CFPB Issues Final Ability To Repay/Qualified Mortgage Rule And High-Cost Mortgage Rules

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On January 10, the CFPB issued the final version of a rule that will require creditors to verify a consumer’s ability to repay prior to making a consumer credit transaction secured by a dwelling. The rule defines a “qualified mortgage,” providing a safe harbor from liability for loans with an APR below Regulation Z’s “higher-priced” threshold of 150 basis points above the Average Prime Offer Rate, and a “rebuttable presumption” for loans with an APR above that threshold. The rule will become effective on January 10, 2014. Concurrently, the CFPB released a proposal seeking comment on amendments to the final rule that would, among other things, provide exemptions for certain community-based lenders and small portfolio creditors and potentially change the treatment of indirect lender compensation for purposes of the qualified mortgage “points and fees” test. BuckleySandler has prepared a Special Alert that highlights a few key issues resolved and left open by the nearly 1,000-page releases on the rule and concurrent proposal. We will distribute a summary and additional analysis of key issues in the releases once we complete our review of them.

Also on January 10, the CFPB issued two final rules related to high-cost mortgages. The first rule amends Regulation Z to implement changes to TILA made by the Dodd-Frank Act that lengthen the time for which a mandatory escrow account established for a higher-priced mortgage loan must be maintained. This rule also exempts certain transactions from the statute’s escrow requirement. The second rule, which also amends Regulation Z  to incorporate Dodd-Frank Act statutory changes, expands the types of mortgage loans that are subject to the protections of the Home Ownership and Equity Protections Act of 1994 (HOEPA), revises and expands the tests for coverage under HOEPA, and imposes additional restrictions on mortgages that are covered by HOEPA, including a pre-loan counseling requirement. This rule also amends Regulation Z and Regulation X to require, among other things, that lenders provide borrowers information about homeownership counseling providers. BuckleySandler is reviewing these rules and will soon provide additional information.

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