CFPB Announces Changes to Ablity-to-Repay Rule

ThernConsumer Financial Protection Agency has, as it promised earlier,rnreleased changes to the Ability-to-Repay rule due to go into effectrnin January 2014. Today’s amendments are intended to facilitaternlending by certain small creditors and community lenders and alsornrevise rules on how to calculate loan origination compensation forrncertain purposes. The amendments are to the Final Rule onrnAbility-to-Repay which was finalized in January of this year.</p

“OurrnAbility-to-Repay rule was crafted to promote responsible lendingrnpractices,” said CFPB Director Richard Cordray. “Today’srnamendments embody our efforts to make reasonable changes to the rulernin order to foster access to responsible credit for consumers.”</p

The rulernestablishes that most new mortgages must comply with basicrnrequirement to insure borrowers do not commit to lones they do notrnhave the financial resources to repay. Lenders are assumed to havernmet this rule if they issue Qualified Mortgages (QM) that meetrncertain requirements including limitations on risky features of therntype that led to the financial crisis. </p

The amendmentsrnreleased today reflect public input requested by CFPB and exemptrncertain nonprofit and community-based lenders from thernAbility-to-Repay rules. Exempted are generally those small creditorsrnthat make no more than 200 loans per year and lend only to low- andrnmoderate-income borrowers. Loans made through a housing financernagency or some homeownership stabilization and foreclosure preventionrnprograms are also exempted. </p

Another amendmentrnmakes several adjustments to the rule to facilitate lending by smallrncreditors including community banks and credit unions with less thanrn$2 billion in assets and which make 500 or fewer first mortgage loansrneach year. This amendment will extend Qualified Mortgage status tornloans that these institutions hold in their portfolios even if theyrnexceed the 43 percent debt-to-income ratio required by the QMrndefinition. The final rule also provides a two-year transitionrnperiod during which small lenders can continue to make certainrnballoon mortgages and also allows small lenders to charge a higherrnannual percentage rate for some QMs while still maintaining a safernharbor under the Ability-to-Repay requirements.</p

The amendmentsrnalso provide some exceptions to the Dodd-Frank Act requirements thatrnset limits on compensation to loan originators. Under the revisedrnrule, the compensation paid by a mortgage broker to a loan originatorrnemployee or paid by a lender to a loan originator employee does notrncount towards the points and fees threshold. This amendment does notrnchange the January 2013 final rule under which compensation paid by arncreditor to a mortgage broker must be included in points and fees, inrnaddition to any origination charges paid by a consumer to arncreditor.   </p

These amendmentsrnwill take affect at the same time as the remainder of thernAbility-to-Repay rule on January 10, 2014. CFPB also announced arndelay in the effective date for another rule which was originallyrnscheduled to go into effect on June 1. This provision of thernDodd-Frank Act prohibited creditors from financing certain creditrninsurance premiums in connection with mortgage loans. Earlier thisrnmonth CFPB suspended the June implementation date and has notrnrescheduled it for January 20, 2014. In the meantime the agency willrnseek comments on how this prohibition might apply to credit insurancernproducts with periodic payment features.

All Content Copyright © 2003 – 2009 Brown House Media, Inc. All Rights Reserved.nReproduction in any form without permission of MortgageNewsDaily.com is prohibited.