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January has been a big month for the Consumer Financial Protection Bureau (CFPB). The bureau published final rules on Regulation Z including some changes to the legislation. Here's your quick guide to Regulation Z changes from January. These changes will become effective in credit unions and banks nationwide on January 10, 2014.

guide to regulation z for credit unions

Loan Originator Compensation
The CFPB is amending Regulation Z to implement amendments to the Truth in Lending Act. The final rule implements requirements and restricts about loan originator compensations. The final rule revises or gives additional commentary on Regulation Z’s restrictions to loan originator compensation including restrictions on dual compensation, compensations based on the terms of a transaction and recordkeeping requirements.

The final rule also gives rules for when loan originators can be compensated through profit-based measures. The rule is designed to protect consumers by reducing incentives for loan originators to steer customers into loans with unfavorable terms. The rules also ensure that loan originators are qualified.

High-Risk Mortgages
Earlier in January, the CFPB also issued a final rule requiring appraisals for “higher-risk mortgages” added to the Truth in Lending Act. Mortgages with an annual percentage rate more than the average prime offer rate by a certain percentage have to have appraisals that meet certain standards. Lenders also have to provide the applicants with notifications about the use of the appraisals and give them a copy of the appraisals.

Adjustable-Rate Mortgages
The changes also address initial rate adjustment notices for adjustable-rate mortgages, periodic statements for residential mortgage loans, responses to requests for payoff amounts and periodic statements for residential mortgage loans. The rule also changes current rules about the scope, timing, format and content of disclosures to consumers about interest rate adjustments for variable-rate transactions.

High-Priced Mortgages
Other changes addressed high-priced mortgage loans. The final rule prohibits a creditor from making a high-priced loan without considering whether the consumer can repay the loan. The changes also limit prepayment penalties and require creditors to keep evidence of compliance with the rule for three years after the loan is consummated.

Escrow Requirements
Another rule changes the requirements for escrow accounts. Regulation Z requires creditors to establish escrow accounts for higher-priced mortgage loans secured by a first lien on a principal dwelling. The rule extends the time a mandatory escrow account established for a higher-priced mortgage loan must be maintained. It also exempts some transactions from the statute’s escrow requirement.

Home Ownership and Equity Protections Act
Another amendment to Regulation Z expands the types of mortgage loans that are protected by the Home Ownership and Equity Protections Act (HOEPA) of 1994. The changes also expand the tests for coverage under HOEPA and impose more restrictions on mortgages covered by HOEPA. The rule also enforces requirements for home ownership counseling, including the requirement for consumers to get information about home ownership counseling providers.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations. To read the complete documents on these changes, click here.

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