The CFPB has approved final amendments to its ability-to-repay rule for small creditors, community development lenders and housing stabilization programs. The amendments released on May 29 also revise rules on how to calculate loan origination compensation for certain purposes. The CFPB’s ability-to-repay rule was initially released in January of this year. The amendments make adjustments to the rule to promote lending by small lenders, including community banks that have less than $2 billion in assets and make 500 or fewer first-lien mortgages each year. The amended rule extends qualified mortgage status to certain loans that such small lenders hold in their own portfolios even if a consumer’s debt-to-income ratio exceeds 43% (which would otherwise not satisfy the criteria for qualified mortgages). The amended rule provides a two-year transition period during which small lenders can make mortgage loans with balloon payment features, subject to certain conditions, that may still be considered qualified mortgages. The amended rule also shifts the threshold separating qualified mortgages that receive a safe harbor from those that receive a rebuttable presumption of compliance with the ability-to-repay rule for small lenders from 1.5 percentage points above the average prime offer rate on first-lien loans to 3.5 percentage points because small lenders often have higher costs of funds, according to the CFPB. The amendments will take effect when the ability-to-repay rule becomes effective on January 10, 2014.
Nutter Notes: In addition to the changes benefitting small lenders, the CFPB amended the ability-to-repay rule to provide some exceptions to a Dodd-Frank Act requirement that loan originator compensation be included in the total permissible points and fees for both qualified mortgages and high-cost loans. The Dodd-Frank Act imposes a cap on points and fees on qualified mortgages, and requires that compensation paid to loan originators, such as loan officers and brokers, is included in the calculation of points and fees. According to the CFPB, the cap ensures that lenders offering qualified mortgages do not charge excessive points and fees. The amended rule excludes compensation paid by a mortgage broker to a loan originator employee or paid by a lender to a loan originator employee from the calculation of points and fees for purposes of the cap. The amendment does not change the original provisions in the final rule under which compensation paid by a creditor to a mortgage broker must be included in points and fees, in addition to any origination charges paid by a consumer to a creditor. The amendments also exempt from the ability-to-repay rule certain nonprofit and community-based lenders that work to help low- and moderate-income consumers obtain affordable housing, as well as mortgage loans made by or through a housing finance agency or through certain homeownership stabilization and foreclosure prevention programs.