Transcript No Slide Title

Regulation Z
The Reg…It Is A Changin’
June 30, 2009
1
Reg. Z Background
• Promotes the informed use of consumer credit
• Provides disclosures for terms and costs
• Enhances advertising intended to assist
consumers in comparison shopping for credit
2
History of the Changes
• Fed issued new changes for the early TIL to be effective
10-1-09 but….
• Congress passed the Housing and Economic Recovery Act in
July 2008, which included the Mortgage Disclosure
Improvement Act…
• Congress wins! The changes to the early TIL become
effective 7-30-09.
• Fed issues implementing regulation for the MDIA on
May 8, 2009.
Copyright 2009, Integrated Compliance Solutions, LLC
3
Goal of Regulation Z Changes
• Provide additional consumer protections for
mortgage and home-equity loans
• Prevent unscrupulous subprime lending; other
sections apply to all loans secured by a
consumer’s principal dwelling
• Protect consumers from unfair credit billing
and credit card practices
4
Effective Dates
•July 30, 2009: Early disclosure timing, re-disclosures
and early fee collection rules
•October 1, 2009: Advertising and higher-priced
mortgage provisions (except the escrow rules)
•April 1, 2010: Escrow requirements for first-lien
higher- priced loans and HOEPA-covered loans
•October 1, 2010: Escrow requirements for
manufactured homes
•July 1, 2010: Open-end credit card disclosures
5
Summary of Changes
•Creates new category of loans – “higher-priced”
mortgage loans and additional protection for these loans
•Lenders are now required to evaluate a borrower’s
ability to repay the loan.
•Prohibits lenders and brokers from coercing a real
estate appraiser regarding a home’s value.
•Prohibits specific mortgage servicing practices.
6
Changes continued….
•Additional advertising disclosures for loan rates,
monthly payments
•Changes the advertising rules, specifically for RESecured loan ads
•New early TIL disclosure within three days after a
consumer applies for a loan that will be secured by a
consumer’s principal dwelling; early fee restrictions
Note – this includes home equity loans, second homes
or a loan to refinance a consumer’s existing REM.
7
Are You Ready ? ?
Over 800 pages of guidance!
8
For All Mortgage Loans
For all consumer purpose closed end secured
by a consumer’s principal dwelling –
•Creditors & Brokers are prohibited from
coercing an appraiser regarding value of a
dwelling
9
For All Mortgage Loans
•Prohibits mortgage servicers from
“pyramiding” late fees, failing to credit
payments as of the date of receipt
•Mandates mortgage servicers provide loan
payoff statements upon request within a
reasonable time (5 days after request
received)
10
Let’s Get Started!
• One of the important concepts for the provision of the
early TIL concerns the definition of “business
day”…there are 2!
– General Definition (as referenced in the preamble to the Reg)Means a day on which the creditor’s offices are open to the
public for carrying on substantially all of its business functions.
– Precise Definition (per the preamble)-all calendar days except
Sundays and specific legal public holidays’
• This is the definition for rescission purposes as well.
• Applies to Sections 226.15, 226.19(a)(1)(ii), 226.19(a)(2), 226.23
and 226.31
Copyright 2009, Integrated Compliance Solutions, LLC
11
General Disclosure Requirements
• The early disclosure requirements apply to:
– Closed end loans that are:
– Covered by RESPA and
– Secured by a dwelling
• Expanded to include any extensions of credit
secured by the dwelling of a consumer (i.e., home
refinance loans, home equity loans and 2nd homes)
• Does not include HELOCs, business purpose,
modifications, construction-only loans
Copyright 2009, Integrated Compliance Solutions, LLC
12
Content of Early Disclosures
New Notice Required on TIL Form:
• Must include clearly and conspicuously:
“You are not required to compete this agreement merely because
you have received these disclosures or signed a loan application.”
• Must be on Early TILs for all applications received on or after July
30, 2009.
Copyright 2009, Integrated Compliance Solutions, LLC
13
Timing of Early Disclosures
• Must be provided no later than 3 days (“general” definition) after
receipt of a written application (received on or after July 30, 2009.)
