An Accountant’s Perspective on the Mortgage Industry September 2013

An Accountant’s Perspective on the Mortgage Industry September 2013

Delayed

Internal Revenue Service Delays Implementation of Employer Shared Responsibility Provisions

[author-style]By Anthony Panico, CPA, MS, Partner[/author-style]

The Internal Revenue Service (“IRS”) released Notice 2013-45 on July 9th to provide formal guidance associated with the transitional relief.

IRS NOTICE 2013-45

IRS Notice 2013-45 provides transitional relief for 2014 for the following:

1. The information reporting requirements applicable to insurers, self-insuring employers, and certain other providers of minimum essential coverage under Internal Revenue Code (“IRC”) §6055,
2. The information reporting requirements applicable to applicable large employers under IRC §6056, and
3. The employer shared responsibility provisions under IRC §4980H (Employer Shared Responsibility Provisions).

BACKGROUND

Under IRC §4980H(a), the Employer Mandate, a provision in the Patient Protection and Affordable Care Act (“Affordable Care Act”), requires large employers (those with 50 or more full-time employees, including full-time equivalents) to offer health insurance coverage that is “affordable” and provides “minimum value” to at least 95% of their full-time employees, and their dependents, or be subject to a monetary penalty. IRC §4980H(b) imposes an assessable payment on an applicable large employer that offers minimum essential coverage to its full-time employees, and their dependents, under an eligible employer-sponsored plan but has one or more full-time employees who enroll in a qualified health plan for which a premium tax credit is allowed or paid.

IRC §6055 requires annual information reporting by health insurance issuers, self-insuring employers, government agencies and other providers of health coverage. IRC §6056 requires annual information reporting by applicable large employers related to the health coverage that the employer offers to its full-time employees. Both of these information reporting requirements are intended to assist the IRS in enforcing the Employer Mandate. The Notice states that the transition relief with respect to IRC §6055 and §6056 “will provide additional time for dialogue with stakeholders in an effort to simplify the reporting requirements consistent with effective implementation of the law. It will also provide employers, insurers, and other reporting entities additional time to develop their systems for assembling and reporting the needed data.”

As a result of the transitional relief, both the information reporting and the Employer Mandate provisions will be fully effective for 2015. In preparation for this, once the information reporting rules have been issued, employers and other reporting entities are encouraged to voluntarily comply with the information reporting provisions for 2014. This transitional relief through 2014 for the information reporting and Employer Mandate provisions has no effect on the effective date or application of other Affordable Care Act provisions such as employees’ access to premium tax credits; as specifically mentioned in the Notice.

OTHER AFFORDABLE CARE ACT PROVISIONS

Outlined above are the areas for which the IRS provided transitional relief. However, there are a number of other provisions contained in the Affordable Care Act for which there is currently no transitional relief. These provisions include, but are not limited to, the following:

• Individual Mandate.
• Employee access to premium tax credits. Individuals will still have the ability to enroll in a qualified health plan through a state based marketplace which will be up and running no later than January 1, 2014 for which open enrollment for these marketplaces is still expected to open on October 1, 2013.
• Waiting periods cannot exceed 90 days.
• Pre-existing conditions.
• Out-of-pocket maximums for family coverage.
• Annual dollar limits.
• Dependent coverage to age 26.
• Wellness program requirements.
• Patient-Centered Outcomes Research Fee.
• Please note future healthcare reform alerts will address these specific provisions, as well as those for which transitional relief was granted.

CONCLUSION

Final regulations with respect to the Employer Mandate were released earlier this year but left many unanswered questions and areas for which additional clarification is needed. The transitional relief is intended to provide the IRS and the Federal government more time to provide further guidance. As mentioned earlier, large employers are being encouraged by the IRS to voluntarily comply with the information reporting requirements of IRC §6055 and §6056. More guidance is expected to be released by the IRS and Treasury later this summer.

