Regulation Z – Consumer Financial Services Watch

DACA Recipients Are Ineligible for FHA Mortgage Insurance Officially, but Lending to DACA Recipients and Other Immigrant Communities Is Subject to Many Unresolved Compliance Challenges

Jun 27 2019

By Andrew C. Glass, Gregory N. Blase, and Daniel S. Cohen

For the past six months, the mortgage lending industry has reported receiving conflicting messages from the Department of Housing and Urban Development (“HUD”) and the Federal Housing Administration (“FHA”) regarding Deferred Action for Childhood Arrivals (“DACA”) recipients’ eligibility for FHA-insured mortgages. In December 2018, Senators Robert Menendez (D-NJ), Cory Booker (D-NJ), and Catherine Cortez Masto (D-NV) asked HUD to clarify whether it has “developed a policy regarding DACA recipients’ eligibility for FHA-insured mortgage loans.” If not, the senators requested HUD to “promptly provide clear and written guidance to FHA-approved lenders clarifying” that DACA recipients are not ineligible for FHA insurance simply because of their DACA status. [1] In response, HUD issued a letter explaining that is has “not implemented any policy changes” with respect to “FHA’s eligibility requirements” for non-U.S. citizens who are lawful residents. HUD reiterated that “non-U.S. citizens without lawful residency are ineligible for FHA financing.” [2] In early 2019, Fannie Mae issued a guide regarding “non-citizen borrower eligibility,” explaining that mortgages provided to DACA recipients are eligible to be purchased by Fannie Mae because DACA recipients are lawful nonpermanent residents because they have a valid Employment Authorization Document number. [3] During congressional testimony in April, HUD Secretary Ben Carson seemingly clarified that DACA recipients are eligible for FHA-insured mortgages. The secretary commented that “plenty of DACA recipients … have FHA mortgages,” and that he would be surprised if lenders received statements to the contrary from HUD staff.

VA Issues QM FAQs, Focuses on IRRRLs

Jan 29 2016

On May 9, 2014, the Department of Veterans Affairs (“VA”) issued an Interim Final Rule defining which VA-guaranteed loans would be “qualified mortgages” or “QMs” for the purposes of the Truth in Lending Act’s (“TILA”) ability-to-repay requirements. With its recent release of Circular 26-13-3, the VA has now clarified the application of that rule through FAQs focusing largely on Interest Rate Reduction Refinance Loans (“IRRRLs”). These loans are VA streamlined refinances, which generally allow for reduced income verification for eligible veterans’ loans. IRRRLs represent a small sliver of mortgage lending in the United States, but their treatment under VA’s Interim Final Rule has presented significant problems for some lenders.

Tweaks to TRID – CFPB Issues Final Rule Amending Integrated RESPA/TILA Disclosure

Feb 04 2015

By: Kristie D. Kully

The Consumer Financial Protection Bureau recently issued a final rule amending certain aspects of its integrated disclosure requirements under the Real Estate Settlement Procedures Act and the Truth in Lending Act. The CFPB gave the mortgage lending and settlement industries over 18 months—until August 1, 2015—to prepare for the comprehensive overhaul of the disclosures provided to consumers upon application for and settlement of most residential mortgage loans. (Some have called that overhaul effort “TRID”—the TILA/RESPA Integrated Disclosures.) During that preparation time, the CFPB has learned of the need for corrections or improvements to those complex requirements. In its latest rulemaking, the CFPB attempts to fix certain issues related to providing a revised Loan Estimate disclosure (the first part of TRID) when a creditor and consumer decide to lock in the interest rate or other charges, and when the creditor expects a long construction period prior to settlement. The new rule also requires loan originators to include their names and identification numbers on the Loan Estimate and the Closing Disclosure (the second part of TRID), and clarifies how creditors must disclose per diem interest. Below, is a description of the changes that the CFPB’s most recent rulemaking makes to the disclosure requirements under the original TRID rule.

Mortgage Broker or Mini-Correspondent: CFPB Issues Policy Guidance on Questions for Consideration

Jul 18 2014

By: Holly Spencer Bunting, Anaxet Y. Jones

In response to what the CFPB views as an increasing trend among mortgage brokers shifting to a mini-correspondent lender model, the CFPB recently issued “Policy Guidance on Supervisory and Enforcement Considerations Relevant to Mortgage Brokers Transitioning to Mini-Correspondent Lenders” (“Policy Guidance”) regarding the application of Regulations X (RESPA) and Z (TILA) to transactions involving mini-correspondent lenders. In addition to providing background on the differences between brokers and mini-correspondents and certain requirements of Regulations X and Z, the Policy Guidance identifies questions the CFPB may consider when reviewing mini-correspondent transactions and the relationship between the mini-correspondent lender and the investor as part of CFPB examinations or enforcement actions. The CFPB, however, stops short of drawing any lines in the sand between what it considers to be brokered transactions and bona fide secondary market transactions under the mini-correspondent model. Read More

VA Issues Interim Final Rule Defining Qualified Mortgages

May 12 2014

By: Jonathan D. Jaffe, Eric Mitzenmacher

On May 9, the United States Department of Veterans Affairs (“VA”) issued an interim final rule defining which VA-guaranteed and VA-originated loans will have qualified mortgage (“QM”) status under the Truth-in-Lending Act’s (“TILA’s”) Ability to Repay (“ATR”) rule. Read More

CFPB Brings First Action for Violations of Loan Originator Compensation Rule

Jul 25 2013

By: Jonathan D. Jaffe, Rebecca Lobenherz

On July 23, the Consumer Financial Protection Bureau (CFPB) sued a national mortgage lender and two of its officers for allegedly violating Regulation Z’s loan originator compensation rule (the LO Comp Rule or the Rule) by paying bonuses to employees for steering borrowers to loans with higher interest rates. (See here.) The case was referred to the CFPB by investigators with the Utah Department of Commerce, Division of Real Estate. This is the first publicly announced judicial action the CFPB has brought enforcing the Rule. Read More

Credit Card Repayment Ability Fix Issued by CFPB

May 08 2013

By: David A. Tallman , Eric Mitzenmacher

Financial life just got a little bit easier for stay-at-home moms and dads. For over a year and a half, regulations originally promulgated by the Federal Reserve (and reissued by the CFPB) have restricted credit access for “spouses and partners who do not work outside the home,” based on an interpretation of the Credit Card Accountability, Responsibility, and Disclosure Act (the “CARD Act”) that required a creditor to consider a card applicant’s “independent” ability to repay any credit extended. On May 3, the CFPB finalized amendments to Regulation Z that loosen the credit card underwriting standards, allowing consumers over age 21 to qualify based on any income to which they have a “reasonable expectation of access.” By acknowledging that the practical aspects of interfamily relationships may sometimes support a determination that a consumer has an ability to repay even when the consumer may not have a formal legal right to the underlying income or assets, the Bureau acquiesced to the requests of a broad-based coalition of politicians, consumer groups, and credit card issuers to remove an artificial barrier to the ability of stay-at-home spouses and partners to obtain and build credit.

FTC Mobile Payments Workshop: Providers Are Poised to Take Steps Forward. How Will Regulators Respond?

May 02 2012

By: Eric Mitzenmacher

On April 26th, the FTC gathered private sector representatives, regulators, and academics for a workshop to discuss the state of the mobile payment industry. Some commentary has interpreted regulators’ comments at the workshop to be a signal that regulators intend to use a “light touch” as the industry matures, but the phrase only partially hits the mark. Read More

Tag:Regulation Z