Compliance Blog

Written by Steve Van Beek

Yesterday, we blogged on the Dodd-Frank requirement for mortgage statements.  A natural follow-up question is:  which mortgage loans will be covered?

Residential Mortgage Loans.  Section 1420 of Dodd-Frank indicates the requirement applies to "residential mortgage loans."  That isn't so bad.  We'll just need to go to Regulation Z and look up the definition of "residential mortgage loan."  Except, there isn't a current definition.  Instead, Dodd-Frank added a definition of "residential mortgage loan."    

Dodd-Frank.  Section 1401 of Dodd-Frank adds new definitions to Section 103 of the Truth in Lending Act - including Subsection (cc)(5) defining "residential mortgage loan":

‘‘(5) RESIDENTIAL MORTGAGE LOAN.—The term ‘residential mortgage loan’ means any consumer credit transaction that is secured by a mortgage, deed of trust, or other equivalent consensual security interest on a dwelling or on residential real property that includes a dwelling, other than a consumer credit transaction under an open end credit plan or, for purposes of sections 129B and 129C and section 128(a) (16), (17),(18), and (19), and sections 128(f) and 130(k), and any regulations promulgated thereunder, an extension of credit relating to a plan described in section 101(53D) of title 11, United States Code."

Of course, we'll have regulations that implement this wonderful piece of legislative text.  A couple things are "clear" from the statutory definition of "residential mortgage loan:"

• Open-end loans are excluded - such as home-equity lines of credit (HELOCs).
• Timeshare plans are excluded - the cross-reference to plans under 11 U.S.C. 101(53D).
• This definition is very broad.

Ultimately, the CFPB will need to interpret all the wonderful cross-references and provide a concrete definition in Regulation Z.  

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Guidance from the Ability-to-Repay Proposed Rule.  The Federal Reserve's May 2011 proposed rule did not directly define "residential mortgage loan" but it did tie the term to other Reg Z definitions.  The Fed did interpret Subsection 103(cc)(5) of Truth in Lending and included this discussion:

"Section 1401 of the Act adds a new TILA Section 103(cc) that defines ‘‘residential mortgage loan’’ to mean, with some exceptions, any consumer credit transaction secured by a mortgage, deed of trust, or other equivalent consensual security interest on ‘‘a dwelling or on residential real property that includes a dwelling.’’ TILA Section 103(v) defines ‘‘dwelling’’ to mean a residential structure or mobile home which contains one- to four-family housing units, or individual units of condominiums or cooperatives.

Thus, a ‘‘residential mortgage loan’’ is a dwelling-secured consumer credit transaction, which can include: (1) A home purchase, refinancing, or home equity loan; (2) a loan secured by a first lien or a subordinate lien on a dwelling; (3) a loan secured by a dwelling that is a principal residence, second home, or vacation home (other than a timeshare residence); or (4) a loan secured by a one-to-four unit residence, condominium, cooperative, mobile home, or manufactured home.

However, the term ‘‘residential mortgage loan’’ does not include an open-end credit plan or an extension of credit relating to a timeshare plan[.]"  76 Fed. Reg. 27407. 

Of course, the CFPB will have the ultimate say when it finalizes the ability-to-repay rule (expected this spring) and when it proposes the coverage for the periodic statement requirement.  

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In short, credit unions should be prepared for the definition of "residential mortgage loan" to be very broad.

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Programming Note:  NAFCU's offices will be closed on Monday for the Federal Holiday.  We'll be back blogging on Tuesday.  Have a great long weekend!