In keeping with its promise to provide further guidance to the industry on the recent mortgage loan rules, the CFPB recently issued proposed clarifications and changes to the ability to repay/qualified mortgage rule and the servicing rules. Comments on the proposal will be due 30 days after it is published in the Federal Register.
The CFPB notes that it received questions that it does not plan to address because it believes that the questions are already answered by the final rules. One example of such a question provided by the CFPB is whether residual income considerations have any effect on the status of a qualified mortgage that is not a higher-priced loan under the safe harbor. The CFPB advised that it believes the rule is already clear that residual income is relevant only to rebutting the presumption of compliance for qualified mortgages that are higher-priced loans, and has no effect on the safe harbor status of qualified mortgages that are not higher-priced loans. Despite the CFPB’s belief that the rule is clear in this area, the industry would prefer to see greater clarity in the rule on what may and may not be raised in court or other forums with regard to both the safe harbor and rebuttable presumption for qualified mortgages.
The proposal also includes clarifications and changes regarding the temporary qualified mortgage provisions for loans eligible for sale to Fannie Mae or Freddie Mac, including that a repurchase or indemnification demand, and even a resolution of a repurchase or indemnification demand, is not dispositive of qualified mortgage status. Whether the loan was eligible for sale to Fannie Mae or Freddie Mac would depend on the facts and circumstances.
The CFPB also proposes changes to the standards in Appendix Q, which provide guidance on the determination of a consumer’s debt and income for purposes of calculating whether the consumer satisfies the maximum 43% debt-to-income ratio applicable to the general qualified mortgage provisions. The proposed changes would address that Appendix Q is based on flexible underwriting standards that were not designed as a rigid debt-to-income rule, and simplify and clarify certain income determination obligations.
The CFPB also proposes to clarify that the mortgage servicing rules in Regulation X under the Real Estate Settlement Procedures Act do not create field preemption with regard to state servicing laws. Additionally, the CFPB clarifies the nature of the small servicer exemption and proposes technical revisions to the exemption. Please read more about the proposal in our e-alert.