Apply to HELOCs? April 10, 2013 2:00 p.m. 3:30 p.m. EST Presented - - PowerPoint PPT Presentation
Which New Requirements Apply to HELOCs? April 10, 2013 2:00 p.m. 3:30 p.m. EST Presented by: Steve Van Beek, Esq., NCCO Director of Regulatory Compliance National Association of Federal Credit Unions National Association of Federal Credit
National Association of Federal Credit Unions l www.nafcu.org
Presented by: Steve Van Beek, Esq., NCCO Director of Regulatory Compliance National Association of Federal Credit Unions
National Association of Federal Credit Unions l www.nafcu.org
–Where to Find New Requirements –Details of New Requirements –Is your HELOC covered?
National Association of Federal Credit Unions l www.nafcu.org
National Association of Federal Credit Unions l www.nafcu.org
National Association of Federal Credit Unions l www.nafcu.org
National Association of Federal Credit Unions l www.nafcu.org
National Association of Federal Credit Unions l www.nafcu.org
National Association of Federal Credit Unions l www.nafcu.org
2(a)(19) Dwelling
to fit the definition, and thus a vacation or second home could be a dwelling. However, for purposes of the definition of residential mortgage transaction and the right to rescind, a dwelling must be the principal residence of the consumer. (See the commentary to §§ 1026.2(a)(24), 1026.15, and 1026.23.)
dwellings if they are in fact used as residences, just as are condominium and cooperative units. Recreational vehicles, campers, and the like not used as residences are not dwellings.
National Association of Federal Credit Unions l www.nafcu.org
1026.40 Requirements for home equity plans. The requirements of this section apply to open-end credit plans secured by the consumer's dwelling. Home-secured open-end loan (HELOC)
National Association of Federal Credit Unions l www.nafcu.org
National Association of Federal Credit Unions l www.nafcu.org
– 12 CFR 1026.36(h)
– 12 CFR 1026.36(i)
National Association of Federal Credit Unions l www.nafcu.org
New Requirements for Loan Originators*
Differs from SAFE Act definition (which is inclusive of HELOCs). See CFPB’s Regulation G 12 CFR 1007.102 and Appendix A –NCUA’s SAFE Act Page – Opinion 08-0843
National Association of Federal Credit Unions l www.nafcu.org
National Association of Federal Credit Unions l www.nafcu.org
Dodd-Frank also prohibited the financing, directly
This is not common. Note: This does not prohibit credit insurance where the premium or fees are calculated and paid in full on a monthly basis.
National Association of Federal Credit Unions l www.nafcu.org
National Association of Federal Credit Unions l www.nafcu.org
Calculated and Paid in Full on a Monthly Basis
What about “decreasing premium” credit insurance?
– Premium decreases each month as balance decreases – Premiums are added to the loan balance but are paid in full each month even though some interest is charged
Discussions with the CFPB to clean up the language and make it clear “decreasing premium” plans are still OK.
National Association of Federal Credit Unions l www.nafcu.org
National Association of Federal Credit Unions l www.nafcu.org
Scope: Applies to consumer transactions secured by a member’s principal dwelling. This includes home equity- lines of credit (HELOCs).
Scope: Applies to consumer credit transactions secured by a member’s dwelling. Includes HELOCs.
National Association of Federal Credit Unions l www.nafcu.org
– Credit union can process the payment on a later day so long as posted as of the date of receipt
escrow (if any)
suspense account or credit immediately
National Association of Federal Credit Unions l www.nafcu.org
within seven business days (limited exceptions for natural disasters; bankruptcies)
that seven business days is maximum
National Association of Federal Credit Unions l www.nafcu.org
Included in the High-Cost Mortgage Regulation
National Association of Federal Credit Unions l www.nafcu.org
New requirement from Dodd-Frank that was included in high-cost final rule, but applies much
Scope: Applies broadly to “federally related mortgage loans” and open-end home equity lines of credit (HELOCs).
Excluded: Reverse mortgages; timeshares; construction loans; and loans secured by a dwelling that is considered personal property under State law.
National Association of Federal Credit Unions l www.nafcu.org
Disclosure Requirements – 1024.20
Timing: Must be sent no later than three business days after the credit union receives an application.
– With Special Information Booklet for closed-end loans; or – With HELOC disclosures for home equity lines of credit.
