The 50-Yard Line with a Ways to Go

Where we left off last issue we were in our boat in the middle of a big, mean ocean.  As much as I’d like to report we are now lying on a beach with clear skies and a drink in our hand; unfortunately, I cannot.  I can report we have grabbed an oar and have been furiously paddling for months now.  I might go so far as to say with some of the positive results we have seen; one could argue we at least have a trolling-motor in the water. This isn’t to say we are in calm waters, nor are we going to win any drag boat race, but we have made progress.

Since our last issue exactly what we said would happen has happened.  Regulations, regulations, regulations.  To be specific, proposed federal regulations. 

The Consumer Finance Protection Bureau (and for some of the regulations various other joint federal agency task forces) have issued proposed regulations on all of the key areas of financial mortgage reform instigated by Dodd-Frank.  MHI, TMHA, several key industry members and our D.C. lobby resources have been working all summer on impacting these regulations.  This effort continued into the fall as we drafted numerous public comment letters to submit on behalf of the industry.  At this point the public comment deadlines have recently passed and the CFPB is reading and responding (as they legally must do) to each comment as they craft final rules.  The dice are in the air at the moment as we wait for the issuance of final regulations expected out the first of next year.

The last time we were talking about hurricanes, typhoons, waves and sea monsters.  These are the major issues our industry must navigate.  As we previously mentioned, Dodd-Frank created these challenges, but we would not know the depth or severity until we have the resulting regulations. 

When I say we have been working on steering our boat through all of this, what does that mean?  It means we have gone through and read the 3,000 plus pages of proposed regulations, met on multiple occasions in D.C. directly with the regulators, had formal and informal discussions with federal regulators, law makers and staff, and most recently submitted formal public comments on the proposed rules. Through this exhausting and difficult work we have accomplished some positive results.  But as I said, we are far from lying on a beach.  We continue to this day to strive for even more results in the eventual final rules we anticipate out at the end of January.

What rules? What do they say?  What about them is good?  What is bad? 

The summary in this article attempts to breakdown in as simple a form as possible the pertinent aspects for the MH industry with all of the proposed rules. 

Fair warning: the proposed rules are hundreds, sometimes thousands of pages long.  It is impossible to articulate all of the details and nuances of the rules in bullet point fashion.  For those interested in greater detail you can read TMHA’s public comments on our website or read the rules in their entirety online (or ask me if you want to borrow any of my three three-inch binders I have in my office).

Summary of MH Impacting Federal Proposed Regulations

High-Cost Mortgage Loan/HOEPA (aka the Sea Monster)

• A 293-page proposed rule with public comment deadline of September 7.
• Would classify all loans with an interest rate of 6.5% (8.5% if personal property and under $50,000) above the prime interest rate and/or more than 5 percent (lesser of 8% or $1,000 if less than $20,000) in points and fees as a “high-cost mortgage loan”
• High-cost mortgage loans are associated with the stigma of being “predatory loans”
• Under the proposed rule and Dodd-Frank there are many additional liabilities, risks and costs associated with making a high-cost loan.  Including, but not limited to, having a third party federally approved mortgage counselor meet with the borrower before the loan can be closed
• Advocacy Success:
  - Still uncertain as we wait to see if the CFPB implements any of the recommended changes offered by the industry
• Advocacy Goals:
  - Educate the regulators on the facts that for many who lend in the MH industry the combination of the cost of funds, balances of the loans and level of borrower risk make the proposed rate ceilings too low and thus, will reduce consumer access to credit
  - Seek an exemption from the rule for transactions secured wholly or in part by a manufactured home
  - Alternative goal would be to increase the rate levels for interest and the percentage allowed for points and fees

High-Risk Appraisal (aka the Hurricane)

• A 211-page rule with public comment deadline of October 15
• Would require a certified or licensed appraiser to conduct an appraisal to the Uniform Standards of Professional Appraisal Practice with an interior inspection of any home that is not a qualified mortgage and has an interest rate 1.5% above the prime rate
• Advocacy Success:
  - Proposed rule exempts from the appraisal requirement home-only (chattel) transactions from complying with the rule
• Advocacy Goals:
  - Support and defend the proposed rule to exempt home-only from the rule appraisal requirements
  - Seek additional exemptions from the rule for land-home transactions and/or an exemption for land-home transactions under the dollar threshold of $125,000.

