The Consumer Financial Protection Bureau (CFPB) has released a second update to its examination procedures in connection with the new mortgage regulations scheduled to go into effect next year.
The exam procedures outline what the CFPB will be looking for as the rules become effective and cover far more details than when the agency issued its first round of exam guidance in June.
Most of the updates pertain to the new ability-to-repay and qualified mortgage rules, however they also cover high-cost mortgages, appraisals for higher-priced mortgage loans and recent amendments related to the escrows rule.
The CFPB has now issued updates to exams for all the new mortgage origination rules issued through May 29 as well as mortgage servicing rules issued through July 10.
‘We are committed to transparency around our examination process,’ said Richard Cordray, director of the CFPB, in a release. ‘So we have worked hard to provide industry with advance notice of what we will be expecting. That, in turn, will improve compliance and benefit consumers.’
The new ability-to-repay rule requires lenders to look at a consumer's financial information and verify its accuracy. They must then evaluate and determine that the borrower can repay the loan, not just during an introductory period, when rates may be lower, but for the long-term. Under the ability to-repay and qualified mortgage rules, lenders must ensure that a borrower's debt-to-income ratio does not exceed 43%. In addition, points and fees associated with processing and closing costs must be capped at not more than 3% of the full loan value.
Under the high-cost mortgages rule, balloon payments and fees for modifying loans are generally banned.
The new CFPB rules also require mortgage servicers to provide statements to borrowers which include the amount and due date of the next payment; a breakdown of payments by principal, interest, fees and escrow; and recent transaction activity. For most adjustable-rate mortgages, they must also provide disclosures before the first interest rate adjustment, and before interest rate adjustments alter the payment amount.
Under the bureau's rule on mortgage servicing, dual tracking – when the servicer moves forward with foreclosure while simultaneously working with the borrower to avoid foreclosure – is restricted. Servicers cannot start a foreclosure proceeding if a borrower has already submitted a complete application for a loan modification or other alternative to foreclosure which is still pending.
In addition, mortgage servicers must have policies and procedures in place to provide delinquent borrowers with direct, easy, ongoing access to employees responsible for helping them. If a foreclosure seems likely, the servicer must consider all alternatives available to help the borrower stay in their home.
Finally, the new rules require lenders to use a licensed or certified appraiser. They also require lenders to disclose to applicants information about the purpose of the appraisal and provide consumers with a free copy of any appraisal report.
The CFPB is also updating applicable sections of the exam procedure manuals for the Truth in Lending Act (TILA) and the Real Estate Settlement Procedures Act (RESPA) and coordinating with other government regulators that also conduct examinations of mortgage companies to ensure all regulators have a shared understanding of the CFPB's new rules.