Monthly Archives: January 2018

VA Clarifies Third-Party Verification Requirements

1. Purpose. The purpose of this Circular is to clarify the Department of Veterans Affairs (VA) policy regarding third-party verification requirements for loan underwriting.

2. Background. VA has received inquiries from lenders regarding whether or not thirdparty vendors may verify borrower income, employment, and asset information to determine if a borrower qualifies for a VA-guaranteed home loan

3. Policy. VA accepts third-party verifications, subject to 38 C.F.R. § 36.4340(j) which states, in relevant part,:

a. Lenders are fully responsible for developing all credit information; i.e., for obtaining verifications of employment and deposit, credit reports, and for the accuracy of the information contained in the loan application.

b. Verifications of employment and deposits, and requests for credit reports, and/or credit information must be initiated and received by the lender.

c. In cases where the real estate broker/agent, or any other party requests any of this information, the report(s) must be returned directly to the lender. This fact must be disclosed by appropriately completing the required certification on the loan application, or report and the parties must be identified as agents of the lender.

d. Where the lender relies on other parties to secure any of the credit, or employment information, or otherwise accepts such information obtained by any other party. Such parties shall be construed for purposes of the VA submitted loan documents to be authorized agents of the lender, regardless of the actual relationship between such parties and the lender, even if disclosure is not provided to VA under paragraph (j)(3) of this section. Any negligent or willful misrepresentation by such parties shall be imputed to the lender as if the lender had processed those documents, and the lender shall remain responsible for the quality, and accuracy of the information provided to VA.”


New CFPB Asset-Size Threshhold Regulation

In response to the recent mortgage crisis, Congress enacted the Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act) that, among other things, expanded protections for consumers receiving higher-priced mortgage loans. Before passage of the Dodd-Frank Act, creditors were required under rules issued by the Federal Reserve Board to set up and administer escrow accounts for a minimum of one year for property taxes and required mortgage-related insurance premiums for higher-priced mortgage loans secured by a first lien on a principal dwelling. This one-year escrow requirement became effective on April 1, 2010, for transactions secured by site-built homes, and on October 1, 2010, for transactions secured by manufactured housing. This small entity compliance guide discusses the Escrow Requirements under the Truth in Lending Act (Regulation Z) Rule (January 2013 Final Rule) and subsequent amendments to the rule. This rule implements statutory changes made by the DoddFrank Act that lengthen the time creditors must collect and manage escrows for higher-priced mortgage loans. The rule is generally referred to in this guide as the TILA Higher Priced Mortgage Loans (HPML) Escrow Rule. The TILA HPML Escrow Rule helps ensure consumers set aside funds to pay property taxes, homeowner’s insurance premiums, and other mortgage-related insurance required by the creditor. The final TILA HPML Escrow Rule, which took effect for applications received on or after June 1, 2013, has three main elements:

1. After you originate a higher-priced mortgage loan secured by a first lien on a principal dwelling, you must establish and maintain an escrow account for at least five years regardless of loan-to-value ratio. You must maintain the escrow account until one of the following occurs: 1) the underlying debt obligation is terminated or 2) after the five-year period, the consumer requests that the escrow account be canceled. However, if you are canceling the escrow account at the consumer’s request, the loan’s unpaid principal balance must be less than 80 percent of the original value of the property securing the underlying debt obligation, and the consumer must not be currently delinquent or in default on the underlying obligation.

2. You do not have to escrow for insurance premiums for homeowners whose properties are located in condominiums, planned unit developments, and other common interest communities where the homeowners must participate in governing associations that are required to purchase master insurance policies.

3. If you operate predominantly in rural or underserved areas and meet certain asset size and other requirements, you may be eligible for an exemption from this rule for certain loans you hold in portfolio.

I. What is the purpose of this guide?

The purpose of this guide is to provide an easy-to-use summary of the TILA HPML Escrow Rule. This guide also highlights issues that small creditors and their business partners might find helpful to consider when implementing the rule.

This guide also meets the requirements of Section 212 of the Small Business Regulatory Enforcement Fairness Act of 1996, which requires the Bureau to issue a small entity compliance guide to help small businesses comply with the new regulation.

The Bureau believes that responsible creditors were already escrowing as required by the existing escrow provisions of Regulation Z implemented in 2008 by the Federal Reserve Board. You will find the final rule does not expand the universe of transactions to which you must apply the escrow requirements. In fact, it creates an exemption for certain loans made by certain creditors operating predominantly in rural or underserved counties, thus reducing the compliance burden for creditors that meet the exemption’s prerequisites.

