By Tracy M. Evans, Esq., Associate, Saxon, Gilmore, Carraway & Gibbons, P.A.
Last year, we reported on the recent activities of the Consumer Financial Protection Bureau (CFPB) including its proposed amendment to Regulation Z’s ability-to-repay rule that provided an exemption to the ability-to-repay rule for certain nonprofit creditors. The previous article can be viewed here. The amendment took effect on January 10, 2014. Since that time, the CFPB has continued to fine-tune its mortgage regulations and has recently proposed a new rule. The new rule is intended to increase access to credit and encourage lending by broadening the scope of the exemption to the ability-to-repay rule and by loosening other rules previously issued by the CFPB.
The previously discussed exemption to the ability-to-repay rule allowed certain servicers to be exempt from the rule if they met the definition of a “small servicer.” The proposed new rule expands the definition of a “small servicer” to include additional nonprofit lenders that did not qualify as “small servicers” under the prior definition. Under the previous rule, in order to meet the definition of a “small servicer,” the servicer could service no more than 5,000 loans. This prevented certain nonprofit lenders from being able to consolidate their servicing activities with other nonprofit lenders and still meet the exemption requirement. To remedy this problem, the proposed new rule permits nonprofit lenders to exceed the 5,000 loan limit if they are consolidating their servicing activities with other nonprofit creditors in their network.
Also, the current exemption to the ability-to-repay rule applies to nonprofit creditors who extend credit no more than 200 times annually. The proposed new rule seeks to expand the exemption to allow nonprofit organizations, such as Habitat for Humanity, to make interest-free, forgivable loans outside the previously imposed 200-loan limit.
In addition, the proposed new rule loosens some of the requirements for qualified mortgages. A qualified mortgage is one that meets certain standards set forth by the CFPB and is presumed to satisfy the ability-to-repay requirements of Regulation Z. Under the proposed new rule, lenders will be able to exceed the required point and fee limits imposed on qualified mortgages if the lender believes it has offered a qualified mortgage, but later discovers it exceeded these limits. Under the proposed new rule, the lender will be afforded a period of 120 days after origination of the loan to return the funds exceeding the limits in order for the loan to still be considered a qualified mortgage.
The changes under the proposed new rule are intended to increase access to credit for low and moderate income consumers, and encourage lenders to extend credit to consumers seeking loans where the previous rule may have discouraged lending, while still affording protections to consumers.
Comments to the proposed new rule closed on July 7, 2014, but the proposed new rule as published in the Federal Register is available here: https://www.federalregister.gov/articles/2014/05/06/2014-10207/amendments-to-the-2013-mortgage-rules-under-the-truth-in-lending-act-regulation-z#h-16
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