CFPB Outlines Exam Priorities for 2016

The Consumer Financial Protection Bureau's (CFPB) deputy assistant director for origination recently warned mortgage lenders of the four main examination priorities for 2016—loan originator compensation plans, the ability-to-repay rule, the TILA-RESPA Integrated Disclosures (TRID) rule, and marketing service agreements. 

Speaking at the California MBA Legal Issues Conference, Calvin Hagins indicated that CFPB examiners will spend a substantial amount of time evaluating loan compensation schemes at every exam at every entity. The Regulation Z loan originator compensation rule prohibits loan originators from being paid based on a loan's terms or a proxy for a loan’s terms. We understand that the CFPB previously has focused on loan originator compensation during exams, and it appears that the CFPB intends to increase efforts to assess compliance with the compensation rule.

Significantly, Mr. Hagins indicated that examinations would assess compliance with the TRID rule in certain situations. Despite requests from the industry, he noted the CFPB did not adopt any exception to complying with the rule during the initial months of implementation, and that there is no grace period. The position appears to be contrary to statements by Director Richard Cordray, which we reported on previously. He has indicated that examinations would evaluate an institution's compliance management system and overall efforts to come into compliance, and institutions would be expected to make good-faith efforts to comply. Additionally, Mr. Cordray stated at the MBA Annual Convention:  “[W]e recognize that the mortgage industry has already dedicated substantial resources to understand the rules, adapt systems, and train personnel. We know that you are just trying to get it right and that there is no particular advantage to playing fast and loose with these disclosures. And so we and the other regulators have made clear that our initial examinations for compliance with the rule will be sensitive to the progress you have made. In particular, our examiners will be squarely focused on whether you have been making good-faith efforts to come into compliance with the rule. This is the same approach we took in our oversight of the QM rule, which has worked out well for all concerned over the past 21 months. And both HUD and the FHFA—the two key housing regulators whose principal leaders are speaking before and after me today—have announced that the FHA, Fannie Mae, and Freddie Mac will apply the same basic approach in dealing with mortgage loans that are made under the new rule.”

Mr. Cordray's statements do not suggest that examinations will focus at the loan level on compliance with all aspects of the TRID rule—however Mr. Hagins appears to indicate that examinations will have such focus. We understand that the American Bankers Association confirmed on an informal basis with the CFPB that prior CFPB statements remain valid for entities that have made good faith efforts to comply with the TRID rule, and that the statements by Mr. Hagins were intended to address entities who may have erroneously believed that there was an actual grace period and did not engage in good faith efforts to finally. Finally, while the House has passed a bill that would provide a formal hold harmless period, the Senate has not passed a similar bill, and efforts to include such a period in an omnibus bill have not been successful.

The ability-to-repay rule requires lenders to verify borrowers' ability to repay their mortgages, either by satisfying criteria to fit into one of the qualified mortgage categories, or by following the general criteria for non-qualified mortgage loans that require a lender to focus on eight factors, including credit history, income or assets, and debt obligations. 

Finally, Mr. Hagins stated that the Bureau will be further investigating marketing service agreements (MSAs). The indication that the CFPB will focus on MSAs follows an October 8, 2015, CFPB bulletin that addressed MSAs and their potential negative effects on consumers and implications under the RESPA Section 8 referral fee provisions.

- Richard J. Andreano, Jr., and Matthew R. Smith

New Loan Limits for 2016 Announced by FHA

The Federal Housing Administration (FHA) announced the 2016 Nationwide Forward Mortgage Limits in Mortgagee Letter 2015-30 and the 2016 Nationwide Home Equity Conversion Mortgage (HECM) limits in Mortgagee Letter 2015-29 earlier this month. These new loan limits are effective for case numbers assigned on or after January 1, 2016.

For forward mortgages, the low-cost area and high cost area limits will remain the same, as published in the HUD Handbook 4000.1, Single Family Policy Handbook. The limits will continue as follows:

Low-Cost Area: The FHA national low cost area mortgage limits (“floor”) are set at 65 percent of the national conforming limit of $417,000 for a one-unit property, and are as follows:

  • One-unit: $271,050
  • Two-unit: $347,000
  • Three-unit: $419,425
  • Four-unit: $521,250

High-Cost Area: The maximum FHA-insured mortgage limits (“ceiling”) are as follows:

  • One-unit: $ 625,500
  • Two-unit: $ 800,775
  • Three-unit: $ 967,950
  • Four-unit: $ 1,202,925

In addition, the special exceptions for Alaska, Hawaii, Guam, and the Virgin Islands published in the HUD Handbook 4000.1 will stay the same as well.  

However, the maximum loan limits have increased in 188 counties, reflecting changes to housing prices in those areas.  A list of the limits in counties can be found here.  There are no areas where the maximum loan limits have decreased from the 2015 levels for forward mortgages. Forward mortgage limits for individual Metropolitan Statistical Area (MSA) and counties are available here.

