The Consumer Financial Protection Bureau has issued a rule containing proposed amendments to its mortgage rules under the Truth in Lending Act (Regulation Z).  The proposed rule was published in the Federal Register on May 6, 2014.  The proposal includes amendments to certain rules that were issued in January 2013 and went into effect in January 2014.  Two of the amendments would make it easier for certain nonprofit organizations to provide mortgage credit and servicing to underserved populations.  Another amendment would provide lenders with a limited cure mechanism for loans that are originated with the qualified mortgage (QM) status but that ultimately exceed the points and fees cap for QMs.

According to CFPB Director Richard Cordray, the amendments are minor changes that will help ensure that consumers have access to credit and “includes helping nonprofits that provide working families with important pathways to affordable homeownership.”

Highlights of the proposed amendments include:

  • Adjusts the definition of nonprofit small servicers.  Certain small servicers are exempt from some of the CFPB’s new mortgage servicing rules, as long as they service 5,000 or fewer mortgage loans and meet other requirements.  The CFPB has learned that some nonprofit organizations may service loans, for a fee, from other associated nonprofit lenders.  Because of their unique structure, these nonprofits may not be able to consolidate their servicing activities and still meet the current requirements for the small servicer exemption.  Therefore, the CFPB’s proposal offers an alternative definition of a small servicer that would apply to certain 501(c)(3) nonprofit organizations so that they can continue to consolidate their servicing activities while maintaining their exemption from some of the servicing rules.
  • Amends the nonprofit “ability to pay” exemption.  Certain nonprofits that lend to low- and moderate-income consumers are already exempt from the ability-to-repay rule if the organization makes no more than 200 mortgages a year, among other limitations.  The CFPB’s proposal would amend this provision so that certain nonprofits, such as Habitat for Humanity, can continue to extend certain interest-free, forgivable loans, also known as “soft seconds,” without regard to the 200-mortgage loan limit.
  • Enables lenders to refund excess points and fees to maintain QM status.  Under the ability-to-repay rule, certain QMs are subject to special consumer protections.  The points and fees charged to a consumer on a QM generally cannot exceed 3% of the loan principal.  If a lender believes it has offered a QM but afterwards discovers that it has exceeded the 3% cap, the CFPB’s proposal lays out limited circumstances where the excess can be refunded to still have the loan meet the legal requirements of a QM.  The refund must occur within 120 days after the loan is made.  The creditor must also maintain and follow policies and procedures for reviewing the loans and providing refunds to consumers.  The proposal is designed to encourage lenders to provide access to credit to consumers seeking loans that are at or near the points and fees limit.

Mortgage Bankers Association’s President and CEO David H. Stevens calls the proposal “a positive development for consumers because it would allow lenders to extend safe, sustainable QM loans to considerably more qualified borrowers.”

The deadline to comment on the proposed amendments to the definition of nonprofit small servicers is June 5, 2014.  The deadline to comment on the other proposed amendments is July 7, 2014.

The full proposal can be found here.