When last I wrote, poor "Bill" was stuck in committee, sitting and waiting, while a few key Congressmen were discussing and debating on whether they should let him be a law. Last week, "Bill" made it through Committee, was approved by the President and is now Public Law No: 115-174. Regulatory relief is officially on its way, but before you get too excited, here's the bad news. The majority of the relief is not immediate. In fact, most of the provisions of the rules will not take effect until 12 to 18 months from now. Remember that once law is passed, the CFPB must write regulation to enforce the law, which in this case will involve reversing much of their own regulation. When it comes to regulations that require collecting and reporting information, such as HMDA, we don't typically see a change mid-year so it's almost a given that these changes will not be in effect until January 1, 2019 at the very earliest.
This week's newsletter will focus on just a few of the items in Public Law 115-174 and what they mean to you. I'm going to break this up into two pieces, finishing up next week. Let's take a look at some of these changes:
- The one we are getting the most questions about is the HMDA exemption, which comes from Title 1, Section 104. The way the law is written, if you originated less than 500 closed-end dwelling secured loans or 500 open-end dwelling secure loans in either of the two prior years, you would no longer need to report the new data fields, such as credit score and credit score model, AUS system and AUS system results, introductory rate period, total loan costs, etc. Those that were required from the "old rules" such as action taken and action taken date, income, owner occupancy status, and government monitoring would remain required. Those institutions that have typically been "small reporters" will benefit from this exemption. But, what if you spent lots of money changing your systems over to enable them to gather the new data fields? Can you now just reverse those systems and essentially cause them to "forget" how to gather the new data fields and go back to the way they were before? What will the cost of this relief be? There is no effective date for this one because, as I mentioned, regulation will have to be written to implement these reversals.
- Next up, changes to the ATR/QM rules. Under Title 1, Section 101, mortgage loans held in portfolio by institutions with less than $10 billion in assets will be deemed to be QM loans as long as they meet certain restrictions with prepayment penalties and points and fees and do not have negative amortization or an interest-only feature. Debts, income and financial resources must also be considered and verified. Certain transfers will also now fall under the safe harbor. There is no effective date for this one either as regulation will need to be written.
- Title 1 Section 103 will bring welcome relief to some of you who may do a lot of lending in rural areas where finding an appraiser is difficult. This provision provides an exemption from appraisal requirements under FIRREA for certain mortgage loans under $400,000 if, after a good faith effort to do so, the originator is unable to find a state certified or licensed appraiser to perform the appraisal. Many times you may have either had to wait for several months for an appraiser to be able to service your loan and this can cause your borrower to lose the contract on the home or you've had to look to other appraisers in other areas who may then charge more than you estimated on the Loan Estimate. Where the appraiser fee is now a zero tolerance fee, as in one that cannot increase, this creates a tolerance issue that has to be cured and many times the difference can be rather large. We will wait to see how the regulation is written on this one.
- Last, we have Title 1 Section 108 which is the HPML escrow exemption. This provision will provide an exemption for institutions with less than $10 billion in assets which originate 1,000 or fewer first lien loans secured by the borrower's principal dwelling in the preceding calendar year.
These are just a few of the most important provisions of the new regulatory relief that our friend, "Bill" will provide now that he has completed his journey to become a law. Next week, I'll discuss more of these changes and what they mean to you.