Moreover, the final rule provides additional compliance burden relief for creditors by expanding the partial exemption in the existing rule for condominiums to other property types where the governing association has an obligation to maintain a master policy insuring all dwellings, such as planned unit developments.

The compliance burden on creditors for maintaining escrow accounts for additional time for loans where no exemptions apply should be minimal. Since creditors are already maintaining escrow accounts for a larger set of transactions for a shorter period of time under the current rule, the Bureau anticipates that to comply with this rule, many creditors will generally have to make only modest changes to their servicing systems and processes, internal controls, subservicer contracts, or other aspects of their business operations.

The guide summarizes the TILA HPML Escrow Rule, but it is not a substitute for the rule. Only the rule and its Official Interpretations (also known as Commentary) can provide complete and definitive information regarding its requirements. The discussions below provide citations to the sections of the rule on the subject being discussed. Keep in mind that the Official Interpretations, which provide detailed explanations of many of the rule’s requirements, are found after the text of the rule and its appendices. The interpretations are arranged by rule section and paragraph for ease of use. The complete rule, including the Official Interpretations, is available at

Additionally, the CFPB has issued additional rules to amend and clarify provisions in the January 2013 Final Rule: the May 2013 Final Rule and the October 2013 Final Rule.

The focus of this guide is the TILA HPML Escrow Rule. This guide does not discuss other federal or state laws that may apply to the maintenance and administration of escrow accounts or other rules to implement other requirements of the Dodd-Frank Act.

At the end of this guide, there is more information about how to read the rule and a list of additional resources.


HMDA Check Digit and Rate Spread Calculator Tools (December 2017)

The CFPB has launched a new online “Digital Check Tool” to be used by companies reporting HMDA data starting January 1, 2018.

More specifically, the new tool supports the Universal Loan Identifier (ULI) requirements of the revised HMDA rule.  The CFPB states on its website that the new tool can be used for two functions.  The first function is to generate a two-character check digit when a company enters a Legal Entity Identifier and loan or application ID.  The second function is to validate that a check digit is calculated correctly for any complete ULI a company enters.

The CFPB also made its rate spread calculator available for use with applications on which the final action occurred on or after January 1, 2018.


Say Goodbye to Bank Branches

As Yogi Berra famously pointed out, “It’s tough to make predictions, especially about the future.” Nevertheless, based on my interactions with clients over the last 12 months, here are some best guesses about what executives in the retail and commercial banking industry will be thinking and talking about in 2018. I will undoubtedly be proven wrong about what will matter, and I hope you find plenty to disagree with. So, presented in no particular order, here are 10 trends to keep an eye on in 2018.

Open banking goes mainstream

The wave is starting in Europe, where new regulations, such as PSD2, are forcing European banks to open certain banking services to third parties. In other markets, like the U.S., a move toward open banking is coming from fragmentation of the traditional vertically-integrated bank value chain. Open banking allows customers to share access to their financial data with non-bank third parties, so that those companies can then create apps and services to give customers a better banking experience. This will be the year in which attitudes to open banking start to separate those who want to differentiate themselves by being good trading partners from those still hunkering down behind trade barriers seeking to harvest diminishing profits from old business models.

Put it in the cloud

Twenty-five years ago, banks were debating whether it was safe to execute electronic transactions over the nascent internet or if they should instead build their own proprietary networks. Twenty-five years from now, the current debate about the safety of using the public cloud for banking will seem similarly quaint. There is already plenty of evidence that the cloud can be as secure as any private data center, and current predictions are that by 2020, more computing power will be deployed in the cloud than in all private data centers. In 2018, the conversation around cloud will shift from “if” to “how and when.”

Fewer heart transplants, more bypasses

Traditional mainframe core banking applications are not well suited to the digital economy. The world of overnight batch processing and 4 p.m. transaction cutoffs sits uncomfortably with customers’ expectation of real-time banking. But ripping out and replacing decades-old technology can be an expensive and risky option, especially in light of the promise of blockchain as a medium-term replacement for traditional books and records. Instead, look for banks to “freeze and wrap” — using existing core systems as books of record, while moving customer engagement and analytics to the cloud.

