10 Ways Dodd-Frank Morphed the Mortgage Business
July 21, 2015 2:30 PM
From CFPB and TRID to QM and ATR, the barrage of new abbreviations emanating from the Dodd-Frank Act has only been matched by the enormity of the changes it made to the mortgage industry. Here are 10 ways that the landmark financial reform legislation has reshaped the mortgage industry since becoming law five years ago.
A New Sheriff in Town
Dodd-Frank created the Consumer Financial Protection Bureau, and consolidated the oversight and enforcement of consumer protection laws that had previously been spread out across myriad federal agencies. The CFPB's reach includes regulation of nondepository mortgage lenders, title companies and even a land developer that allegedly misrepresented the condition of roads in property reports registered with HUD.
Loan Officer Licensing and Compensation
The law also transferred rulemaking authority for the Secure and Fair Enforcement for Mortgage Licensing Act to the CFPB. While the Nationwide Mortgage Licensing System is maintained by the Conference of State Bank Supervisors, the CFPB examines lenders for SAFE Act compliance. The disparity between loan officers working at nonbank lenders, which must pass state licensing exams and register with the NMLS, and loan officers at depositories, which must only register with the NMLS, is an ongoing challenge that industry groups and politicians are working to address.Loan officer compensation is also under the CFPB's purview. The Dodd-Frank Act prohibits certain practices, such as paying loan officers based on loan terms like interest rate or dual compensation for mortgage brokers.
TRID's Tricky Timelines
Dodd-Frank mandated an overhaul to the borrower disclosures required under the Truth in Lending and Real Estate Settlement Procedures acts. The new TILA-RESPA Integrated Disclosures, or TRID, are designed to simplify the origination documents, improve their accuracy and get the forms in borrowers' hands faster.But the changes to adopt TRID are considerable, prompting concern about the CFPB's enforcement plans and a delay in the implementation deadline.
ATR, QM and QRM Create New Loan Liabilities
The ability-to-repay, qualified mortgage and qualified residential mortgage standards prescribed by Dodd-Frank are designed to protect consumers from mortgages they cannot afford. While creditors face additional responsibilities for evaluating borrowers' ability to repay, they can also obtain safe harbor protections for loans that meet certain underwriting criteria.
HOEPA Regs for High-Cost Mortgages
Dodd-Frank expanded the definition of high-cost mortgages under the Home Ownership and Equity Protection Act to include purchase-money mortgages and home equity lines of credit, as well as made changes to HOEPA's coverage tests.
National Servicing Standards
Nine new policies covering mortgage servicing transfers, consumer foreclosure protections and standardized, transparent loan documents, created a new nationwide standard for servicers, while causing operational costs to skyrocket. The need for accurate data and a robust audit trail continue to demand technology upgrades throughout the industry.
Marketing Enforcement Actions Multiply
The CFPB has used its authority under Dodd-Frank to crack down on alleged marketing violations. These included an advisory on reverse mortgage ads, charges of deceptive marketing to veterans, and a consent decree involving direct mailing.
Appraiser Independence Requirements
Dodd-Frank mandates a series of appraisal-related provisions that cover rules for "customary and reasonable" fees and appraiser independence. The resulting Appraiser Independence Requirements replaced the Home Valuation Code of Conduct, while keeping intact many of its provisions and adding new ones.
HMDA Data Modernization
Dodd-Frank transferred Home Mortgage Disclosure Act oversight from the Federal Reserve to the CFPB, with a mandate to expand and modernize HMDA data collection. The CFPB has already started working on the effort, but its timeline for the HMDA update is still up in the air. However, community banks and other smaller institutions are ardently pushing back against reporting requirements they argue are too broad.
Fannie and Freddie's Future
Though debate rages on about the future of Fannie Mae and Freddie Mac, the agencies have remained under government conservatorship since 2008. Stress tests for the GSEs, mandated under Dodd-Frank, outline hypothetical situations through studies by the U.S. Department of the Treasury.
