The CFPB issued final rules amending certain aspects of its final ability-to-repay rule issued in January (see January 10, 2013 Alert). The new final rules, as well as the previously issued ability-to-repay rule, are effective on January 10, 2014. The new final rules amend the provisions related to loan originator compensation, small creditors and community-based lenders. For example, as amended, loan originator compensation paid by a creditor to its employees, as well as loan originator compensation paid by a mortgage broker to its individual loan broker employees, is excluded from the total points and fees calculation for determining whether a transaction is considered a qualified mortgage. Loan originator compensation paid by a creditor to a mortgage broker will be included in the points and fees calculation, unless the compensation was already included in the points and fees threshold as part of the finance charge. This treatment of loan originator compensation will also apply in determining whether loan originator compensation is included in the points and fees trigger for high-cost loans under HOEPA.
In addition, in order to facilitate lending by small creditors meeting certain conditions (e.g., less than $2 billion in assets) a loan originated by a small creditor and held in its own portfolio for at least 3 years, can be a qualified mortgage even though the consumer’s debt-to-income ratio exceeds 43%. In addition, a small creditor will be given the qualified mortgage safe harbor for first-lien mortgage loans that are 3.5 percentage points above the average prime offer rate. Other creditors are given the safe harbor for loans that are 1.5 percentage points above the average prime offer rate. Small creditors will also be allowed to make balloon payment qualified mortgages for 2 years, regardless of whether the creditor operates in a predominantly rural or underserved community, provided the creditor holds the loans in its own portfolio.
Finally, the ability-to-repay rule was amended to exempt certain community-based lenders, housing finance agencies, and credit extended under homeownership stabilization and foreclosure prevention programs. For example, non-profit lenders are exempt, provided that: (1) the creditor makes no more than 200 loans per year; (2) the creditor extends credit only to low- and moderate-income consumers; (3) credit is extended to consumers whose household income does not exceed the limits in the Community Development Act of 1974; and (4) the creditor, in accordance with its own procedures, determines that the borrower reasonably has the ability to repay the extension of credit.