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CFPB publishes guidance on mortgage exam procedures

cfpbThe CFPB published on Tuesday the first update to its exam procedures for mortgage rules published in January, offering institutions and mortgage firms guidance on what the agency expects when the rules take effect.

“The CFPB recognizes that the easier we make it for financial institutions and mortgage companies to follow the new regulations, the better off consumers will be,” CFPB Director Richard Cordray said. “By releasing details of what our examiners will be looking for well in advance of the effective date of most of the rules, we are giving industry more time to adjust.”

The Dodd-Frank-mandated rules issued in January cover the various stages of a consumer’s mortgage experience, from appraisals and escrow accounts to loan originator qualifications.

Under the guidance published by the CPFB, a loan originator must be ethical and knowledgeable and must meet character, fitness and financial responsibility requirements, as well as pass a criminal background check and complete necessary training.

Compensation for loan originators cannot vary based on the loan term, meaning a broker or loan officer cannot be paid more if the consumer takes out a loan with a higher fee or interest rate. A loan originator also cannot be paid by both the consumer and a third party.

Escrow accounts on higher-priced mortgage loans must extend from a minimum of one year to a minimum of five years. The guidance also prohibits barring consumers from bringing a claim in court in connection with an alleged violation of federal law.

Additionally, mandatory arbitration is generally prohibited for mortgage and home equity loans, and lenders must provide applicants with free copies of valuations developed in relation to certain mortgage loans. Creditors are also prohibited from financing certain credit insurance premiums.

The CFPB is currently coordinating with other regulators that conduct mortgage firm examinations to ensure a cohesive exam process and that other regulators understand the agency’s rules.

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