• The consumer cannot be required to pay any fee except for
obtaining a credit report until the early TIL is received:
• If given in person-received when handed to applicant
• If mailed, deemed received 3 business days after mailing
– Business day definition is that used for rescission. (Precise)
• Must wait a minimum of 7 business days before loan can close
– Begins when disclosures are delivered or placed in the mail
– Closing can occur any time on 7th day after delivery
Copyright 2009, Integrated Compliance Solutions, LLC
14
Counting the Days…
SUN
MON
TUE
WED
THU
FRI
SAT
June 1
June 2
(1)
June 3
(2)
June 4
(3)
June 5
(4)
Ok to
collect
fees
June 6
(5)
June 9
(7)
Earliest
day loan
can close
June 10
June 11
June 12
June 13
Early TIL
delivered
June 7
June 8
(6)
Business day (Precise Definition) –Monday through Saturday, excluding Sundays and Federal Holidays.
Period begins when early disclosures are delivered by the bank not when received by the consumer. Count
like you would for rescission.
Copyright 2009, Integrated Compliance Solutions, LLC
15
My Early TIL is Wrong!!
• Triggered by APR outside of tolerance
– No new disclosure required if APR is originally overstated or
within tolerance (.125% fixed, .25% ARM/construction)
• Need to provide
– New set of disclosures
• Do not need to highlight changes
– Re-disclose only the changed terms
• Must disclose all new terms.
• For example, a different APR will probably require disclosure
of a new finance charge and payment schedule
Copyright 2009, Integrated Compliance Solutions, LLC
16
My Early TIL is Wrong!!
• Corrected disclosure must be received by consumer no
later than 3 business days before consummation
– Depending on timing of discovery of error, creditor may be
required to delay closing
– If delivered in person, consummation may occur any time on the
3rd business day following delivery (Precise definition)
– If provided by mail, the consumer is considered to have received
disclosures 3 business days after they are placed in the mail
• This also applies to electronic mail or courier delivery
• If electronic disclosures are provided consistent with the ESIGN Act or overnight courier is used, creditor can rely on
evidence of actual delivery such as a certified mail receipt or
email to determine start of 3 business day waiting period.
Copyright 2009, Integrated Compliance Solutions, LLC
17
My Early TIL is Wrong!!
• Assume loan is to close June 11 with a disclosed APR of 7.00%.
– On June 11, the APR will be 7.10%. A corrected disclosure is not
needed
– On June 11, the APR will be 7.15%. A corrected disclosure is needed
1. SUN
June 7
MON
TUE
WED
THU
FRI
SAT
June 1
June 2
June 3
June 4
June 5
June 6
June 8
June 9
June 10
June 11
June 12
June 13
Revised
disclosure
given hand
delivered
Copyright 2009, Integrated Compliance Solutions, LLC
Schedul
ed
closing
18
My Early TIL is Wrong!!
• What happens in revised disclosure is mailed?
1. SUN
June 7
MON
TUE
WED
THU
FRI
SAT
June 1
June 2
June 3
June 4
June 5
June 6
June 8
June 9
Receipt
Day 1
June 10
Receipt
Day 2
June 11
Received
June 12
Day 1 to
closing
June 13
Day 2 to
closing
June 16
June 17
June18
June 19
June 20
Revised
disclosure
mailed to
consumer
June 14
June 15
New
closing
date
Copyright 2009, Integrated Compliance Solutions, LLC
(Original
scheduled
closing)
19
My Early TIL is Wrong!!
•
Remember! Consummation may not occur until both the 7 business day
waiting period and the 3 business day waiting periods have expired.
SUN
MON
TUE
WED
THU
FRI
SAT
June 1
June 2
(1)
June 3
(2)
June 4
(3)
(1)
June 5
(4)
(2)
June 6
June 11
June 12
Revised
disclosure
delivered
in person
Early TIL
delivered
June 7
June 8
(6)
June 9
(7)
Earliest
day loan
can close
Copyright 2009, Integrated Compliance Solutions, LLC
June 10
(5)
(3)
After
receipt of
corrected
disclosures
June 13
20
My Early TIL is Wrong!!
•
Remember! Consummation may not occur until both the 7 business day
waiting period and the 3 business day waiting periods have expired.
