CFPB Rules on Ability-to-Repay and Qualified Mortgages

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On January 10, the CFPB issued a final rule, effective January 10, 2014, requiring mortgage lenders to consider consumers’ ability to repay mortgage loans and regarding the “qualified mortgage” (QM) definition. The rule sets forth underwriting factors that must be considered (at a minimum) in making ability-to-repay determinations, which are: (i) current or reasonably expected income or assets; (ii) current employment status; (iii) the monthly payment on the covered transaction; iv) the monthly payment on any simultaneous loan; (v) the monthly payment for mortgage-related obligations; (vi) current debt obligations, alimony, and child support; (vii) the monthly debt-to-income ratio or residual income; and (viii) credit history. In addition, the rule implements product-feature prerequisites and affordability underwriting requirements for qualified mortgages, including that a consumer must have a total (back-end) DTI ratio of less than or equal to 43%. CFPB Release. CFPB Final Rule. CFPB Summary of Final Rule. CFPB Fact Sheet.

In addition, on January 10, the CFPB issued a concurrent proposed rule amendment to the ability-to-repay rule which would, among other things, include exemptions for: (i) certain nonprofit creditors; (ii) certain homeownership stabilization programs; and (iii) certain Fannie Mae and Freddie Mac refinancing programs.  Comments on the proposed rule must be submitted by February 25. CFPB Proposed Rule.