Become truly digital or get out

Customers today expect to be able to sign up for new banking services online. With the advent of the Aadhar digital ID system in India, it can be easier to open a bank account in New Delhi than in New York. Smart, forward-looking banks are now incorporating advanced authentication into their digital apps, while the laggards still ask you to come into a branch to sign a piece of paper. The evidence in the U.S. is that smaller banks are losing market share to the big players because they are struggling to deliver an end-to-end digital customer experience. In 2018, a failure to provide true digital origination will start to move from a disappointment to an existential threat.

Man or machine?

One of the biggest threats banks will face in the next year is synthetic identity fraud. This kind of fraud differs from traditional identity theft in that the perpetrator creates a new identity rather than stealing an existing one. Online deposit and loan origination allows these fake people to open digital accounts that pass all of the usual security checks. It’s a phantom crime that is costing banks billions of dollars and countless hours as they chase down people who don’t even exist. In 2018, banks will need to get better at sorting the real customers from the fake, without undermining the benefits of a great digital customer experience.

Digital first will mean fewer bank branches

Just as travel agencies are quickly becoming a thing of the past, digital banking will continue to shrink the number of global bank branches by 4% to 5% per year. Why bank in person when you can do it online? Scandinavia has already seen half of its bank branches close in the last 5 years. Bank branches won’t disappear completely like Blockbuster video stores, as customers will still need to visit physical stores for complicated transactions and to make complaints face-to-face. But counter transactions are disappearing quickly. The challenge now is to try and get to that right mix of branches and digital offerings as quickly as possible. That means the sound of the shutters coming down permanently may become deafening in 2018.

Fintechs are friends

Despite the tens of billions of dollars of VC money piling into the fintech sector over the last 5 years, the meteor strike that was going to wipe out the banking dinosaurs hasn’t happened. Instead, fintech has lit an innovation flame under the incumbent banks and accelerated their evolution. 2018 will likely see more fintech acquisitions as large players buy rather than build. More broadly, bank innovation will have more of a business-as-usual feel, as banking startups find ways to play well with established players. While the dinosaurs will remain dominant in 2018, in 2019 and beyond, big tech beasts may appear and present more of an extinction threat to the banks. But in 2018, these super-predators will likely still be just sharpening their claws.


Upgrade to a Better Whiskey

When I met Patrick Marran, it was a cold December night in New York City. My girlfriend and I had just given up on trying to break through the crowd at Rockefeller Center to see the big tree and we were in desperate need of a drink. We made our way down 49th Street to escape the masses, rounded the corner of 10th Avenue, and there it was, our saving grace, a whiskey bar.

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We were immediately drawn to its low-key lighting and relaxed atmosphere, so we walked in, took off our coats, and Patrick, the bartender, immediately greeted us with a hearty “Welcome to On the Rocks.” The bar itself isn’t a big place, but it’s overflowing with every kind of whiskey you could ever want served neat, up, on the rocks, or even in specialty cocktails. And their goal at On the Rocks is simple: they want you to try whiskeys you’ve never tasted before. Marran will ask you what you’ve had and what you’ve liked, then try to show you a better version of your affordable go-tos. After sampling a few glasses of Japanese whiskeys and American ryes I’d never heard of, I was sold, so I asked Patrick if he’d help me offer some useful recommendations to other whiskey fans out there who are looking to upgrade.

Like Maker’s Mark? Try W. L. Weller Antique

What most people don’t understand about their bourbon preferences is the ingredient percentage. Marran explains that Maker’s falls under the category of “wheated bourbon,” which means that after the required 51% corn, wheat makes up a majority of the other grains used during the distillation process. It makes wheated bourbons a very smooth, accessible drink. That’s why W. L. Weller Antique (Old Weller Antique) from Buffalo Trace Distillery is the perfect upgrade for Maker’s fans, and it’s a great stepping stone toward the mythical Pappy Van Winkle. It’s not too expensive either. You can find bottles for around $30.

Like The Macallan 12 Year? Try the Yamazaki 12 Year

The Japanese have been crafting award-winning whiskey for decades, forcing die-hard Scotch drinkers to take notice. Marran says that the Yamazaki almost always wins the blind tastings he does at the bar if someone asks for a Scotch whiskey flight. I’ve had a couple bottles of the Yamazaki 12 myself and can attest to its superior quality. Grab a bottle for around $100.

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Like Jameson? Try Some Green Spot

Marran describes Single Pot Still whiskey as a bridge between blended Irish whiskey and Scotch whiskey, and Green Spot from Mitchell & Son is an affordable way to dip one’s toes into the quality improvement over regular blended whiskeys. Marran says:

So many people stroll into a bar and dismiss the Irish whiskey as somehow inferior. That’s about as wrong as snow in July. This is my hands-down favorite option to break someone’s misconceptions.

