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News about complying with mortgage laws, rules and regulations.


Ability-to-Repay Guide Includes ARM Refi Exemption

CFPB issued guide

April 10, 2013

By Mortgage Daily staff


A new regulatory guide is designed to help mortgage lenders comply with the ability-to-repay/qualified mortgage rule issued earlier this year. It also outlines requirements for refinances of adjustable-rate mortgages that aren't subject to the rule.

The ability-to-repay rule was adopted by the Consumer Financial Protection Bureau in January and goes into effect on Jan. 10, 2014.

Lenders can comply with the rule by originating qualified mortgages that limit points and fees paid by the borrower to 3 percent, are priced at interest rates that are no more than 150 basis points over benchmark rates, and cap the debt-to-income ratio at 43 percent or less.

The CFPB announced Wednesday that its Ability-to-Repay and Qualified Mortgage Rule Small Entity Compliance Guide has been released.

"Our goal with this guide is to provide a comprehensive rule summary in a plain language and FAQ format, which makes the content more accessible and consumable for a broad array of industry constituents, especially smaller businesses with limited legal and compliance staff," a statement from the regulator said.

The 45-page PDF document discusses details about the rule and its implementation. The guide provides eight underwriting factors that must be considered and verified for a borrower's ability to repay.

The guide indicates that borrowers who are in adjustable-rate mortgages, interest-only loans or negative-amortization mortgages but won't be able to afford a recast loan can be refinanced without having to meet ability-to-repay requirements. Such refinances are only available on loans that are already serviced by the originator and have only been 30 days past due no more than one time in the last 12 months.

Refinances from a non-standard to a standard mortgage cannot result in a higher principal balance or cashout. In addition, the monthly payment must decrease by at least 10 percent.

Guides for each of the other new CFPB mortgage rules announced in January will be published over the next several weeks. The other rules include the loan originator compensation rule, final servicing rules, high-cost escrow requirements and the high-cost mortgage rule.

"Although each guide summarizes a rule, it is not a substitute for the underlying rule," the CFPB stated.

The CFPB noted that it is proposing to exempt certain community-focused creditors and foreclosure-prevention, homeownership-stabilization and refinancing programs from the rule.

It is also proposing changes that will facilitate lending by small creditors operating predominantly in rural or underserved areas.

"The bureau also sought public comment on guidance for calculating loan originator compensation for the QM points-and-fees test," the guide states. "In particular, the proposal sought public comment on guidance for determining if loan originator compensation should not be included in points and fees where it already has been captured through other charges that are included in points and fees."

read CFPB's QM compliance guide

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