Content: A written list of homeownership counseling
must have obtained the list in the prior 30 days. Creating List: CFPB will be developing a website portal that credit unions (and vendors) can use to populate the listings.
National Association of Federal Credit Unions l www.nafcu.org
National Association of Federal Credit Unions l www.nafcu.org
Dodd-Frank Expanded Scope Historically, credit unions have not made high- cost mortgage loans. Dodd-Frank expanded the scope to include purchase loans and HELOCs. Scope: Loan secured by a member’s principal dwelling that meets one of three tests.
Excluded: Loans to finance the initial construction of a dwelling and loans originated through the Section 502 Direct Loan Program (USDA).
National Association of Federal Credit Unions l www.nafcu.org
Three Tests of High-Cost Mortgages
As with higher-priced mortgage loans, compare against the APOR tables on FFIEC’s website. Four different thresholds:
– First liens (Real Property): 6.5 percentage points above APOR – First liens (Personal Property > $50,000): 6.5 points above APOR – First liens (Personal Property < $50,000): 8.5 points above APOR – All Subordinate Liens: 8.5 percentage points above APOR
– Not applicable to FCUs as the Federal Credit Union Act prohibits already. Recouped closing costs are not penalty.
National Association of Federal Credit Unions l www.nafcu.org
Points & Fees Test There are two different thresholds depending on the loan amount:
high-cost mortgage if points and fees exceed 5 percent of the total transaction amount.
cost mortgage if points and fees exceed 8 percent of the total transaction or exceed $1,000 (adjusted annually for inflation)
National Association of Federal Credit Unions l www.nafcu.org
HELOC Calculations – At Account Opening
credit plan must be determined in accordance with § 1026.32(a)(3), regardless of whether there is an advance of funds at account opening. Section 1026.32(a)(3) does not require the calculation of the annual percentage rate for any extensions
line subsequent to account opening is not treated as a separate transaction for purposes of determining annual percentage rate threshold coverage.
National Association of Federal Credit Unions l www.nafcu.org
HELOC Calculations – At Account Opening
Which APR? – 12 CFR 1026.32(a)(3) (3) Determination of annual percentage rate. For purposes of paragraph (a)(1)(i) of this section, a creditor shall determine the annual percentage rate for a closed- or open-end credit transaction based on the following: (i) For a transaction in which the annual percentage rate will not vary during the term of the loan or credit plan, the interest rate in effect as of the date the interest rate for the transaction is set;
National Association of Federal Credit Unions l www.nafcu.org
HELOC Calculations – At Account Opening
Which APR? – 12 CFR 1026.32(a)(3) (ii) For a transaction in which the interest rate may vary during the term of the loan or credit plan in accordance with an index, the interest rate that results from adding the maximum margin permitted at any time during the term of the loan or credit plan to the value of the index rate in effect as of the date the interest rate for the transaction is set, or the introductory interest rate, whichever is greater; and
National Association of Federal Credit Unions l www.nafcu.org
HELOC Calculations – At Account Opening
Which APR? – 12 CFR 1026.32(a)(3) (iii) For a transaction in which the interest rate may or will vary during the term of the loan or credit plan,
(a)(3)(ii) of this section, the maximum interest rate that may be imposed during the term of the loan or credit plan.
National Association of Federal Credit Unions l www.nafcu.org
Variable-Rate HELOC
Example in Staff Commentary – Comment 32(a)(3)-3
a five-year draw period and a five-year repayment period provide for a fixed, initial interest rate of 2 percent for the first year of the repayment period, after which the interest rate will adjust annually pursuant to a publicly-available index outside the creditor's control, in accordance with the limitations applicable to open-end credit plans in § 1026.40(f). Also assume that, pursuant to the terms of the open-end credit agreement, a margin of 2 percent applies because the consumer is employed by the creditor, but that the margin will increase to 4 percent if the consumer's employment with the creditor ends…
National Association of Federal Credit Unions l www.nafcu.org
Variable-Rate HELOC
Example in Staff Commentary – Comment 32(a)(3)-3 …Finally, assume that the applicable index rate is 3.5 percent as of the date the interest rate for the transaction is set, and a lifetime interest rate cap of 15 percent applies to the transaction. Pursuant to § 1026.32(a)(3)(ii), for purposes of determining the annual percentage rate for § 1026.32(a)(1)(i), the interest rate for the transaction is 7.5 percent (3.5 percent index rate plus 4 percent maximum margin).