SUN
MON
TUE
WED
THU
FRI
SAT
June 1
June 2
(1)
June 3
(2)
June 4
(3)
(1)
June 5
(4)
(2)
June 6
(5)
(3)
Revised
disclosure
mailed
Early TIL
delivered
June 7
June 8
(6)
(1)
June 9
(7)
(2)
Original
scheduled
closing
Copyright 2009, Integrated Compliance Solutions, LLC
June 10
Receipt of
corrected
disclosures
June 11
June 12
June 13
(3)
Earliest
day loan
can close
21
Consumer Waiver
• A consumer may waive or modify the right to the 7 or
additional 3-day waiting period after disclosures are
made, provided…
– Consumer must have a bona fide personal financial emergency
• Bona fide personal financial emergency is to be based on the facts
of each case. No examples given in regulation.
• Should not be used routinely
– Waiver must
• Be written (preprinted forms not allowed)
• Consistent with the requirements of waiver for a rescission period
• Signed by each consumer who will be primarily liable on the legal
obligation
• If multiple consumers are liable, creditor may provide disclosures to
one
Copyright 2009, Integrated Compliance Solutions, LLC
22
Rules for Timeshares
• If the APR becomes inaccurate, creditor must disclose
all changed terms no later than consummation or
settlement. (3 days does not apply)
• General definition of business days apply: days
creditors offices are open to the public for carrying on
substantially all of its business functions.
Copyright 2009, Integrated Compliance Solutions, LLC
23
Let’s Summarize….
•
•
•
•
•
•
•
•
Provide early TIL disclosures to all consumer dwelling-related applicants
within three days of receipt of the application (old timing)
Can only charge a fee for a credit report prior to the consumer’s receipt of
the TIL disclosure
Must include the statement “You are not required to complete this
agreement merely because you have received these disclosures or signed
a loan application.” on the early TIL
Must re-disclose if a TIL disclosure is inaccurate
Consummation of the loan cannot take place any earlier than the seventh
business day (“precise”) from the day the early TIL was provided
If a corrected TIL was provided, consummation of the loan may not occur
until three business days (“precise”) after the consumer receives the
corrected TIL
Can waive waiting periods for only bona fide personal financial emergency
For timeshares, provide the TIL the earlier of within three business days of
receipt of an application or before consummation occurs, whichever is
earlier
Copyright 2009, Integrated Compliance Solutions, LLC
24
New Category of Loan
“Higher Priced” Mortgage Loan –
Is a consumer-purpose closed-end loan secured by a
consumer’s principal dwelling and having an annual
percentage rate (APR) that exceeds the “average prime
offer rate” for a comparable transaction published by
the Board by at least 1.5 percentage points for first-lien
loans, or 3.5 percentage points for subordinate lien
loans.
Determine after Rate Lock or the last time the rate is
set prior to closing (has to be “final” APR).
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Business Day Requirements
Regulatory Requirement
Initial disclosures: 3 BD of application
 Consumer presumed receipt: 3 BD after
mailing disclosures
 Consummation can occur: 7 BD from
providing or mailing disclosures
 Corrected disclosure received: 3 BD before
consummation
 Time share disclosures: 3 BD of application
 Right of rescission: 3 BD from
consummation
 Reverse mortgage consummation: 3 BD
after receipt of disclosures
Definition
General

Precise






BD=Business Day
Copyright 2009, Integrated Compliance Solutions, LLC
26
Average Prime Offer Rate?
For the foreseeable future, the Board will
obtain or, as applicable, derive average prime
offer rates from the Freddie Mac Primary
Mortgage Market Survey.
They will be published each Thursday.
Comparable Transaction Tables are now
available on the FFIEC’s Rate Spread
Calculator page in Excel format:
http://www.ffiec.gov/ratespread/default.aspx
27
“Higher Priced” Mortgage Loan
•Includes home purchase loans, refinances
and equity installment loans (all typical
closed-end RE products, all lien positions)
•Excludes: reverse mortgages,
construction-only loans, HELOCs and
Bridge loans
28
Higher Priced Mortgage Loans
Protections for these loans include –
•Must verify consumer’s ability to repay from
sources other than the collateral
•Must verify income and assets you are relying on
to repay the debt (with documents!)
