Dodd-Frank Reform Highlights for Mortgage Bankers

Congress recently passed the Economic Growth, Regulatory Relief, and Consumer Protection Act (the “Act”), and on May 24, 2018, President Trump signed the Act into law. The Act is not a widespread repeal of Dodd-Frank, but it does provide some welcome regulatory relief to financial institutions and changes to federal law concerning consumer mortgages. Below is a summary of some of the Act’s notable provisions affecting mortgage bankers:

Qualified Mortgages. The Act provides a new category of qualified mortgages for insured depository institutions and insured credit unions with less than $10 billion in consolidated assets. A “qualified mortgage” or QM is a loan that is deemed to comply with the ability to repay requirements of the Truth in Lending Act (TILA), provided certain requirements are met. To fit within the new category, the loan cannot have an interest-only or negative amortization feature and must follow the prepayment penalty limitations under TILA. The institution must also consider and document the consumer’s debt, income, and financial resources, but does not need to follow Appendix Q of the ability to repay rule, and must keep the loan in portfolio (subject to limited exceptions).

HMDA Exemptions. Certain insured depository institutions and insured credit unions are also exempt from the Home Mortgage Disclosure Act (HMDA) reporting categories added by Dodd-Frank and the HMDA Rule. To qualify for the reporting exemption regarding either closed-end mortgages or home equity lines of credit, the institution must have originated fewer than 500 such loans in each of the preceding two calendar years. Notably, the reporting exemption does not apply if the institution received a rating of “needs to improve record of meeting community credit needs” in each of its most recent two Community Reinvestment Act examinations, or “substantial noncompliance in meeting community credit needs” on its most recent CRA examination.

Mortgage Originator Transitional Licenses. The Act amends the SAFE Act to provide for a 120-day transitional license for mortgage loan originators moving from a depository institution to a non-depository institution, or a state licensed lender in one state to the same or another state-licensed lender in another state. To obtain the transitional license, the loan originator must meet the following requirements:

  • The originator has not had a license application denied;
  • The originator has not had a license revoked or suspended;
  • The originator has not been subject to, or served with, a cease-and-desist order in any jurisdiction or under the SAFE Act;
  • The originator has not been convicted of a misdemeanor or felony that would preclude licensure in the applicable state; and
  • The originator has submitted a license application in the applicable state.