We have 28 business days until QM is the law of the land, and even after this commentary discussed the CFPB’s policy there still seems to be a small amount of confusion out there about affiliate fees, and the 3% threshold. Paul Mondor did acknowledge that he and other Bureau representatives had voiced policies in the past, and he made a point of indicating that this was the Bureau’s definitive position despite those past, contrary statements. For example, a policy was verbally stated during the MBA Regulatory Compliance Conference last month. Mr. Mondor was a presenter at that conference and repeatedly stated that all fees paid to an affiliate must be counted in the 3% points and fees calculation, regardless of the amount retained by the affiliate. This was, per the CFPB, is incorrect, as what was stated by David Silberman at the MBA’s committee meeting.

Those individuals, and the CFPB, have disavowed those past statements specifically, and want the industry to know it. Last week the commentary noted a conversation, also had last week, with Managing Counsel Paul Mondor regarding affiliate fees and the 3% points and fees calculation for QM loans. The policy is indeed: “just the portion of the fees that is paid to the affiliate and kept by the affiliate is counted in the 3% points and fees calculation.”

End of story on the CFPB’s policy…but that doesn’t stop companies from “overlays” or taking specific actions regarding interpretations. For example, I received this note: “Rob, regarding the 3% threshold for points and fees, some aggregators are taking a very defensive position when it comes to your points about counting all affiliate fees versus the portion that is kept by the affiliate. Some are divesting themselves of ownership interests they have in title entities, for example, for this reason along with ownership interest it had with other affiliates (like credit). LOs at other banks are being told they are going to count 100 percent of the appraisal fee, tax service fee, and flood fee because the lender has ownership interest in all three companies. When I added up all the fees that needed to be counted towards the high fee test it looked like only loans at $100k or less are affected. In all cases my company could still do the loan because we were below the 3 percent (or other cap at lower loan amounts). We cannot, however, offer much of a buy down to borrowers as it would throw us over the cap. The same logic goes for a fee to float down or return to float etc., the fee involved could throw us over the cap. I should mention in our market the origination I was using was in the $800-$1,000 range maximum and I was taking an expensive appraisal price at $550 to calculate. The guys out there charging $1,800+ per origination will likely not be able to do a $100k loan as they will be over the 3% number.”

But lenders should remember that for loans less than $100,000, there is indeed a scaling that happens. Check out page 36. “For a loan to be a QM, the points and fees may not exceed the points-and-fees caps. The points-and-fees caps are higher for smaller loans: 3 percent of the total loan amount for a loan greater than or equal to $100,000, $3,000 for a loan greater than or equal to $60,000 but less than $100,000, 5 percent of the total loan amount for a loan greater than or equal to $20,000 but less than $60,000, $1,000 for a loan greater than or equal to $12,500 but less than $20,000, and 8 percent of the total loan amount for a loan less than $12,500.”

There are many new lending laws going into effect this January; one of which is the addition of section 1024.20 to Regulation X, which requires lenders to provide a loan applicant (one which has applied for a federally related mortgage loan) with a list of homeownership counseling organizations no later than three business days after the lender/LO/Broker receives the completed application. The final rule is effective on January 10^th 2014, and applies to all transactions in which an application is received on or after that date. Agents or organizations required to make this offering will want to acquire the list by either: (a) a CFPB-maintained website, or, (b) data made available by the CFPB or HUD. Those wishing to utilize the first source for the official list can refer to the CFPB’s website which will automatically generate the required list subject to the applicant’s zip code.

And for any doc drawing & funding employees, or escrow folks, who have been taking a really long nap, as a reminder On November 20th the CFPB issued a rule requiring mortgage lenders to provide borrowers with two new mortgage disclosure forms that will replace the existing Initial TIL disclosure, the GFE and the final TIL disclosure. The so-called “know before you owe” mortgage forms were developed to help consumers understand their options, choose the deal that's best for them, and avoid costly surprises at the closing table. Also, the rule sets forth limits to how the final transaction can change from the original loan estimate. The CFPB claim the forms will enable consumers to easily identify risk loan features such as prepayment penalties, balloon payments, and negative amortization loans. The final rule is scheduled to take effect on August 1, 2015.

On November 15, the CFPB announced a settlement with RMIC, who were accused of paying illegal kickbacks to mortgage lenders in exchange for insurance referrals in violation of Section 8 of RESPA.” Buckley Sandler, LLP writes, “The settlement resolves allegations that the company entered into captive reinsurance arrangements with lenders across the country pursuant to which the insurer at first ceded approximately 12% of its premiums per referral to lenders’ captive reinsurers, but over time ceded increasingly large percentages of its premiums—up to 40% for each referral—in exchange for lenders’ continued referral of customers.” Restitution for RMIC comes in the form of a $100,000 in penalties and is subjected to regular and mandatory compliance reporting and monitoring for four years. Plus, the company is enjoined from entering into or otherwise obtaining any new captive mortgage reinsurance arrangements for a period of ten years and, with respect to pre-existing arrangements, must forfeit any right to the funds not directly related to collecting on reinsurance claims (read more...). 15 yard penalty, on the offense, for taunting.

