WASHINGTON (5/30/13)--The Consumer Financial Protection Bureau (CFPB) Wednesday finalized changes to rules issued in January that require lenders to determine a borrower's ability to repay before writing a mortgage loan. The changes are designed to make it easier for some credit unions and other small creditors to make mortgage credit available to their communities by exempting them from some provisions of the rule.
The CFPB noted that the amendments are intended to facilitate access to credit by creating the specific exemptions and modifications to its Ability-to-Repay rule for small creditors, community development lenders, and housing stabilization programs.
Credit Union National Association President/CEO Bill Cheney, who was contacted by CFPB Director Richard Cordray personally before the amendments were announced, welcomed the changes, noting, "We are hopeful these adjustments will enable more credit unions to continue to meet their members' borrowing needs in a way that minimizes risk and default."
The CFPB also separately approved an effective date delay, sought by CUNA and others, for a provision in a rule implementing a Dodd-Frank Act amendment prohibiting creditors from financing certain credit insurance premiums in connection with certain mortgage loans.
The rule is slated to take effect on Jan. 10, 2014, along with the Ability-to-Repay rule and other regulations implementing other Dodd-Frank Act mortgage provisions. However, the CFPB plans to seek comment on the appropriate effective date of the credit insurance premiums rule when it issues proposed credit insurance clarifications for public comment, which is expected next week.
Cheney said of the CFPB's action, "The CFPB's six-month delay of the provision on financing credit insurance premiums is key in that it will give credit unions more time to sort out what has proved to be a confusion element of the Dodd-Frank law.
"We appreciate that Director Cordray and the CFPB staff were responsive to the concerns we expressed to them about this provision and the importance of delaying its June 1 implementation."
He also noted, however, that CUNA is reviewing the rule changes in detail. CUNA will assess the impact of the revisions when it has had an opportunity to view the changes in total. CUNA's Regulatory Advocacy will be posting a Final Rule Analysis in the next few days.
The newly approved changes to the Ability-to-Repay rule are also effective on Jan. 10, 2014. They include:
Several adjustments to facilitate lending by small creditors, including credit unions and community banks that have less than $2 billion in assets and make 500 or fewer first-lien mortgages annually, as defined in the rule. First, the rule generally extends Qualified Mortgage status to certain loans that these creditors hold in their own portfolios even if the consumers' debt-to-income ratio exceeds 43%. Second, the final rule provides a transition period during which small lenders can make balloon loans under certain conditions and those loans will meet the definition of Qualified Mortgages. The CFPB expects to continue to study issues concerning access to credit and balloon lending by small creditors. Third, the final rule allows small creditors to charge a higher annual percentage rate for certain first-lien Qualified Mortgages while maintaining a safe harbor for the Ability-to-Repay requirements.
An exemption from the final rule for certain nonprofit and community-based lenders that work to help low- and moderate-income consumers obtain affordable housing. Among other conditions, the exemptions generally apply to designated categories of community development lenders and to nonprofits that make no more than 200 loans per year and lend only to low- and moderate-income consumers. Similarly, mortgage loans made by or through a housing finance agency or through certain homeownership stabilization and foreclosure prevention programs are exempted from the Ability-to-Repay rules.
Establishing how to calculate loan origination compensation: The Dodd-Frank Act mandates that Qualified Mortgages have limited points and fees, and that compensation paid to loan originators, such as loan officers and brokers, is included in points and fees. This cap ensures that lenders offering Qualified Mortgages do not charge excessive points and fees. The CFPB's amendments provide certain exceptions to this Dodd-Frank requirement that loan originator compensation be included in the total permissible points and fees for both Qualified Mortgages and high-cost loans. Under the revised rule, the compensation paid by a mortgage broker to a loan originator employee or paid by a lender to a loan originator employee does not count towards the points and fees threshold. This amendment does not change the January 2013 final rule under which compensation paid by a creditor to a mortgage broker must be included in points and fees, in addition to any origination charges paid by a consumer to a creditor.