New CFPB Regulations And What They Mean For Credit Union Mortgage Lending

By Mike Eggleston, TruHome Solutions

Is it just me, or are there a lot more lawyers involved in the mortgage industry today? Gone are the days when a seasoned mortgage professional could deal with the company’s compliance issues on a part-time, “when they had time” basis. Instead, lenders are dealing with a broader legal landscape and ever-expanding regulations that require their immediate and full-time focus. There’s never been a greater need to dedicate sufficient resources to create a robust compliance department, or at the very least, outsource to one.

My message today for credit unions contains both good and bad news. And because I believe in delayed gratification, I’ll deliver the bad first: mortgage lending regulations aren’t going away. In fact, they are getting more complicated.

Earlier this month the Consumer Financial Protection Bureau (CFPB) issued major new regulations that will essentially change the home-buying process for most purchasers. The regulations were designed to reduce risky loans and protect consumers from irresponsible mortgages. Here’s a quick summary of some of the new directives:

  • Ability to Repay and Qualified Mortgage Standards under the Truth in Lending Act (Regulation Z): requires that financial information be supplied and verified to ensure the borrower has sufficient assets or income to repay the loan. The ability to repay must be based over the long term, which restricts the use of teaser rates. The  regulation also stipulates that qualified mortgages may not have excess upfront points and fees or toxic loan features  and must include a cap on how much of the borrower’s income can be spent paying on debt.
  • High Cost Mortgage and Homeownership Counseling Amendment to Truth in Lending Act (Regulation Z), and Homeowner Counseling Amendments to RESPA (Regulation X): expands the types of mortgage loans that are subject to the protections of the Home Ownership and Equity Protections Act (HOEPA) and revises and expands the test for coverage under HOEPA. This regulation also imposes additional restrictions on mortgages that are covered by HOEPA, including a pre-loan counseling requirement.
  • Escrow Requirement under the Truth in Lending Act (Regulation Z): implements statutory changes made by the Dodd-Frank Act regarding length of time for which a mandatory escrow account established for a higher-priced mortgage loan must be maintained.

In addition, the CFPB also recently announced regulations dealing with mortgage servicing rules under Regulations X and Z, appraisal rules issued jointly with other agencies and loan originator compensation requirements under Regulation Z.

And the kicker is: all of these regulations go into effect in the next 6-12 months! Second kicker? We expect more and more regulations from the CFPB to follow, and on a regular basis.

Is your mortgage lending department armed with the manpower and level of expertise necessary to ensure operational compliance with these regulations (and those that will surely follow) across all lending and servicing functions? Is it prepared to invest the resources (people and money) necessary to get to that point? If your answer is “no” to the questions above and your credit union doesn’t have a well-staffed, trained and competent quality control/compliance department by the end of 2013, it could be at risk of running into serious and costly regulatory issues with state and federal agencies.

If nothing, I’m a man of my word, and I did promise good news.

Seek a Mortgage CUSO for Compliance Solutions
For those credit unions that do not have (or do not wish to spend) the time and money necessary to hire the compliance experts required by today’s complex mortgage regulations, there is another option—outsourcing the lending and compliance function to a trusted mortgage credit union servicing organization (CUSO).

There are numerous qualified CUSOs out there that provide such services for their credit union clients, TruHome Solutions being one of them. These CUSOs specialize in all things mortgage, including quality control and compliance, so why not hand off the complicated responsibility to these trusted experts? One note of caution: Make sure they are staffed with departments of professionals hired specifically to master the intricacies and legal nuances of today’s lending environment, and who keep up with the ever-changing regulatory requirements. Then, your credit union can feel confident knowing that the CUSO handles all quality control initiatives, including internal audit functions and training, related to the lending activity that they also handle for you. After all, wouldn’t it be nice to eliminate operational risk and the need to stay abreast of every new regulation and requirement coming down the pike?

In the end, it’s up to each credit union to determine what controls and measures it needs to sufficiently run a legally compliant mortgage lending operation. What’s important is that credit unions begin their plans to bolster compliance now, because these new regulations (and those to come) will affect them in 2014 and beyond—ready or not.

Mike Eggleston

Mike Eggleston

Mike Eggleston is Vice President of Legal & Compliance at TruHome Solutions, a Credit Union Mortgage Service Organization, providing a full range of private label services to credit unions (including ... Web: www.truhomesolutions.com Details