Dodd-Frank Wall Street Reform & Consumer Protection Act

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Dodd-Frank Wall Street Reform & Consumer Protection Act

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A 2010 federal statute that promotes the financial stability of the United States by improving account-ability and transparency in the financial system. The statute affects nearly every federal agency with jurisdiction over finance or consumer protection, and nearly every segment of the financial-services industry.

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Dodd-Frank Wall Street Reform & Consumer Protection Act Established what bureau?

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CFPB or Consumer Financial Protection Bureau 2011

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Dodd-Frank Wall Street Reform & Consumer Protection Act mandated regarding compensation?

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LO comp or the Loan Originator Compensation Rule

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Dodd-Frank Wall Street Reform & Consumer Protection Act mandated this Rule and required lenders must determine whether consumer has ability to repay the loan; this Rule is?

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The Ability to Repay Rule or ATR.

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The ATR Rule has 8 underwriting factors that creditors must consider and verify. Those eight underwriting factors are:

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1. Current or reasonably expected income or assets (other than the value of the property that secures the loan) that the consumer will rely on to repay the loan

2. Current employment status (if you rely on employment income when assessing the consumer’s ability to repay)

3. Monthly mortgage payment for this loan.

4. Monthly payment on any simultaneous loan secured by the same property

5. Monthly payment for property taxes and insurance that you require the consumer to buy, and certain other costs related to the property such as homeowners association fees or ground rent.

6. Debts, alimony and child-support obligations

7. Monthly debt-to-income ratio or residual income

8. Credit history

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The 8 underwriting factors must also be verified using reasonably reliable ____ records.

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Using reasonable reliable third-party records.

Examples of these records include W-2’s or payroll statements.

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Dodd-Frank Wall Street Reform Act of 2010 mandated this rule in 2014 and works hand in hand with the Ability to Repay Rule,

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Qualified Mortgage (QM)

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A Qualified Mortgage (QM) is?

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A Qualified Mortgage is a mortgage that has complied with Ability to Repay requirements.

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There are four types of qualified mortgages they are?

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1. General QM

2. Temporary QM

3. Small Creditor

4. Balloon-Payment QM

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There are different requirements for the different types of QM but over the four types of QM there are a few things that remain the same they are?

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1) A loan cannot be QM if they have negative amortization or interest-only payments

2) A loan cannot have a term longer than 30 years to be considered QM

3) There is a threshold on points and fees for QM loans – generally 3 percent of the loan balance

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There are four types of QM loans but the most common and the one that most MLOs will come across is the General QM. To be considered a General QM the creditor must?

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1) Underwrite based on fully-amortizing schedule using the maximum rate permitted during the first 5 years after the date of the first payment

2) Consider and verify the consumer’s income, assets, debt obligations, alimony and child support obligations

3) Determine that the consumer’s total monthly debt-to-income is no more than 43 percent

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To be considered a qualified mortgage, the points and fees on the loan cannot exceed the following thresholds?

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3 percent of the total loan amount for a loan greater than or equal to $107,747;

$3,232 for a loan greater than or equal to $64,648 but less than $107,747;

5 percent of the total loan amount for a loan greater than or equal to $21,549 but less than $64,648;

$1,077 for a loan greater than or equal to $13,468 but less than $21,549;

8 percent of the total loan amount for a loan less than $13,468.

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The Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) amended the High Cost Mortgages / The Homeownership and Equity Protection Act or HOEPA to enhance its protections. The amendments:

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1) expand the types of loans covered by the HOEPA to include home-purchase loans and open-end, home-secured credit transactions (such as home equity lines of credit (HELOCs)), which were previously exempt;2) add a new HOEPA threshold for what is considered a high-cost mortgage based on prepayment penalties;3) lower the two existing thresholds based on a loan’s rate and points and fees so more loans will qualify as high-cost mortgages; and4) impose additional restrictions on high-cost mortgages, such as prohibiting balloon payment features (with specified exceptions) regardless of the term.

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These types of transactions are covered by HOEPA?

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Purchase-money loans

Refinances

Closed-end home equity loans

Open-end credit plans (example: HELOCS)

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There are some exceptions, these types of transactions are exempt from HOEPA?

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Reverse mortgages

Construction loans

Loans originated and directly financed by a Housing Finance Agency

Loans originated under the U.S. Department of Agriculture’s Rural Development Section 502 Direct Loan Program

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HOEPA applies to ?

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Principal dwelling – that means that vacation and second homes are not covered.

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Unfair, Deceptive, or Abusive Acts or Practices also known as?

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UDAAPs

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Dodd-Frank defines an unfair act or practice as?

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1) Something that causes or is likely to cause substantial injury to consumers;

2) The injury is not reasonably avoidable by consumers;

3) The injury is not outweighed by countervailing benefits to the consumers or to competition.

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A substantial injury typically takes the form of?

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Monetary harm, like fees or costs paid by the consumers because of the unfair act or practice.