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The Top 10 List: Mortgage Reform in 2012

The implementation process for the Dodd-Frank Act kicked off in earnest in 2011. Further rulemakings, including expansive mortgage reforms, are expected in the coming years. ABA has assembled the following outline of active and critical issues in preparation for the year ahead.

ABA's Government Relations Council, GSE Policy Committee, and Mortgage Markets Committee, with the help of bankers throughout the industry, secured many meaningful attainments in the past year, including affecting the thinking of our policy makers, successfully thwarting mounds of regulatory proposals and employing reasoned communications to clarify a great number of regulatory provisions.

Policy Overview

We look forward to building on past achievements to craft a stable, well-regulated, accessible mortgage market, predominantly supported through private investment with reduced government involvement. ABA continues to be disturbed that federal regulatory proposals pursuant to Dodd-Frank are not following any pre-established order or long-term agenda that would, at minimum, prepare financial institutions for the unrelenting compliance changes.

Top 10 List for 2012

  1. RESPA-TILA Reforms: The Consumer Financial Protection Bureau (CFPB) is currently engaged in full consumer testing of merged and "simplified" mortgage shopping disclosures. Since a proposal for combined RESPA and TILA forms must officially be issued by July 2012, a proposed rule is expected to be released by the second quarter. The precise rules concerning the timing, delivery and liabilities that will accompany the forms are, as of yet, unknown. Pending proposals affecting escrow account disclosures are likely to be incorporated into this process.
     
  2. Ability to Repay and "Qualified Mortgages": In April, regulators issued proposed Dodd-Frank rules that amend Regulation Z to require creditors to determine a consumer's ability to repay a mortgage before making the loan. ABA's comments were focused on ensuring that lenders have reasonable standards and the full security of robust safe harbor provisions, known as "Qualified Mortgages" (QM). The CFPB is not expected to finalize these rules until the third or fourth quarter of 2012. ABA is strongly advocating for the inclusion of a workable safe harbor, over a lesser "rebuttable presumption" standard, and aims to ensure that the final rule does not have an overly negative impact of restricting mortgage lending.
     
  3. Risk Retention and Qualified Residential Mortgages: On March 29, the Federal Reserve Board and other agencies issued a proposed rule to implement the Dodd-Frank requirements that securitizers retain portions of the credit risk of securitized assets. ABA filed comments with the banking agencies requesting that the rule be withdrawn and re-proposed. ABA noted that the risk-retention requirements—including the exemption for Qualified Residential Mortgages (QRM)—contained serious flaws that require correction. ABA expects that the agencies will re-propose the rule, most likely after the CFPB finalizes their QM rulemaking.
     
  4. Servicing: The foreclosure crisis and issues surrounding foreclosure documentation have triggered a nationwide, multi-jurisdictional scrutiny of the entire default servicing process. Federal regulators, state attorneys general and plaintiffs have attacked bank practices through various avenues, with more scrutiny expected in the coming months. The CFPB has issued servicing exam procedures, while additional Dodd-Frank servicing-related reforms have yet to be implemented.
     
  5. Appraisal Reforms: The more significant reforms to appraisal activities were implemented by the Federal Reserve Board in 2011, and the agencies have issued a comprehensive set of Interagency Appraisal Guidelines, which the ABA has provided staff analysis. The FFIEC agencies have announced that they will issue proposals for the remaining Dodd-Frank appraisal reforms by mid-2012, for a projected final rule date of January 2013. The next few months will see the start of real examination and enforcement of the 2011 final issuances.
     
  6. Loan Originator Compensation: There continues to be widespread confusion regarding the application of the new TILA rules on loan originator compensation practices. The rule has raised many critical implementation questions, and has been subject to informal and uncertain interpretive pronouncements that greatly confuse the compliance landscape. After much advocacy from ABA, CFPB officials have promised to engage in rulemaking in the first or second quarter of 2012. In the meantime, ABA has published, and will continue to update, FAQ guidance to ensure that banks are in proper compliance.
     
  7. GSE Reform: Legislative reforms to the Government Sponsored Enterprises (GSEs) are unlikely in 2012, although much debate and preparation for eventual reforms in the longer term will occur. ABA expects that the election year will bring paralysis to GSE reform; the makeup of the next Congress will largely determine what the next phase will look like.

    However, there are likely to be further developments which will have an impact on resolving the fate of the GSEs in the more near-term. Recent use of income from increased guarantee fees (G-fees) as an offset for the payroll tax holiday extension complicate the resolution of Fannie Mae and Freddie Mac. ABA will be engaged with lawmakers to ensure that they have a better understanding of the implications of such actions, and will seek to alleviate these implications as well as prevent further deleterious actions from both lawmakers and regulators.
     
  8. Consumer Financial Protection Bureau: The CFPB is expected to be operating at close-to-full capacity at the start of 2012, with rulemaking priorities placed on mortgage-related issues. The coming year will see a continuation of debates concerning the appointment of Richard Cordray as CFPB Director, the makeup of the Bureau, and its accountability to Congress and the public. ABA has developed good relationships with current staff, and will seek to deepen the trust as rulemakings progress.
     
  9. Fair Lending: Fair lending issues will continue to be a top tier priority for all lenders in 2012. HUD has issued a proposed rule under the Fair Housing Act, and the regulatory agencies are adopting novel methodologies for defining and detecting discriminatory lending violations. Dodd-Frank has mandated new HMDA reporting requirements that are likely to increase the scrutiny in this area; however, final HMDA rules are not expected to be issued this year. In the coming months, ABA will issue a fair lending guide that will update member banks on the ongoing concerns and provide guidance on proper compliance and risk assessment practices.
     
  10. Evolution of Credit Standards: The amalgamation of regulatory issues, government scrutiny and economic circumstances have weighed down the industry's ability to craft affordable products, and have pushed loan underwriting to concentrate almost exclusively on superior credit-quality applicants. This trend should continue to be an ongoing issue of discussion for the industry as a whole.

Upcoming Briefings and Additional Resources

ABA will remain attentive to these intertwined developments and the compliance needs of our members while continuing to advocate for effective mortgage reform.

January 12, 2012

Questions? Please contact Bob Davis for more information.