National Association of Federal Credit Unions l www.nafcu.org
Fixed-Rate and Term-Rate HELOCs
Example in Staff Commentary – Comment 32(a)(3)-5
plan has only a fixed rate during the draw period, a creditor must use the interest rate applicable to that feature to determine the annual percentage rate, as required by § 1026.32(a)(3)(i). However, if an open-end credit plan has a variable rate, but also
period, § 1026.32(a)(3) requires a creditor to use the terms applicable to the variable-rate feature for determining the annual percentage rate, as described in § 1026.32(a)(3)(ii).
National Association of Federal Credit Unions l www.nafcu.org
HELOC Calculations – At Account Opening
rather than each time a member draws on the line.
– Most closely-comparable closed-end loan – huh? – CFPB “does not at this time adopt a separate methodology for determining the average prime
– Use existing APOR tables for HELOCs – Comment 32(a)(1)(i)-2
National Association of Federal Credit Unions l www.nafcu.org
Comment 32(a)(1)(i)-2
comparable transaction is set forth in comments 35(a)(1)-1 and 35(a)(2)-2 and -3, which direct creditors to published tables of average prime offer rates for fixed- and variable-rate closed-end credit transactions. Creditors opening open-end credit plans must compare the annual percentage rate for the plan to the average prime offer rate for the most closely comparable closed-end transaction. To identify the most closely comparable closed-end transaction, the creditor should identify whether the credit plan is fixed- or variable-rate; if the plan is fixed-rate, the term of the plan to maturity; if the plan is variable-rate, the duration of any initial, fixed-rate period; and the date the interest rate for the plan is set…
National Association of Federal Credit Unions l www.nafcu.org
Comment 32(a)(1)(i)-2
…If a fixed-rate plan has no definite plan length, a creditor must use the average prime offer rate for a 30-year fixed-rate loan. If a variable-rate plan has an optional, fixed-rate feature, a creditor must use the rate table for variable-rate transactions. If a variable-rate plan has an initial, fixed-rate period that is not in whole years, a creditor must identify the most closely- comparable transaction by using the number of whole years closest to the actual fixed-rate period. For example, if a variable-rate plan has an initial fixed-rate period of 20 months, a creditor must use the average prime offer rate for a two-year adjustable-rate loan…
National Association of Federal Credit Unions l www.nafcu.org
Comment 32(a)(1)(i)-2
If a variable-rate plan has no initial fixed-rate period, or if it has an initial fixed-rate period of less than one year, a creditor must use the average prime offer rate for a one-year adjustable-rate loan. Thus, for example, if the initial fixed-rate period is six months, a creditor must use the average prime offer rate for a one-year adjustable-rate loan.
National Association of Federal Credit Unions l www.nafcu.org
HELOC Calculations – At Account Opening
Total Loan Amount – Points & Fees Test 12 CFR 1026.32(b)(4)(ii) (4) * * * (ii) Open-end credit. The total loan amount for an open- end credit plan is the credit limit for the plan when the account is opened.
National Association of Federal Credit Unions l www.nafcu.org
If you have a HELOC that is high-cost:
– Ability-to-Repay – New counseling requirement
National Association of Federal Credit Unions l www.nafcu.org
New Prohibitions – Effective January 10, 2014
courtesy period for all high-cost mortgages);
prohibited;
situations); and
National Association of Federal Credit Unions l www.nafcu.org
National Association of Federal Credit Unions l www.nafcu.org
Pre-loan Counseling Requirement – 1026.34(a)(5)
Must obtain written certification that consumer has obtained counseling on the advisability of the high-cost mortgage from an approved counselor. Includes HELOCs if high-cost. Timing of counseling: After consumer receives GFE or disclosures required by 1026.40 for home equity lines of credit. Content of certification: Consumer’s name; counseling date(s); name and address of counselor; statement that consumer received counseling on the advisability of the mortgage; statement that counselor verified consumer required disclosures.
National Association of Federal Credit Unions l www.nafcu.org
National Association of Federal Credit Unions l www.nafcu.org
“(5) Each Federal credit union shall make available, to any requesting member/applicant, a copy of the appraisal used in connection with that member's real estate-related loan application. The appraisal shall be available for a period of 25 months after the applicant has received notice from the Federal credit union of the action taken by the Federal credit union
National Association of Federal Credit Unions l www.nafcu.org
Historically, FCUs were exempt from Regulation B’s requirement for copies of appraisals. The Dodd-Frank Act changed this and all credit unions will now need to follow all the new Regulation B requirements. Scope: The new Regulation B requirements apply to first lien mortgage loans secured by a dwelling. Note: This is not limited to closed-end loans. Thus, a home equity line of credit (HELOC) would be included if secured by a first lien. Subordinate liens would be excluded from this requirement.
