Monday, October 22, 2012

CFPB's Five Year Strategic Plan

Recently, the Consumer Financial Protection Bureau (CFPB) published for comment on its website its draft Strategic Plan for 2013 - 2018 (Plan).
According to the CFPB, the plan includes the following four goals:
(1) Prevent financial harm to consumers while promoting good practices that benefit them.
(2) Empower consumers to live better financial lives.
(3) Inform the public, policymakers, and the CFPB’s own policymaking with data-driven analysis of consumer finance markets and consumer behavior.
(4) Advance the CFPB’s performance by maximizing resource productivity and enhancing impact. For each goal, the plan identifies outcomes to be achieved and how progress will be measured.
Submit comments to before October 25, 2012.
Goals, Strategies, and Metrics
Goal 1: Prevent Financial Harm to Consumers
Goal 2: Empower Consumers to Live Better Financial Lives
Goal 3: Inform The Public
Chart: Data Sources and Data Outputs
Goal 4: Maximizing Resources and Impact
Goals, Strategies, and Metrics
The Plan outlines these goals, strategies, and metrics:
- Strategic goals that outline what the CFPB aims to achieve.
- Desired outcomes in support of its goals.
- Strategies that state the actions the CFPB will take to accomplish our outcomes.
- Performance measures that CFPB will track against specific targets in order to assess its progress toward achieving its outcomes.
- Indicators that the CFPB will track and use to assess progress toward achieving our outcomes. (Unlike performance measures, indicators do not reflect targets.)
Goal 1
Prevent Financial Harm to Consumers while Promoting Good Practices
The CFPB stated that, prior to Congress enacting the Consumer Financial Protection Act (CFPA) as Title X of the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act (Public Law 111-203, dated July 21, 2010), consumer financial protection had not been the primary focus of any one Federal agency, and no agency had effective tools to set the rules for and oversee the whole market.
Per the CFPB, the result was a system without sufficiently effective rules or consistent enforcement of the law. The CFPB believes that the consequences can be seen both in the 2008 financial crisis and in its aftermath.
The CFPB increased accountability in government by consolidating consumer financial protection authorities that had existed across seven different federal agencies into one, the Consumer Financial Protection Bureau. In addition to establishing the CFPB's enforcement powers, the CFPA gives the CFPB the authority to supervise and examine many financial institutions that were not previously subject to Federal oversight, such as nonbank mortgage companies, payday lenders, and private education lenders.
With the consolidation of existing and new federal authorities under one roof, the CFPB seeks to be properly focused and equipped to prevent financial harm to consumers while promoting practices that benefit consumers across financial institutions.
Goal 2
Empower Consumers to Live Better Financial Lives
This second goal of the CFPB is "to arm consumers with the knowledge, tools, and capabilities they need in order to make better informed financial decisions by engaging them in the right moments of their financial lives, in moments when the consumer is most receptive to seeking out and acting on assistance."
The CFPB plans to develop and maintain a variety of tools, programs, and initiatives that provide targeted, meaningful, and accessible assistance and information to consumers at the moment they need it.
To reify this goal, the CFPB has predicated two outcomes.
Outcome # 1:
The first outcome will collect, monitor, respond to, and share data associated with consumer complaints and inquiries about consumer financial products or services.
The CFPB has asserted that the consumer response function is central to its mission. The CFPB would provide direct assistance to consumers, in real-time, through its Consumer Response team. (See our October 4, 2012 article on Consumer Complaints and the Consumer Response team.) This team hears directly from consumers about the challenges they face in the marketplace and brings their concerns to the attention of the financial institutions that the CFPB regulates for investigation and resolution.
The Consumer Response team is tasked also to learn from the experiences of already operating complaint centers, for instance, by using the historical data from the FTC's Consumer Sentinel network, which is a collection of consumer complaint data from a variety of contributors, to inform its approach to handling complaints.
Performance metrics are applied by deriving data from complaint volume, the percentage of complaints routed through the dedicated company portal, and the complaint cycle time (i.e., intake cycle time, from receipt to company referral; company cycle time, from referral to company response; consumer cycle time, from company closure response to dispute; investigations cycle time, from investigations queue to closure).
Outcome # 2:
The second outcome helps consumers understand the costs, risks, and tradeoffs of financial decisions; build trusted relationships that are interactive and informative to help consumers take control of their financial choices to meet their own goals; and raise effectiveness of those who provide financial education services to increase financial literacy.

