Rulemaking

In November, we announced that we would be proposing to make some limited amendments to our new international remittance transfer rule. We also announced that we would be proposing to delay when the rule would take effect until ninety days after we finalized the amendment. Last month, we formally issued our proposal.

The remittance rule was slated to go into effect on February 7, 2013. Today, we are temporarily delaying the effective date of our remittance rule. Thus, the rule will not take effect on February 7. A new effective date will be announced later this year.

The changes in our December 31, 2012 proposal are designed to preserve the new consumer protections while helping remittance transfer providers comply with the rule. The proposal also includes a provision to extend the effective date until 90 days after we issue a revised final rule.

You may submit comments on the remainder of the proposal, including what the new effective date of the rule should be, on or before January 30, 2013. We’ll keep our remittance web page updated with the new effective date when we finalize the substantive issues in our proposal.

When you take out a mortgage loan to buy a home, you trust the mortgage servicing industry to work. Mortgage servicers are responsible for sending you bills, processing your payments, answering your questions, and addressing any problems that may arise. When servicers fall down on the job, that can have serious consequences for consumers. People who are behind on their mortgages may not know what options they have. Bills may show up with unexpected and expensive charges. People who need more information may not be able to get it in a timely manner.

Today we are issuing two new rules to make this market work better for America’s homeowners. Director Cordray announced them this morning in Atlanta.

When we proposed these rules back in August, we said we wanted to put the service back in mortgage servicing. The two final rules we’re issuing today are designed to do just that. The result of these new rules will be a market with fewer surprises and runarounds for mortgage borrowers.

Here’s some of what’s new:

Space for consumers to pursue alternatives to foreclosure

Borrowers fall behind on mortgage payments for a variety of reasons. Sometimes they can make up these payments quickly. Sometimes they need to figure out an alternative payment strategy. Sometimes they face the loss of their homes. But in any of these circumstances, they should know what avenues are available to them.

Restrictions on dual tracking: Dual tracking is the term used when servicers move forward on a foreclosure at the same time they’re working with the borrower to avoid foreclosure. Many consumers report that they have discovered too late that they were foreclosed on by the same servicer they were working with to find an alternative. Under the new rules, servicers cannot begin foreclosure proceedings against you until your payments are 120 days behind.

Pursuing modifications and other loss mitigation: The dual tracking restrictions give you time to assess your situation and apply for a modification or other option that may be available to help you. If you apply within the 120-day window, the servicer cannot begin foreclosure until your application has been addressed. If you and your servicer come to an agreement on an option, the servicer cannot start foreclosure proceedings unless you don’t uphold your end of the agreement. Even if you apply after you’re already facing foreclosure, your servicer cannot complete the foreclosure while your application is pending so long as you submit it at least 38 days before the foreclosure sale is scheduled.

Regular, clear communication from servicers

Who services your mortgage, how to get in touch with them, and what you owe should not be mysterious. The new rules include requirements to improve the communication from servicers to mortgage borrowers.

A periodic statement for homeowners: One of the new requirements defines a periodic statement for residential mortgages. The statement comes every billing cycle and covers basics like an explanation of the amount due, payment and transaction history, account information, and contact information for the servicer. It doesn’t apply to some mortgage types (like reverse mortgages), but it does apply to most home purchases and refinancings. The servicer does not have to provide you with a monthly statement if you have a fixed rate loan and pay with a coupon book, but the information that would be on the monthly statement needs to be available to you.

Early outreach when a borrower falls behind: If you become delinquent, the servicer has to make a good faith effort to reach out to you. The servicer also has to assign people to your case and make those people available by phone so you have a clear and consistent point of contact.

Warnings before interest rate adjustments: If you take out an adjustable rate mortgage, the servicer must notify you about the first interest rate adjustment at least seven months in advance of when you owe a payment at the adjusted interest rate. The servicer has to provide an estimate of the new interest rate and payment amount, alternatives available to you, and how to access a HUD-approved mortgage counselor. In addition, for the first interest rate adjustment, and all subsequent rate adjustments that result in a different payment amount, servicers must send you an additional advance notice telling you what your new payment will be.

