On July 10, 2013, the CFPB issued a final version of modifications proposed in April 2013 to mortgage rules adopted in January 2013.

Most of the modifications address the ability to repay/qualified mortgage rule, and include the following:

 1. With regard to the temporary government qualified mortgage for loans that are eligible for purchase or guarantee by Fannie Mae or Freddie Mac, or eligible for insurance or guaranty by FHA, VA, the Department of Agriculture or Rural Housing Service, the final rule: 

  • Clarifies that the eligibility for sale, insurance or guaranty is determined without regard to matters “wholly unrelated to the ability to repay.”  Such matters “are those matters that are wholly unrelated to credit risk or the underwriting of the loan” and include requirements related to the creditor’s status and selling, securitizing or delivering the loan, and post-sale, guaranty or endorsement requirements.  It would appear further guidance on what standards are applicable would be helpful. 
  • Allows a creditor to rely on variations from Fannie Mae or Freddie Mac standards in a written agreement between the creditor, or a direct sponsor or aggregator of the creditor, and Fannie Mae or Freddie Mac.  The final rule also permits a creditor to rely on a waiver of standards with respect to an individual loan that is granted by Fannie Mae or Freddie Mac.  It would appear further guidance on how to demonstrate the direct sponsor or aggregator relationship for purposes of the rule would be helpful. 

2. With regard to the general qualified mortgage, for which a creditor must follow Appendix Q for purposes of assessing the income and debt to be considered, the final rule allows creditors to look to guidance of Fannie Mae, Freddie Mac, FHA, VA, Department of Agriculture or Rural Housing Service that is in accordance with Appendix Q “as a helpful resource in applying Appendix Q.”  Additionally, when Appendix Q does not resolve how a specific kind of debt or income should be treated, the creditor may either exclude the income or include the debt, or rely on the noted government guidance to resolve the issue. However, even if the noted government guidance specifically addresses the particular type of debt or income in question, a creditor may not rely on the guidance to reach a resolution contrary to the Appendix Q standards if Appendix Q provides more generalized guidance.  In the preamble to the rule, the CFPB advises that the revised introduction to Appendix Q makes clear that it expects the ability to exclude income or include debt, or follow the government guidance, “will be used sparingly.”  It is doubtful that the CFPB’s position could be gleaned from reading the introduction to Appendix Q. 

3. The final rule permits a creditor to consider properly documented rental income from roommates as well as boarders.  As proposed, the rule would have allowed the consideration of income from boarders, but not roommates, without setting forth guidance regarding the difference between a roommate and a boarder. 

4. With regard to trust income, the final rule removes the requirement that trust income be guaranteed to be considered.  To consider trust income the creditor must determine based on appropriate documentation that constant payments will continue for at least three years.