The CFPB’s final mortgage lending rules
By Karen Thomas
In addition to sending out holiday cards and braving the malls, community bankers will have their hands full this month gearing up for new mortgage regulations scheduled to take effect on Jan. 10. The Consumer Financial Protection Bureau regulations released earlier this year will dramatically change the nation’s mortgage market and community bank mortgage compliance.
While the CFPB included important community bank accommodations in the rules, ICBA is nevertheless encouraging the bureau to extend the rules’ mandatory compliance deadline because of the sheer breadth and depth of the regulations. This is necessary to give community banks and their third-party service providers much-needed time to prepare their institutions for implementation.
The best-known of the CFPB’s new rules is its ability-to-pay rule, which implements laws that require mortgage lenders to consider consumers’ ability to repay home loans before extending them credit. Included in that rule is a definition of “qualified mortgage” loans, which are entitled to a presumption that the creditor making the loan satisfied the ability-to-repay requirements.
But that is just the start. In addition to the QM rule, Jan. 10 also is scheduled to ring in new regulations on appraisals and escrow requirements for “higher-priced mortgage loans,” on “high-cost” mortgage loans, on mortgage loan originator compensation and qualification standards, and on mortgage-servicing requirements.
Due to the persistent outreach of ICBA and community bankers during the rulemaking process, the CFPB included critical accommodations in its final rules. Among them, the rules establish a legal safe harbor for loans that satisfy the QM definition and a special QM category of small creditor portfolio loans. They also treat balloon-payment loans as qualified mortgages if they are originated and held in portfolio by small creditors operating predominantly in rural or underserved areas. The CFPB further instituted a two-year transition period so that the rural and underserved restrictions are not applicable until Jan. 10, 2016, while the bureau continues to study the best way to define those terms. Thus, community banks in all geographies can use the exceptions for their balloon mortgages retained in portfolio during the transition.
Essential extension Despite the accommodations, ICBA remains concerned that compliance with the CFPB’s rules will be difficult for many community banks by the Jan. 10 deadline. That is why the association and community bankers nationwide have urged the bureau to allow compliance to be optional for an additional nine to 12 months.
In an October letter to CFPB Director Richard Cordray, ICBA wrote that the regulations will significantly change the mortgage business of community banks and all of the participants they work with, such as software vendors, servicers, escrow agents, title agents and appraisers. The association expressed concern that community banks will exit the consumer mortgage business due to their frustration and inability to comply with the ever-changing requirements in time and the crippling liability caused by non-compliance.
Community bankers have followed suit. Hundreds have used ICBA’s customizable letter to the bureau backing a deadline extension, which would ensure that community banks and their third-party service providers will be ready in time and that mortgage-lending services to customers will not be disrupted.
Prepare for the worst
While ICBA expects the CFPB to have an open ear about the community banking industry’s request for an extension, community banks must nevertheless prepare for compliance with the Jan. 10 deadline in mind. Fortunately, there are numerous resources available from ICBA and the CFPB. The Mortgage Rules Resource Page on the ICBA website (www.icba.org) includes ICBA summaries of the mortgage rules, one-pagers, comment letters, news releases and more. Meanwhile, the CFPB has been updating its Regulatory Implementation webpage (www.consumerfinance.gov/regulatory-implementation). Among its resources, the CFPB offers a one-pager with a high-level explanation that shows the overall structure of the QM rule, as well as a flowchart that describes only the special QM category of small creditor portfolio loans.
As the CFPB itself has acknowledged, community banks are responsible mortgage lenders and did not participate in the kinds of abuses that drove the financial crisis of 2008 to 2010. Nevertheless, community bankers nationwide will have to be ready for these new mortgage rules, which at press time remained on schedule for implementation in the new year.
While ICBA will continue working closely with the CFPB to extend the mandatory compliance deadline, community bankers cannot plan on a holiday miracle. They will have to make sure their institutions are ready for the Jan. 10 deadline, humbug or not.