•Prohibits prepayment penalties – with a few
exceptions
•Requires lenders to establish escrow accounts for
taxes and insurance
29
Higher Priced Mortgage Loans
WARNING:
You cannot make an equity loan that would fail
the HPM test into a HELOC to avoid the rules.
That would be a serious violation under the
revised regulation!
30
Ability to Pay
•Verifying repayment ability has been made a
requirement (most of you are already doing this
anyway)
•Sources of repayment ability include current
and reasonably expected income, employment,
and assets other than the collateral
•Verify using 3rd party documents: W-2, tax
returns, bank statements, etc.
31
Ability to Pay
• Rule requires assessing not just the
consumer’s ability to pay loan principal and
interest, but also the consumer’s ability to pay
property taxes, homeowners insurance,
homeowner’s association dues, condominium
fees and similar mortgage-related expenses.
•Creditor is responsible for assessing
repayment ability as of consummation.
32
Ability to Pay
A creditor is presumed to have complied if each
of three requirements are satisfied:
•Verifying repayment ability;
•Determining the repayment ability using
“largest scheduled payment” of principal and
interest in the first 7 years following
consummation and taking into account property
tax and insurance obligations and similar
mortgage-related expenses; and
33
Ability to Pay
•Assessing the consumer’s repayment ability
using at least one of the following measures:


a ratio of total debt obligations to
income,
or the income the consumer will have left
over after paying debt obligations.
34
Largest Scheduled Payment
• Creditor will have a presumption of
compliance if the creditor uses the largest
scheduled payment of principal and interest in
the first 7 years
•This payment could be higher, or lower, than
the payment determined according to the fully
indexed rate and fully-amortizing payment
35
Pre-Payment Penalties
•For both higher-priced mortgage loans and
HOEPA loans prepayment penalties are
prohibited on 4-year fixed term or lower
ARMs
•Higher-priced mortgage loans & HOEPA
loans—greater than 4/1 ARMs—have limited
prepayment penalty periods to a maximum of
two years following consummation
36
Pre-Payment Penalties
Warning –
The penalty must be permitted by other
applicable state law, and it must not apply in
the case of a refinancing by the same creditor
or its affiliate.
37
Pre-Payment Penalties
• A higher priced mortgage loan (whether or
not it is a HOEPA loan) having a prepayment
penalty that does not conform to these
requirements is subject to a three-year right of
rescission
•The right of rescission, however, does not
extend to home purchase loans, and
construction loans
38
Escrow Requirement
•Must establish an escrow account for
property taxes and homeowners insurance on
a higher priced mortgage loan secured by a
first lien on a principal dwelling (watch 1st
lien “equity loans”!)
39
Escrow Requirement
A creditor may allow a consumer to cancel
the escrow account, but no sooner than 12
months after consummation
40
Escrow Requirement
•Escrows required for all covered loans
secured by site-built homes for which creditors
receive applications on or after April 1, 2010
•and for all covered loans secured by
manufactured housing for which creditors
receive applications on or after October 1,
2010.
41
Servicing
No servicer shall:
•Fail to credit a consumer’s periodic payment as
of the date received;
42
Prompt Credit of Payment
Rule does not require a servicer to physically
enter the payment on the date received, but
requires only that it be credited as of the date
received.
43
Servicing
No servicer shall –
•Impose a late fee or delinquency charge
where the late fee or delinquency charge is
due only to a consumer’s failure to include in
a current payment a late fee or delinquency
charge imposed on earlier payments
(“pyramiding” late charges);
44
Servicing
No servicer shall –
•Fail to provide an accurate payoff
statement within a reasonable time of
request
Five business days would normally be a
reasonable time to provide the statements
under most circumstances
45
Servicing
A Servicer may specify reasonable
requirements for making payoff requests such
as requiring requests to be in writing and
directed to a specific address, e-mail address
or fax number specified by the servicer, or
orally to a specified telephone number, or any
other reasonable requirement or method.
46
New Advertising Rules
•All Mortgage loan advertisements must
provide accurate and balanced information
•Can not contain misleading or deceptive
representations
47
Advertising Rules
•Apply to open-end and closed-end mortgage
loans
•Must provide accurate and balanced
information, in a clear and conspicuous
manner, about rates and monthly payments
•Closed-end installment ad rules did not
change (auto, personal, etc.)
