Alert January 10, 2013

CFPB Finalizes Ability-to-Repay and Qualified Mortgage Rules

In conjunction with its Mortgage Policy Field Hearing today, the CFPB has finalized the ability-to-repay and qualified mortgage rules. In announcing the final rule, Director Richard Cordray stated that the rules are “designed to assure the reliability of mortgages.” Although the text of the rule is expected to be available on the CFPB’s website beginning tomorrow, the CFPB released a factsheet and summary of the ability-to-repay and qualified mortgage rules. Consistent with urges from Congress and the mortgage industry groups (see July 24, 2012 and May 1, 2012 Alerts), the final qualified mortgage rule creates a safe harbor for loans that satisfy the definition of a qualified mortgage and are not “higher priced”, as defined by the Federal Reserve Board. Under the ability-to-repay rule, creditors are required to consider, at a minimum, the following eight underwriting factors: (1) current or reasonably expected income and assets; (2) current employment status; (3) the monthly payment on the covered transaction; (4) the monthly payment on any simultaneous loan; (4) the monthly payment for mortgage-related obligations, (6) current debt obligations, alimony and child support; (7) the monthly debt-to-income ratio or residual income; and (8) credit history. The rule is effective January 10, 2014.

The CFPB will hold a subsequent field hearing on mortgage policy in Atlanta, Georgia on January 17, 2013 when more mortgage related rules are expected.