In addition, eleven senior ranking House Republicans asked the Obama Administration to provide further analysis supporting its decision to “unilaterally” delay the Employer Mandate provision. The Obama Administration stated that part of the reason for the delay was a result of complaints from employer groups on the compliance burdens created by the reporting requirements under IRC §6055 and §6056. A July 9th letter from these eleven individuals stated that the Affordable Care Act “places an enormous new burden on employers that clearly contributes to the economy and job growth remaining relatively stagnant”. The individuals further stated that “We agree with you that many provisions in the law cannot be implemented within the current time frame; but we strongly disagree with you that time will ever remedy these predictable consequences of the law”.

Most recently, on July 23rd, a Senate Bill, Measure S.1330, was introduced by Senator Mark Begich, Democrat – Alaska. Under this Measure, large employers would have until 2016 to comply with the Employer Mandate. Senator Begich states that a delay of two years for the Employer Mandate is necessary “to give businesses time to learn about” the Affordable Care Act. This bill currently has no co-sponsors.

As evidenced by this and other current events, there is still much uncertainty surrounding the Affordable Care Act and, especially, certain of its provisions.

As evidenced by this and other current events, there is still much uncertainty surrounding the Affordable Care Act and, especially, certain of its provisions. One of the more significant current events is legislation introduced that proposes to also delay the Individual Mandate until 2015. The Individual Mandate was originally seen by many to be the most pivotal provision included in Affordable Care Act. The House voted 251-174 on July 17th to delay the Individual Mandate; however, it is unlikely that the Senate will act on this proposal.

Please contact a member of WS+B’s Healthcare Reform Advisory Team for further questions or assistance.

COURT FINDS THAT INSIDE LOAN OFFICERS ARE EXEMPT FROM OVERTIME UNDER THE FAIR LABOR STANDARDS ACT

[author-style]By Wayne A. Watkinson, Esq. | Levy & Watkinson, P.C.[/author-style]

In a positive ruling for the mortgage industry, the United States Court of Appeals for the District of Columbia settled, for the time being, a regulatory conflict regarding interpretation of the Fair Labor Standards Act, 29 U.S.C. 201 et. seq. (the “Act”). In doing so, the court reinstituted the Administrative Exemption from overtime wage requirements for inside loan officers that work longer than 40 hours per week. Outside salespersons who are customarily and regularly engaged away from the employer’s place of business remain exempt from overtime rules under the outside salesperson exemption in 29 U.S.C. 213(a) (1), and are not impacted by the court’s holding.

As a general rule, the Act provides that no employer shall employ workers for a workweek longer than forty hours unless such employees are paid for employment in excess of 40 hours at a rate not less than one and one-half times the regular rate. 29 U.S.C. 207(a) (1). It is not uncommon for mortgage companies employing loan originators at lucrative commission schedules to assume that such employees are exempt from overtime requirements under the Administrative Exception, when that has not necessarily been the case. This has prompted wage and hour disputes, which have been furthered by inconsistent administrative interpretations of the law.

The Administrative Exemption, as defined by regulation, provides that an employee is exempt from overtime requirements if the employee:

1. Is compensated on a salary or fee basis at a rate of not less than $455 per week;
2. Has as a primary duty the performance of office or non-manual work directly related to the management or general business operations of the employer or the employer’s customers; and
3. Whose primary duty includes the exercise of discretion and independent judgment with respect to matters of significance. 29 C.F.R. 541.200.

In an Opinion Letter issued on September 8, 2006 (No. 2006-31), the Labor Department’s Wage and Hour Division, in response to an inquiry by the MBA, opined that loan officers as defined by the MBA were exempt administrative employees not subject to overtime. Mortgage companies nationwide structured their compensation plans in reliance upon this opinion. However, the very same Division in 2010 reversed course in Opinion 2010-1, finding then that “employees who perform the typical job duties of a mortgage loan officer” did not qualify for the administrative exemption. In directing that this 2010 Opinion be vacated, the Court of Appeals reasoned that the agency, if it wanted to retreat from its 2006 interpretation, needed to do so under the Administrative Procedures Act (“APA”) after first providing notice and comment.

It is likely that this Court of Appeals opinion will provide some relief to mortgage companies saddled with wage and hour litigation on this issue. Further, this provides at least temporary flexibility for the industry to again compensate inside loan officers consistent with the 2006 opinion. However, the industry should be cautioned to comply with the $455 minimum salary requirement in the regulation and to define the loan originator’s job in accordance with the rule’s requirements. Further, there is nothing to prevent the current administration from again removing the administrative exception for loan originators so long as it is done after notice and hearing in accordance with the APA.