48
Advertising Rules
WEBSITE:
•You may use a clear link to “triggered” terms rather than having all of
the disclosures on the same page as the “triggering terms”.
•Note: Unlike Truth In Savings, there is no dispensation for indoor signs
and other media for Reg. Z. All commercial message media are subject
to the above (radio, TV, brochures, signs, POS displays, etc.).
TV and Radio:
•TV and Radio Ads that contain “triggering terms” may comply one of
two ways:
1. Include all of the “triggered” information required; or
2. Provide the APR and then provide a toll-free number for consumers to
call and instructions that they call that number to obtain more information
about credit costs and terms. This should be clearly spoken or legible.
49
Advertising Rules
•Prohibition for seven deceptive or
misleading practices in advertisements for
closed end mortgage loans:
50
Advertising Rules – 7 Prohibitions
(1) stating ‘‘fixed’’ rates or payments for loans
whose rates or payments can vary without
adequately disclosing that the interest rate or
payment amounts are ‘‘fixed’’ only for a limited
period of time, rather than for the full term of the
loan (other weirdness: “fixed” cannot appear
before “ARM” or “adjustable rate”).
51
Advertising Rules – 7 Prohibitions
(2) Advertisements that compare an
actual or hypothetical rate or payment
obligation to the rates or payments that
would apply if the consumer obtains the
advertised product unless the advertisement
states the rates or payments that will apply over
the full term of the loan
52
Advertising Rules – 7 Prohibitions
(3) Advertisements that characterize the products
offered as ‘‘government loan programs,’’
‘‘government-supported loans,’’ or otherwise
endorsed or sponsored by a federal or state
government entity even though the advertised
products are not government supported or sponsored loans
53
Advertising Rules – 7 Prohibitions
(4) Advertisements, such as solicitation letters, that
display the name of the consumer’s current
mortgage lender, unless the advertisement also
prominently discloses that the advertisement is
from a mortgage lender not affiliated with the
consumer’s current lender
54
Advertising Rules – 7 Prohibitions
(5) Advertisements that make claims of
debt elimination if the product advertised
would merely replace one debt obligation
with another (borrowing from Peter to pay
Paul does not “eliminate” debt – it is also the
First Law of Thermodynamics)
55
Advertising Rules – 7 Prohibitions
(6) Advertisements that create a false
impression that the mortgage broker or
lender is a ‘‘counselor’’ for the consumer;
and
56
Advertising Rules – 7 Prohibitions
(7) Foreign-language advertisements in
which certain information, such as a
low introductory ‘‘teaser’’ rate, is
provided in a foreign language, while
required disclosures are provided only
in English.
57
HELOC Advertising Rules
Open-end home equity plan (HELOC) –
•Ads with promotional rates must contain
disclosures in close proximity to the
triggering terms
Disclosures meet the requirements of the
rule if appear immediately next to or directly
above/below the trigger terms – in the same
size font as trigger terms
58
HELOC Advertising Rules
•Balloon payments must be made with equal
prominence and in close proximity to the
minimum payment amount advertised.
•All other HELOC ad rules remain the same
(triggering terms, “negative reference”
triggers, etc.).
•See Quick Reference Guide for HELOC Ads
59
Closed-End RE Advertising Rules
For closed-end credit secured by a dwelling –
Disclosures meet the requirement if they appear
immediately next to, above/below the trigger terms
– in the same size font as the trigger terms.
60
Closed-End RE Advertising Rules
Apply to any ad for home-secured loan, other than
TV or radio ads
If simple rate is disclosed and more than 1 simple
rate will apply during term (ARMs), must state:
Each simple rate that will apply (using
“reasonably current” index and margin)
Period of time that each simple rate will apply
APR
Next to/above/below and same size!
•See Guide for Closed-End ARM Ads
•Prohibition on using the term “fixed” rate when the
rate is “fixed” for a limited time
61
Closed-End RE Advertising Rules
If ad states the amount of any payment, it must state
Amount of any payment that will apply during
term (using reasonably current rate, if variable)
Period of time each payment will apply, and
If ad is for credit secured by first lien on dwelling:
Fact that payment does not include taxes and
insurance and that the actual payment will be greater
These disclosures are in addition to other required
disclosures (“triggering” and “triggered” terms).