Managing information and processing payments

Good information and good records: Servicers should provide correct information about mortgage loans, whether that’s to a borrower, an investor, or a court during foreclosure. The new rules require policies and procedures to ensure servicers can provide accurate and timely information about the mortgage. They must keep records on all mortgages they service for a year after someone pays off a mortgage or after someone else takes over servicing the mortgage.

Crediting payments in a timely manner: When you make a full payment, the servicer must credit it to your account as of that day. If you request a payoff statement in writing, the servicer has seven business days to issue the statement.

Error resolution: When there’s a mistake, you should be able to get it fixed in a timely manner. If you write to your servicer to address what you believe to be an error, the servicer should reply in a timely manner. The new rules set timelines and procedures for servicers to investigate and correct errors.

Force-placed insurance

Force-placed insurance is insurance that the servicer buys on the property when the borrower no longer has property insurance. Without insurance, whoever holds the mortgage would be at risk if the house were to be damaged or destroyed. But the borrower may actually be responsible for the costs of the force-placed insurance policy. This has led to unexpected or duplicate expenses for people who already have their own insurance policies. Under the new rules, servicers need a reasonable basis to believe borrowers lack their own insurance, and they must determine this on a case-by-case basis. The servicer also has to notify the borrower before purchasing the force-placed insurance policy and annually before renewing the policy.

These rules take effect early in 2014, along with three of the rules we issued last week. We’ve developed a page for the new rules where you can learn more about the new rules, including a detailed summary. Watch the page for new resources to help you understand the rules and their implications in the days to come.

Today, we’re issuing one of our most important rules to date, the Ability-to-Repay rule. It’s designed to assure the reliability of
mortgages – making sure that lenders offer mortgages that consumers can actually afford to pay back. This is a simple, obvious principle that needs to be cemented in the housing market.

In the run-up to the financial crisis, we had a housing market that was reckless about lending money. Lenders thought they could make money on a loan even if the consumer could not pay back that loan, either by banking on rising housing prices or by off-loading the mortgage into the secondary market. This encouraged broad indifference to the ability of many consumers to repay loans, which dramatically increased mortgage delinquencies and rates of foreclosures.

Earlier this year, we heard from a California man named Henry, who was in the process of foreclosure. He was desperate. During the overheated years, a lender sold him a mortgage valued at more than half a million dollars. This was far more than he could afford on his annual salary of less than $50,000. He said he’d assumed that the lender knew what it was doing when he qualified for such a large loan. He’s now worried not only about losing his home, but about losing his family’s entire future.

Henry is not alone. Unaffordable loans helped cause the worst financial crisis since the Great Depression. People across the country were sold unsustainable mortgages. Some may have entered with their eyes open, seeking to ride the wave of rising housing prices, but many were led astray. For many borrowers, it appears that lenders ignored the numbers to get the loan approved. This kind of reckless lending was an endemic problem.

To put it simply: lenders should not set up consumers to fail.

The 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act created broad-based changes to how creditors make loans including new ability-to-repay standards, which we are charged with implementing. Among the features of our new Ability-to-Repay rule:

• Potential borrowers have to supply financial information, and lenders must verify it;
• To qualify for a particular loan, a consumer has to have sufficient assets or income to pay back the loan; and
• Lenders will have to determine the consumer’s ability to repay both the principal and the interest over the long term − not just during an introductory period when the rate may be lower.

In addition to the Ability-to-Repay rule, today we are also issuing a proposal for potential adjustments. There are two key parts to the proposal:

• First, a proposed exemption for designated non-profit creditors and homeownership stabilization programs, as well as certain Fannie Mae, Freddie Mac, and Federal agency refinancing programs. These programs generally appear to be already subject to their own specialized underwriting criteria, and they are designed to help consumers refinance into a more affordable home loan.
• Second, a proposed a new category for certain loans made and held in portfolio by small creditors, such as small community banks and credit unions, called “Qualified Mortgages.”

Qualified Mortgages are a category of loans where borrowers would be the most protected. They, among other things, cannot have certain risky features like negative-amortization, where the amount owed actually increases for some period because the borrower does not even pay the interest and the unpaid interest gets added to the amount borrowed.

