Now that congress has passed the Dodd-Frank Wall Street Reform bill, attention has quickly turned to the implementation date of the regulatory provisions, which impact every mortgage securitizer, lender, servicer and loan broker.
Not only are questions popping up about effective dates, but how long it will take to get the new Consumer Financial Protection Bureau up and running. Sen. Jack Reed, D-R.I., told reporters that Congress needs to focus "relentlessly" on the regulatory process. "I would urge my colleagues beginning probably no later than September to hold hearings on the status of the regulations."
He added that, "There is a great deal of cynicism in the public that all the good things we have done in the bill will be undone by regulators who have very close relationships with the banks. I don't think that is the case. But the best way to prevent that is to continue to have public discussions about regulations."
Once President Obama signs the massive bill, the Treasury Secretary has 60 days to decide when the existing regulatory agencies will transfer their consumer protection authority.
The transfer should occur within six to 12 months after enactment of the bill. The new bureau will have consumer protection rulemaking authority over all mortgage lenders—banks and non-banks. Congress also gave CFPB examination and enforcement authority over banks with over $10 billion in assets and all independent mortgage banks, brokers and servicers.
The Department of Housing and Urban Development will transfer its rulemaking authority over the Real Estate Settlement Procedures Act to the new CFPA. The Federal Reserve Board will transfer its rulemaking authority over the Truth in Lending Act, Home Mortgage Disclosure Act and Home Ownership and Equity Protection Act to the new consumer protection bureau.
Last year, the Fed issued a TILA proposal to clamp down on originator compensation. Some industry officials wonder if the Fed will complete that particular piece of rulemaking in the next few months or before the CFPB transfer. The measure bans compensation based on changes in the interest rate and other loan terms, except the loan amount.
Meanwhile, K&L Gates issued a client alert warning lenders that the bill is unclear about when certain provisions go into effect. The alert warns that originator compensation provisions in the bill—along with restrictions in prepayment penalties and lower HOEPA triggers—could go into effect one day after President Obama signs it. "It is not clear at all when the provisions become effective. The more we dig into it, the more questions we have," Kristi Kully, a K&L Gates attorney, told National Mortgage News.
Some industry officials claim a "more reasonable interpretation" gives the Federal Reserve and the new CFPB the time and option to issue regulations for those provisions. These officials believe that if regulators don't issue guidance, the LO/broker compensation restrictions would not become effective until 18 months after the new CFPB is up and running. "Either way, implementation is unlikely until 2011 at the earliest," said Brian Chappelle, a mortgage banking consultant.
The K&L Gates client alert notes that lawmakers did not instruct the Federal Reserve or the new CFPB to issue regulations on originator compensation, prepayment penalties and the HOEPA triggers.
"The catch-all effective date for the Dodd-Frank Act in total is, shockingly, one day after enactment," according to the client alert.
