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CFPB Clarifies Ability to Repay Rule

Mortgage News

Mortgage servicers are being given some leeway on Ability-to-Repay rule requirements when a borrower dies and heirs inherit the property.

The ATR rule, which was finalized in January 2013 and took effect in January 2014, is intended to protect borrowers from irresponsible lending practices.

Clarifications issued in October 2013 required mortgage servicers to establish policies and procedures that ensure surviving family members and others who have a legal interest in the home are promptly identified and contacted.

Because of concern about whether to apply ATR rule requirements to heirs who take over a mortgage, the Consumer Financial Protection Bureau has clarified the issue.

According to an interpretive rule issued Tuesday by the regulatory, when a borrower dies, the name of the borrower’s heir can generally be added to the mortgage without triggering the ATR rule.

The clarification will help surviving family members acquire title to a property of a deceased relative and even be considered for a workout, if necessary.

“Losing a loved one should not mean also losing your home,” CFPB Director Richard Cordray said in a written statement. “Today’s interpretive rule makes it clear that when family members inherit property, they can take over the mortgage without jumping through unnecessary hoops,. This gives heirs an opportunity to work with the lender to pay off the loan or seek a loan modification.”

The interpretive rule is online at www.consumerfinance.gov.

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