Wednesday, October 10, 2012

Loan Originator Compensation: Past is Prologue - Part I

In the economic sphere an act, a habit, an institution, a law
produces not only one effect, but a series of effects.
Of these effects, the first alone is immediate;
it appears simultaneously with its cause; it is seen.
The other effects emerge only subsequently; they are not seen;
we are fortunate if we foresee them.
What Is Seen and What Is Not Seen[i]
Frédéric Bastiat
Since April 6, 2011, mortgage loan originators (MLOs) have struggled to comply with the many requirements imposed on them by the MLO compensation provisions of the Truth in Lending Act (TILA),[ii] as amended by Title XIV of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank). That date was the compliance effective date.[iii] Prior to that date, however, there were considerable and persistent efforts made to postpone its implementation. I tracked the burgeoning protests and litigation in a series of articles[iv] and newsletters.[v] Associations resisted these TILA revisions on behalf of their membership. The National Association of Mortgage Brokers (NAMB) and the National Association of Independent Housing Professionals (NAIHP) sued the Federal Reserve Board of Governors (FRB). Amicus briefs were filed. Many members of Congress, from both sides of the aisle, also protested aspects of the new MLO compensation requirements. All for naught!*
April 6, 2011 arrived. Resistance was futile!
The FRB had issued final rulemaking and official staff commentary with respect to the loan originator compensation rules and anti-steering provisions, but further guidance came to a virtual full stop on January 26, 2011, when the FRB issued its Compliance Guide for Small Entities on Loan Originator Compensation and Steering.[vi] After that, the FRB offered some conference calls, a webinar – which ostensibly cleared up some confusion, while causing other confusion – and provided occasional updates of the oral, rather than the written, official variety.
In the meantime, the Consumer Financial Protection Bureau (CFPB) received its “enumerated authorities” on July 21, 2011. From that date forward, the CFPB was in charge of promulgating and administering these compensation guidelines.
And on October 6, 2011 - exactly six months to the day when the rule became effective - the first examination guidelines for loan originator compensation were promulgated.[vii] In the State Nondepository Examiner Guidelines for Regulation Z - Loan Originator Compensation Rule, issued by the Multi-State Mortgage Committee (MMC),[viii] we were given a pretty good idea of the direction that federal and state regulators would be taking in their regulatory examinations for loan originator compensation.[ix]
For the most part, my firm’s clients were prepared for implementation of the compensation rule, but we spent hundreds of hours preparing them for it, consisting of many conferences and meetings, which included very comprehensive reviews of employment agreements, compensation plans, disclosures, policies and procedures, and many other details, both logistical and systemic.
Inevitably, I felt mortgage loan originators needed more information than was readily available. So, we consolidated our knowledgebase and offered the FAQs Outline - Loan Originator Compensation, a compendium of questions and answers about the MLO compensation requirements, first published on March 21, 2011 with 142 FAQs and 35 pages. About a year later, after 20 updates, the FAQs Outline was up to 450 FAQs and 147 pages![x]
In this article, the first in a two-part series, I will consider the recent CFPB proposal, issued on August 17, 2012, which contains certain proposed rules governing mortgage loan originations, especially relating to the MLO compensation guidelines in Regulation Z, the implementing regulation of TILA. Comments for this proposal are due by October 16, 2012.[xi]
In the second part of this series, I will explore these proposals in considerable depth, specifically their clarification of and expansion on existing regulations governing MLO compensation and qualifications.
The CFPB does plan to implement new laws, including a restriction on the payment of upfront discount points, origination points, and fees on most mortgage loan transactions. For this reason, I will conclude this article with a brief, generic outline of certain proposals. To some extent, these new proposals exemplify the hurly-burly, roller-coaster ride we’ve been jaunting about on, in the on-going, elusive quest to implement the MLO compensation rule.
Small Business Review Panel
There is only one difference between a bad economist and a good one:
the bad economist confines himself to the visible effect;
the good economist takes into account both the effect that can be seen
and those effects that must be foreseen.
What Is Seen and What Is Not Seen[xii]
Frédéric Bastiat
The CFPB is required to certify that a proposed rule will not have a significant, adverse, economic impact on a substantial number of small entities.[xiii] The Small Business Regulatory Enforcement Fairness Act (SBREFA) provides the basis for a review, inasmuch as, among other things, “small businesses bear a disproportionate share of regulatory costs and burdens.”[xiv] In order to comply with this requirement, the CFPB convened and chaired a Small Business Review Panel to consider the impact of the proposal and obtain feedback from representatives of the small entities that would be subject to the rule. When preparing the proposed rule and an initial regulatory flexibility analysis, the CFPB is expected to consider this panel’s findings.
The panel consisted of representatives from the CFPB, the Chief Counsel for Advocacy of the Small Business Administration (SBA), and the Administrator of the Office of Information and Regulatory Affairs within the Office of Management and Budget (OMB).[xv] On the panel were so-called small entity representatives (SERs), individuals who represent the business entities that would be subject to the CFPB’s proposal.[xvi] On July 11, 2012, the panel issued its report.[xvii]
Here are certain, salient topics that were reviewed by the panel:

