Cheat Sheet: What to Expect from Regulators in 2016

WASHINGTON – Mortgage lenders and servicers weary from a raft of regulatory changes in recent years may see some respite in 2016.

While many lenders are still struggling to implement new mortgage disclosures – an area likely to be a focus in the New Year – and face new Home Mortgage Disclosure Act requirements soon, the pace is still likely to slow.

"Thankfully the onslaught is somewhat over," said Robert Lotstein, managing attorney of LotsteinLegal in Washington.

Still, lenders will face significant challenges in 2016. Following is a guide to some of the biggest ones:

TRID Part II

Industry groups all but begged Consumer Financial Protection Bureau Director Richard Cordray for a temporary safe harbor to shield lenders from possible lawsuits and enforcement actions when new mortgage disclosures went online on Oct. 3. But despite reports of vendor problems with the new Truth-in-Lending/Real Estate Settlement Procedures Act integrated disclosures, the agency has refused to grant a formal safe harbor.

Instead, it has pledged not to punish institutions that make a "good faith" effort to comply with the new rules.

"We are still operating under this good faith compliance framework, which I think is helpful," said Pete Mills, senior vice president at the Mortgage Bankers Association.

Yet that informal grace period will expire sometime in the New Year, and there are a number of TRID issues that must still be clarified.

The industry is hoping for the CFPB to provide guidance that will help narrow the differences in TRID interpretations between lenders and loan aggregators.

When a lender goes to sell a loan to Wells Fargo, U.S. bank or JPMorgan Chase "all three should be willing to buy that loan because it is following a common interpretation of TRID," Mills said.

Other industry representatives are hoping the CFPB will provide some clarity around non-standard loans, such as home construction-to-permanent loans. Borrowers like the security of a single construction-to-perm loan closing because they can lock in the mortgage interest during the construction phase.

"Some lenders are finding ways to do it but others are anxious" said Robert Davis, an executive vice president with the American Bankers Association. Because of TRID, they are separating the construction and permanent loan closings.

"There are other special loan products where there is uncertainty about the loan disclosures," Davis added.

One overarching question is when the CFPB will end the grace period – and what kind of actions it will take related to the new disclosures.

The Return of HMDA

The CFPB finalized a rule this year that requires the industry to collect more data under HMDA. Though the rule doesn't go into effect until 2018, it's still a massive undertaking.

The new HMDA rule adds 25 new data points and modifies 14 others in addition to the existing 9 data fields that were already required. Lenders must also begin reporting data on other types of loans like reverse mortgages and home equity lines of credit for the first time.

"Next year, lenders will have to start figuring out how to capture the data," said Davis. "You can't wait."

Lenders are already beginning the process of complying with the new HMDA rule and some industry representatives are hopeful it will be relatively smooth.

This is just a matter of "getting through the implementation process," said Ron Haynie, a senior vice president at the Independent Community Bankers of America. "I don't think it will be a hard year where you have to digest 1,000-page rules every couple of months."

New Servicing Rule

The CFPB is expected to issue a final servicing rule in mid-2016 that will also require a lot of system changes. This rule addresses the servicing of troubled loans, transfers of servicing from banks to non-bank servicers and loss mitigation.

"It won't be as earthshaking as the first servicing rule," Davis said in an interview. But the 500-page rule is still going to require a lot of system changes and training to ensure compliance.

Loan Certification Regulations

Lenders are also anticipating that the Federal Housing Administration will finalize its loan certification rule early next year. The contentious regulation has already been issued for two comment periods.

Industry groups are hoping FHA will provide more clarity around loan defects or errors that could result in penalties or indemnification for loan losses.

"It is a complicated issue," said Mills. "But you need to have a standard that doesn't put folks at risk of treble damages for minor, non-material document or other underwriting defects."

Scott Olson, an executive director of the Community Home Lenders Association, noted that lenders will be watching to see if FHA comes up with a fair standard or just tries to stick lenders with loans that go into default.

The loan certification rules will also have an impact on FHA's initiative to get lenders to serve lower credit score borrowers.

"Lender perceptions of where FHA is on indemnification and False Claims [Act] can have an impact on their willingness to lend to lower FICO borrowers," Olson said.

Condo Rule Changes

FHA also is working on reviving its condominium loan program by streamlining its approval process. The Department of Housing and Urban Development is working on a plan to make permanent alterations to its owner-occupancy requirements, limits on commercial space and spot approvals.

Spot approvals would make a single unit in a non-certified condo building eligible for FHA-insurance. FHA stopped allowing spot approvals several years ago.

HUD data shows that FHA condo loan endorsements dropped to 22,800 in fiscal year 2014 from 57,800 a year earlier.

Working Overtime
Meanwhile, the Department of Labor is expected to issue a final rule next year that that will govern overtime pay for all workers, including mortgage loan officers.

The MBA staged a multi-year legal battle to deny overtime pay to loan officers. But that was settled in March when the Supreme Court unanimously ruled that loan officers are entitled to overtime pay after a 40-hour work week.

The final rule is slated to be issued in June and it upwardly adjusts the salary thresholds for workers that are eligible for overtime.

"If implemented as proposed, the rule would increase the salary threshold, under which most salaried workers are guaranteed overtime pay, from $455 a week – roughly $23,660 a year – to a projected $970 per week in 2016, or approximately $50,440 a year," said Heidi Shierholz, the chief economist of the Labor Department, in a blog post earlier this year. "This new rule will help ensure that millions of additional workers are fairly compensated for the hours they put in on the job and will make sure that their overtime protections won't again be allowed to erode."