ECOA Appraisals/Valuations Disclosure

• A 57-page rule with public comment deadline of October 15
• Similar but slightly different to the high-risk appraisal rule, the ECOA rule would require a lender to provide to a borrower a disclosure no less than three days prior to closing disclosing the appraised value or a valuation of the home
• Unlike the high-risk appraisal rule, there is no exemption for home-only manufactured homes
• Proposed rule does not specify what or how the “valuation” must be done
• Our Advocacy Success:
  - Proposed rule specifically says a manufactured home’s factory invoice is not a “valuation,” and therefore a lender will not have to disclose the wholesale factory cost of constructing the home to a borrower
• Our Advocacy Goal:
  - Seek a simple MH exclusion from the rule similar to the goal for the similar high-risk appraisal rule
  - Alternatively, seek a home-only exclusion to the rule
  - Alternatively, establish a clearer understanding of what specific valuation disclosure a lender must provide to a prospective borrower when purchasing a manufactured home

Servicing

• A 313-page rule in Regulation Z (Truth in Lending Act) and a 442-page rule in Regulation X (Real Estate Settlement Procedures Act).  Public comment deadline of October 9
• Imposes nine specific requirements on servicers of mortgage loans.  Three requirements under Regulation Z and six under Regulation X
• Requirements range from monthly periodic billing statements, to additional notice provisions, to enhanced internal management policies and procedures, to early intervention with delinquent borrowers and loss mitigation procedures
• Advocacy Success:
  - Six requirements under Regulation X do not apply to servicer’s only servicing home-only loan portfolios
  - If a servicer services less than 1,000 loans which the servicer either originated or holds in portfolio, then they are defined as a “small servicer” and are thus exempt from periodic billing requirements (one of the three Reg Z based servicing rules otherwise applicable to home-only portfolios)
• Advocacy Goals:
  - To further benefit small servicers and avoid the costly and overly burdensome expense of compliance, we seek to expand the small servicer exemption to the other requirements proposed under Regulation Z related to the prompt payment crediting and payoff payments

RESPA/TILA Integrated Disclosure

• A 1,099-page rule with comment deadline November 6
• Seeks to combine previously required disclosures for real property transactions into single integrated disclosure with the goal of greater transparency and borrower understandability
• Proposed rule also added many new procedural and specific forms and disclosure process that must be followed in a real property mortgage transaction
• Advocacy Success:
  - Exclusion from the rule for home-only chattel transactions
  - Reaffirmed the TILA previous definition of “creditor” requiring more than five credit transactions in a 12-month period in order to fall within the definition of a “creditor”
• Advocacy Goals:
  - Preserve as proper in the proposed rule the home-only exception
  - Tie the de minimus five or less “creditor” definition to other provisions under the authority of the CFPB
  - Expand land/home transactions to other exclusions where the combined integrated disclosures do not make practical sense or inhibit access to consumer credit.

