CFPB Issues Two Final Rules to Promote Access to Responsible, Affordable Mortgage Credit


On December 10, the Consumer Financial Protection Bureau (CFPB) issued two final rules related to qualified mortgage (QM) loans. The first final rule, the General QM Final Rule, replaces current requirements for measuring a consumer’s ability to repay General QM loans based on the consumer’s debt-to-income ratio, and instead adopts a price-based approached. The second final rule creates a new category called “Seasoned QMs” for first-lien, fixed-rate covered transactions that have met certain performance requirements, are held in portfolio by the originating creditor or first purchaser for a 36-month period, comply with general restrictions on product features and points and fees, and meet certain underwriting requirements. Release.

CFPB Proposed Modifications to Mortgage Rules

On June 24, the CFPB issued proposed clarifications and revisions to its January 2013 mortgage rules with respect to ability-to-repay and qualified mortgages.  Among other items, the proposed rule would: (i) outline procedures for obtaining follow-up information on loss-mitigation activities; (ii) facilitate servicers’ offerings of short-term forbearance plans; (iii) facilitate lending in rural or underserved areas; (iv) make clarifications regarding the financing of credit insurance premiums; (v) clarify the definition of a loan originator; (vi) clarify the points and fees thresholds for manufactured housing employees; and (vii) revise the effective dates for the “Loan Originator rule” and the ban on financing of credit insurance to January 1, 2014 (instead of January 10, 2014).  Comments on the proposed rules must be submitted by July 22.  CFPB ReleaseCFPB Proposed RuleCFPB Regulatory Implementation Page.

CFPB Final Rule Amendments to Ability to Repay and QM Rule

On May 29, the CFPB issued a final rule amending its ability-to-repay and qualified mortgage (QM) rule.  The amendments, effective in conjunction with the ability-to-repay rule on January 10, 2014, (i) exempt certain nonprofit and community-based lenders from the rule; (ii) facilitate lending by small creditors, including certain community banks and credit unions, by making changes to qualified mortgage status for loans issued by small creditors; and (iii) establish the calculation method for loan origination compensation.  CFPB ReleaseCFPB Final Rule Amendments.

CFPB Small Entity QM Compliance Guide

On April 10 , the CFPB published a small entity compliance guide for the Ability-to-Repay and Qualified Mortgage rule, as well as a comparison chart which compares the general Ability-to-Repay requirements with the requirements for originating Qualified Mortgage loans.  CFPB Compliance Guide.  CFPB Comparison Chart.

CFPB Rules on Ability-to-Repay and Qualified Mortgages

On January 10, the CFPB issued a final rule, effective January 10, 2014, requiring mortgage lenders to consider consumers’ ability to repay mortgage loans and regarding the “qualified mortgage” (QM) definition.  The rule sets forth underwriting factors that must be considered (at a minimum) in making ability-to-repay determinations, which are:  (i) current or reasonably expected income or assets; (ii) current employment status; (iii) the monthly payment on the covered transaction; iv) the monthly payment on any simultaneous loan; (v) the monthly payment for mortgage-related obligations; (vi) current debt obligations, alimony, and child support; (vii) the monthly debt-to-income ratio or residual income; and (viii) credit history.  In addition, the rule implements product-feature prerequisites and affordability underwriting requirements for qualified mortgages, including that a consumer must have a total (back-end) DTI ratio of less than or equal to 43%.  CFPB Release.  CFPB Final Rule.  CFPB Summary of Final Rule.  CFPB Fact Sheet. 

In addition, on January 10, the CFPB issued a concurrent proposed rule amendment to the ability-to-repay rule which would, among other things, include exemptions for: (i) certain nonprofit creditors; (ii) certain homeownership stabilization programs; and (iii) certain Fannie Mae and Freddie Mac refinancing programs.  Comments on the proposed rule must be submitted by February 25.  CFPB Proposed Rule.

Fed Proposed Rule on Mortgage Underwriting Standards under Reg Z

On April 19, pursuant to Section 1411 of the Dodd-Frank Act, the Fed released a proposed rule under Regulation Z requiring creditors to determine a consumer’s ability to repay a mortgage before making a loan and to establish minimum mortgage underwriting standards. The proposed rule provides creditors four options to comply with the “ability-to-repay” requirement of Section 1411: (i) general compliance with underwriting standards; (ii) “qualified mortgages” with creditor protections from liability; (iii) balloon-payment mortgages for rural or underserved areas; and (iv) refinancing of risky “non-standard mortgages” into stable “standard mortgages”. Comments must be submitted by July 22. Fed Release. Proposed Rule.