If you want to go up in price from there, Midleton’s Redbreast isn’t a bad option either. You can find bottles of Green Spot for around $70.

Like Bulleit Bourbon? Try Michter’s US 1 Bourbon

A lot of people enjoy Bulleit bourbon and regard it as one of the best, but Marran suggests Michter’s US 1 Bourbon is a little more balanced in its taste. It’ll cost you a few more bucks, but Marran says it’s ideal for bourbon fans who know that a high-corn ratio in the mash bill is their “problem with whiskey.” And if you’re interested in a whiskey education, he recommends their Rye and American varieties to give you a good example of how different whiskeys taste. You can usually find bottles between $50 and $60.

Like Four Roses Yellow Label? Try Sons of Liberty Uprising or Stranahan’s Yellow Label

If you’re always on the lookout for a “super smooth whiskey,” Marran suggests you stay away from bourbons and go for some American single malts. Both Sons of Liberty Uprising and Stranahan’s Yellow Label will have you covered for younger, full-bodied whiskeys that always go down smooth. You can find a bottle of Sons of Liberty Uprising for around $50 a bottle (hard to find in the West), and you can find Stranahan’s Yellow Label for about $65 a bottle.

Like Laphroaig 10? Try Bruichladdich Octomore

According to Marran, Laphroaig Scotch seems to be the go-to for most novice peaty (type of smokiness) drinkers, but there are a dozen other Islay distilleries that deserve your attention. Bruichladdich Octomore is a higher-end smokey whiskey that comes in a few styles and showcases the artistic way the distillers make the flavors pop. Marran recommends you have it neat or with a few drops of water (even an entire ice cube is too much for the peat). You can find a bottle of Bruichladdich Octomore for around $60 to $80.

Like Dewars or Johnny Walker? Try The Shackleton Whiskey

This blended Scotch is easy to spot thanks to its robin’s egg blue box and label. Marran describes it as a blended whiskey that’s “designed” to taste like a single malt, so it’s the perfect whiskey to help ease your transition to a single malt palate. It has a full body, but it’s smooth on the tongue and easy going down. Plus, the recipe has some interesting history behind it. It’s based on the Scotch Sir Ernest brought with him during his 1907 expedition to Antarctica. You can find it for about $40 a bottle.

Like Old Overholt? Try Ragtime Rye

If you’re a rye kind of guy (or gal), Marran says the jump from a basic well rye to a three-year rye is going to knock your socks off. New York Distilling Company’s Ragtime Rye is part of a new whiskey movement in New York City where nine different distilleries are rolling out ryes that are 75% rye compared to the required 51%. This is your chance to upgrade to a “real rye,” as Marran puts it. You can find bottles for around $45.

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Like Bulleit Rye? Try WhistlePig Farmstock

According to Marran, people like Bulleit Rye because it’s an affordable, mellow rye that eases them into the world of decent whiskey after their college whiskey shooting days. If you’re ready to upgrade to something that’s just as mellow, but with more rye and a better bite, WhistlePig’s Farmstock is the way to go. There are notes of vanilla and toasted honey, and runs for about $90 a bottle.

Already like Yamazaki 12 Year? Try Amrut Single Malt Cask Strength

If you’ve already tasted the greatness that is the Yamazaki, Amrut should be your new best friend. Marran says it’s something all whiskey enthusiasts should try:

Whether you’re in it to show you know more about whiskey, or you merely want to continue building your exotic Single Malt collection, this single malt from India is a must-have in order to see why so many companies are taking the barley approach from Scotland and giving it a whirl.

Amrut’s whiskeys are a bit younger than others, but they’ve got full flavor and have been winning awards. You’ll probably have to order it online (prices can range from $60 to $100 a bottle), but it’s a tasty international whiskey that you can definitely show off to your friends.


2018 HMDA Issues to Focus On

Banks and credit unions are markedly more worried about regulatory compliance and risk management, according to new data. The results of the Wolters Kluwer Regulatory and Risk Management Indicator revealed that overall risk management concern is up 13 percent over the year. Regulatory concerns are up 3 percent for the same period.

According to the Indicator, which polled more than 600 banks and credit unions across the country, top regulatory concerns include the fair lending exam, new Home Mortgage Disclosure Act rules, and the ability to track, maintain, and report to regulators. Just under 50 percent of respondents said they’ve noticed increased scrutiny based on their most recent fair lending exam, while HMDA changes came in as the single-biggest concern across the board.

