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Rule tweak could allow more down payment help


WASHINGTON – May 1, 2014 – The U.S. Consumer Financial Protection Bureau (CFPB) is tinkering with its tighter rules for mortgages – rules to help ensure that another recession does not occur.

CFPB's proposal, which is currently open to public comment, includes two changes that would help some nonprofit groups continue to provide mortgage credit and servicing to underserved populations. It also proposes some limited circumstances in which lenders may exceed the points and fees cap, refund the excess amount to consumers and still have the loan be considered a Qualified Mortgage.

"Our mortgage rules are now helping to protect consumers all across the country from debt traps, runarounds and surprises," says CFPB Director Richard Cordray. "Today's proposal would maintain those strong protections, while making minor changes to ensure consumers have access to credit. This includes helping nonprofits that provide working families with important pathways to affordable homeownership."

The complete proposed rule is available online.

In January 2013, the CFPB finalized several mortgage rules, most of which took effect in this year. Among those, an Ability-to-Repay rule requires lenders to generally make a reasonable, good-faith determination that prospective borrowers have the ability to repay the loan.

Today's proposed amendments respond to concerns about origination and servicing issues, particularly for nonprofit housing providers. Among the provisions:

Defining nonprofit small servicers: Certain small servicers are exempt from some of the Bureau's mortgage servicing rules, providing they service 5,000 or fewer mortgage loans and meet other requirements.

However, CFPB says it discovered that some nonprofit organizations service loans, for a fee, from other associated nonprofit lenders, and under existing rules could not consolidate servicing activities and still meet the requirements for an exemption.

As a result the CFPB's latest proposal offers an alternative definition of a small servicer that would apply to certain 501(c)(3) nonprofit organizations. It would allow them to continue consolidating servicing activities while keeping their exemption from some of the servicing rules.

Nonprofit Ability-to-Repay exemption amendment: Certain nonprofit organizations that lend to low- and moderate-income consumers are already exempt from the Ability-to-Repay rule if the organization makes no more than 200 mortgages a year, among other limitations.

Today's proposal would carefully tailor an amendment to this provision so that certain 501(c)(3) nonprofit groups, such as Habitat for Humanity, may also continue to extend certain interest-free, forgivable loans, also known as "soft seconds," without regard to the 200-mortgage loan limit.

Refunding excess points and fees: Under the Ability-to-Repay rule, certain loans called Qualified Mortgages are subject to special consumer protections. The points and fees charged to a consumer on a Qualified Mortgage generally cannot exceed 3 percent of the loan principal. If a lender believes it has offered a Qualified Mortgage but afterwards discovers that it has exceeded the 3 percent cap, the proposal lays out limited circumstances where the excess can be refunded to still have the loan meet the legal requirements of a Qualified Mortgage. The refund must occur within 120 days. The creditor must also maintain and follow policies and procedures for reviewing the loans and providing refunds to consumers.

Today's proposal encourages lenders to provide access to credit to consumers seeking loans that are at or near the points and fees limit.

In addition to seeking public comment on these proposals, the CFPB is also seeking input on certain other questions relating to the impact of the Bureau's rules, including their effect on larger lenders that do not meet the definition of small creditor.

Once the proposal is published in the Federal Register, the public will be able to comment on it at:

© 2014 Florida Realtors®


Related Topics: Mortgages