Consumer Compliance Outlook
News from Washington: Regulatory Updates
On February 1, 2011, the Board announced that it does not expect to finalize three pending rulemakings for consumer mortgage loans under Regulation Z prior to the transfer of authority for such rulemakings under the Truth in Lending Act (TILA) to the Consumer Financial Protection Bureau (CFPB). In August 2009, the Board issued two significant rulemaking proposals for closed-end mortgage loans and home equity lines of credit (http://www.federalreserve.gov/newsevents/press/bcreg/20090723a.htm). In September 2010, the Board announced the third proposal, which included changes to the disclosures consumers receive explaining their right to rescind certain loans and which would have clarified the creditor's responsibilities if a consumer exercises this rescission right (http://www.federalreserve.gov/newsevents/press/bcreg/20100816e.htm). The proposal also included changes to the disclosures for reverse mortgages, proposed new disclosures for loan modifications, restrictions on certain advertising and sales practices for reverse mortgages, and changes to the disclosure obligations of loan servicers. Under the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank), rulemaking authority for the TILA will transfer to the CFPB. Because Dodd-Frank requires the CFPB to issue a rulemaking that combines the credit disclosures for mortgage loans required by the TILA with the settlement cost disclosures for mortgage loans required by the Real Estate Settlement Procedures Act, the Board determined it would not be in the public interest to issue final rules for the three pending rulemakings. The Board's announcement is available at http://www.federalreserve.gov/newsevents/press/bcreg/20110201a.htm.
On January 31, 2011, the Board, the Farm Credit Administration, the Federal Deposit Insurance Corporation, the National Credit Union Administration, the Office of the Comptroller of the Currency, and the Office of Thrift Supervision announced that the Nationwide Mortgage Licensing System and Registry had commenced accepting federal registrations. Under the Secure and Fair Enforcement for Mortgage Licensing Act and the agencies' final rules, residential mortgage loan originators employed by banks, savings associations, credit unions, or Farm Credit System institutions must register with the registry, obtain a unique identifier from the registry, and maintain their registrations. After the 180-day initial registration period ends on July 29, 2011, any employee of an agency-regulated institution who is subject to the registration requirements will be prohibited from originating residential mortgage loans without first meeting these requirements. The rules include an exception for mortgage loan originators that originated five or fewer mortgage loans during the previous 12 months and who have never been registered; they would not be required to complete the federal registration process. Further information about the registry and registration process is available at the registry's website. The agencies' joint announcement and the Federal Register notice are available at http://www.federalreserve.gov/newsevents/press/bcreg/20110131a.htm.
Legislation extends enhanced protections for service members relating to mortgages and mortgage foreclosures.
On December 29, 2010, President Obama signed into law the Helping Heroes Keep Their Homes Act of 2010. The act extends the protections against mortgage foreclosures and interest rates in excess of 6 percent for service members provided by the Housing and Economic Recovery Act of 2008. In the 2008 act, the protections were scheduled to expire on December 31, 2010. They are now extended until December 31, 2012. These protections include staying foreclosure proceedings against service members during military service and within nine months after their active duty ends. The act also reduces all mortgage interest rates to 6 percent during active duty and one year after their military service is concluded. The original time frames as laid out in the Servicemembers Civil Relief Act of 2003 were during active duty and 90 days after for mortgage foreclosure protection and only during active duty for the interest rate reduction.
On December 22, 2010, the Board issued a clarification of its September 24, 2010, interim rule under MDIA for required disclosures of mortgage loans whose rates or payments can change. The clarification was made in response to public comments. The revised interim rule clarifies that creditors' disclosures should reflect the first rate adjustment for a “5/1 ARM” loan because the new rate typically becomes effective within five years after the first regular payment due date. The revised interim rule also corrects the requirements for interest-only loans to clarify that creditors' disclosures should show the earliest date the consumer's interest rate can change rather than the due date for making the first payment under the new rate. The rule also clarifies which mortgage transactions are covered by the special disclosure requirements for loans that allow minimum payments that cause the loan balance to increase. The interim rule was effective on January 31, 2011, but compliance is optional until October 1, 2011. The Board's announcement and Federal Register notice are available at http://www.federalreserve.gov/newsevents/press/bcreg/20101222a.htm.
On December 21, 2010, the Office of the Comptroller of the Currency, the Board, the Federal Deposit Insurance Corporation, and the Office of Thrift Supervision (agencies) announced that effective January 1, 2011, the definitions of small and intermediate small institutions for Community Reinvestment Act (CRA) examinations will change as follows: “Small bank” or “small savings association” means an institution that, as of December 31 of either of the prior two calendar years, had assets of less than $1.122 billion. “Intermediate small bank” or “intermediate small savings association” means a small institution with assets of at least $280 million as of December 31 of both of the prior two calendar years, and less than $1.122 billion as of December 31 of either of the prior two calendar years. The banking agencies' joint press release and Federal Register notice are available at http://www.federalreserve.gov/newsevents/press/bcreg/20101221a.htm.
On December 15, 2010, the agencies announced changes to the CRA regulations to support stabilization of communities affected by high foreclosure rates. The term “community development” is being revised to include loans, investments, and services by financial institutions that support, enable, or facilitate projects or activities that meet the “eligible uses” criteria and are conducted in designated areas identified in plans approved by the Department of Housing and Urban Development under the NSP. Allowing banking institutions to receive CRA consideration for NSP-eligible activities in NSP-targeted areas serves the CRA's purposes and creates an opportunity to build on government programs in areas with high rates of foreclosure and vacancy. This joint final rule was effective January 19, 2011. The banking agencies' joint press release and Federal Register notice are available at http://www.federalreserve.gov/newsevents/press/bcreg/20101215a.htm. A webinar on this topic is scheduled for April 6, 2011, at 2:00 p.m. EST. You can register at http://www.consumercomplianceoutlook.org/outlook-live/2011/cra-and-hud.cfm.
On December 13, 2010, the Board proposed two rules to amend Regulation Z and Regulation M to implement a provision of the Dodd-Frank Wall Street Reform and Consumer Protection Act. The Dodd-Frank Act increases the transaction coverage of TILA and the Consumer Leasing Act to apply to consumer credit transactions and consumer leases up to $50,000, compared with $25,000 currently. This amount will be adjusted annually to reflect any increase in the consumer price index. The changes under Dodd-Frank become effective on July 21, 2011. Comments on the proposals were due on February 1, 2011. The Board's announcement and Federal Register notices are available at http://www.federalreserve.gov/newsevents/press/bcreg/20101213a.htm.