Alert April 30, 2013

CFPB Issues Proposal to Clarify Ability-to-Repay and Mortgage Servicing Rules

The CFPB issued a proposal to clarify and make technical amendments to the ability-to-repay and mortgage servicing rules it finalized in January (see January 22, 2013 Alert). The proposal seeks to clarify four provisions of the mortgage rules. First, the CFPB seeks to clarify the relation between Regulation X, the implementing regulation for RESPA, servicing provisions and state law. In particular, the CFPB proposes to amend the commentary to Regulation X to clarify that under the preemption provisions, Regulation X does not occupy the field of regulation of the practices covered by RESPA or Regulation X including mortgage servicing. Second, the CFPB seeks to clarify the small servicer exemption from certain servicing rules. For example, the proposal seeks to clarify which mortgage loans to consider in determining small servicer status and the application of the small servicer exemption with regard to servicer/affiliate and master servicer/subservicer relationships. The CFPB also proposed that three types of mortgage loans not be considered in determining small-servicer status: (1) loans voluntarily serviced for an unaffiliated entity, without payment; (2) reverse mortgages and (3) mortgage loans secured by a consumer’s interest in timeshare plans. Third, the CFPB proposes to clarify that a loan meeting eligibility requirements defined in agreements between the creditor and a GSE or government agency (such as HUD or VA) may be considered qualified mortgages, and seeks to provide additional clarification on how repurchase or indemnification demands by the GSEs or agencies may affect the qualified mortgage status of a loan. In particular, a repurchase or indemnification demand by the GSEs or a federal agency is not dispositive in determining the loan status as a qualified mortgage. Finally, the CFPB proposes to amend Appendix Q to facilitate compliance. For example, the proposal revises the criteria in Appendix Q for determining whether a consumer’s income is stable for purposes of debt-to-income ratio.