Photo Credit: Sarah Stewart
Tweak to Rules to last almost seven years
Minor changes to mortgage rules were recently finalized by the Consumer Financial Protection Bureau (CFPB) to help expand credit boxes. The changes were proposed in April 2014 and includes adjustments which would allow some non-profits to provide mortgage credit and servicing to underserved populations. Under the changes, lenders would be allowed to refund the excess amount plus interest to consumers when points and fee caps are exceeded, while still falling under the definition of Qualified Mortgage (QM).
Several mortgage rules were finalized in January 2013 and became effective January 2014. While the ability to repay (ATR) rule protects borrowers by requiring lenders to make a good-faith determination as to whether prospective borrowers can repay the loan; the new rules strongly protect homeowners, including those facing the possibility of foreclosure.
CFPB Director Richard Cordray said, “Our mortgage rules are protecting consumers from debt traps, runarounds, and surprises. These adjustments will maintain those strong protections, while ensuring consumers have access to credit. This includes helping nonprofits that provide working families with important pathways to affordable homeownership.”
See: New Mortgage May Increase Home-Ownership Rate
See: How Easy Is It to Get a Mortgage?
Highlights of the new finalized rules are:
Non-profit servicer definition: The CFPB learned that some non-profits service loans for a fee from other non-profit lenders; they’re unable to merge their servicing activities and continue to meet the CFPB small servicer exemption requirements. The alternate definition of a small servicer would allow certain 501(c)(3) non-profits to consolidate their servicing functions and still be exempt from some of the servicing rules.
Non-profit Ability-to-Repay exemption amendment: Non-profit ATR rule exemption amendment allows 501(c)(3) to continue offering interest-free, forgivable loans to low-to- moderate income borrowers, also known as “soft seconds” at a rate of more than 200 per year. Prior to the rule’s change, these non-profits were only exempt from the ATR rule if they made fewer than 200 of the soft second loans per year.
Refund of excess points and fees: Qualified mortgages (QMs) protect the borrower under the ATR rule and the points and fees are capped at three percent of the loan principal at the time it’s made. There are a few circumstances that a lender can refund the excess amount to the borrower if it’s discovered after the loan’s closing that the three percent cap has been exceeded. The refund must be made within 210 days of the origination of the loan. The loan will still be considered a QM. This change to the rules will expire on January 10, 2021 and is designed to encourage lenders to expand credit access to include potential borrowers who are at or close to the points and fees limit.
Resources:
Consumer Financial Protection Bureau. CFPB Finalizes Minor Changes to Mortgage Rules to Ensure Access to Credit
DS News. CFPB Finalizes Minor Changes to Rules to Expand Credit Access