June 1 Brings Three Important Changes to Reg Z 

As a reminder, the first three of many CFPB changes to Reg Z - Truth in Lending go into effect June 1.

The Mortgage Loan Officer Compensation rule includes two important prohibitions. The first prohibits principal dwelling-secured credit transactions (both closed and open ended) from containing terms that require arbitration or any other non-judicial procedure. The credit union and member can always agree to use arbitration, but it cannot be required. It is important that credit unions examine their disclosures to ensure they are compliant.

The second change is the prohibition of financing single-premium credit insurance. A creditor may not finance, directly or indirectly, any premiums or fees for credit insurance in connection with a consumer credit-transaction secured by a dwelling (including a home equity line of credit secured by the consumer’s principal dwelling). This prohibition does not apply to credit insurance for which premiums or fees are calculated and paid in full on a monthly basis. Credit unions are encouraged to work with any third-party vendors to continue offering insurance products while operating within the parameters of the new regulation.

The final change effective June 1 relates to mandatory escrow accounts. The period a mandatory escrow account must be maintained for higher-priced mortgage loans has been increased from 12 months to five years. Since there are various exemptions contained in these rule changes, it’s important to make sure your credit union understands how they apply.

Need help or have questions? Contact MCUL & Affiliates’ Compliance Consultants to see how they can assist you at ComplianceConsulting@mcul.org or the Helpline at (800) 262-6285, ext. 494.

Three new Small Entity Compliance Guides published by the CFPB
On May 2, the CFPB published three new Small Entity Compliance Guides. The topics covered are the 2013 Home Ownership and Equity Protection Act Rule, the Equal Credit Opportunity Act Valuations Rule and the Truth in Lending Act Higher-Priced Mortgage Loans Appraisal Rule. 

TILA was amended to expand the HOEPA coverage to include purchase-money mortgages and open-end credit plans (HELOCs) and amended HOEPA’s coverage tests. New protections were also added for high-cost mortgages, including a homeownership counseling requirement. The 2013 HOEPA Rule also implements two additional Dodd-Frank counseling requirements that may apply to credit unions, regardless of whether or not they make high-cost mortgages. As of the effective date, credit unions will need to require pre-loan homeownership counseling for negative-amortization loans to first-time borrowers and they will be required to provide all federal-related loan applicants a list of housing counselors. These new requirements will apply to transactions for which credit unions receive an application for on or after Jan. 10, 2014.

ECOA Valuations Rule
In January, the CFPB finalized the disclosure and delivery requirements for copies of appraisals and other written valuations under the ECOA rule. Prior to this new rule, it was only required that creditors provide copies of appraisals to applicants upon request and notify them of their rights to make a request. With the new rules, credit unions are required to automatically send a free copy of home appraisals and other written valuations promptly after they are completed, regardless of whether credit is extended, denied, incomplete, or withdrawn. These new requirements will apply to applications received on or after Jan. 18, 2014.

TILA HPMLs Appraisal Rule
Starting with applications received on or after Jan. 18, 2014, credit unions that originate covered HPMLs (first lien or subordinated lien closed-end loans secured by a consumer’s principal dwelling) must comply with certain requirements, including:

  1. Disclose to consumers within three business days after receiving the application that they are entitled to a free copy of any appraisal the credit union orders and that they can also hire their own appraiser at their own expense for their own use.
  2. Obtain a written appraisal performed by a certified or licensed appraiser in conformity with the Uniform Standards of Professional Appraisal Practice and the Financial Institutions Reform, Recovery and Enforcement Act and its implementing regulations.
  3. Have the appraiser physically visit the property, view the interior and provide a written appraisal report.
  4. Deliver copies of appraisals to applicants no later than three business days before consummation.
  5. Obtain an additional appraisal at your own expense if the property’s seller acquired the dwelling within the past 180 days and is reselling it for a price that exceeds certain thresholds.

The guide also provides steps consumers can take when reviewing the appraisal to be eligible for the “safe harbor” protections provided in the regulation.

Submissions to Monitor may be emailed. Bryan Laviolette is the editor of Monitor. Contact him by email or call (800) 262-6285, ext. 233. The newsletter of the Michigan Credit Union League is published Monday mornings or Tuesday mornings when Monday is a holiday. There is no Monitor the week after Christmas and the week after the Annual Convention and Exposition. The MCUL reserves the right to edit submissions for clarity and space.
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