On October 22, 2014 the Consumer Financial Protection Bureau (CFPB) issued minor changes to the mortgage rules to "ensure access to credit."1 The announcement finalized adjustments proposed in April 2014. The amendment made the following three general changes to the mortgage rules: (i) established an alternative definition of "small servicer" for certain nonprofit entities; (ii) amended the existing exemptions to the ability-to-repay rule for certain nonprofit entities; and (iii) provided for an ability to cure non-compliance with the points and fees limits that apply to qualified mortgages.
The first two amendments focus primarily on the applicability of the mortgage rules to 501(c)(3) nonprofit organizations. The current small servicer exemption to the mortgage rules defines small servicers as those entities that service 5,000 or fewer mortgage loans for which the servicer or its affiliate is the creditor or assignee.2 The CFPB amended that definition to allow nonprofit entities that, by agreement, operate using a common name, trademark or service mark and support a common charitable mission to qualify as small servicers if they meet specific requirements for exemption from certain requirements of Regulation X and Z. The amendments also allow certain 501(c)(3) entities that lend to low and moderate income consumers to extend interest-free, forgivable loans (otherwise known as "soft seconds") without regard to the 200-mortgage loan limit in the mortgage rules.
The final change to the mortgage rule relates to the Ability-to-Repay (ATR) requirements of Qualified Mortgages (QM). Currently, the points and fees charged on a QM cannot generally exceed three percent of the loan principal. The amended rule would allow lenders that learn that a QM violates this rule to resolve such an issue. Specifically, lenders may refund the excess amount, with interest, to the consumer within 210 days of making the loan. Along with the refund provisions, the change would also require creditors to create and follow policies and procedures for tracking points and fees, as well as refunds, pursuant to the ATR rules. Creditors in the secondary market may also make these refunds. These rule amendments will take effect upon publication in the Federal Register. We will continue to update you on other mortgage-related developments.
For further information about these mortgage rules or other CFPB-related issues, contact the authors or other members of Venable's CFPB Task Force.
[1] CFPB, CFPB Finalizes Minor Changes to Mortgage Rules to Ensure Access to Credit (Oct. 22, 2014) available at http://www.consumerfinance.gov/newsroom/cfpb-finalizes-minor-changes-to-mortgage-rules-to-ensure-access-to-credit/; See also Amendments to the 2013 Mortgage Rules under the Truth in Lending Act (Regulation Z) available at http://files.consumerfinance.gov/f/201410_cfpb_amendments_mortgage-rules-under-truth-in-lending-act.pdf.
[2] 12 C.F.R. § 1026.41(e)(4)(ii).