By David N. Anthony, John C. Lynch, Alan D. Wingfield, Virginia Bell Flynn, Jarrod F. Loadholt
On August 15, 2013, the CFPB released updated examination procedures for mortgage lenders and servicers. The updated examination procedures reflect mortgage origination rules issued by the CFPB up to May 29, 2013 and all mortgage servicing rules issued through July 10, 2013. Most of the new rules will become effective January 2014.The updated examination procedures reflect the most current guidance from the CFPB for recently-issued regulations concerning the ability-to-repay standard, the Qualified Mortgage rule, new restrictions on high-cost mortgages and requirements for appraisals for higher-priced mortgages.
Considered together, the standards set forth for lenders and servicers as a result of the wave of mortgage regulations issued by the CFPB this year constitute the core Dodd-Frank mortgage reforms intended to avert the practices and product features that in the view of federal regulators gave rise to the mortgage crisis. To that end, each of the rules and their treatment in the updated examination procedures are likely examination and enforcement priorities for the CFPB. Lenders and servicers are strongly advised to consult the updated examination procedures to ensure that their products and practices are compliant.
In its press release, the CFPB highlighted six business practices and product features that provide some insight into the priorities of CFPB field examiners and enforcement personnel, including:
· Lender evaluation methodology for verifying a borrower’s ability to repay a mortgage;
· Steps taken by lenders to limit points, fees and other “risky features” such as interest-only loans and balloon payments;
· Monthly statements and disclosures from servicers concerning outstanding balances and future interest rate adjustments;
· Policies and controls designed to prevent “dual-tracking”;
· Ensuring that servicers provide “direct, easy [and] ongoing” customer service for borrowers; and,
· Compliance with new requirements for lenders concerning the use of licensed or certified appraisers
Mortgage lenders and servicers should anticipate and prepare for active CFPB supervision of their operations. In a statement issued on August 15th, Director Cordray characterized the updated examination procedures as “advance notice of what [the CFPB] will be expecting, [t]hat, in turn, will improve compliance.” The examination procedures are a definitive source of CFPB guidance for lenders and servicers as they prepare for CFPB supervision and enforcement, and firms should utilize the updated procedures to inform their compliance policies.
Copies of the updated RESPA and TILA examination procedures are available here and here.
About Troutman Sanders Troutman Sanders is an accomplished and experienced leader in providing litigation and regulatory advice to a broad spectrum of financial services institutions. Troutman Sanders’ CFPB Team monitors the development and activities of the CFPB on its CFPB Report blog and also advises clients on CFPB and Dodd-Frank issues. Additionally, Troutman Sanders’ Financial Services Litigation practice group has successfully litigated a wide variety of individual and class action litigation, as well as other federal and state consumer protection laws now under the umbrella of the CFPB.
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