Federal Reserve’s Proposed Rule to Implement the Ability-to-Repay Requirements for Residential Mortgage Loans and its Impact on Lenders and RMBS Investors

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The Board of Governors of the Federal Reserve System (the “Board”) on May 11, 2011 published a proposed rule1 concerning implementation of the ability-to-repay requirements imposed by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Act”)....

The Act amends the Truth in Lending Act (“TILA”) to prohibit creditors from making mortgage loans without regard to the con-sumer’s repayment ability. The Act’s underwrit-ing requirements are substantially similar but not identical to the ability-to-repay require-ments for higher-priced mortgage loans adopted in July 2008 under the Home Ownership and Equity Protection Act2 (“HOEPA”). However, unlike the HOEPA rule, the proposed rule is not limited to higher-priced mortgage loans or loans secured by the borrower’s principal dwelling...

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