Consumer Compliance Outlook
News from Washington: Regulatory Updates
On November 27, 2009, the Board of Governors of the Federal Reserve System (Board) and the Treasury Department announced a joint final rule to extend the compliance date for their joint regulation implementing certain provisions of the Unlawful Internet Gambling Enforcement Act by six months to June 1, 2010.
On November 16, 2009, the Board announced an interim final rule under Regulation Z (Truth in Lending) to implement HFSTHA's requirement that a purchaser or assignee that acquires a consumer's mortgage loan must provide notice to the consumer within 30 days of the sale or transfer. To provide compliance guidance and greater certainty on the new requirements, the interim final rule is effective upon publication. However, to allow time for any necessary operational changes, compliance with the interim final rule is optional for 60 days. During the 60-day period, parties that acquire a mortgage loan continue to be subject to the statute's requirements. The Board is also soliciting comment on the interim rule for 60 days before considering the adoption of a permanent rule. The comment period closes on January 19, 2010.
On November 16, 2009, the Board announced proposed rules under Regulation E (Electronic Fund Transfer Act) that would protect consumers from certain unexpected costs and would require that gift card terms and conditions be clearly stated. The proposed rules would prohibit dormancy, inactivity, and service fees on gift cards unless: (1) there has been at least one year of inactivity on the certificate or card; (2) no more than one such fee is charged per month; and (3) the consumer is given clear and conspicuous disclosures about the fees. Expiration dates for funds underlying gift cards must be at least five years after the date of issuance or five years after the date when funds were last loaded. The comment period closed on December 21, 2009.
On November 19, 2009, HUD released a revised version of its FAQs for the new RESPA rules that become effective on January 1, 2010. HUD periodically updates the FAQs to provide more guidance on questions it has received from the real estate industry.
On October 20, 2009, HUD announced amendments to the HOPE for Homeowners (H4H) program via Mortgagee Letter 2009-43, which supersedes Mortgagee Letters 2008-29, 2008-30, and 2009-03 and is effective for endorsements on or after January 1, 2010. Key changes to the H4H program include but are not limited to:
- Borrowers are ineligible if their net worth exceeds $1,000,000;
- Borrowers must not have defaulted on any substantial debt in the last five years;
- The age of appraisal now follows standard FHA guidance;
- Mortgage insurance premiums were reduced;
- Loan-to-value and debt-to-income ratios were revised; and
- The maximum loan-to-value ratio excludes the upfront mortgage insurance premium.
On October 1, 2009, the Task Force on Consumer Compliance of the FFIEC approved examination procedures for Regulation C (HMDA). The updated procedures incorporate the amendments to Regulation C for reporting pricing information on higher-priced loans as published by the Federal Reserve Board in October 2008 (73 Federal Register 63329 ). The changes to Regulation C conform the threshold for rate spread reporting to the definition of "higher-priced mortgage loans" included in amendments to Regulation Z (Truth in Lending) published in July 2008 (73 Federal Register 44522 ). Lenders will use the new rate-spread reporting test on loans for applications that are taken on or after October 1, 2009, and for all loans consummated on or after January 1, 2010, regardless of their application date.
On September 30, 2009, the FFIEC released the 2008 data under the Home Mortgage Disclosure Act of mortgage lending transactions at 8,388 institutions, including information on applications, denials, originations, and loan purchases. The data include 14.2 million applications and originations and 2.9 million purchases, for a total of 17.1 million actions. The 2008 data reflect a 31 percent drop in reported originations from 2007 to 2008. The data also indicate that higher-priced lending (i.e., rate-spread loans) declined from 2007 to 2008. In 2008, about 12 percent of HMDA loans were higher-priced, compared to 29 percent in 2006 and 18 percent in 2007. Additionally, the amount of higherpriced lending in the 2008 data for all racial and ethnic groups was significantly lower than that reported in 2007.
On September 15, 2009, the Board announced that it will implement a consumer compliance supervision program in nonbank subsidiaries of BHCs and FBOs with activities covered by the consumer protection laws and regulations that the Federal Reserve has the authority to enforce. The policy, which will take effect immediately, also provides for the investigation of consumer complaints against these nonbank entities.
On July 29, 2009, the Board issued its new publication "5 Tips for Shopping for a Mortgage," which will help consumers avoid potential pitfalls and make well-informed decisions when choosing a home loan. The guide advises consumers to take advantage of additional information from other Federal Reserve publications, resources, and websites. It suggests that consumers also seek financial education materials from other trusted sources, such as HUD and NeighborWorks. English and Spanish versions of "5 Tips for Shopping for a Mortgage" are available both in print and online.
In November 2008, HUD published a final rule that made significant changes to Regulation X, its implementing regulation for RESPA. The rule included an amendment to the definition of "required use" that would prohibit home builders from offering incentives and disincentives to home buyers if they used or failed to use an affiliated company's services. The amended definition was scheduled to become effective in January 2009. However, HUD later sought additional public comment on the amended definition and delayed its effective date until July 2009. After reviewing the additional comments, HUD announced in May 2009 that it was withdrawing the amended definition. Accordingly, the definition of "required use" at 24 C.F.R. §3500.2(b) pre-dating the November 2008 rule remains in effect.