Mortgage Originator Compensation

• A 369-page rule with comment deadline October 16
• Places new restriction on mortgage originators compensation.  Includes other various prohibitions related to anti-steering, bonuses and third party charges.
• Proposed rule would require creditors to present to consumers a “zero-zero” option in addition to any loan offer with upfront points and fees.  The zero-zero option is a loan without any upfront charges (meaning the total cost of the loan is determined by interest rate and term)
• Proposed rule would restrict a loan originators compensation by banning compensation that varied based on anything other than the loan amount
• Addition restrictions on pooled compensation such as bonus and employee benefit plans that would provide a financial incentive for a loan originator to steer a consumer into a higher costing loan product
• Ban loan originators from receiving compensation from both consumers and other parties
• Require SAFE Act licensing or licensing equivalent training, background checks and fitness of character requirements for all loan originators
• Ban the use of binding arbitration agreements
• Advocacy Success
  - Proposed rule mentions a manufactured housing employee of a retailer exception; however, the proposed rule is unclear to the extent and applicability of the exception.
• Advocacy Goals:
  - Seek an exclusion from manufactured home retailers and salesperson from the compensation rule
  - Highlight the differences in selling and financing in a manufactured housing market compared to traditional site-built markets to require, in the alternative to an exclusion, specific rules and guidelines for the manufactured home sales and lending industry
  - Eliminate the confusing and impractical “zero-zero” loan option when such an option on low balance, shorter term, higher risk loans is mathematically unworkable and ultimately adds to consumer confusion
  - Highlight the difficulties the proposed rule and restrictions would have related to:
  -- Lenders facing liabilities based on actions outside of their control, employ, or ability to restrict actions of unaffiliated retailers and sales persons
  -- Addressing the realities in the Texas market of selling to non-English speaking consumers while facing complex compliance and disclosure systems

Ability to Repay/”Qualified Mortgage” Rule

• A 336-page rule with comment deadline (after extension) of July 9
• Would require lenders to make a reasonable and good-faith assessment of consumers’ ability to repay their mortgages.
• Seeks to implement set criteria standards based on interest rates, points and fees, term, loan structure and ability to repay provisions for “qualified mortgages”
• Our Advocacy Success:
  - Still uncertain as we wait to see if the CFPB implements any of the recommended changes offered by the industry
• Advocacy Goals:
  - Expand the provisions and allowances falling under the new qualified mortgage standards to encompass a larger number of MH loans

I’m guessing if you have made it this far you are thinking the “summary” was not very summary-ific.   As alluded to at the beginning, these rules are dense, long and complex.  Evaluating the intricacies to then extrapolate out into exactly what current industry practices would be adversely impacted was no small feat.  TMHA members should know many dedicated individuals in our industry engaged first hand in the effort to speak for our collective many.  I’m personally proud to be among this group. 

Our ultimate fate under these new regulatory schemes is still unknown, but it won’t be long before we do.  We expect final regulations will be issued before the end of January 2013.  The process of reading, analyzing and summarizing the final rules will begin anew just as we have painstakingly done with these proposed rules. 

There are further political unknowns, depending on who you talk to, about the ultimate fate of the Dodd-Frank Act and its created agency, the CFPB.  Putting aside as many political unknowns as we can, as it stands today Dodd-Frank and the CFPB will be part of our lives and will impact our industry.  Once the regulations come out we will educate our members of the changing regulatory landscape and how best to prepare their individual business choices on compliance and practices.

A final note worth mentioning, it has been utterly amazing to see what we had to face, the volume we had to deal with, the complexity and the incredibly tight timeline to react.  Among many to thank, the list most certainly must include TMHA’s entire membership, which through the decisions of our representative board decided to put forth significant association financial resources as well as enable TMHA participation throughout this federal process.  I truly believe it is because of this effort combining with our national organization and several key and knowledgeable industry players (who themselves devoted tremendous resources and time) that we have achieved the positive results we obtained. 

Have we won on everything we wanted?  Absolutely not.  Will we when the final regulations come out?  Nope.  But we have made tremendous progress from the starting point where we began nearly a year ago when it is fair to say our initial fears were confirmed that the regulators writing rules that would intentionally, or mostly unintentionally, negatively impact our industry had an incredibly limited level of knowledge about our industry.  The journey has been long, arduous and expensive.  But at the end of the day, when the dust settles, and they click off the score board at the end of January, we will know we tried everything we could do, pushed as hard and as far as we could, gained as much ground as possible, and left it all out on the field.  I think we will ultimately find many sustained successes when the final rules come out, but we will also face new challenges.  To those new challenges currently unknown, I will confidently say without fear or trepidation when they come we will lace ’em up and take to the field again.