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News about complying with mortgage laws, rules and regulations.

Suitability Rulemaking in Process

Comments sought on new data

May 31, 2012

By staff

An upcoming regulation will require mortgage lenders to ensure that prospective borrowers actually have the ability to repay loans before they get to closing. Input is being sought on new data obtained in connection with a proposed rule and on potential litigation.

The Dodd-Frank Wall Street Reform and Consumer Protection Act requires lenders to make a reasonable and good-faith assessment of consumers' ability to repay their mortgages.

The provision was an attempt to rectify the practice in the run-up to the financial crisis of selling loans that borrowers could not afford to pay back.

Implementation of the requirement is being handled by the Consumer Financial Protection Bureau, which Thursday said it is seeking public comment on new data and information provided by the Federal Housing Finance Agency on loans purchased or guaranteed by either Fannie Mae or Freddie Mac as well as data on other securitized mortgages.

"The data can be used for a variety of analyses, such as modeling the relationship between ability to repay and variables such as consumers' ratios of debt to income," the regulator said. "Some have urged the CFPB to adopt a debt-to-income threshold when defining 'qualified mortgages.'"

The CFPB is also seeking similar data on other types of mortgages. Data on the relationship between the ability to repay and other potentially relevant factors like borrowers' cash reserves is also being sought.

The CFPB's rulemaking notice additionally summarizes analysis and information received about the potential risk of litigation in connection with the new requirements, and additional data is sought from the public about that.

The Board of Governors of the Federal Reserve System originally issued a proposal on how to implement the new requirements in May 2011.

But the comment period closed just after the CFPB inherited the implementation authority in July 2011, so the comment period was reopened.

"As part of the broader ability-to-repay mandate, Congress also designated 'qualified mortgages,' which are structurally safer and are underwritten according to standards that make it reasonable to expect that borrowers have an ability to repay," the CFPB statement said.

Comments are being accepted until July 9.

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