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CFPB clarifies mortgage rule for surviving family members
WASHINGTON (7/9/14)--A clarification has been issued to mortgage lending rules that states when a borrower dies, the name of the borrower's heir generally may be added to the mortgage without triggering the Consumer Financial Protection Bureau's ability-to-repay rule. The clarification, issued by the CFPB, is meant to help surviving family members who acquire title to a property to take over their loved one's mortgage.

"Losing a loved one should not mean also losing your home. Today's interpretive rule makes it clear that when family members inherit property, they can take over the mortgage without jumping through unnecessary hoops," said CFPB Director Richard Cordray. "This gives heirs an opportunity to work with the lender to pay off the loan or seek a loan modification."

If a property is legally transferred from family members to their heirs with an outstanding loan still on the property, there can be consequences if the heir cannot add their name to the mortgage. For example, a creditor can deny a loan modification on the grounds that the heir is not officially named on the mortgage.

Since an heir has already acquired the title to the home, the new rule allows the heir's name to be added to the title without triggering the ability-to-repay requirements. The ability-to-repay rule requires lenders make a reasonable, good-faith determination that prospective borrowers have the ability to repay their loans.

In addition, the rule does not require the creditor to determine the heir's ability to repay the mortgage before formally recognizing the heir as the borrower. As the named borrower, the heir may more easily be able to obtain account information, pay off the loan, or seek a loan modification.

The rule can also apply to other family-related transfers, including transfers to living trusts, transfers during life from parents to children and transfers resulting from divorce or legal separation.

Cordray also issued a memo Tuesday clarifying that the CFPB, to the extent permitted by federal law, "recognizes all lawful marriages valid at the time of the marriage in the jurisdiction where the marriage was celebrated."

This rule means any terms used in laws, regulations and policies administered by the CFPB related to family and marital status shall now include lawful same-sex marriages and lawfully married same-sex spouses. This includes the Equal Credit Opportunity Act, Fair Debt Collection Practices Act, Truth in Lending Act and Real Estate Settlement Procedures Act.

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