This blog post is a follow up to the mortgage compliance sessions at the CUNA Update School in New Orleans.
During the session I received three questions on the new mortgage rules which needed some additional research. Below are the three questions with some information and answers. The answer to #1 is still unknown. I have provided some information as to what the rule states; however, CUNA is following up on this question, as well as #2, with the CFPB. We will keep you apprised of the developments. So, please understand that these new rules are very fluid and answers can change.
Question 1: With the new ARM notice rules, if the rule is effective January 2014 for existing ARMs, are we supposed to send notices prior to the effective date of the rule if the notice window is prior to the effective date, but the adjustment occurs after the effective date?
Answer: It is unclear from the rule whether you have to send the notice prior to the effective date if the notice period is not until after the effective date. The only references in the rule that provide some indication as to the effect on existing ARMs are in the supplementary information. The supplementary information states: “Therefore, once the final rule takes effect, except for ARMs with look-back periods of less than 45 days covered by the grandfather period, it applies to all ARMs with interest rate adjustments causing payment changes. . . . Therefore, once the final rule takes effect, it applies to all ARMs which have not yet adjusted for the first time.” The supplementary information also states, “A national trade association asked the Bureau to clarify whether the requirements of § 1026.20(d) are restricted to ARMs originated after the effective date of the final rule or whether they apply as well to existing ARMs that adjust for the first time after the effective date. Neither the proposal nor the final rule includes an exception or a grandfather period for ARMs originated prior to the effective date of the rule but which adjust for the first time after that date. Therefore, once the rule takes effect, it applies to all ARMs adjusting for the first time.”
Question 2: When do we have to provide the coupon book to the member?
Answer: The rule doesn’t specifically indicate a timeframe for providing the coupon book to the member in lieu of the periodic statement. The commentary implies that the coupon book is given during a set period of time, generally on an annual basis. Thus, you will have to look to the required contents of the coupon book to determine how often it would need to be provided depending on the information that will need to be included. In addition, it seems the coupon book should be provided at or prior to the time in which the first periodic statement would be required, otherwise you would not have complied with either the periodic statement provision or the coupon book provision. It would be most logical to provide the initial coupon book at consummation.
The rule and the commentary state the following:
(3) Coupon books. The requirements of paragraph (a) do not apply to fixed-rate loans if the servicer:
(i) Provides the consumer with a coupon book that includes on each coupon the information listed in paragraph (d)(1) of this section;
(ii) Provides the consumer with a coupon book that includes anywhere in the coupon book: (A) The account information listed in paragraph (d)(7) of this section; (B) The contact information for the servicer, listed in paragraph (d)(6) of this section; and (C) Information on how the consumer can obtain the information listed in paragraph (e)(3)(iii) of this section;
(iii) Makes available upon request to the consumer by telephone, in writing, in person, or electronically, if the consumer consents, the information listed in paragraph (d)(2) through (5) of this section; and
(iv) Provides the consumer the information listed in paragraph (d)(8) of this section in writing, for any billing cycle during which the consumer is more than 45 days delinquent.
2. Coupon book. A coupon book is a booklet provided to the consumer with a page for each billing cycle during a set period of time (often covering one year). These pages are designed to be torn off and returned to the servicer with a payment for each billing cycle. Additional information about the loan is often included on or inside the front or back cover, or on filler pages in the coupon book.
Question 3: For purposes of the requirement to provide a periodic statement within a reasonably prompt time after the payment due date or at the end of any courtesy period provided for the previous billing cycle, what does “courtesy period” mean?
Answer: The commentary indicates that the meaning of courtesy period is explained in comment 7(b)(11)-1 (which is the open-end credit period statement section). The commentary to 7(b)(11)-1 is provided below. Based on that commentary, it appears that a courtesy period for purposes of the closed end periodic statement is an informal period in which the credit union does not charge any late fees if the payment is made during that “brief period of time” after the date on which the card issuer has the contractual right to impose the fee.
7(b)(11) Due Date; Late Payment Costs
1. Informal periods affecting late payments. Although the terms of the account agreement may provide that a card issuer may assess a late payment fee if a payment is not received by a certain date, the card issuer may have an informal policy or practice that delays the assessment of the late payment fee for payments received a brief period of time after the date upon which a card issuer has the contractual right to impose the fee. A card issuer must disclose the due date according to the legal obligation between the parties, and need not consider the end of an informal “courtesy period” as the due date under §1026.7(b)(11).