By John C. Lynch, Ethan G. Ostroff and David M. Gettings
The Consumer Financial Protection Bureau (CFPB) announced yesterday that it will be taking steps over the course of 2013 to focus on the mortgage industry's compliance with new consumer protections.
The 2010 Dodd-Frank Act required the CFPB to impose substantial new compliance requirements on the mortgage industry in the name of consumer protection. In turn, the CFPB has recently created numerous new rules affecting the mortgage industry, which are effective as of January 2014.
As Troutman Sanders' Financial Services Litigation practice discussed here, last month the CFPB unveiled new mortgage servicing rules intended to help borrowers, in particular those facing the potential of foreclosure. These wide-ranging rules amend Regulation X, which implements the Real Estate Settlement Procedures Act, and Regulation Z, which implements the Truth in Lending Act. Other new rules address appraisals, escrow accounts, protections for high-cost mortgages, and compensation and qualifications for loan originators.
Similarly, the CFPB just issued what has been coined the "Ability-to-Repay" rule. This rule requires lenders to make a reasonable and good faith determination at or before consummation of certain loans that the borrower will have a reasonable ability to repay the loan. In making this determination, the lender will have to consider various factors, such as the borrower's income, employment status, child support and alimony obligations, if any, and obligations on certain other loans that the lender knows, or has reason to know, will be made to the borrower.
The steps the CFPB will be taking over the next year to "support rule implementation" and ensure that the mortgage "industry is ready for the new borrower protections" include:
- Coordinating with other federal regulators to ensure they have a "shared understanding of the CFPB's new rules";
- Publishing "plain-language guides" summarizing the new regulations;
- Responding to compliance questions by issuing updated "official interpretations" of the new rules;
- Publishing "readiness guides" for the industry, which will include resources such as compliance "check-lists" and "examination procedures"; and
- Educating consumers as to their new rights through a "broad-reaching" campaign.
Mortgage industry participants, in particular loan servicers, should promptly begin reviewing these Rules and taking steps to ensure compliance with them well before January 2014.
Troutman Sanders' Financial Services Litigation and Regulatory Compliance Team
Troutman Sanders' Financial Services Litigation and Regulatory Compliance Team is an accomplished and experienced leader in providing litigation and regulatory advice to a broad spectrum of financial services institutions. The team is comprised of a dedicated group of trial and regulatory lawyers who focus on resolving the array of issues that confront financial institutions. Its lawyers have years of hands-on successful experience in all areas of the trial process, coupled with in-depth banking industry and regulatory knowledge.
Please do not hesitate to contact John Lynch, Ethan Ostroff, or David Gettings if you have questions or would like additional information on compliance with these Rules.
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