What’s the Purpose of the CFPB?

How It Spends Its Money Sheds Light on the Government Agency’s Existence

[author-style]By Jeanette Emmons, CPA and Jessica Offer, CPA[/author-style]

It has been two years since the Dodd Frank Wall Street Reform and Consumer Protection Act gave birth to the Consumer Financial Protection Bureau (the “CFPB” or “Agency”) and their mission, which is “to help consumer finance markets work by making rules more effective, by consistently and fairly enforcing those rules, and by empowering consumers to take more control over their economic lives,” remains on target. In April 2013, their annual fiscal budget for 2014 was included in the CFPB Strategic Plan, Budget, and Performance Plan and Report, and how they spend their capital, provides a deeper understanding as to who they are and what they want.

The overall Agency budget for fiscal 2014 is approximately $500 million, with approximately $225 million allotted to promoting beneficial practices for consumers and preventing financial harm from coming to them. Funds dedicated to achieving this goal – the first of four outlined in their strategic plan – averaged 45% of the Agency’s total budget in 2012, 2013, and 2014, signifying and reiterating its importance. The largest piece of the “goal one pie,” unsurprisingly, is dedicated to Supervision, Enforcement and Fair Lending, which represents approximately 70% of the goal’s budget (reflecting a 10% increase from the approximate 60% allocated in both fiscal 2012 and 2013). This section refers to enforcement over both bank and non-bank institutions such as mortgage lenders and brokers, including ongoing examinations. In October of 2012, the Agency released a manual which details their examination process and how they determine compliance with laws (a copy can be found at https://files.consumerfinance.gov/f/201210_cfpb_supervision-and-examination-manual-v2.pdf). As more examinations are performed, the industry will gain further insight into pervasive issues and the magnitude of penalties.

A goal is relatively meaningless without a purpose. The desired outcomes of the first goal are:

• Enforce the rules and make rule-breakers liable for their actions;
• Oversee establishments to improve compliance and encourage a fair nondiscriminatory marketplace;
• Establish and maintain an effective regulatory environment.

In accordance with budget allocation, the next most meaningful goal (with approximately 25% of the overall budget) is goal number four, which represents the Agency’s desire to further itself by enhancing impact and maximize resource productivity. This leaves 30% for goals two and three, which consist of “empowering consumers to live better financial lives” and provide information relating to consumer behavior and finance markets based upon a “data-driven analysis.” These goals appear to be consistent with the Agency’s mission.

Only time will tell whether the CFPB will be successful; however how one defines “success” in this instance probably differs depending upon which side of the line you stand on (i.e. regulator, advocacy, business owner, etc.). The Agency will no doubt have an effect on pricing in the market, common and “best” business practices and consolidations (mergers and acquisitions) in the industry, as it stands to reason that some business owners will conclude that the costs and risks associated with operating independently in this new regulatory environment outweigh the potential benefits. It remains to be seen how dramatic, severe, or helpful the Agency’s oversight will be on lenders and for consumers. However, it’s difficult not to wonder if the consumer feels the benefit of the Agency’s $500 million spending while being forced to pay higher loan origination fees to absorb the increased costs of compliance faced by lenders.

Note: Under Dodd-Frank, an annual independent performance audit is required. An independent performance audit of the CFPB Operations and Budget for fiscal 2012 can be found here:
https://files.consumerfinance.gov/f/201211_cfpb_performance-audit-report-fy-2012.pdf.

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An Accountant’s Perspective on the Mortgage Industry is published by WithumSmith+Brown, PC, Certified Public Accountants and Consultants. The information contained in this publication is for informational purposes and should not be acted upon without professional advice. To ensure compliance with U.S. Treasury rules, unless expressly stated otherwise, any U.S. tax advice contained in this communication is not intended or written to be used, and cannot be used, by the recipient for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code. Please contact a member of the Mortgage Banking Services Group with your inquiries.

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