  • Payment of Discount Points
  • Payment of Origination Points and Fees in Creditor-Paid Compensation
  • Payment of Origination Points and Fees in Brokerage-Paid Compensation
  • MLO Retirement Plans, Profit-Sharing, and Bonuses
  • Pricing Concessions and Point Banks
  • MLO Qualification and Training Requirements
Let us now consider the panel’s suggestions, concerns, resolutions, and recommendations.

Tuesday, October 9, 2012


The new HECM HERMIT system is on schedule to launch today, October 9, 2012. The Home Equity Conversion Mortgage (HECM) now has a fully enabled web-based system, called Home Equity Reverse Mortgage Information Technology, or HERMIT.
Until now, HUD has managed the HECM portfolio by collecting Mortgage Insurance Premiums (MIP) through its Insurance Accounting Collection System (IACS); servicing HECM loans assigned to HUD through its Single Family Mortgage Asset Recovery Technology (SMART) system; processing and tracking HECM insured servicing requests through SMART and Extensions and Variances Automated Requests System (EVARS); and, manually processing Mortgagee’s insurance claims.
The new HERMIT system is now meant to provide one common HECM platform to consolidate legacy systems.
The new platform, HERMIT, will be used also to monitor and track HUD's HECM loan portfolio in real-time and automate the payment of insurance claims while increasing efficiency and mitigating risks to its Insurance Funds.
Detailed information is provided in Mortgagee Letter 2012-17, issued on September 11, 2012.
HERMIT Material
The IACS will be phased out IACS and HERMIT will replace it as the system of record for:
1. Collecting MIP;
2. Managing all servicing activities; and
3. Paying insurance claims.
Additionally, through HERMIT mortgagees will be able to:
1. Interact with an integrated HUD HECM system;
2. Interact with HUD’s National Servicing Center (NSC) through a new, automated workflow process; and
3. Replace manual claims filing processes with an online, automated claims filing procedure.
Other features include the mortgagees ability to access HERMIT to notify HUD of the:
1. Borrower’s date of death; and
2. Initiation of foreclosure.
HERMIT Material
Mortgagees may access and download the following documents HUD's webpage, FHA Reverse Mortgage for Lenders (HECM).
* HERMIT User Guide
* Business to Government (B2G)
* Guide Instructions on HERMIT registration process, including User Access forms
* Phone number(s) and other contact information for the HERMIT Help Desk
HUD also provides a webpage devoted to the HERMIT System & Resources.
Law Library Image
Home Equity Reverse Mortgage Information Technology (HERMIT)
System for the Home Equity Conversion Mortgage (HECM)

ML 2012-17

Thursday, October 4, 2012

CFPB's Company Portal for Consumer Complaints

Last year, we notified you about the Company Portal Manual (Manual) issued by Consumer Financial Protection Bureau (CFPB). The Manual gave instructions on the use of the special access portal, known as the Company Portal (Portal). The Portal allows financial institutions to view and respond to complaints in the CFPB consumer complaint database. At that time, the Portal was enabled to take consumer complaints about credit cards and provider resources for distressed homeowners.

Since the inception of the Portal, we have responded to numerous requests from clients to help them navigate its rather labyrinthine pathways. Thus, we have obtained considerable experience in guiding our clients from point of contact with the CFPB to point of resolution. In most instances, resolution of the complaint was achieved. While the CFPB continues to acquire statistics about the nature of the complaints, we also have become familiar with how best to respond to the complaints and have kept our own database.

When I cite statistics in this article, the time frame that I am writing about is July 21, 2011 to June 1, 2012. More recent statistics have not yet been officially announced by the CFPB. However, it is known that this database is updated on a daily basis. Retroactive data is expected shortly.