As for risk management, cybersecurity and data security topped the list, with a whopping 83 percent of those surveyed saying they’re either “concerned” or “very concerned.” IT risk and regulatory risk also came in high.

According to Timothy R. Burniston, Senior Adviser and Principal Regulatory Strategist at Wolters Kluwer, 2017’s many data breaches are likely to blame.

“These results—compiled against a backdrop of highly publicized data breaches at well-known entities, and at a time when financial institutions are preparing for the implementation of the most significant set of HMDA changes in several decades—drove the increase in concerns expressed in this year’s survey,” Burniston said.

On the compliance front, respondents were mostly concerned with optimizing their compliance spend, reducing exposure to financial crime, and managing their compliance monitoring and testing efforts.

“These responses, when viewed collectively, reinforce for financial institutions the strategic imperative of having a proactive, well-staffed and supported corporate compliance program that operates across the three lines of defense —the business units, along with compliance/risk and audit areas—in tandem with an overarching risk management framework integrated with all lines of business,” Burniston said.


Credit Score Changes Could Lead to Higher Mortgage Volumes

This battle over credit scores could shake up the mortgage market

Millions in home mortgages may be on the line as the Federal Housing Finance Agency debates whether to accept a new credit scoring system for loans backed by Fannie Mae and Freddie Mac.

Currently, Fannie and Freddie won’t buy mortgages unless lenders assessed the borrowers using the FICO credit score, which was created decades ago by Fair Isaac Corp. But several non-bank lenders argue that the system is too restrictive and excludes millions of potential borrowers from the mortgage market. They want the FHFA to start accepting VantageScore, a rival credit scoring system created by Equifax, Experian and TransUnion.

Last month, the FHFA asked lenders to chime in on the issue as it weighs a decision, the Wall Street Journal reported. Because around half of all U.S. mortgages are backed by Fannie and Freddie, the decision could have a big impact on the housing market.

VantageScore argues that it could assign credit scores to 30 million more people than FICO and potentially make 7.6 million more people who use little to no credit eligible for a mortgage. “Doing something just because you’ve always done it that way isn’t a good enough reason,” Mat Ishbia, CEO of United Wholesale Mortgage, told the Journal.

But some banks worry that a change could loosen lending standards and lead to more defaults. [WSJ] — Konrad Putzier 


2018 Mortgage Compliance Trends – Be Prepared

2017 began with a bang as hope permeated the banking industry.

A new administration promised to ease the compliance burden through deregulation, even commanded such through an Executive Order to revoke two existing regs for each new one issued.

Despite these attempts, the year went out with a whimper. The industry has yet to see any substantive change that could be considered burden reduction. While many changes remain bottlenecked inside the legislative process, agencies continued to finalize new regulatory requirements that had already been in the reg-writing pipeline before the reduction order took effect.

Because of this uncertainty, financial institutions have had to rethink their regulatory change management processes. In a climate rife with continuous and often complicated change, the industry turned to technology, which some call “regtech”—as well as hybrid solutions that combine expertise with technology—as a source of stability and to generate predictable outcomes.

Last year presented more “actionable items”—our term for a regulatory tweak that requires a financial institution to take some sort of action in response—than any time in recent banking history. There were more final rules issued (including one repeal); guidance documents published; updated booklets; and manuals updated—than ever before. Regulators issued a staggering 200-plus of these actionable items.

Against the backdrop of a desire for deregulation, other key themes rounded out the year:

• New exam criteria sharpened supervisory expectations for consumer compliance.

• Administrative controversy plagued the CFPB, as its authority (and existence) underwent review.

• Public sentiment turned against regulators in the wake of high-profile scandals and breaches.

• Controversial rules on payday lending and arbitration were delayed or modified.

• Mayhem prevailed in mortgage compliance with HMDA reporting and servicing rules seeing significant overhaul.

Let’s look at each of these developments in more detail.

New exam criteria

During this murky time, an element of clarity was the newly updated consumer compliance rating system. The first upgrade to this rating methodology in over 40 years offered meaningful and actionable guidance on how financial institutions can prepare for examinations across 12 assessment criteria.

The new criteria require examiners to assess four elements of board and management oversight (including how well institutions manage regulatory change), plus four elements of the compliance program in place. The last four criteria direct examiners how to evaluate violations of law, if found, and the extent of consumer harm such violations caused. Examinations taking place after March 31 applied the new rating system.

