We now have a better idea of how the Consumer Financial Protection Bureau (CFPB) will implement a plan to make sure the mortgage industry complies with new consumer protections that go into effect in January 2014.
“Our plan is to work with the mortgage industry to ensure that the CFPB’s new rules are implemented accurately and expeditiously,” said CFPB Director Richard Cordray. “Both consumers and industry will win when the new rules are understood, applied, and carried out evenly and effectively. Mortgage borrowers, who have dealt with much heartache since the financial crisis, deserve this level of attentiveness.”
Variety of consumer protections
Among the new mortgage rules is the Ability-to-Repay rule. It's designed to protect consumers from irresponsible mortgage lending by requiring that lenders make a reasonable, good faith determination that prospective borrowers have the ability to repay their mortgage.
The rule also protects borrowers from risky lending practices, such as underwriting loans based only on low introductory “teaser” interest rates, 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 were also announced. These rules establish new, strong protections for all homeowners. Other new rules address appraisals, escrow accounts, protections for high-cost mortgages, and compensation and qualifications for loan originators.
Ensuring borrower protections
In an effort to support rule implementation and ensure industry is ready for the new borrower protections, the CFPB will:
- Coordinate with other agencies: The CFPB is coordinating with other federal government regulators that also conduct examinations of mortgage companies to ensure all regulators have a shared understanding of the CFPB’s new rules. This will help promote a consistent regulatory experience for industry.
- Publish plain-language guides: The CFPB will publish what it believes are “easy-to-understand” summaries of the regulations in both written and video form. The guides, available in the spring, will -- according to the agency -- be particularly helpful to smaller businesses with limited staff for compliance.
- Publish updates to the official interpretations: Over the next year, the CFPB plans to issue updates of the “official interpretations,” which provide guidance on how to comply with the rules. These updates will allow the CFPB to address important questions raised by industry, consumer groups, or other agencies. Priority for these updates will be given to issues that are important to a large number of providers or consumers, and that critically affect mortgage companies’ implementation decisions. The Bureau expects to issue the first one in the spring and issue additional updates, as needed.
- Publish readiness guides: These guides, available this summer, will help mortgage originators and servicers prepare to comply with the new rules by giving them helpful check-lists, such as suggesting that implementation plans include items like revising policies and procedures and finalizing training plans for staff. More in-depth examination procedures are expected to be published later this year by the Federal Financial Institutions Examination Council. Industry members will be able to use these examination procedures to conduct self-assessments and internal reviews of their readiness and compliance.
- Educate consumers: As the January 2014 date approaches, the CFPB will give consumers information about their new protections under these rules through a broad-reaching consumer education campaign.
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