Special Alert: CFPB Finalizes Amendments to the Ability-to-Repay/Qualified Mortgage Rule
Buckley Sandler Special AlertJoseph J. Reilly, Benjamin K. Olson
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"), 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 Buckley Sandler 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." (The press release announcing Olson's start with Buckley Sandler may be found here.)
Despite industry requests, the Amendments make no changes to the provision in the Rule requiring that many payments to creditor affiliates be included in points and fees. In addition to points and fees, the Amendments address how "small creditors" can make QMs, and contain narrow exemptions from the Rule for certain types of creditors and for extensions of credit made pursuant to certain lending programs. Like the Rule itself, the Amendments will take effect on January 10, 2014. Concurrent with the Amendments, the Bureau delayed the effective date of a separate provision, which generally prohibits creditors from financing credit insurance premiums, from June 1, 2013 to January 10, 2014.