The new Consumer Finance Protection Bureau (CFPB) mortgage rules fall into three major categories:
- Mortgage Services
- Other rules, including appraisals, escrow accounts, protections for high-cost mortgages, and compensation and qualifications for loan originators
The Ability-to-Repay rule is designed to protect consumers from irresponsible mortgage lending. The rule requires that lenders:
- Make a reasonable, good faith determination that prospective borrowers have the ability to repay their mortgage
- Avoid risky lending practices, such as underwriting loans based only on low introductory “teaser” interest rates
The rationale is that these rules will help eliminate risky lending practices, which contributed to many homeowners ending up in delinquency and foreclosure after the 2008 housing collapse.
New mortgage servicing rules designed to protect borrowers from costly surprises and runarounds. They include the following:
- Early intervention by attempting to contact borrowers if they miss a payment
- Instituting policies and procedures to promptly identify and communicate with family members, heirs, or other parties with a legal interest in the home when a borrower dies
- Responding to “covered errors,” as defined in the Real Estate Settlement Procedures Act of 1974 (the RESPA Amendments), within five business days
- Not charging a borrower for forced-place insurance if there is a reasonable basis to believe that such a borrower has not complied with the mortgage contract’s requirement to maintain hazard insurance
The regulations also have specific procedures during the loss mitigation process, including acknowledging receipt of a loss mitigation application and a prompt review of that application.
Other new rules
- Lenders must provide copies of written appraisals and other home value estimates and ensure that consumers receive information prior to closing about how the property’s value was determined.
- Creditors must inform consumers of their right to receive a free copy of the appraisal reports and home value estimates within three days of application.
- Creditors must provide those reports promptly, and at least three days before closing.
- The required duration of an escrow account on higher-priced mortgage loans is extended from a minimum of one year to a minimum of five years.
- A loan originator cannot get paid by both the consumer and another person, such as the creditor.
- Mandatory arbitration of mortgage loan disputes is prohibited.
- Loan originators will need to meet character, fitness, and financial responsibility requirements; pass criminal background checks; and complete appropriate training.
The new regulations include other new rules, and some may be modified between now and January 2014.