Consumer Compliance Outlook: Second Issue 2018

News from Washington: Regulatory Updates

The Economic Growth, Regulatory Relief, and Consumer Protection Act (EGRRCPA) restores the Protecting Tenants at Foreclosure Act.

As explained in CA Letter 18-4, issued on June 22, 2018, by the Federal Reserve Board, Section 304 of the EGRRCPA bill restored the Protecting Tenants at Foreclosure Act of 2009 (PTFA), effective on June 23, 2018. The PTFA, which is self- executing, had expired on December 31, 2014. The law protects tenants from immediate eviction by persons or entities that become owners of residential property through the foreclosure process and extends additional protections for tenants with U.S. Department of Housing and Urban Development Section 8 vouchers.

The Bureau of Consumer Financial Protection (BCFP) amends its “Know Before You Owe” (KBYO) mortgage disclosure rule.

On April 26, 2018, the BCFP issueda final rule to amend its KBYO mortgage disclosure rule to address a situation relating to revised estimated closing costs that had led touncertainty and created implementation challenges in the residential mortgage market.

The BCFP had received industry feedback, regarding the KBYO mortgage disclosure rule, seeking clarification to determine when creditors with a valid justificationmay pass increased closing costs on to consumers after providing a Closing Disclosure. In some cases, creditors who had already provided a Closing Disclosure to consumers learned of valid closing cost increases (e.g., because ofchanged circumstance or borrower request) but were unable to issue a revised disclosure because of a timing restriction under the rule regarding whencreditors may use a Closing Disclosure to communicate closing cost increases to consumers. In these circumstances, creditors would be prevented from charging consumers for valid closing cost increases, leading in some cases to creditors passing these increased costs on to other consumers by pricing loan products with added margins or even to creditors denying applications on which they could not pass along valid increased closing costs after providing an initial Closing Disclosure. The amendment, which was effective on June 1, 2018, removes this KYBO timing restriction issue by providing that creditors may use a Closing Disclosure to reflect valid changes in closing costs to determine if an estimated closing cost was disclosed in good faith, regardless of when the Closing Disclosure is provided relative to consummation.

The BCFP publishes a snapshot of consumer complaints, focusing on debt collection.

On May 31, 2018, the BCFP published its most recent Complaint Snapshot, which contains data from March 2018. The BCFP's Complaint Snapshot reports are designed to give a high-level overview of consumer complaint trends and update to the Bureau's Consumer Response Annual Report by providing more recent information. The May 31, 2018, Complaint Snapshot revealed that the BCFP had received about 400,500 consumer complaints regarding debt collection since the agency's inception in 2010, representing about 27 percent of all consumer complaints received. The report also indicated that credit or consumer reporting was the highest-volume consumer complaint category, with approximately 30,300 consumer complaints (representing about 37 percent of the monthly total). Debt collection (representing about 27 percent of the monthly total) and mortgages (representing about 10 percent of the monthly total) were the second and third highest-volume consumer complaint categories that month, respectively.

In addition to providing information regarding consumer complaint volume by product, the report provides corresponding information regarding consumer complaint volume by state (including Washington, D.C.) of the consumer complainant's residence.

The Complaint Snapshot also provided granular information about debt collection consumer complaints received by the BCFP since its inception. For example, medical (14 percent), credit card (14 percent), and payday loan debt (9 percent) collection ranked among the highest-volume categories debt collection consumer complaints, with “other debt” (33 percent) and “I don&'t know” (23 percent) representing the largest categories.

The Federal Financial Institutions Examination Council (FFIEC) agencies issue revised interagency examination procedures for Regulation X and Regulation Z.

On April 19, 2018, the Federal Reserve Board issued CA Letter 18-3, which transmits revised interagency examination procedures for Regulation X (Real Estate Settlement Procedures Act; RESPA) and Regulation Z (Truth in Lending Act; TILA). These procedures were updated by the FFIEC agencies to reflect BCFP mortgage servicing amendments to Regulation X and Regulation Z as well as other Regulation Z amendments, including rules related to mortgage lending by small creditors serving rural and underserved areas. The CA letter noted that amendments to Regulation Z regarding the BCFP's TILA-RESPA integrated disclosure rule and prepaid accounts were not incorporated into the revised procedures and will be addressed in a future update.

The FFIEC releases 2017 mortgage lending data.

On May 7, 2018, the FFIEC released data on the mortgage lending activity of 5,852 U.S. financial institutions covered by the Home Mortgage Disclosure Act (HMDA) during 2017. The HMDA data are the most comprehensive publicly available information on mortgage market activity. The data both help the public assess whether financial institutions are serving the housing needs of their local communities and inform federal financial regulators&' fair lending and consumer compliance examinations. For 2017, the number of reporting institutions declined by 13 percent. This decline resulted, in part, from the BCFP's amendments to Regulation C (HMDA) that raised the threshold for reporting HMDA from originating at least one nonexcluded home purchase or refinance of a home purchase loan in the prior year to originating at least 25 such loans in each of the two preceding calendar years.

The data include:

Applications, originations, purchases of loans, sales of loans, denials, and other actions related to applications;
Loan amounts;
Loan types (conventional, Federal Housing Administration (FHA), Veterans Administration (VA), Rural Housing Service (RHS), or Farm Service Agency (FSA));
Purposes (home purchase, home improvement, or refinancing);
Property types (1-4 family, multifamily, or manufactured housing)
Owner occupancy;
Preapprovals (home purchase loans only);
Property locations (metropolitan statistical area (MSA), state, county, and census tract);
Applicant and coapplicant characteristics (race, ethnicity, sex, and outcome);
Pricing-related data;
Type of purchasers;
Whether a particular loan is subject to the Home Ownership and Equity Protection Act (HOEPA); and
Whether a particular loan is secured by a first or a subordinate lien, or is unsecured.

The 2017 data revealed that:

The total number of originated loans decreased by 12.4 percent between 2016 and 2017.
The share of first-lien owner-occupied home-purchase loans and first-lien owner-occupied refinance loans originated by nondepository, independent mortgage companies increased by 2.8 percent and 3.6 percent, respectively, between 2016 and 2017.
The government-backed share of first-lien home purchase loans for one- to four-family, site-built, owner-occupied properties decreased by 2.4 percent between 2016 and 2017.
The incidence of higher-priced loans (defined as loans with an annual percentage rates that exceeds average prime offer rates by at least 1.5 percent for first-liens loans and by at least 3.5 percent for subordinate lien loans) increased 1.4 percent between 2016 and 2017.
From 2016 to 2017, the share of first-lien home purchase loans for one- to four-family, site-built, owner-occupied properties that were made to low- and moderate-income borrowers rose slightly, by 0.1 percent, and the share of refinance loans to this class of borrowers increased by 6.0 percent.
Between 2016 and 2017, the share of home purchase loans for one- to four-family properties made to black borrowers rose 0.4 percent; the share made to Hispanic-white borrowers remained unchanged; and the share made to Asian borrowers increased by 0.3 percent.
From 2016 to 2017, the share of refinance loans made to black borrowers increased by 1.0 percent; the share made to Hispanic-white borrowers increased 0.6 percent; and the share made to Asian borrowers fell by 1.5 percent.
In 2017, black and Hispanic-white applicants experienced higher denial rates for conventional home purchase loans than non-Hispanic white applicants, while the denial rate for Asian applicants was more comparable with that of non-Hispanic white applicants.

The CFPB summary of the 2017 mortgage lending data is available on the CFPB website. The CFPB provided an interactive tool for searching and analyzing the HMDA data, which is also on the website.