Are Mobile Home Loans Subject to Ability-to-Repay/QM or Other Regs?
If my institution offers loans secured by mobile homes, do we need to meet the Ability-to-Repay/Qualified Mortgage regulations? What if we only use a UCC-1, not a mortgage? What about other regulations like the TILA-RESPA Disclosure rules?
These are good questions, but it's unfortunate they're still being asked so long after these rules have taken effect.
Different Treatment for Mobile Homes
Lenders often treat mobile homes differently than other loans. Why? In many states, mobile homes sometimes are not considered "real property" under state law. Also, due to relatively small loan amounts, many lenders are willing to do these either as unsecured consumer loans or as secured only by a UCC-1 (as opposed to a mortgage).
Regulations In General
Many of the consumer protection regulations won't apply to mobile home loans. For example, the TILA-RESPA Rule applies to loans secured by "real property." If your state defines mobile homes as chattel (i.e.. not real property), then you wouldn't give TRID disclosures. Another example is RESPA provisions that apply to "federally related" mortgages - this again means a loan secured by real property (so would not affect mobile homes in many cases either).
But let's look at one rule in particular, the Ability-to-Repay/Qualified Mortgage (ATR/QM) Rule.
Mobile Home Loans & ATR/QM Requirements
I understand there are "a lot" of lenders that are not complying with ATR/QM requirements as to mobile home loans. To that I would say there are probably "a lot" of people who don't get enough exercise or who watch too much television. I always like to have safety in numbers, but I'd always prefer just to know we're actually safe.
Spoiler Alert -- I believe the ATR/QM Rule DOES apply to mobile home loans unless they are completely unsecured. I think it applies even if a lender is only using a UCC-1 and even if your state defines the mobile home as personal property, as opposed to real property.
But I don't need you to take my word for it. Read my case. If you disagree, let me know why. If you can prove me wrong I'll update this and correct myself in next Wednesday's newsletter.
Why I Believe ATR/QM Applies:
The ATR/QM Rule applies to the following:
"Any consumer credit transaction that is secured by a dwelling."
So there are three prongs: (1) consumer credit, (2), security interest, and (3) dwelling. Note that this being secured by "real property" is not included in the test. Let's go through these one by one. Note: Contrary to the CFPB's plain English guide or other guidance material, the quote above is from the actual written regulation (is not second hand information).
#1) Consumer Credit
There's no argument about this being for consumer credit. There are sections of Reg Z that apply to credit cards because they qualify as "consumer credit." So certainly buying a mobile home and repaying that loan over a series of installments will qualify.
#2) Security Interest
So I suppose some people would say that using a UCC-1 does not create a valid "security interest" to trigger the ATR/QM Rule. (Because, of course, if we're using a normal mortgage, then this #2 prong would be satisfied.)
But I think a UCC-1 is enough to trigger this requirement for "securing" the transaction. A UCC-1 might be less paperwork than a mortgage, but it is by definition also a security interest. Similar to a mortgage, it operates to put potential creditors on notice that the lender has a protected interest in this property. Of course, we can't use a UCC-1 for most home loans because UCC- 1 can only be applied to personal property. (But, of course, some states define mobile homes as personal property, which is why we can use them here.)
In fact, when I look up the regulatory definition of "security interest," there is an official comment that gives an example where a loan secured by a UCC-1 meets these requirements. See 12 CFR 1026.2(a)(26) - Comment 4.
#3) Dwelling
So if the other 2 prongs are met, we have to discuss whether a mobile home is a "dwelling," even where state law considers this to be personal property. Unfortunately, I think this is settled in the actual written rule itself, which says (1026.2(a)(20)):
Dwelling means a residential structure that contains one to four units, whether or not that structure is attached to real property. The term includes an individual condominium unit, cooperative unit, mobile home, and trailer, if it is used as a residence.
The official commentary goes on even further, stating: "Mobile homes, boats, and trailers are dwellings if they are in fact used as residences, just as are condominium and cooperative units."
So first, you have the regulation itself saying mobile homes are "dwellings" (seems hard to get around that). Secondly, even if you still argue that your state defines mobile homes as personal property and that that should make a difference, I'm pretty sure that EVERY state defines BOATS as personal property - but the rule still applies. If ATR/QM applies to boat loans (if used as a residence), how can we say it doesn't apply to mobile homes?
In Other News
Are you interested in a new acronym? How about LEP for limited English proficiency borrowers. See a summary of the CFPB's recent guidance on this topic here.
Are you performing full vendor management for "one-off" closing attorneys or appraisals? Maybe you'll smile reading the CFPB's new bulletin on this topic. The CFPB has been advising that this guidance means you are not required to do the same level of vendor management for these "one-offs."
SCA is helping the MMBA by hosting a compliance/risk program exclusively for commercial lenders. This will cover HMDA, CRA, other compliance issues, and delve into some credit risk. It is coming up quickly on November 16th. Click here or contact the MMBA to reserve a spot!
Do you use groups to make decisions or drive change? Interestingly, people disagree over whether this is powerfully bad or powerfully good.
On one hand you have the recognized dangers of "Groupthink," which some blame for the Challenger space shuttle disaster. Here the desire to reach a unanimous decision (or pressure to "go along") might lead to bad decision- making.
But on the other hand, you have the "two heads are better than one" crowd. A famous example is with English statistician Sir Francis Galton in 1907, where he observed a contest where a village attempted to guess the weight of an ox. Nearly 1,000 villagers registered a guess. Galton averaged all votes together to arrive at 1207 pounds. The actual weight was 1198 pounds. Extremely close!
You also can't deny the power of a group working together to drive change at an organization. Instead of one person making decisions and having everyone comply, a small task force is formed to lead change. So you're left with insight from more people and with more people who feel committed to the process (since they're a part of it).
So how does this relate to the mortgage industry? Well, when you implemented TRID, ATR/QM, and now HMDA, did that happen with individuals by themselves? It seems many of the most successful companies formed small groups to spearhead these changes. Meeting regularly. Starting well in advance. Getting it done without bogging down the rest of the company.
What's the answer to whether group decision-making is good or bad? I don't know. Somebody at Princeton obviously thinks the answer is that SMALL groups are effective while large groups are dangerous (see this article). I don't know. All I would offer is that I think a small group of people at your institution should probably start looking at HMDA soon.
"The [CFPB] is reissuing its guidance on service providers ... to clarify that the depth and formality of the risk management program for service providers may vary depending upon the service being performed - its size, scope, complexity, importance and potential for consumer harm .... This amendment is needed to clarify that supervised entities have flexibility and to allow appropriate risk management.
~ CFPB's settlement service bulletin (referenced above)
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