Escrow Requirements Final Rule–Amended Already? By Laurie Spira
Issued in January, the Escrow Requirements under the Truth-in-Lending Act Final Rule (Rule) seemed straightforward. It was clear from a quick read that the Rule lengthens the time for which a mandatory escrow account established for a Higher-Priced Mortgage Loan (HPML) must be maintained. The Rule also creates an exemption for small creditors that operate predominately in rural or underserved areas and expands upon an exemption from escrowing for insurance premiums for condominiums by extending the exemption to other similar situations. A closer read shows that this regulatory change has a greater impact than appears on the surface. The Rule revises the definition of an HPML. The Rule also removes the ability-to-repay requirement and existing restrictions on prepayment penalties. Then, on April 12, the Consumer Financial Protection Bureau (CFPB) issued a proposal containing amendments to the Rule. The proposal clarifies the exemption for creditors operating in rural or underserved areas and restores the ability to pay requirements and restrictions on prepayment penalties. Do you feel like you need help keeping everything straight? Here’s a summary of the Rule, which is effective for applications received on or after June 1, 2013:
The definition of HPML will be revised Under the Rule, an HPML is a closed-end consumer credit transaction secured by the consumer’s principal dwelling with an annual percentage rate (APR) that exceeds the average prime offer rate for a comparable transaction as of the date the interest rate is set by:
MAY 2013 n Connecticut Mortgage Professional Magazine n
NationalMortgageProfessional.com
18
l 1.5 percent or more for first lien loans that do not exceed the Freddie Mac conforming loan limit in effect as of the date the interest rate is set; l 2.5 percent or more for first lien loans that exceed the Freddie Mac conforming loan limit in effect as of the date the interest rate is set; or l 3.5 percent or more for subordinate lien loans. Currently, the jumbo loan threshold applies only to the mandatory escrow account requirements; however, beginning June 1, the jumbo threshold will become part of the definition.
The requirement to establish escrow accounts for HPMLs will change The Rule lengthens the time, from one year to five, for which a mandatory escrow account established for a HPML must be maintained. The Rule also creates an exemption for small creditors that operate predominately in rural or underserved areas and expands upon an existing exemption from escrowing for insurance premiums for condominium units to extend the exemption to other situations in which a consumer’s property is covered by a master insurance policy.
Other requirements relating to HPMLs may change As it stands today, the Rule deletes the prepayment penalty and abilityto-repay rules applicable to HPMLs. However, the CFPB has issued a proposed amendment to the Rule that would ensure these protections remain in place until the effective date of the Ability-to-Repay rule, which expands these protections to apply to most mortgage transactions. The CFPB has acknowledged that “certainty regarding compliance is a matter of some urgency,” and plans to make both the Rule and any amendments effective June 1. Laurie Spira is chief compliance officer with Torrance, Calif.-based DocMagic Inc. She may be reached by phone at (800) 649-1362, ext. 6446 or e-mail laurie@docmagic.com.
Sponsored Editorial
nmp newsflash
continued from page 16
agreement at the direction of the OCC and the Federal Reserve. In determining payment amounts, borrowers were categorized according to the stage of their foreclosure process and the type of possible servicer error. Regulators then determined amounts for each category using the financial remediation matrix published in June 2012 as a guide, incorporating input from various consumer groups. Regulators have published the payment amounts and number of people in each category on their Web sites at www.occ.gov/independentforeclosurereview and www.federalreserve.gov/ consumerinfo/independent-foreclosurereview-payment-agreement.htm. While the agreement ended the Independent Foreclosure Review for the 13 companies identified above, the review continues for OneWest, Everbank, and GMAC Mortgage.
Four MI Firms to Pay $15 Million-Plus in Penalties to the CFPB in Kick-Back Probe The Consumer Financial Protection Bureau (CFPB) has announced four enforcement actions to end what the Bureau believes to be improper kickbacks paid by mortgage insurers to mortgage lenders in exchange for business. The CFPB filed complaints and proposed consent orders against four national mortgage insurance companies in order to stop these practices, which have been prevalent for more than 10 years. The proposed orders require the four mortgage insurers to pay more than $15 million in penalties to the CFPB. “Illegal kickbacks distort markets and can inflate the financial burden of homeownership for consumers,” said CFPB Director Richard Cordray. “We believe these mortgage insurance companies funneled millions of dollars to mortgage lenders for well over a decade. The orders announced today put an end to these types of arrangements and require these insurers to pay more than $15 million in penalties for violating the law.” The CFPB alleges that four mortgage insurance companies violated federal consumer financial law by engaging in widespread kickback arrangements with lenders across the country. The CFPB believes the mortgage insurers named in today’s enforcement actions provided kickbacks to mortgage lenders by purchasing captive reinsurance that was essentially worthless but was designed to make a profit for the lenders. The four companies named are Genworth Mortgage Insurance Corporation, United Guaranty Corporation, Radian Guaranty Inc., and Mortgage Guaranty Insurance Corporation. In exchange for kickbacks, these mortgage insurers received lucrative business referrals from lenders.
These types of kickbacks were a common practice in the years leading up to the financial crisis. These four companies were key players during that time. “Genworth USMI agreed to settle this review so we can focus our resources on working with customers to help borrowers responsibly achieve and maintain homeownership, and to resolve the uncertainties inherent in such a review and any possible resulting litigation,” said Rohit Gupta, president and chief executive officer of Genworth USMI.
eRecording of Documents on the Rise Nationwide Title Clearing Inc. (NTC) has announced that company experts have identified a trend that shows more documents are being recorded electronically in the nation’s Recorders’ Offices. NTC’s eRecording manager Brian Ernissee spoke on the topic at the Property Records Industry Association (PRIA) Winter Symposium as part of an expert panel. “More than 840 jurisdictions are currently eRecording-enabled, and approximately 15 new jurisdictions become enabled every month,” Ernissee said. “The volume of documents sent by NTC to record electronically has gone from 10 percent in May 2012 to well above 40 percent in February 2013. With such positive growth, we expect the total volume of documents submitted electronically for recording to be well above 50% by May.” eRecording at NTC consists of a five-step process: Submit, receive, review, record and return. eRecording makes processing land record and property documents simple, fast and secure. The process allows documents to be submitted 24/7, and is cost-effective, reducing paperwork. Documents are scanned and submitted within minutes, and are then returned electronically immediately after recording. PRIA is an organization which develops and promotes national standards and practices within the land records industry. The PRIA Winter Symposium consisted of 23 sessions on the topic of eRecords and was well-attended with 148 members, guests and speakers. Brian Ernissee, NTC’s Electronic Recording Manager, spoke on a panel at the conference called “eRecord from a Submitter’s Perspective.” Ernissee spoke about the relative newness of eRecording and how to improve upon the practice and make it widespread, drawing upon NTC’s 20 years of experience with property documents. continued on page 22