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CFPB Eases QM, LO Comp Requirements

Final rules amended

May 29, 2013

By Mortgage Daily staff


Small lenders are getting a break on qualified mortgage requirements issued earlier this year. In addition, some concessions have been made on requirements for loan origination compensation paid by mortgage brokers.

The Consumer Financial Protection Bureau issued a barrage of final mortgage rules in January that were scheduled to take effect in January 2014.

But the relatively young regulator disclosed on Wednesday that it has finalized a number of amendments to the final rules. The changes were made following public input.

Compensation paid by a mortgage broker to a loan originator employee won't count towards the points and fees threshold established for QMs and high-cost loans, according to today's announcement.

However, the revised rule doesn't impact January's final rule that requires compensation paid by a creditor to a mortgage broker to be included in points and fees, in addition to any origination charges paid by a borrower to a creditor.

American Bankers Association Executive Vice President Robert Davis said that the trade group is pleased that changes were adopted excluding compensation paid by lenders to loan originators from the calculation of points and fees limits.

The bureau said that qualified mortgage status will be given to portfolio loans where the debt-to-income ratio exceeds 43 percent as long as the lender is a community bank or credit union with less than $2 billion in assets that originates a maximum of 500 first mortgages a year,

Qualified small lenders will also be given a two-year transition period to make balloon loans under conditions that will be considered QMs. The CFPB said it expects to continue to study issues concerning access to credit and balloon lending by small creditors.

ABA's Davis noted that the association is disappointed that all of its recommended changes to balloon loan limitations were not adopted.

In addition, the CFPB said small creditors will be allowed to charge a higher annual percentage rate for some first-lien QMs while maintaining a safe harbor for the Ability-to-Repay requirements.

The adjustments are expected to facilitate lending by small creditors.

The Independent Community Bankers of America was mostly supportive of the changes.

"ICBA and the nation's community bankers support the CFPB's efforts to minimize the negative impact of its new ability-to-repay and qualified mortgage rules on Main Street communities," ICBA Chairman Bill Loving said in a statement. "Nevertheless, more work needs to be done to ensure that consumers nationwide continue to have access to the mortgage market so our housing and financial systems can continue their recovery."

The CFPB said some nonprofit and community-based affordable housing lenders have been exempted from the Ability-to-Repay rules.

Exempted entities include those that make no more than 200 loans a year and only to low- and moderate-income consumers.

Also exempted are mortgages made through housing finance agencies as well as loans made through certain homeownership stabilization and foreclosure prevention programs.

"Our Ability-to-Repay rule was crafted to promote responsible lending practices," CFPB Director Richard Cordray said in the announcement. "Today's amendments embody our efforts to make reasonable changes to the rule in order to foster access to responsible credit for consumers."

Additionally among January's final rules was a prohibition against raising loan amounts to cover credit insurance premiums. That rule was originally scheduled to take effect on June 1, but the CFPB proposed on May 10 suspending the June 1 effective date while it sought comment on clarifications to how the Dodd-Frank act prohibition applies to credit insurance products with certain periodic payment features.

Today's announcement indicated that the implementation date for the prohibition against financed premiums will take effect on Jan. 10, 2014.

"However, the CFPB plans to seek comment on the appropriate effective date when it issues the proposed credit insurance clarifications for public comment," the announcement stated.

ABA's Davis said that the volume and complexity of all the rules and alterations raise serious questions about realistically implementing the rules by January 2014 and called for a January 2015 implementation date.

The Mortgage Bankers Association was decidedly more upbeat about the amendments.

"We are pleased at the adjustments made to the rule as it relates to smaller lenders, regardless of business model, that will allow them to continue to provide the safe and sustainable mortgage products that they are currently offering their borrowers," MBA President and Chief Executive Officer David H. Stevens said in a statement. "We also welcome the stipulation that compensation paid by brokers and lenders to loan originator employees do not count toward the points and fees threshold for what constitutes a 'Qualified Mortgage.'

"Both of these provisions should facilitate a more efficient and affordable marketplace for borrowers."



Related:
QM Clarifications Issued (April 22, 2013)
Proposed clarifications have been issued for the Ability to Repay/Qualified Mortgage rule as well as the mortgage servicing rule.

Ability-to-Repay Guide Includes ARM Refi Exemption (April 10, 2013)
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.

Final Rule Issued on LO Comp (Jan. 19, 2013)
A final rule on loan originator compensation aims to eliminate incentives for originators to steer borrowers into high-cost loans.

Details Emerge on New QM Rule (Jan. 10, 2013)
A long-awaited rule on suitability and what constitutes a qualified mortgage has been finalized. The rule is expected to protect unsuspecting consumers from overzealous originators who disregard the borrower's ability to repay the loan in order to generate commissions. But some insiders warn about further tightening in an already frigid credit environment.


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