For reverse mortgages, the maximum claim amount for FHA-insured HECMs will remain at $625,500 for all areas. This claim amount is also applicable to Freddie Mac’s special exception areas: Alaska, Hawaii, Guam, and the Virgin Islands. 

A complete list of the FHA loan limits can be accessed here.

- Wendy Tran and Richard J. Andreano, Jr.

Reduced HOEPA/QM points and fees limits; revisions to Reg Z small creditor/rural area definitions and asset test effective January 1

Since it is unusual for CFPB annual adjustments to result in reduced thresholds, we want to remind readers of the reduced HOEPA and QM points and fee limits that will be effective January 1, 2016.

Effective January 1, the lower limits will be:

  • The total loan amount thresholds that determine whether a transaction is a high-cost mortgage when the points and fees are either 5 percent or 8 percent of such amount will be, respectively, $20,350 and $1,017.
  • The points and fees limits that a loan must not exceed to satisfy the requirements for a QM and related loan amount limits will be:
    • For a loan amount greater than or equal to $101,749 (currently $101,953), points and fees may not exceed 3 percent of the total loan amount
    • For a loan amount greater than or equal to $61,050 (currently $61,172) but less than $101,749, points and fees may not exceed $3,052
    • For a loan amount greater than or equal to $20,350 (currently $20,391) but less than $61,050, points and fees may not exceed 5 percent of the total loan amount
    • For a loan amount greater than or equal to $12,719 (currently $12,744) but less than $20,350, points and fees may not exceed $1,017
    • For a loan amount less than $12,719 (currently $12,744), points and fees may not exceed 8 percent of the total loan amount

Also effective January 1 are revisions to the definitions of “small creditor” and “rural areas” in Regulation Z and a new requirement to include the assets of the creditor’s affiliates that regularly extended covered transactions in the calculation of the $2 billion asset limit for small-creditor status.

See our previous blog posts for more information on the adjustments and revisions.

- Richard J. Andreano, Jr.

CFPB Releases HMDA Rule Compliance Guide

The Consumer Financial Protection Bureau (CFPB) released the Home Mortgage Disclosure (Regulation C) Small Entity Compliance Guide on December 1, 2015. According to the CFPB, the purpose of the Compliance Guide is to provide an accessible summary of Regulation C, in light of the final rule amending the Home Mortgage Disclosure Act (HMDA), which we summarized here. In addition, the CFPB has highlighted information that it believes will be helpful to financial institutions in implementing the final HMDA Rule. Attachments at the end of the Compliance Guide include a sample data collection form, action taken chart, and sample notices of HMDA data availability.

The Compliance Guide along with other resources, such as the HMDA executive summary, summary of reportable data, HMDA institutional coverage charts, and other related resources can be found here.

We will discuss the implications of the final HMDA Rule for mortgage lenders during our webinar on January 7, 2016. Registration for the webinar is available at this link.

- Wendy Tran and Richard J. Andreano, Jr.

Data Security for Mortgage Companies: A Focus on Employees

Whether you’re with a mortgage broker, mortgage bank, or a vendor, companies that deal with mortgages collect more personal information than most retailers, service providers, and other financial institutions. A typical loan application requires reams of personal and confidential information. And all of this highly sensitive information has to be ... MORE >

 - Roshni Patel and Daniel JT McKenna

Illinois Enacts Reverse Mortgage Act

Illinois has enacted the Reverse Mortgage Act, which establishes state disclosure requirements, the development of consumer education documents,  certification requirements, a cooling-off period before a borrower can be bound by loan terms, restrictions on cross-selling, and other requirements for lenders of reverse mortgages. The Act also provides for the enforcement of violations by the Attorney General.

These provisions become effective January 1, 2016.

Ohio Adopts New Mortgage Broker Rules

The Ohio Department of Commerce adopted new mortgage broker rules, including, but not limited to, requirements regarding registration, applications, special accounts, recordkeeping, advertising, operations managers, examinations and investigations, surety bonds, disclosures, continuing education, notification (of certain changes), and compensation.  Factors considered in determining the character and general fitness of applicants are established and a list of potential violations is also provided. In addition, the rules establish exemptions from registration for nonprofit organizations, loan processors, and underwriters. 

These provisions become effective January 4, 2016.

- Wendy Tran

Copyright © 2015 by Ballard Spahr LLP
(No claim to original U.S. government material.)

All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, including electronic, mechanical, photocopying, recording, or otherwise, without prior written permission of the author and publisher.

This alert is a periodic publication of Ballard Spahr LLP and is intended to notify recipients of new developments in the law. It should not be construed as legal advice or legal opinion on any specific facts or circumstances. The contents are intended for general informational purposes only, and you are urged to consult your own attorney concerning your situation and specific legal questions you have.

Related Practices

Consumer Financial Services
Mortgage Banking


Visit CFPB Monitor, our blog on the Consumer Financial Protection Bureau >

Subscribe to the blog >

Subscribe to the Mortgage Banking Update and legal alerts >