62
Closed-End RE Advertising Rules
Payment disclosure MUST be equally
prominent and in close proximity to any
triggering rate
Except that disclosure about taxes and
insurance not being included, if applicable,
need not be equally prominent
Rates and payments disclosures are not
required on envelopes and pop-up or banner
ads if linked to application (not sure how this
will actually work online, though)
63
Closed-End RE Advertising Rules
Please refer to Guides for Closed-End ARM
Loans and Fixed-Rate RE Loans.
These will be revised as interpretations
become available and best practices develop
after the Regulation becomes effective.
64
Illustrations - ARMs
5-1
Interest Term Fully
Term APR Payment
ARM Rate
Indexed
per $10M
Rate
5%
5 yrs 4.875% 25 yrs 4.99% 60@
$53.68
300@
$50.39
Payment
does not
include
taxes, (full
disc).
65
Illustrations – ARMs
“Representative Example” Text:
Additional information about our 5 year ARM – This is a
variable rate loan product – the interest rate will change after
consummation. As an example, for a 30 year, 5 year ARM
loan with a $10,000 loan amount (assuming 20% down
payment) as of May 5, 2009: Your payment schedule would
be 60 payments of $53.68 at 5% and 300 payments of $50.39
at 4.875% for an APR of 4.99%. These payments do not
include taxes and insurance. Your payment will be greater.
66
Illustration – Fixed Rate REM
30 year Fixed Rate
Rate APR
Points
5.00% 5.006% 0
Monthly payment per $10,000: $53.68
Payment does not include taxes or insurance.
Your payment will be greater. Example
requires 20% down payment. Effective as of
5/1/09.
67
Penalties Under the New Z
• Violations under HPM, HOEPA, Servicing,
the 7 prohibited Ad practices and Appraisals
could be considered “unfair, deceptive and
abusive practices”, which means:
Civil Penalties (Actual & Statutory Damages,
Class Action Suits, Enhanced Damages and
Automatic 3-year rescission)
Administrative Enforcement
The other ad provisions and early disclosure
rules are covered under old Z penalties.
68
But Wait! There’s more….
Open End Lending Rules
Effective July 1, 2010
69
Open End Lending
Note: This Rule applies to credit cards only. See ICS White
Paper emailed March 24, 2009.
•For applications & Solicitations – major format and content
revisions
•Account Opening Disclosures – major revisions (table
formats, font sizes, content, fees)
•Statements – format changes (billing systems will need
revision), “time to repay” disclosure w/examples and phone
numbers
•Changes in Terms – 45 days instead of 15 (all changes,
including default rates), formats
•New Advertising Requirements
•Payment acceptance rule changes and revisions
•No more “grace period” – “How to avoid paying interest on
purchases” instead
•Finance Charge changes – will include foreign transaction
and cash advance fees
70
What Next? Where to Start?!
Identify current loan products that could exceed
the pricing threshold for a higher priced mortgage
loan (Excel)
Watch: first position “equity” loans, jumbos and
construction – these could fail the HPM test
Consider product revisions on equity loans and
others, if needed
Work with vendor on revisions to early
disclosures and open end lending disclosures
Start providing “early” TIL for all; revised early
TILs if needed
Add 7-day and 3-day waiting periods into
procedures
71
What Next? Where to Start?!
Update monitoring procedures during mortgage
loan processing to better identify loans crossing
over the high price threshold between approval and
closing
Revise all mortgage-related quality control
checklists
Review and revise application fee processes
Review all RE Advertising (brochures, website,
print) and revise prior to 10/1/09.
Work with online web vendors (MortgageBot,
etc.) to revise ad portions of online systems.
72
What Next? Where to Start?!
Work with vendors to update servicing,
escrow, automated underwriting, and HMDA
software
Revise third party agreements as required
Update Lending manuals/policies
73
What Next? Where to Start?!
Update underwriting guidelines for higher
priced mortgages
Review credit card applications and
solicitations
Work with vendors and/or internal staff
processing mailed payments regarding due
dates and cut off times
74
What Next? Where to Start?!
Train staff
Test all new forms and software
75
Questions?
76
Thank You!
Amanda Pickering, CRCM
Senior Compliance Manager
Integrated Compliance Solutions
781-330-6128
[email protected]
77