CFPB Amending 2013 Mortgage Rules

The Consumer Financial Protection Bureau (CFPB) is amending certain mortgage rules issued in 2013 that took effect in January 2014. The final rule provides an alternative small servicer definition for nonprofit entities that meet certain requirements and amends the existing exemption from the ability-to-repay rule for nonprofit entities that meet certain requirements. The final rule also provides a cure mechanism for the points and fees limit that applies to qualified mortgages.

Defining nonprofit small servicers: Certain small servicers are exempt from some of the Bureau’s new mortgage servicing rules, so long as they—together with their affiliates—service 5,000 or fewer mortgage loans and meet other requirements. But the Bureau learned that some nonprofit organizations may service loans, for a fee, from other associated nonprofit lenders. Because of their unique structure, these organizations may not be able to consolidate their servicing activities and still meet the current requirements for the small servicer exemption. The changes finalized today provide an alternative definition of a small servicer applicable to certain 501(c)(3) nonprofit organizations so that they can consolidate their servicing activities while maintaining their exemption from some of the servicing rules.

Nonprofit Ability-to-Repay exemption amendment: Certain 501(c)(3) nonprofit organizations that lend to low- and moderate-income consumers were already exempt from the Ability-to-Repay rule if the organization makes no more than 200 mortgages a year, among other limitations. The adjustments finalized today include an amendment to this provision so that certain nonprofit groups, such as Habitat for Humanity, can continue to extend certain interest-free, forgivable loans, also known as “soft seconds,” without regard to the 200-mortgage loan limit.

Refunding excess points and fees: Under the Ability-to-Repay rule, certain loans called Qualified Mortgages are subject to certain requirements that protect consumers. The points and fees charged to a consumer on a Qualified Mortgage generally cannot exceed 3 percent of the loan principal at the time the loan is made. Under the amendments finalized today, if a lender discovers after the loan has closed that it has exceeded the 3 percent cap, there are limited circumstances where lenders can pay a refund of the excess amount with interest to the consumer, to have the loan still meet the legal requirements of a Qualified Mortgage. The refund must occur within 210 days after the loan is made. The creditor must also maintain and follow policies and procedures for reviewing points and fees and providing refunds to consumers. The provision also allows secondary market participants to provide these refunds. The change is designed to encourage lenders to provide access to credit to consumers seeking loans that are at or near the points and fees limit. This provision will expire on January 10, 2021.

The final rule did not address a possible cure for the debt-to-income ratio limit that applies to certain qualified mortgages and to the credit extension limit that applies to small creditor exemptions and special provisions in certain of the regulations adopted by the Bureau in the 2013 Title XIV Mortgage Rules.

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