In the wake of the financial crisis, credit is achingly tight. Interest rates are low, but it is hard to qualify for a home mortgage. As the American mortgage market ebbs and flows, we have the duty to protect responsible lending in the housing market for borrowers, lenders, and everyone else who is engaged in the economic life of our country. We have been working hard, and we will continue to work hard, to do just that.

Consumers should be able to trust the American dream of homeownership without worrying about losing the roofs over their heads and the shirts off their backs. The Ability-to-Repay rule will help ensure that lenders and consumers share the same basic financial
incentives – that both of them win when borrowers can afford their loans. With this confidence, consumers can be active participants in the market and choose which of a wide variety of products they believe is best for them.

Today the Bureau also issued rules to strengthen protections for high-cost mortgages.

Update 11/27/12: We issued a bulletin about changes to the rule we intend to propose in December 2012.

We held a live session on October 16th to talk about the new requirements for remittance transfer providers.

The rule to implement the consumer protections created by the Dodd-Frank Act for certain electronic transfers of funds to other countries – the remittance rule – will go into effect on February 7, 2013.

You can read CFPB Director Richard Cordray’s full remarks and see the remittance rule presentation slides from the event.

If you missed the event, you can watch below:

The rule to implement the consumer protections created by the Dodd-Frank Act for certain electronic transfers of funds to other countries – the remittance rule – will go into effect on February 7, 2013. We’re undertaking a number of efforts to help industry understand and comply with the new requirements. These include: releasing a list of countries and other areas to which a particular exception to the rule’s disclosure requirements applies, hosting a webinar, answering specific questions, and releasing a small business guide.

What is the countries list?

The remittance rule generally requires disclosure of, among other things, exact amounts to be received in a foreign currency, fees, and taxes, but estimates of these amounts are permitted in several situations. One situation where estimates are allowed is when the provider cannot determine exact amounts because of the laws of the recipient country. We are interpreting the exception regarding the laws of a recipient country to apply to these countries and other areas.

Webinar October 16th

Join us for a free, 90 minute webinar about the new requirements for remittance transfer providers on October 16th at 2:30 p.m. EST. We’ll give an overview of the rule and answer questions about compliance.

The webinar should be useful for money transmitters, banks, credit unions, and other companies that send money abroad for consumers, as well as other organizations that work with or represent consumers who send money abroad. Agents, software providers, foreign banks and others involved in international fund transfers from the United States may also be interested.

• RSVP by October 9 to CFPB_RemittanceRule@cfpb.gov to reserve your spot.
• Send your question about the rule by October 5 to CFPB_RemittanceRule@cfpb.gov. We will answer as many questions as we can during the webinar.

Small business guide

In the coming weeks, we will release a small business compliance guide to give more help to smaller entities that have to comply with the rule.

Questions?

While we expect to answer many questions at the webinar, our team can also answer additional questions about the rule. You can reach us at (202) 435-7700.

One part of our proposed rule to improve the disclosures consumers receive when applying for and closing on a mortgage was a change to the current definition of “finance charge.” The finance charge is intended to reflect the cost of credit for consumers as a dollar amount. It’s used to calculate the Annual Percentage Rate or “APR.”

The proposed rule would eliminate numerous exceptions that exclude common costs (such as title insurance) from the finance charge. We want APR to be a more accurate reflection of the overall cost of credit. However, higher APRs and finance charges could affect the number of loans subject to other legal requirements and protections, such as special disclosures and restrictions for high-cost mortgages. In another rulemaking, we also proposed an adjustment that would prevent that from happening, by changing the coverage test for the high-cost mortgage protections to account for the higher APRs.

Comments on the proposed changes to the definition of the finance charge and the proposed change to the high-cost mortgage coverage test were originally due on September 7, 2012. Based on the feedback received, the Bureau now believes that it is appropriate to provide the public with additional time to prepare their comments. These comments are now due November 6, 2012. All other deadlines under both proposed rules remain unchanged.

For more information about the extensions, please see:

• Notice of Comment Extension for proposed changes to the definition of the finance charge
• Notice of Comment Extension on whether and how to account for the implications of a more inclusive finance charge on the scope of HOEPA coverage