CFPB Finalizes Clarifications to Mortgage Rules
by: Anna DeSimone
July 10, 2013 the Consumer Financial Protection Bureau (CFPB) finalized corrections, clarifications, and amendments to its Ability-to-Repay and mortgage servicing rules. These clarifications were first proposed in April 2013 and reflect the Bureau’s commitment to facilitating implementation in order to better protect consumers. Please refer to my article dated 5/29/13: CFPB Amends Ability-to-Repay Rule
The 5/10/13 rule focuses on the Ability-to-Repay and Servicing rules, summarized below:
Clarifies how to determine a consumer’s debt-to-income (DTI) ratio:
- Under the Ability-to-Repay rule, a lender may make a Qualified Mortgage (QM), a loan for which certain features are prohibited and fees that can be charged are limited. The main type of Qualified Mortgage requires that a consumer’s monthly debt payments, including the mortgage, will not be more than 43 percent of the consumer’s monthly income. The July rule clarifies and amends how several factors can be used to calculate a consumer’s DTI ratio. Such factors include a consumer’s employment record and income, business credit reports and other documents relating to self-employed consumers, Social Security income, and non-employment related income such as from a trust or rental property.
Explains that CFPB’s RESPA rule does not preempt the field of servicing regulation by states:
- The preamble to the Bureau’s final mortgage servicing rules made clear that CFPB authority on servicing, from the Real Estate Settlement Procedures Act (RESPA), does not preempt the field of possible mortgage servicing regulation by states. In this final rule, the Bureau is adding a comment to expressly state this point and explain how RESPA preemption works.
Establishes which mortgage loans to consider in determining small servicer status:
- The servicing rules issued in January included an exemption from some requirements for small servicers. The July changes clarify which mortgage loans will be considered in determining whether a servicer qualifies as small. For example, loans serviced on a charitable basis will not be considered in making that determination.
Clarifies the eligibility standard of the temporary QM provision:
- Under the Ability-to-Repay rule, a loan can be a Qualified Mortgage if it is eligible for purchase, guarantee, or insurance by government sponsored enterprises (GSEs) or by certain federal agencies, provided the loan does not contain certain risky loan features and meets certain limitations on points and fees. The July rule clarifies the standards that a loan must meet if the creditor is underwriting it based on GSE or agency guidelines. For example, where a loan is eligible for GSE or agency purchase, guarantee, or insurance, creditors do not need to satisfy the types of procedural and technical requirements that are completely unrelated to the consumer’s ability to repay.
About the Author:
Anna DeSimone is President and Founder of Bankers Advisory, Inc. She can be reached at anna@bankersadvisory.com
Anna DeSimone founded Bankers Advisory in 1986 and is a nationally recognized authority in residential mortgage lending. She has received numerous industry awards and has authored more than 40 best practices guides and hundreds of articles.
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