers for coverage under HOEPA and to impose additional restrictions on HOEPA loans, including a pre-loan counseling requirement. 77 Fed. Reg. 49089 (August 15, 2012), comments due by September 7, 2012.
• Loan Origination Compensation/Standard. Proposed amendments to Regulation Z to implement the Dodd-Frank restrictions on loan originator compensation, to clarify certain aspects of the prior Federal Reserve rule on loan originator compensation, and to extend nonbank loan originator qualifications (concerning character, fitness, criminal background standards, education and training) to loan originators employed by banks. 77 Fed. Reg. 55272 (Sept. 7, 2012), comments due by October 16, 2012.
• Appraisals. Proposal to amend Regulation B to require lenders to provide copies of real estate appraisals to residential mortgage loan applicants. 77 Fed. Reg. 50390 (August 21, 2012), comments due by October 15, 2012. Proposal to amend Regulation Z to require lenders to obtain appraisals on “higher risk mortgages,” and to give applicants copies of those appraisals and certain disclosures relating to their use. 77 Fed. Reg. 54721 (Sept. 5, 2012), comments due by October 15, 2012.
Also, I would be remiss if I did not mention the Federal Reserve’s “ability to repay” proposal from May, 2011 that would, if adopted by the CFPB: (i) require residential mortgage lenders to verify and document borrowers’ ability to repay their mortgage loans out of income and assets (excluding the property securing the loan); and (ii) define a “qualified mortgage” the making of which would provide lenders with either a safe harbor from liability under the rule or a rebuttable presumption of compliance with the rule. 76 Fed. Reg. 27390 (May 11, 2011). The comment period for this proposal was reopened by the CFPB on June 5, 2012, and ended on July 9, 2012. 77 Fed. Reg. 33120 (June 5, 2012).
What Makes an Effective Comment?
If you wish to comment on any of the proposals, you can do so online at http://www.regulations.gov or by writing to Monica Jackson, Office of the Executive Secretary, Bureau of Consumer Financial Protection, 1700 G Street NW, Washington, D.C. 20552. You should include the applicable Docket Number with your comment.
The least effective comments tend to be ones that I would characterize as “rubber stamp” comments (which merely duplicate comments prepared by others), “Chicken Little” comments (which claim that adoption of the regulation will cause the sky to fall or a similar catastrophic event to occur), “bad law” comments (which challenge actions that Congress has taken and which the regulator is mandated to implement), and “whiny comments” (in which the commenter generally complains about the proposal’s unfairness without going into specifics).
Conversely, the most effective comments are ones that fall within one or more of the following categories:
• Factual Comments – which demonstrate how the proposed regulation will negatively affect the commenter’s business operations in concrete ways and/or provide details as to the anticipated costs to comply.
• Comments Highlighting Unforeseen Consequences – which show how the proposal is likely to have consequences on the commenter’s business operations as well as borrowers that may have not been foreseen, and therefore were probably not considered, by the regulator.
• Comments Concerning Adverse Impacts on Consumers – which explain ways in which the proposal may impact consumers in a negative way, contrary to the regulator’s intent.
• Comments Recommending Specific Improvements – which provide concrete recommendations, including suggested regulatory language, which will lessen the burden on the commenter’s business while at the same time not negatively impact consumers.
• Timing Comments – which advise the regulator what steps will be needed to comply with the proposed regulation (including programming, development of new policies and procedures, testing, and training) and how long it will take to accomplish those steps.
Summary. For those of you who have not already reviewed and commented on these regulatory proposals or determined that the proposals will not have a significant adverse impact on your operations, the takeaway here is that, unless you want to be married to these rules as proposed, “Speak now or forever hold your peace.”
Robert M. Jaworski is available to provide a personalized lecture to individual financial institutions and mortgage companies on navigating the labyrinth of CFPB regulations and policies that lenders are facing. Mr. Jaworski is a member of the Reed Smith Financial Services Regulatory Group, resident in the Princeton, NJ office. Mr. Jaworski is a former Deputy Attorney General of New Jersey, and a former Deputy Commissioner of Banking for New Jersey. Mr. Jaworski regularly lectures at national and regional conferences on financial regulatory matters.