Yesterday afternoon, the Consumer Financial Protection Bureau (“Bureau”) finalized important amendments (the “Amendments”) to its ability-to-repay/qualified mortgage rule (the “Rule”) concerning the extent to which loan originator compensation must be included as “points and fees” under the Rule. The calculation of points and fees is a critical aspect of the Rule because a loan generally cannot be a “qualified mortgage” (“QM”) – a designation that provides the lender with a degree of protection against asserted violations of the ability-to-repay requirements – if points and fees exceed 3% of the loan balance. Furthermore, the same calculation method is used to determine whether points and fees exceed 5% of the loan balance for purposes of coverage under the Home Ownership and Equity Protection Act (“HOEPA”). The Amendments, which had been proposed concurrently with the Rule itself in January of this year (the “Concurrent Proposal”),3 address instances in which the Rule would have required lenders to “double count” payments of loan originator compensation as points and fees.
Benjamin K. Olson, who joined BuckleySandler on May 28 after serving as the Bureau’s Deputy Assistant Director for the Office of Regulations, observed that: “By excluding from the points and fees calculation compensation paid by creditors and mortgage brokers to their employees, the Bureau prevents some double counting and avoids the significant practical difficulty involved in determining the amount of compensation paid to individual loan officers and mortgage brokers by their employers, which may vary based on factors that are unrelated to the specific transaction. As the Bureau acknowledges, however, the Amendments do not prevent the double counting that may occur when both payments from the consumer to the creditor and payments from the creditor to the mortgage broker are included in points and fees.”
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