Confusion at CFPB

Since its inception, and well before Director Cordray’s resignation, CFPB has been a source of controversy. Legislators have sought to eliminate or modify the single-Director structure of the bureau, with several different bills proposing a panel structure or various advisory councils for governance. Talk also surfaced at various times about decommissioning or de-funding the bureau. Previously, the U.S. Appeals Court announced that a case deeming the CFPB unconstitutional in its nature would move forward in 2018.

Richard Cordray’s resignation, preceded by his nomination of Leandra English as his acting replacement, and President Trump’s appointment of Mick Mulvaney to the same acting post, has stoked ambiguity. The situation is still unfolding, in part because New York-based Lower East Side People’s Federal Credit Union has called on a federal court to remove Mulvaney and affirm English as the acting head of the bureau, citing the regulatory chaos that his appointment has caused. Meanwhile, English has been pursuing an injunction intended to install herself as acting head of the bureau.

While the fate and nature of CFPB remains uncertain, the silver lining is that even a shift in structure or leadership is unlikely to impact the methodology by which banks and credit unions are evaluated. The last methods were applied for four decades, so change in the short term is unlikely. Developing a solid compliance management system that adheres to the principles mandated in the assessment criteria was and will remain a sound strategy for years.

Changing public sentiment toward regulators

Two significant events impacted public sentiment toward regulatory bodies: Wells Fargo’s ongoing woes and the Equifax security breach.

In July, Wells Fargo’s forced placement of collision insurance on approximately 800,000 consumer auto loans resulted in thousands of wrongful delinquencies and repossessions. This public scandal came less than a year after CFPB fined Wells Fargo $185 million for wrongfully opening accounts for consumers without their.

During the first Wells Fargo scandal, there was speculation that CFPB would issue rules or guidelines on account opening incentives to discourage similar activity in the future. Although both events were widely discussed, consumers typically have a short memory for these types of controversies and public outcry quickly died down.

The Equifax data breach happened in March, and was publicly disclosed by the company in September. This breach had a more widespread impact on consumers, and heightened industry concerns around cybersecurity. Modest estimates placed the impact of the data breach at 143 million consumers, nearly half of the population of the U.S.

Experts were surprised and dismayed to learn of the vulnerabilities of a service provider as large and sophisticated as Equifax. Financial institutions reacted strongly, taking a renewed interest in how their third-party vendors manage cybersecurity risks.

The number of affected consumers added to the industry’s concerns regarding cybersecurity, and underlined the need for more direct and specific regulatory oversight of this area at the federal level. Consumer-friendly states like New York led the charge on adopting enhanced regulations. Federal regulators have yet to follow suit, though in his first meeting with reporters new Comptroller Joseph Otting indicated concerns in this area.

Controversy around payday lending

One of the more controversial regulations of the year was the CFPB payday lending rule finalized in October. The new regulations place an emphasis on lenders determining a borrower’s ability to repay; enforce cutoffs that restrict how often lenders can attempt to debit a borrower’s account; and encourage smaller loan amounts with longer repayment timelines and less risky loan options for lenders.

The ruling becomes effective on Jan. 16, 2018, and has a mandatory compliance deadline of Aug. 19, 2019.

While traditional bankers see the rule as an overdue attempt to curtail predatory lending, many payday lenders have taken steps to sue CFPB over the new reg. And last December 2017, a bipartisan resolution to repeal the rule was introduced in the House. Supporters cited the importance of these loan types for consumers with short-term cash flow issues.

In addition to legislative threats, the rule is even more vulnerable thanks to the bureau’s leadership controversy. Acting Director Mulvaney lacks authority to repeal the rule, but he can extend its effective date or reopen the comment period. The drama unfolding around payday lending regulations showcases the divided perception of the role of regulatory requirements, especially in 2017, when this sharp rift has resulted in so many consecutive changes to the same regulations (i.e. HMDA and Mortgage Servicing).

Arbitration: perfect snapshot of 2017 regulatory environment

The finalization and subsequent congressional repeal of the CFPB arbitration agreements rules illustrates the confusion and uncertainty in the regulatory environment.

The original rule prevented financial services providers from forcing consumers into arbitration instead of enabling them to pursue lawsuits. Immediately following publication of the final rule, certain members of Congress and lobbyists called for its repeal.

That repeal, by way of a House-passed Congressional Review Act resolution, was approved by the Senate and signed by the President in November. The industry had never seen a regulation issued and then repealed so quickly.

