On April 15, the CFPB issued a final interpretive rule concerning the requirements for providing mortgage applicants with a list of local homeownership counseling organizations. The new interpretive rule amends and restates guidance the CFPB issued in 2013 and provides additional interpretations and guidance describing what addresses of the borrower may be used for purposes of generating a list of local counselors, how to provide applicants abroad with homeownership counseling lists, permissible geolocation tools which may be used, and combining the homeownership counseling list with other disclosures. The revised interpretive rule also provides additional guidance on required qualifications for counselors who provide high-cost mortgage counseling and on the permissibility of lenders participating in that counseling.
By way of background, the Dodd-Frank Act amended section 5(c) of the Real Estate Settlement Procedures Act to require lenders to provide federally related mortgage loan applicants with an updated list of homeownership counselors who are certified by HUD and located in the area of the lender. In implementing this provision of the Act, the CFPB adopted §1024.20(a)(1) of RESPA Reg. X which requires lenders to provide applicants with a written list of homeownership counseling organizations that provide relevant services in the loan applicant's location. The Bureau specified two methods for obtaining this list: 1) using a tool developed and maintained by the Bureau on its website, or 2) using data made available by the Bureau or HUD for the lender to generate its own list, provided that the data are used in accordance with the agency's instructions provided with the data. Since issuing the original interpretive rule in 2013, the Bureau has received questions and requests for additional guidance, and the Bureau issued this official interpretation in response. The rule interprets §1024.20(a)(1) of RESPA Reg. X and §1026.34(a)(5) of TILA Reg. Z regarding pre-loan counseling requirements for HOEPA high cost mortgage loans.
Under Reg. X, lenders must generate a list of homeownership counselors either by using the tool developed and maintained by the Bureau on its website or by using data made available by the Bureau or HUD to generate the list, but the data must be used in accordance with the Bureau or HUD instructions for its use. HUD maintains a free and publicly available application programming interface containing data on HUD-approved housing counseling agencies. Although it appears on this site that a token is required to use the data, credentials are not required to access and use the data. The Bureau also has a summary of the data instructions available on the Bureau's website, along with a link to the publicly available housing counseling agency data.
In order to comply with the requirement, lenders must provide a list of ten HUD-approved housing counseling agencies. The tool maintained by the Bureau will generate a list of ten counseling agencies. A lender-generated list compiled using agency data must also generate a list of at least ten counseling agencies.
The counseling organizations must also be in the loan applicant's location. Lenders may use the loan applicant's five-digit zip code to generate a list of the ten closest HUD-approved housing counseling agencies which must appear in descending order of proximity to the central point of the zip code. Lenders are also permitted to generate the list using a more precise geographic location, such as a street address. Use of the applicant's current zip code suffices. Lenders may offer applicants the option of generating the list from a zip code different than their home address or from a more precise geographic location, like a street address, but are not required to do so. The Bureau's tool will permit generating the list through entry of zip code. A lender-generated list complies when the lender generates the list using either the zip code or a more precise geographic marker like street address.
In situations where the applicant's current address does not include a zip code, e.g., the applicant currently lives overseas, the lender may use the zip code of the property securing the mortgage to generate the list. There may also be situations where the applicant's current physical address and mailing address are different. For example, an applicant residing in rural area may receive mail at a post office box. In that case, a lender may use the applicant's mailing address instead of the current address to generate the list. A lender may also use an applicant's mailing address to generate the list if the mailing address includes a zip code but the current physical address does not.
The Bureau's tool uses a third-party, commercially-available geolocation tool to match counseling organizations to a zip code. Lenders using the agency data to generate their own list are not required to use the same geolocator or geocoding system as the Bureau, so long as the results are generated in accordance with instructions for use of the agency data.
