The importance of understanding which new mortgage requirements apply to which loan product (and which credit union) was certainly a key issue as credit unions worked diligently to implement the various mortgage regulations finalized by the Consumer Financial Protection Bureau (CFPB). In some cases, the scope of the new regulations depended on which subsection of the new rule was being implemented. In others, whether a particular credit union was required to provide a disclosure or draft specific procedures depended on the credit union’s size or the number of mortgage loans they originated or serviced.
Charts were created, exemptions were reviewed and “mortgage loans” were counted to determine whether a particular credit union was required to comply with a specific requirement. That was all part of the process for implementing the mortgage rules which became effective earlier this month.
The CFPB’s new Integrated Mortgage Disclosure rules will not cause as many headaches for credit unions as they determine which loan products are covered. Don’t get me wrong, implementing the numerous nuances related to the new mortgage disclosures will not be easy. Not by any stretch of the imagination. Definitions are being amended, timing rules are being tweaked, and tolerance levels adjusted – just to name a few of the required changes. However, credit unions can start off strong by understanding which of their loan products will be covered and, then, begin the process of updating their current procedures to comply with the new rules.
No Small Creditor Exemption
Initially, it is important for all credit unions to understand that there are no exemptions from the CFPB’s Integrated Mortgage Disclosure rules. A credit union that originates 20 closed-end home equity loans will need to comply with the rules to the same extent as a credit union originating 800 purchase-money mortgage loans. Additionally, regardless of the credit union’s asset size, the new rules apply to any credit union accepting an application for a covered mortgage loan on or after August 1, 2015.
So, which mortgage loans are covered?
The new rules apply to closed-end consumer transactions secured by real property. This includes both first lien and subordinate liens. It also included purchases, refinances and closed-end home equity loans. Further, the CFPB included vacant-lot loans, loans on 25 or more acres and construction-only loans in the scope of the new rules. In short, if a consumer loan will be secured by real property – it will be covered by the new mortgage disclosure rules.
Which loans are excluded?
The new rules do not apply to open-end home equity lines of credit (HELOCs), reverse mortgages or chattel-dwelling loans. For example, the new rules will not apply to manufactured homes that are secured by personal property under state law. These loan products will continue to be covered by the existing regulatory requirements – for now. The CFPB indicated in the final rule that it “plans to address integrated disclosure requirements for chattel-dwelling-secured loans, as well as reverse mortgages and HELOCs, in future rulemakings.” Additionally, the new rules will not apply to business or commercial loans.
While the August 1, 2015 compliance deadline seems distant, it is important for credit unions to begin their implementation plans early and the best place to start is by reviewing their existing loan products. By understanding which loans are covered by the new mortgage disclosures, credit unions will have a better idea of the time and effort involved in their next mortgage implementation project.