HMDA amendments impacting lending, including CRA and ECOA

2017 saw amendments to amendments as well. This year’s changes to the 2015 HMDA Amendments had a profound impact on the industry upon their release in August organizations have scrambled to prepare for the Jan. 1, 2018, deadline.

In keeping with the tone of uncertainty, industry insiders believe bankers should brace for the possibility of even more HMDA changes in 2018. Congress may even attempt to extend the due date and revise the reporting criteria.

Amendments to the Community Reinvestment Act (CRA) and the Equal Credit Opportunity Act (ECOA) were also needed to align with the HMDA amendments.

The CRA amendments use definitions of “home mortgage loan” and “consumer loan” that are consistent with the revised HMDA reporting criteria. ECOA was amended to permit creditors to collect the expanded demographic information required by the new HMDA rules. Without these updates to CRA and ECOA, lenders would be forced to apply disparate definitions for the same loan types, and the different demographic data collection rules would also make reporting extremely challenging.

Guidance offered on TRID through amendments

CFPB finalized amendments to TRID in 2017 and proposed additional amendments. (TILA RESPA Integrated Disclosures) Some additional mortgage lending regulations that CFPB proposed this year focused on clarifying TRID, specifically offering guidance around common questions that lenders had raised over the last two years. Some of those updates include clarification around common construction lending questions and whether making changes to a loan a few days before closing requires a new statement. This represents one attempt of many in 2017 to clarify existing regulations.

Clarifying common mortgage servicing concerns

In July, CFPB published amendments to its 2016 Mortgage Servicing amendments, effective in October 2017 and April 2018. Early intervention notice requirements were amended effective Oct. 19, 2017, and proposed amendments to periodic statements will become law in April 2018.

The general rule established in 2016 states that once a borrower becomes delinquent, mortgage servicers must notify that consumer of available foreclosure prevention options every 45 days. At the same time, servicers are prohibited from sending the notices more than once in a 180-day period.

Lenders expressed concern about this 180-day window for providing a subsequent notice, observing that if the day fell on a weekend or holiday, it would be impossible to comply. In response to this concern, the amendment provides a ten-day extension period. CFPB also clarified timing requirements for modified statements for borrowers in bankruptcy.

In other important but less complicated developments:

• A revised Call Report template was introduced effective with the March 31 filing for use by financial institutions with no foreign branches and assets under $1 billion.

• Regulation CC was amended to modernize electronic check collection and return procedures. The new rules, effective July 1, 2018, establish warranties for electronic presentment.

Summing it up

In conclusion, 2017 presented the financial services industry with a challenging and confusing regulatory environment in a constant state of flux. Supervisory agencies and Congress seemed to have conflicting objectives at times, which manifested in startlingly swift responses or retractions of each other’s progress.

Regulatory change in all forms, whether new requirements or deregulation efforts, requires significant time and effort to implement.

Because of the incessant changes throughout this year, with more than 200 actionable items that financial institutions carefully implemented, the regulatory burden has been more strenuous than ever.

Part 2 of this series will offer insights for 2018 and strategies for managing regulatory change.

About the authors

Pam Perdue is chief regulatory officer and executive vice-president at Continuity. Donna Cameron is director of regulatory I/O, CRCM, CCBCO. Continuity is a provider of regulatory technology (regtech) solutions that automate compliance management for financial institutions of all sizes.


Upcoming Mortgage Regulation & Compliance Changes for 2018

Getting a mortgage today is much different than it was before the financial crisis.

Loans have to meet certain standards and there are many rules lenders and servicers have to follow. But after a shakeup in leadership at the Consumer Financial Protection Bureau, the future of some policies is uncertain.

Here’s why: The new acting director of the CFPB, budget director Mick Mulvaney, is expected to review regulations that haven’t been finalized, and he may try to alter rules that are already in place.

Here are three policies Mulvaney could change and what adjustments to them might mean for homeowners and homebuyers. The CFPB has already announced plans to reconsider certain rules.

Home Mortgage Disclosure Act

When you apply for a mortgage, some information – including your race, ethnicity and sex – could be released to the public.

For thousands of lenders, reporting mortgage information is mandatory under the Home Mortgage Disclosure Act (HMDA). While the law has been around since 1975, the amount of data made publicly available is increasing, and not everyone is thrilled.

