In an effort to respond to concerns that the ability-to-repay and mortgage servicing rules effectively earlier this year adversely affect access to credit for underserved populations, the CFPB proposed certain narrow amendments to these rules. In particular, the proposal would revise the scope of the exemption for small servicers by adding an alternative definition of “small servicer” that would apply to certain nonprofit entities that service only loans on behalf of other associated nonprofit entities or their servicers. Currently, small servicers are generally exempt from the requirement in Regulation Z to provide periodic statements and the requirements in Regulation X relating to obtaining force-placed insurance, servicing policies and procedures and loss mitigation procedures.
Further, in order to address inadvertent errors uncovered during a “rigorous post-consummation review,” the proposal would provide a limited, post-consummation cure mechanism for loans originated with a good faith expectation of qualified mortgage status but that actually exceed the points and fees limit for qualified mortgages. In order to qualify as a qualified mortgage under the ability-to-repay rule, loans must not exceed certain prescribed points and fees limits. This cure mechanism is intended for inadvertent errors in the origination process. Creditors would be required, among other things, to refund the consumer the dollar amount by which the transaction’s points and fees exceed the applicable limit within 120 days after consummation. The proposed amendments would also carve out certain loans originated by nonprofit creditors from the ability-to-repay rule. The final ability-to-repay rule exempted nonprofit creditors that originated 200 or fewer loans a year. The proposal would exclude certain interest-free, contingent subordinate liens originated by nonprofit creditors from the limit.
Finally, the CFPB is seeking comment on (1) whether and how to provide a limited, post-consummation cure or correction provision for loans that are originated with the good faith expectation of qualified mortgage status, but that actually exceed the 43% debt-to-income ratio limit that applies to qualified mortgages and (2) feedback and data from smaller creditors regarding implementation of certain provisions in the mortgage rules that are tailored to account for small creditor operations and how their origination activities have changed in light of the new rules. Comments regarding the proposal are due by June 5, 2014 and comments regarding correction or cure of DTI ratio overages and the credit extension limit for the small creditor definition are due by July 7, 2014.
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