At the end of May, the president signed into law a bill some called the “most significant pro-growth financial regulatory reform package since the passage of Gramm-Leach-Bliley nearly a generation ago.” The so-called “Economic Growth, Regulatory Relief and Consumer Protection Act” relaxes some Dodd-Frank era regulations and also strengthens some consumer protections, particularly around cybersecurity and for military personnel.
For many, the topic of discussion is how exactly this bill helps their organization. Certainly it has various levels of impact, with the largest banks, community lending institutions, credit unions and even non-depository mortgage lenders impacted differently by different parts of the bill. There’s something in it for everyone!
Let’s discuss some of the parts most significant for the residential mortgage lending industry.
SAFE Act: Transition Rule
For independent mortgage lenders, the most significant change is the SAFE Act amendment that provides 120 days of transitional authority for mortgage originators to originate when leaving a banking institution to join a sponsoring non-bank (or when crossing state lines). This removes a major roadblock for recruiting of bank originators, making it much easier for bank employees to make the leap into an independent mortgage lender.
TRID: CFPB to Provide Written Guidance
The CFPB is directed to provide written guidance clarifying three things related to TRID:
- How TRID applies to mortgage assumption transactions
- How to correctly disclose construction-to-permanent home loans
- To what extent lenders can rely on the CFPB’s sample TRID forms for protection against liability
TRID: No Closing Delay if APR Decreases
As part of a section referred to as “No Wait for a Lower Rate,” the bill states that once a Closing Disclosure has been issued, if the APR then decreases, a new three-day waiting period no matter how much it changes. At first glance, this doesn’t catch a lot of interest. To an extent, that’s fair. Lenders with good compliance support should not have been overly troubled by this anyway. But there are a few twists and wrinkles. First of all, for lenders that haven’t been following rule all along, is this good or bad news? This doesn’t have retroactive effect, so rather than confirming that they were right it appears to confirm they were wrong because it required changing the law itself. It will be interesting to see if regulators or any consumer suits raise this issue. Secondly, it appears the bill made a mistake in this section and referenced the wrong part of the statute. It is still early, but this entire section may be moot until that is corrected.
QM Exemption for Portfolio Loans
Banks under $10 billion in assets get a nice boost and are allowed to originate Qualified Mortgages without meeting many of the normal requirements. Under this rule, a bank of this size can meet QM requirements if it originates and keeps a loan in portfolio and complies with some of the more basic qualified mortgage requirements, such as related to prepayment penalties, a maximum three percent of points and fees and not having any negative amortization or interest-only features. Interestingly, this is perhaps not as friendly as the similar exception already available to even smaller institutions (two billion in assets or less), which only requires a lender to retain a loan in portfolio for three years. Similar to that existing exception, this allows a bank to avoid is any numerical debt-to-income cap and the specific set of rigorous underwriting requirements that qualified mortgages normally require. But this exception doesn’t prevent a lender from issuing mortgages beyond the standard 30-year term, so perhaps “small” banks will take advantage of this for niche 40-year products.
HMDA Relief for Smaller Lenders
Depending on the size of your institution, this section may be even more important than as listed here. The bill exempts banks and credit unions that originate fewer than 500 open-end and 500 closed-end mortgages are exempt from HMDA’s expanded data disclosures (the provision would not apply to nonbanks and does not exempt institutions from HMDA reporting altogether).
TILA Applied to Solar Loans
The bill will apply TILA consumer protections to PACE/energy efficiency mortgage products. Until now, solar loan lenders have run free to add liens to properties – often disrupting our mortgage lending business – unrestricted by the many consumer protection regulatory requirements in place to protect consumers risking the loss of their home. They’ll now have a tougher time doing that.
All in all, this makes for an intriguing accomplishment by banking lobbyists. It certainly sets a new tone, even if it leaves intact the vast majority of the Dodd-Frank era regulations.
Ben Giumarra, Esq., is responsible for legal and regulatory affairs at Embrace Home Loans, one of the nation’s leading mortgage lenders and bank support providers. He appreciates your opinions and feedback and can be reached at bgiumarra@embracehomeloans.com.
