The CFPB has adopted amendments to its ability-to-repay rule that change certain factors used to determine a consumer’s debt-to-income (“DTI”) ratio and clarify the temporary eligibility standards for certain qualified mortgages. The amendments released on July 10 also provide clarification of provisions in the CFPB’s mortgage servicing rules related to preemption of state law and certain exemptions for small servicers. The definition of qualified mortgage under the ability-to-repay rule requires a creditor to satisfy statutory underwriting criteria, including a requirement that the creditor confirm that the consumer has a total DTI that is less than or equal to 43%. To determine whether the consumer meets the DTI requirement, a creditor must determine, among other things, whether the income used in the calculation of DTI is stable. The amendments eliminate requirements that a creditor determine the “probability of continued employment” by considering a consumer’s “qualifications for the position” and “previous training and education” for purposes of the income stability analysis. The amendments also provide clarification on the calculation of various sources of income used in the DTI analysis, including overtime, bonuses, Social Security income, trust income and rental income. The amendments become effective when the ability-to-repay rule becomes effective on January 10, 2014.
Nutter Notes: Under the ability-to-repay rule, a loan can be a qualified mortgage on a temporary basis if it is eligible for purchase, guarantee or insurance by a GSE or certain federal agencies, provided the loan meets other, more limited qualifying criteria. The amendments to the ability-to-repay rule clarify the standards applicable to the temporary category of qualified mortgages based on GSE or federal agency guidelines. For example, if a loan meets the criteria for the temporary category of qualified mortgage loan, the amendments clarify that the creditor does not need to satisfy the types of procedural and technical underwriting requirements that are unrelated to the consumer’s ability to repay. The amendments to the CFPB’s mortgage servicing rules add an official comment to clarify the CFPB’s position that its authority to regulate mortgage servicing, granted by the Real Estate Settlement Procedures Act (“RESPA”), does not preempt the field of possible mortgage servicing regulation by states. The mortgage servicing rules issued in January 2013 include an exemption from some requirements for small servicers. The amendments clarify which mortgage loans will be considered in determining whether a loan servicer qualifies as a small servicer. For example, loans serviced on a charitable basis will not be considered in making that determination.