WASHINGTON (1/11/13)--The Consumer Financial Protection Bureau (CFPB) on Thursday unveiled final rules addressing high-cost mortgages and escrow accounts.
The high-cost mortgage rule expands the universe of loans potentially covered by the Home Ownership and Equity Protection Act, or HOWEPA, to include most types of mortgage loans secured by the borrower's principal dwelling. The list of covered loans now includes first-lien home purchase mortgage loans, subordinate-lien loans including closed-end home equity loans, and home equity lines of credit.
The regulations will require lenders offering mortgage loans that exceed certain annual percentage rate and fee thresholds to disclose the terms, costs, and fees associated with a high-cost loan early in the homebuying process. Lenders also will need to certify that these borrowers have received homeowner counseling regarding the high-cost loan.
The CFPB in a release said the high-cost mortgage regulations will also:
- Ban potentially risky mortgage features such as balloon payments and prepayment penalties for qualifying mortgages, with some exceptions;
- Ban loan modification fees;
- Set a late-fee cap of 4% of the amount of payment that is past due;
- Prohibit lenders from rolling closing costs into the loan amount; and
- Prevent lenders from charging fees when consumers request payoff statements.
The protections will not apply to reverse mortgage loans, certain government-sponsored loans, and construction loans that are taken out for the initial construction of a new home.
The escrow account changes will, in general, extend the required duration of a mortgage loan escrow account to five years. The current minimum duration is one year. Lenders that work in rural or underserved areas will be exempt from the escrow changes, provided they meet certain other criteria, the CFPB said.
Both of the final rules are mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act. The high-cost mortgage rules are scheduled to go into effect on Jan. 10, 2014. The escrow account rules are scheduled to go into effect on June 1, 2013.
The Credit Union National Association has created an outline of key points of the rules. (Use the resource link below.)
Also, see the resource links to read CUNA's comment letters on the HOEPA changes when they were proposed.