The CFPB has issued a final rule amending certain provisions of the 2013 Title XIV final mortgage rules. While in its press release the CFPB describes the amendments as “minor adjustments to its mortgage rules,” the final rule contains several major changes from the CFPB’s proposal.
QM Points and Fees Cure. Generally, to be considered a qualified mortgage (QM), a mortgage loan must not contain points and fees that exceed three percent (3%) of the loan if the principal is $100,000 or more. The final rule addresses the scenario when a lender discovers post-consummation that a loan it originated is not a QM because the points and fees exceeded the 3% (or other applicable) cap.
As proposed, the rule creates a procedure permitting the lender to refund the overage amount of points and fees to the borrower within 210 days of consummation and keep the loan’s QM status. However, while allowing a longer cure period than the proposal’s 120 day period, the final rule only allows a cure for loans consummated on or after the final rule’s effective date and on or before the sunset date of January 10, 2021. Also unlike the proposal, the final rule includes events that cut off the ability to cure. The cure is only available prior to the occurrence of any of the following events: (1) the consumer’s institution of an action in connection with the loan; (2) the creditor, assignee or servicer receiving written notice from the consumer that the loan’s points and fees exceed the applicable limit, or (3) the consumer becoming 60 days past due. And in another significant change from the proposal, the final rule requires the lender to pay interest on the points and fees overage at the contract rate applicable during the period from consummation until payment is made to the consumer.
The final rule includes a requirement for the lender to maintain and follow policies and procedures for “post-consummation review of points and fees” (but expressly does not require a full loan review as some commenters thought the proposal would have mandated). However, the final rule does not include the CFPB’s proposed requirement that the lender must have originated the mortgage loan in good faith as a QM.
Alternative Small Servicer Definition. Under the RESPA-TILA mortgage servicing rules, “small servicers” (as defined by the servicing rules) are exempt from certain provisions of the rules if they service 5,000 or fewer mortgage loans annually and meet other requirements. The CFPB proposed an alternative definition of a small servicer to address concerns that nonprofits that receive fees to service loans for other associated nonprofits might not be able to qualify for the small servicer exemption. As proposed, the final rule expands the definition of a small servicer to include a nonprofit entity that services 5,000 or fewer mortgage loans, including any mortgage loans services on behalf of associated nonprofit entities, for all of which the servicer or an associated nonprofit is the creditor.
Nonprofit Lender Exemption from ATR Provisions. The ability-to-repay (ATR) rule exempts certain nonprofits that make mortgage loans to low or moderate income borrowers from certain provisions of the rule if they make no more than 200 dwelling-secured loans per year and meet other specific requirements. As proposed, the final rule amends the exemption so that subordinate lien loans for down payment assistance and certain other purposes that are interest-free, forgivable, and meet certain other conditions (so-called “soft seconds”) would not count toward the annual 200 loan limit.
Effective Date. Except for a commentary revision dealing with the relationship between the QM cure and the RESPA/Regulation X tolerance cure under the TILA-RESPA integrated disclosure rule that becomes effective next year, the final rule becomes effective upon its publication in the Federal Register. Under Regulation X, if any charges at settlement exceed the charges listed in the good faith estimate by more than the permitted tolerance, the lender can cure the tolerance violation by reimbursing the amount by which the tolerance was exceeded on or within 30 calendar days after settlement. The final rule adds a comment that provides that amounts paid to a consumer pursuant to the QM cure can be offset by amounts paid to the consumer pursuant to the RESPA/Regulation X tolerance cure to the extent the amount paid to cure the tolerance violation is being applied to points and fees. Effective August 1, 2015, to coincide with the effective date of the CFPB’s final rule integrating the TILA and RESPA application and closing disclosures, that comment will be replaced with a substantially similar new comment that references the tolerance cure provision in the TILA-RESPA integrated disclosure rule.
Unaddressed Issues. In its proposal, the CFPB requested comments on two additional issues: (1) whether and how to provide for a cure provision for QM loans that inadvertently exceed the 43% debt-to-income ratio required under the ATR rule; and (2) the credit extension limit applicable to the small creditor exemption under various Dodd-Frank rules. The final rule does not address these issues. In the final rule’s supplementary information, the CFPB states that it is considering comments submitted on these issues and whether to address them in a future rulemaking.