Alert June 25, 2013

CFPB Issues Proposal to Clarify Mortgage Rules

To resolve issues "identified during the implementation process," the CFPB issuedproposal to clarify and make "narrow" revisions to the mortgage rules it finalized in January (see January 22, 2013 Alert). The proposal seeks to clarify several provisions of the mortgage servicing rules. First, the CFPB seeks to amend the loss mitigation provisions under the implementing regulation for the Real Estate Settlement Procedures Act, Regulation X. For example, the proposal seeks to allow servicers the flexibility to offer short-term forbearance plans to borrowers with incomplete loss mitigation applications. Second, the proposal seeks to revise the definition of points and fees for purposes of the cap on points and fees under the qualified mortgage rule (see January 10, 2013 Alert) and the threshold for points and fees for high-cost mortgages. In particular, the proposal seeks to add commentary to clarify what compensation must be counted as loan originator compensation for retailers for manufactured homes and their employees. For example, the sales price would not be compensation that is paid for loan origination activities. Third, while it re-examines the definitions of "rural" and "underserved," the CFPB proposed two exceptions for small creditors. For example, under the proposal, all small creditors, regardless of whether they operate in predominantly "rural or underserved" areas will be permitted to originate balloon high-cost mortgages if the loans meet the requirements for qualified mortgages. Fourth, the CFPB seeks to revise the definition of "loan originator.” In particular, the proposal and commentary addresses when certain administrative or clerical employees of a creditor or loan originator become “loan originators” and subject to the loan originator compensation rule (see January 22, 2013 Alert). For example, under the proposal, the definition of “loan originator” does not include an employee of the creditor or loan originator who provides loan originator or creditor contact information to a consumer, provided the employee does not, among other things, “discuss particular credit terms available from a creditor.” Fifth, the proposal clarifies when credit insurance premiums are considered to be calculated and paid on a monthly basis for purposes of the statutory exclusion from the prohibition for certain credit insurance premium calculation and payment arrangements. Recently, the CFPB delayed implementation of the prohibition on credit insurance premiums (see June 6, 2013 Alert). Finally, the CFPB seeks to change the effective date of certain provisions of the rules governing loan originator compensation (e.g., scope, compensation, anti-steering) to be effective on January 1, 2014 as opposed to January 10, 2014. Comments are due by July 22, 2013.