The written list must be of counseling organizations that provide relevant services in the loan applicant's location. Lenders comply when they provide the following data fields for each housing counseling agency on the list, to the extent that they are available through the HUD programming interface: agency name, phone number, street address, city, state, zip code, website URL, email address, counseling services provided, and languages spoken. The tool maintained by the Bureau will provide these data fields to the extent that they are available through the HUD interface. A lender-generated list complies when those data fields are provided to the extent that they are available through the HUD interface.
The list must also include the following notice: "The counseling agencies on this list are approved by the U.S. Department of Housing and Urban Development (HUD), and they can offer independent advice about whether a particular set of mortgage loan terms is a good fit based on your objectives and circumstances, often at little or no cost to you. This list shows you several approved agencies in your area. You can find other approved counseling agencies at the Consumer Financial Protection Bureau's (CFPB) website: consumerfinance.gov/mortgagehelp or by calling 1-855-411-CFPB (2372). You can also access a list of nationwide HUD-approved counseling intermediaries at http://portal.hud.gov/hudportal/HUD?src=/ohc_nint."
When the Bureau issued the original 2013 HOEPA rule, it stated that the list of homeownership counseling organizations could be combined and given with other mortgage loan disclosures under Regs Z or X, unless specifically prohibited by either rule. Under the revised interpretive rule, the Bureau is making it clear that the list of counseling organizations may also be combined with other disclosures or information besides those required pursuant to Regs X and Z.
The revised interpretive rule also interprets Reg. Z § 1026.34(a)(5) concerning the pre-loan counseling requirement for high-cost mortgages by clarifying the qualifications necessary for counselors to provide high-cost mortgage counseling and by providing guidance on the permissibility of lenders participating in the counseling. Reg. Z provides that a lender may not extend a high-cost mortgage without first receiving written certification that the consumer has obtained counseling on the advisability of the mortgage from a HUD approved counselor or, if permitted by HUD, from a state housing finance authority. Some creditors and counselors raised concerns about the necessary qualifications for providing high-cost mortgage counseling as compared to ordinary "homeownership counseling." Reg. Z comment 34(a)(5)(iv)-1 describes what is necessary for counseling on the advisability of the high-cost mortgage. The counseling must cover key terms of the mortgage transaction as set out in the relevant disclosure (usually the Good Faith Estimate or, after August 1, 2015, the Loan Estimate), the consumer's budget, and the affordability of the mortgage for the consumer.
The Bureau understands that these topics are currently covered by HUD approved counseling agencies in providing homeownership counseling to prospective borrowers. So, until HUD limits the current scope of counseling in some way that would not include the elements listed in the Reg. Z comment, HUD approved counseling agencies that offer homeownership counseling are also qualified to provide the high cost mortgage counseling as long as the required topics are covered.
Finally, the Bureau said it had received information that some consumers may be receiving high-cost mortgage counseling by telephone in a creditor's office while the creditor is present and listening in on the call. In the 2013 HOEPA Final Rule, the Bureau added an anti-steering provision in § 1026.34(a)(5)(vi) that prohibits a creditor from steering or directing a consumer to choose a particular counselor or organization with the rationale of preserving counselor independence and preventing conflicts of interest. In the new interpretive rule, the Bureau clarifies that a lender may be considered to be steering if the lender insists on participating or listening in to a counseling call or session if that affects the consumer's selection of a particular counselor. Lenders are considered to comply with the anti-steering provision if a counselor is allowed to request that the creditor not participate or listen on the call. A counselor must also be allowed to request that a creditor participate in a call or a portion of a call, for example, to provide additional information about the loan. The Bureau is concerned that another counselor might be chosen or the content of the counseling influenced if the counselor requests that the creditor not listen in or participate and the creditor does not agree. Counselor independence and impartiality may also be compromised by the knowledge that the creditor is listening-in to the advice given, and creditor participation in those conversations may influence loan applicants away from a full and frank conversation with the counselor. Note: it might be a wise practice for lenders to not participate or listen in unless actually asked to do so by the counselor.
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