In this Analysis, Robert M. Jaworski examines the Mortgage Reform and Anti-Predatory Lending Act (MRAPLA) (in Dodd-Frank Act), including the significant changes that it makes to the Truth in Lending Act (TILA) (e.g., incentives for qualified mortgages, anti-steering prohibitions, defenses to foreclosure, disclosure & servicing requirements, & appraisal-related rules) and the Real Estate Settlement Procedures Act (RESPA) (e.g., changes to rules re: qualified written requests); and what this reform suggests about the future. He writes:
Other MRAPLA Restrictions and Limitations
The MRAPLA also amends TILA to impose numerous other important restrictions and limitations in connection with the origination and servicing of residential mortgage loans (including qualified mortgages) that also seem intended to take us back to an earlier time. Some of these are outlined below.
Anti-Steering Prohibitions. The most significant restrictions concern "steering" and perhaps the most significant of these is a prohibition against the payment to or receipt by a mortgage originator of any direct or indirect compensation "that varies based on the terms of the loan (other than the amount of the principal)." This means that, once this provision becomes effective, mortgage brokers and even loan officers who work for mortgage lenders or brokers may no longer earn premiums for originating loans at above par rates or with prepayment penalties or other specific loan terms that may make the loan more valuable on the secondary market. For example, "yield spread premiums" would not be permitted, although that issue may be moot due to Regulation Z changes that will take effect earlier than the MRAPLA. This section, however, does not limit the compensation that a creditor may receive on the sale of a loan or incentive payments to mortgage originators that are based on the number of loans originated within a specified period.
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New Servicing Requirements.
TILA Amendments. The MRAPLA amends TILA to require that escrow accounts be established on certain loans - those for which it is required by federal or state laws, conforming loans with APRs greater than the comparable average prime offer rate + 1.5 percentage points, and jumbo loans with APRs greater than the comparable average prime offer rate + 2.5 percentage points. It also mandates that, for loans on which escrows are required, the escrow accounts remain in place for at least 5 years after closing. There are also new disclosure requirements in connection with escrow accounts and escrow account waivers. Other servicing provisions establish new mandates for the prompt crediting of payments and prompt responses to requests for payoff quotes, and new requirements that TILA payment schedule disclosures for loans in connection with which escrow accounts are or will be established take into account the amounts that will be required to be paid into escrow each month. TILA penalties could now be triggered by servicing violations, as discussed later.
RESPA Amendments. The MRAPLA also amends section 6 of the Real Estate Settlement Procedures Act ("RESPA") to: (i) impose new restrictions and disclosure requirements for the force-placing of insurance; (ii) prohibit the charging of fees for responding to qualified written requests ("QWRs"); (iii) require servicers to respond to QWRs that ask for information concerning the identity of the owner or assignee of the loan within 10 business days; (iv) shorten the time frames within which servicers are required to acknowledge receipt of and respond to other types of QWRs, from 20 and 60 days, respectively, to 5 and 30 days, respectively; and (v) require servicers, within 20 days following payoff of a borrower's loan, to refund to the borrower (or credit to the borrower's new escrow account) any monies remaining in the borrower's escrow account.
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