And as mentioned in the commentary last week, payday lenders have not escaped the CFPB’s notice. The writing has been on the proverbial wall for a few years now: the practices of payday lenders will certainly be within the scope of the CFPB. Earlier this summer,  the CFPB gave notice that it would hold supervised creditors accountable for “engaging in acts or practices the CFPB considers to be unfair, deceptive, and/or abusive when collecting their own debts, in much the same way third-party debt collectors are held accountable for violations of the FDCPA.” So it is with no surprise that I read last week the CFPB announced the resolution of an enforcement action against Cash America International, one of the largest payday lenders in the country. The consent decree alleges that the lender and an online lending subsidiary made hundreds of payday loans to active duty military members or their dependents. What’s so wrong with that? Well, it violates the Military Lending Act. In its first action against a payday lender, the CFPB will receive $5 million in penalties, and has ordered $14 million in refunds for the overcharging of customers, the “robo-signing” of documents in debt collection lawsuits and (gulp) “impeding an investigation“. Another 15yrd penalty, on the offense, for taunting.

On November 18, the CFPB published a report that examines the amount of money spent by financial institutions to inform and influence consumers’ decisions about financial products and services. The report finds basis after spending a year researching financial institution’s marketing campaigns; they concluded that financial institutions spend 25 times more money marketing financial products and services to consumers than on educating consumers about them. The CFPB, of course, asserts the need to improve consumers’ access to objective information as opposed to marketing material. The report relays detailed findings about financial education spending across six major sectors and about annual spending on awareness advertising and direct marketing of financial products and services. The complete report can be found here.

And don’t forget that last month the five federal regulatory agencies (FED Board of Governors, CFPB, FDIC, NCUA, and OCC) issued a statement to address industry questions regarding fair lending risks associated with offering ONLY qualified mortgages. According to the CFPB, creditors have asked for clarity regarding whether the disparate impact doctrine of ECOA and its implementing regulation, Regulation B, allows them to originate only Qualified Mortgages. For the reasons described in the statement, the five agencies do not anticipate that a creditor's decision to offer only Qualified Mortgages would, absent other factors, elevate a supervised institution's fair lending risk. The agencies note the decisions creditors will make about product offerings in response to the Ability-to-Repay Rule are similar to decisions creditors have made with regard to other significant regulatory changes affecting particular types of loans. The statement counsels that creditors should continue to evaluate fair lending risk as they would for other types of product selections, including by carefully monitoring policies and practices and implementing effective compliance management systems. Read more here.

In a recent Ballard Spahr CFPB Monitor, they asked an interesting question: should a financial institution sign up to use an online company portal to view consumer complaints submitted about them to the CFPB? Once a bank registers with the CFPB, the agency will give them a portal where they can log into, receive, review, and respond (to the agency) to forwarded complaints which have been logged by consumers. Alan Kaplinsky writes, “Under the Dodd-Frank Act, only large banks are required to respond to the CFPB about how they have handled consumer complaints. However, by registering with the CFPB to access complaints, a company assumes an obligation to follow the CFPB’s procedures set forth in the “Company Portal Manual.” Those procedures include the CFPB’s requirement that all company portal users provide the CFPB with a response to each complaint within 15 days of when the company received the complaint in the portal. A response must include the steps taken to resolve the complaint with the consumer. Within the 15 days, a company can request up to an additional 45 days to provide a response. However, complaints for which a company has not responded within 30 days of receipt (or 60 days if additional time was requested) will be tagged for CFPB review and investigation. The manual states that regular reports are provided to the CFPB Offices of Supervision and Enforcement about complaints for which companies have failed to provide “a timely response.” Sounds like the ever-shrinking lunch hour for Quality Assurance people just got shorter. However, for the “glass half-full” kind of people out there, this could represent an opportunity to mitigate CFPB exposure, as the agency has always made it clear that they will use complaints logged as a deciding factor of which “non-banking” institutions (mortgage originators) to examine. By reviewing complaints through the portal, a company may gain insight into the issues on which the CFPB may focus if the company is examined and an opportunity to be better positioned for such an examination.

By the way, Ken V. asks, “Does the CFPB just come in the door to do an exam, or does it give lenders warning?” That’s an easy one – the CFPB provides a warning several weeks before the exam team walks through the door. The time is used by lenders to gather the (often times) immense number of documents, files, rate sheets, etc., that the CFPB has requested.

Who has time to worry about interest rates when we need to attend to all of this? Well, the markets, which are indeed open today, demand some thought. But can this be any clearer? Fed Chair Bernanke in a recent speech made clear the Fed was committed to keeping short term rates low for an extended period and reiterated the current 6.50% unemployment rate and 2.50% inflation rate are thresholds and not triggers. He said even after the unemployment rate declines below 6.50%, as long as inflation is below 2.50% the Fed would be patient before increasing the Fed funds rate. So yes, of course we’ll see some fluctuations out there, but generally rates should stay put. Wednesday’s closing yield on the 10-yr was 2.74% and we in the very early going, with no scheduled news, we’re at 2.75% with agency MBS prices close to unchanged.