On April 15 the Consumer Financial Protection Bureau (CFPB) approved an interpretative rule on Homeownership Counseling.  The rule addresses:

  • How to provide mortgage applicants with a list of local homeownership counseling organizations;
  • Restates guidance the CFPB issued in 2013, and provides further guidance for lenders who are building their own lists of housing counselors; and
  • The qualifications for providing high-cost mortgage counseling and for lender participation in such counseling.

Key points of clarification include:

  • In circumstances where the applicant’s current address does not include a five-digit zip code, e.g., the applicant currently lives overseas, making it impossible to generate a list based on the zip code of the applicant’s current address, the lender may use the five-digit zip code of the property securing the mortgage to generate the list.
  • There may be circumstances where an applicant’s current and mailing addresses are different. For example, an applicant residing in a remote area may receive mail at a post office box. In the case in which an applicant’s current and mailing address are different, a lender using an applicant’s mailing address instead of the current address to generate the list would be consistent with the requirement that the list be generated based upon the loan applicant’s location. Consistent with the previous paragraph, a lender may also use an 7 applicant’s mailing address to generate a list if the mailing address includes a zip code but the current address does not.
  • The CFPB’s tool, as discussed in § 1024.20(a)(1)(i) and above, uses a third-party, commercially-available geolocation tool to match counseling organizations to a zip code. A lender is not required to use the same geolocator or geocoding system as the CFPB, so long as the results are generated in accordance with § 1024.20 and these instructions, thus ensuring general consistency.
  • The CFPB has received questions as to whether the list of counseling organizations may be combined with other disclosures besides those required pursuant to Regulations X and Z. Although only disclosures pursuant to Regulations X and Z are specifically referenced in the rule, the CFPB does not consider combining the list of organizations with other mortgage loan disclosures to be a violation of § 1024.20(a), unless otherwise prohibited. As long as the other requirements of § 1024.20(a) are met, and if not otherwise prohibited, combining the list with another disclosure does not violate the rule.
  • The CFPB has heard informally that there has been some concern among creditors and counselors regarding both the necessary qualifications for providing high-cost mortgage counseling and what constitutes “high-cost mortgage counseling.” Unless and until HUD limits the current scope of counseling in some way that would not include elements of the comment, counseling agencies that are already approved by HUD to offer homeownership counseling are also qualified to provide the counseling required for high-cost mortgages, provided such counseling does indeed cover the topics prescribed by comment 34(a)(5)(iv)-1.
  • The CFPB has also received information that consumers may be receiving high-cost mortgage counseling by telephone in a creditor’s office while the creditor is present and listening-in. Such listening in may be objectionable by certain counselors, as it could diminish the quality of counseling. The CFPB is issuing this interpretive rule, in part, to clarify that a creditor may be steering, that is directing, if the creditor insists on participating or listening in to a counseling call or session if such behavior results in a consumer’s selection of a particular counselor. Under these circumstances, creditors 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 also is allowed to request that a creditor participate in a call or a portion of a call. For example, a counselor may request that a creditor participate in part of the counseling session to provide additional information related to the loan.

The rule is effective upon publication in the Federal Register. Publication is expected soon.
A copy of the rule is available here.