CFPB Issues Additional Clarifications to Final Rules

Last week the Consumer FinancialrnProtection Bureau (CFPB) issued proposed clarifications to one of its 2013 FinalsrnRules, the one applying to servicer-held escrows.  Today the Bureau issued an additional set of fivernproposed clarifications for public comment. rnThese deal with rules issued in January regarding Qualified Mortgagesrn(QM) and mortgage servicing. rnCFPBrnsaid the new proposals seek to address questions regarding the earlier rules becausernthey believe they have “a responsibility not just to write a rule, but to seernthat it is implemented effectively.” </p

The first proposal deals withrnthe definition of debt-to-income (DTI) ratio. rnThe Bureau proposes revising the criteria for determining whether arnconsumer’s income is stable for the purposes of DTI.  Comments on the rule concern whether thernexisting requirements for determining this are likely to result in compliancerndifficulty and exposure to litigation on the part of the creditor.   For instance, many employers are unlikely tornbe willing to confirm the permanency of an applicant’s employment and creditorsrnmay be unqualified to evaluate a consumer’s education, training, and jobrnqualifications.</p

CFPB proposes to replace the requirement to obtain confirmation ofrncontinued employment through an employer, with one requiring verifying thern”probability of continued employment.”  Similarly the requirement that creditorsrnconsider qualifications, training, and education will be supplanted with arnrequirement to examine a consumer’s past and current employment.  </p

The “General Policy on Consumer Income Analysis” in the existingrnrule states that customers must analyze the income of each consumer obligatedrnby the loan to determine if his/her income level can be reasonably expect torncontinues through at least the first three years of the loan.  Also whether any overtime or bonus incomernwill continue or exhibits a trend. </p

CFPB said it adopted this provision largely from existing FHA underwritingrnguidelines and believes they are unlikely to function properly as regulatoryrnrequirements and may frustrate the purpose of the regulations.  The Bureau proposes to amend the requirementrnto require creditors to evaluate only whether a consumer’s income level wouldrnnot be reasonably expected to continue based on the documentation provided with<bno three-year requirement. The Bureau is also proposing to eliminate thernrequirement that creditors determine whether bonus and overtime income “willrncontinue but rather than creditors focus on those factors for the past twornyears.”  The Bureau is also proposingrnclarifications to provisions explaining how to account for Social Security andrnself-employment income. </p

Arnsecond change involved a second type of QM that a lender canrnmake under the ability-to-repay rule. rnThis requires the loan to be eligible either for purchase or guaranteernby the government-sponsored enterprises Fannie Mae or Freddie Mac (the GSEs),rnor for guarantee or insurance by a federal agency such as the Federal HousingrnAdministration or the Veterans Administration. The provision that allows thisrntype of QM is temporary and will expire after seven years or earlier. Today’srnproposal would confirm that loans meeting eligibility requirements provided inrna separate agreement between a creditor and a GSE or federal agency can bernqualified mortgages, not just those that follow the general GSE or agencyrnguidelines. </p

Another proposed change seeksrnto clarify whether a demand by a GSE or agency that a lender repurchase orrnindemnify a loan determines whether or not the loan is a QM.  The Bureau’s proposed clarification wouldrnestablish that a demand to repurchase or indemnify would not be dispositive inrnestablishing mortgage status.  The Bureaurnsaid facts upon which eligibility was determined at or before consummationrncould later found to be incorrect and often a demand to repurchase or indemnifyrninvolve such issues.  The mere occurrencernof a demand “does not necessarily mean that the loan is not a qualifiedrnmortgage.”  The specific facts andrncircumstances of each loan should determine that.</p

Regulation X implements the RealrnEstate Settlement Procedures Act (RESPA). The preamble to the 2013 MortgagernServicing Final Rules issued in January made clear that Regulation X does notrnpreempt the field of possible mortgage servicing regulation by states, and thernBureau is proposing the addition of a comment to Regulation X to emphasizernthis. </p

The final change is to the<bsmall servicer exceptions in the servicing and other regulations.  These changes would clarify which mortgagernloans to consider in determining whether a servicer qualifies as small; forrnexample loans serviced on a charitable basis would be excluded.  Other examples are included to illustrate howrnthe exemption would be applied to relationships between servicer and affiliate andrnbetween master servicer and subservicer. rn</p

CFPB said the changes wouldrnapply the exemption to a larger number of firms which would benefit from lowerrncosts although their customers may lose some of the protections embedded in thernrelevant rules.  The Bureau said thatrnchanges are very small and the lack of clarity they are designed to remedy wasrninadvertent. 

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