I would like you to become more familiar with the Portal and learn how to set up your access to it. Of course, in an article I can only offer a generic, rather than a detailed, description. I encourage you to explore the Portal, download the most recent Manual, and, most importantly, draft and implement complaint management procedures for using it. Regulators will surely expect as much!


Common Complaints
Screening Process
Flow Chart
Step-by-Step Procedures
CFPB Response
Company Response
Monetary Relief
Specifying Relief and Status
Government Portal
Requesting Access
Viewing Complaints
Technical Assistance



By this point, the CFPB has staffed a Consumer Response team. The Consumer Response team, or “Consumer Response” as it has become known, began taking consumer complaints about credit cards on July 21, 2011; it began handling mortgage complaints on December 1, 2011; and it began accepting complaints about bank products and services, private student loans, and other consumer loans on March 1, 2012. Over the next year, the CFPB expects to handle consumer complaints on all products and services under its authority.

According to the CFPB, between July 21, 2011, and June 1, 2012, the CFPB received approximately 45,630 consumer complaints, including approximately:

  • 16,840 credit card complaints,
  • 19,250 mortgage complaints,
  • 6,490 bank products and services complaints, and
  • 1,270 private student loan complaints.

Approximately 44 percent of all complaints were submitted through the CFPB’s website and 11 percent via telephone calls. In the same period, referrals from other regulators and agencies accounted for 39 percent of all complaints received. (The rest were submitted by mail, email, and fax.)

Furthermore, the CFPB has notified the public that more than 37,120 complaints (81 percent) of complaints received as of June 1, 2012, have been sent by Consumer Response to companies for review and response. The remaining complaints have been referred to other regulatory agencies (9 percent), found to be incomplete (4 percent), or are pending with the consumer or the CFPB (6 percent).

Companies have already responded to approximately 33,000 complaints or 89 percent of the complaints sent to them for response.

Monday, October 1, 2012

CFPB Proposes New Servicing Rules - TILA

On September 26, 2012, we notified you about the proposed rules promulgated by the Bureau of Consumer Financial Protection (Bureau) to amend Regulation X, which implements the Real Estate Settlement Procedures Act (RESPA) and the official interpretation of the regulation. These proposed rules seek to implement the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) provisions regarding mortgage loan servicing.

Now we would like to provide an outline of the CFPB's proposed companion regulation (Proposal) to amend Regulation Z, which implements the Truth in Lending Act (TILA), such Proposal meant also to implement the Dodd-Frank provisions regarding mortgage loan servicing.

Specifically, the Proposal implements Dodd-Frank sections addressing:

1) Initial rate adjustment notices for adjustable-rate mortgages (ARMs).

2) Periodic statements for residential mortgage loans.

3) Prompt crediting of mortgage payments.

4) Response to requests for payoff amounts.

Furthermore, the Proposal would amend current rules governing the scope, timing, content, and format of current disclosures to consumers occasioned by the interest rate adjustments of their variable-rate transactions.

The Proposal is extensive, nuanced, and comprehensive, covering many aspects of the TILA statute. Therefore, I will touch on some of the salient features of it. You can access our Library to download the Proposal in its entirety.

Comments Due: On or before October 9, 2012.



Nine Major Topics
Small Servicers



The Proposal generally applies to closed-end mortgage loans, with certain exceptions.

Under the proposed amendments to Regulation X, open-end lines of credit and certain other loans, such as construction loans and business-purpose loans, are excluded. Under this Proposal to Regulation Z, the periodic statement and ARMs disclosure provisions apply only to closed-end mortgage loans, but the prompt crediting and payoff statement provisions apply both to open-end and closed-end mortgage loans.

Additionally, reverse mortgages and timeshares are excluded from the periodic statement requirement, and certain construction loans are excluded from the ARM disclosure requirements.

The Bureau is seeking comment on whether to exempt small servicers from certain requirements or modify certain requirements for small servicers.

Nine Major Topics

As is the case of the aforementioned RESPA proposal, this Proposal regarding TILA also contains nine major topics.

1. Periodic billing statements.

Dodd-Frank generally mandates that servicers of closed-end residential mortgage loans (other than reverse mortgages) must send a periodic statement for each billing cycle. These statements must meet the timing, form, and content requirements provided for in the rule. The Proposal contains sample forms that servicers could use. The periodic statement requirement generally would not apply for fixed-rate loans if the servicer provides a coupon book, so long as the coupon book contains certain information specified in the rule and certain other information is made available to the consumer. The Proposal also includes an exception for small servicers that service 1,000 or fewer mortgage loans and service only mortgage loans that they originated or own.