The US Consumer Financial Protection Bureau ("CFPB") continues to amend its Title XIV mortgage rules, almost two years after they were issued. On October 22, 2014, the CFPB issued a final rule ("Rule") allowing lenders to cure loans that do not meet the "points and fees" test under the CFPB's Ability-to-Repay/Qualified Mortgage Rule. Under the Rule, lenders and investors will be able to "cure" loans for which the "points and fees" exceed the 3% cap for Qualified Mortgages ("QMs"). Lenders and investors will be able to cure a loan and ensure its QM status by refunding the "points and fees" that exceed the 3% cap, with interest. The Rule allows the cure payment to be provided within 210 days after consummation. The cure will be available for loans consummated on or after the effective date of the Rule, which will be upon publication in the Federal Register, expected in the next week or two.
Specifically, if a creditor or assignee determines after consummation that the total points and fees exceeds the 3% limit, but the loan meets the other requirements to be a QM, the excess amount can be refunded within 210 days after consummation. Importantly, the loan may only be cured if the consumer has not already instituted an action in connection with the loan or provided notice that the points and fees exceed the limit, or become 60 days past due. The cure payment must equal the dollar amount in excess of the 3% cap, plus interest on that dollar amount using the interest rate on the loan. The creditor or assignee can only take advantage of this cure provision if they maintain policies and procedures for post-consummation review of points and fees and for providing the cure payments. Notably, the Rule does allow lenders to offset the cure payment by any tolerance cure paid to the consumer under the applicable Good Faith Estimate or Loan Estimate disclosure requirements, if the cure is for fees included in points and fees.
The CFPB added this cure period to the Ability-to-Repay rule because it was concerned that lenders were setting a buffer below the 3% limit out of concern about potential liability if the limit were inadvertently exceeded. Significantly, however, the CFPB decided to sunset the cure provision (i.e., the provision will expire) on January 10, 2021, which coincides with the expiration of the temporary QM definition that is based on the loan's eligibility for purchase by the Government-Sponsored Enterprises ("GSEs"). The CFPB stated that it wrote a sunset of the provision into the Rule because "over time, creditors will develop greater confidence in compliance systems and also with originating loans that are not qualified mortgages under the general ability-to-repay standard," and that "creditors should be able to relax internal buffers on points and fees" and price loans at "the margin of the points and fees limits."
The Rule also makes certain changes from the proposed rule, including deleting a proposed requirement that the loan have been originated in "good faith" as a QM, and extending the cure period from the proposed 120 days to 210 days after consummation. The CFPB stated it deleted the "good faith" provision to provide more certainty to industry, and extended the cure period to generally provide for a 180-day post-consummation points and fees review period, and an additional 30 days to process and provide cure payments to consumers. Note that the cure is a "provision" requirement, rather than a "receipt" requirement, i.e., a cure payment can be placed in the mail on the 210th day after consummation.
The Rule also contains two other substantive amendments to the CFPB's Title XIV mortgage rules. In response to concerns from non-profits about losing their "small creditor" exemptions from the Ability to Repay rule because of their down payment assistance loan programs, the Rule revises the non-profit "small creditor" exemption to exclude certain non-profit subordinate-lien loans from the 200-loan limit for the exemption. Specifically, the Rule excludes from the 200-loan limit the no-interest, subordinate-lien loans that satisfy certain specific criteria that are the same as for no-interest, subordinate-lien loans that are excluded from the TILA-RESPA integrated disclosure rule, but which the Rule repeats separately under § 1026.43(a)(3)(vii). Note that the TILA-RESPA integrated disclosure rule generally requires the TIL disclosures to be provided for such loans, which does not depend on their status under the ability-to-repay rule. Although suggested by commenters, the CFPB declined to increase the loan limit under this exemption. The CFPB stated that it believes non-profits that originate more than 200 loans in a year "generally have the resources to comply with the TILA ability-to-repay requirements." In addition, the CFPB declined to extend the exemption to cover non-profit Federal and State-charted credit unions, stating that it already considered the issue when it adopted the non-profit small creditor exemption in May 2013.
In addition, the Rule provides adds certain non-profit services to the list of "small servicers" that are exempt from certain requirements under the CFPB's mortgage servicing rules. Specifically, the Rule adds to the definition of "small servicer" under § 1026.41(e)(4)(ii) nonprofit entities that service 5,000 or fewer mortgage loans, including any mortgage loans serviced on behalf of associated nonprofit entities, for all of which the servicer or an associated nonprofit entity is the creditor. A "nonprofit" entity means an entity that has a tax exempt letter or ruling under 501(c)(3) of the IRS Code. The Rule defines "associated nonprofit entities" as nonprofit entities that operate using a common name, trademark, or servicemark to further and support a common charitable mission or purpose. The amount of loans serviced is based on the calendar year. Despite comments requesting expansion of this exemption to cover tax-exempt credit unions, the CFPB declined to do so, stating that credit unions and their affiliates are "likely to have a greater capacity to comply with the full mortgage servicing rules."