The mortgage industry believes that publishing so much data raises concerns about consumer privacy. And there’s no way to opt out of having your information shared, notes Richard Andreano Jr., partner at the Ballard Spahr law firm.

“They expanded the data set so much that there was a concern that if it was all made public, at what point are borrowers able to be identified using HMDA data?” asks Alexander Monterrubio, director of regulatory affairs at the National Association of Federally-Insured Credit Unions (NAFCU).

Consumer advocates want more information released. Doing so, they argue, protects borrowers from discriminatory lending. It also holds lenders accountable for their actions, says Jaime Weisberg, senior campaign analyst at the Association for Neighborhood & Housing Development (ANHD).

The latest HMDA requirements go into effect January 1, 2018, but the CFPB, the Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency announced that lenders won’t be penalized for mistakes made while collecting data in 2018 or reporting it in 2019. They also won’t have to resubmit data unless errors are “material.”

The CFPB also said that it would revisit certain aspects of HMDA.

“HMDA could be made almost worthless,” says Peter Smith, a senior researcher at the Center for Responsible Lending. “We need a good body of rules to make sure lenders are playing a fair game with consumers.”

Ability-to-Repay and Qualified Mortgage Standards

Another rule that has been subject to debate is the qualified mortgage (or ability-to-repay) rule implemented in 2014. It requires most lenders to make a “good-faith effort” to determine whether someone can afford a mortgage and eventually pay it back.

Critics say the new standards have kept many people, including low-income individuals, from becoming homeowners.

The CFPB is obligated to review the ability-to-pay rule since the bureau is required to assess existing regulations within five years.

With the CFPB’s change in leadership, there may be pressure to loosen lending requirements, says Barry Zigas, director of housing policy at the Consumer Federation of America. There’s already a Senate billaiming to give qualified mortgage status to loans offered by many banks and credit unions without requiring the lender to meet every condition under the ability-to-repay rule.

The bill’s supporters say it would give more consumers access to mortgages. But Zigas calls it a “dangerous effort to undermine consumer protections.” If it passes, a financial institution may legally avoid going through all of the steps lenders take to ensure borrowers can repay their loans, like considering their debt obligations, verifying income and employment history, and calculating their monthly debt-to-income ratio.


In 2015, the CFPB combined the mortgage disclosure obligations required by the Truth in Lending Act and the Real Estate Settlement Procedures Act under the TILA-RESPA Integrated Disclosure (TRID) rule. One result of the TRID rule is that consumers preparing to close on a house have two documents explaining their closing costs and mortgage terms, rather than four.

While the new forms helped simplify the closing process for homebuyers, the TRID rule created other problems. For one, it could prevent buyers from closing on their homes as quickly as they want to, says Brandy Bruyere, vice president of regulatory compliance at NAFCU.

For many items on the disclosures, there’s little or no tolerance for last-minute changes, and lenders have had to choose between rejecting borrowers’ requests and eating additional fees.

The CFPB has worked to fix the TRID rule and clear up confusion for lenders. But it hasn’t addressed every issue, leading members of Congress to create a bill that would make additional adjustments.

“The TRID disclosures are solid, and any significant change would add additional costs and uncertainty to the closing process,” says Smith from the CRL.

Rules won’t change overnight

The CFPB’s final rules can’t be modified without issuing a notice and asking the public for feedback. Take these steps to ensure your voice is heard, especially if you’re concerned about how rule changes could affect you.

Comment on any potential policy changes. When the opportunity arises, visit the CFPB’s website and comment on the rules the agency is proposing. “The CFPB doesn’t have to do what the comments say, but they have to provide a reason for not doing so to avoid the rule being struck down as arbitrary and capricious,” says Benjamin Olson, a former deputy assistant director for the Office of Regulations at the CFPB. 

Contact your representative. Congressional leaders can review certain rules issued by the CFPB and potentially overturn them. That’s what happened with the CFPB’s arbitration rule. The policy would’ve made it easier for consumers to file class action lawsuits against banks, but lawmakers used their powers under the Congressional Review Act to kill it before it could take effect. Legislators are now considering the CFPB’s final rule on payday lending and may seek to repeal it. 

Use the complaint database. If you’ve had issues with your mortgage lender or servicer and you’re having trouble resolving them, file a complaint with the CFPB. Typically, you’ll receive a response within 15 days. You can use the same database if you’re having problems with other financial entities, like the bank managing your checking or savings account.

If you’re looking at mortgage rates and preparing to buy a home for the first time, read reviews and do your homework before choosing a lender.


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