CFPB Proposes Minor Changes to Mortgage Rules
by: Anna DeSimone
Proposal Would Assist Nonprofits and Allow for Refunds of Excess Points and Fees for Qualified Mortgages
April 30, 2014 the Consumer Financial Protection Bureau (CFPB) proposed minor adjustments to its mortgage rules to ensure access to credit. The proposal includes two changes that would help certain nonprofit organizations continue to provide mortgage credit and servicing to underserved populations. The proposal also lays out limited circumstances where lenders that exceed the points and fees cap can refund the excess amount to consumers and still have the loan be considered a Qualified Mortgage.
If implemented, the changes would help certain nonprofit organizations continue to provide mortgage credit and servicing to underserved populations. The proposal also outlines limited circumstances where lenders that exceed the points and fees cap can refund the excess amount to consumers and still have the loan be considered a Qualified Mortgage. Among provisions in the proposed rule:
Defining nonprofit small servicers
The proposed rule offers an alternative definition of a small servicer that would apply to certain 501(c)(3) nonprofit organizations so that they can continue to consolidate their servicing activities while maintaining their exemption from some of the servicing rules. The CFPB noted that while certain small servicers are exempt from some of the Bureau’s new mortgage servicing rules, so long as they service 5,000 or fewer mortgage loans and meet other requirements, 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.
Nonprofit Ability-to-Repay exemption amendment
The proposal would tailor an amendment so that certain 501(c)(3) 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. The proposal targets certain nonprofit organizations that lend to low- and moderate-income consumers that are already exempt from the Ability-to-Repay rule if the organization makes no more than 200 mortgages a year, among other limitations.
Refunding excess points and fees
The proposal is designed to encourage lenders to provide access to credit to consumers seeking loans that are at or near the points and fees limit. Under the Ability-to-Repay rule, Qualified Mortgages are subject to special consumer protections. The points and fees charged to a consumer on a Qualified Mortgage generally cannot exceed 3 percent of the loan principal. If a lender believes it has offered a Qualified Mortgage but afterwards discovers that it has exceeded the 3 percent cap, the proposal lays out limited circumstances where the excess can be refunded to still have the loan meet the legal requirements of a Qualified Mortgage. The refund must occur within 120 days after the loan is made. The creditor must also maintain and follow policies and procedures for reviewing the loans and providing refunds to consumers.
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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