National Association of Federal Credit Unions l www.nafcu.org
Requirement: Credit Unions must provide a disclosure regarding a member’s right to obtain any and all appraisals or other written valuations developed in connection with the application. Timing: Within three business days of receiving an application for a mortgage loan (secured by a first lien
credit union determines the loan will be a first lien secured by a dwelling, the credit union must provide the disclosure within three business days.
National Association of Federal Credit Unions l www.nafcu.org
Model Form – C-9 from Regulation B:
“We may order an appraisal to determine the property’s value and charge you for this
copy of any appraisal, even if your loan does not close. You can pay for an additional appraisal for your own use at your own cost.”
National Association of Federal Credit Unions l www.nafcu.org
developed in connection with application for credit (first lien, secured by dwelling)
– Note that this is not a requirement to obtain an appraisal; the requirement is to provide copies of appraisals/valuations obtained or developed
to receive copies of appraisals and valuations
National Association of Federal Credit Unions l www.nafcu.org
– “The term “valuation” means any estimate of the value of a dwelling developed in connection with an application for credit.”
valuations, which include (but are not limited to):
– A report prepared by an appraiser (whether or not licensed or certified) including the appraiser's estimate or opinion of the property's value. – A document prepared by the creditor's staff that assigns value to the property.
National Association of Federal Credit Unions l www.nafcu.org
valuation of an applicant's property constitute a “valuation” for purposes of § 1002.14(b)(3)
NOT considered valuations, including:
– Internal documents that merely restate the estimated value of the dwelling contained in an appraisal or written valuation being provided to the applicant. – Publicly-available lists of valuations (such as published sales prices or mortgage amounts, tax assessments, and retail price ranges).
National Association of Federal Credit Unions l www.nafcu.org
–No charge for postage, photocopying, etc.
–But cannot increase cost of the appraisal to cover cost of providing the copy
National Association of Federal Credit Unions l www.nafcu.org
June 1, 2013
January 10, 2014
January 18, 2014
National Association of Federal Credit Unions l www.nafcu.org
Proposed by Federal Reserve – 07/23/2009
proposed rule
“make it their own”
HELOC disclosures
National Association of Federal Credit Unions l www.nafcu.org
National Association of Federal Credit Unions l www.nafcu.org
HELOCs (and which ones don’t)
already be in compliance
broadly to “federally related mortgage loans” and includes HELOCs.
National Association of Federal Credit Unions l www.nafcu.org
HELOCs?
– Tables: www.ffiec.gov/ratespread/aportables.htm – Calculator: www.ffiec.gov/ratespread/newcalc.aspx – Help: www.ffiec.gov/ratespread/newcalchelp.aspx
National Association of Federal Credit Unions l www.nafcu.org
– www.nafcu.org/mortgagerules
– Hyperlinks throughout
– Regulatory Text: 12 CFR 1026.36
– Regulatory Text: 12 CFR 1026.36(c) – Official Staff Commentary
National Association of Federal Credit Unions l www.nafcu.org
– April Compliance Monitor article (log-in required) – Regulatory Text: 12 CFR 1024.20
– Existing Regulatory Text: 1026.32 & 1026.34 – New Regulatory Text (Jan 1, 2014): 1026.32 & .34 – New Official Staff Commentary
– For High-Cost (Jan 1, 2014): 12 CFR 1026.34(a)(5)
National Association of Federal Credit Unions l www.nafcu.org
– Existing Requirement: 12 CFR 701.31(c)(5) – New Regulatory Text: 12 CFR 1002.14 – New Official Staff Commentary – Remember, new requirements apply to HELOCs on dwellings that are in first lien position. – For others, 12 CFR 701.31(c)(5)
– Proposal – July 23, 2009 – Highlights – Page 2
National Association of Federal Credit Unions l www.nafcu.org
Contact Info: Steve Van Beek, Esq., NCCO Email: svanbeek@nafcu.org Direct Phone: 703.842.2266 compliance@nafcu.org www.nafcu.org/mortgagerules www.nafcucomplianceblog.com