In October, the CFPB issued a final rule amending the 2013 mortgage rules that took effect in January 2014, including a post-consummation points and fees cure mechanism for qualified mortgage loans, which became effective on November 3, when it was published in the Federal Register.
These new amendments to the mortgage rules include:
- Qualified mortgage points and fees cure – Under the Ability-to-Repay/Qualified Mortgage Rule, loans must meet certain requirements to receive status as a “qualified mortgage” (QM). The final rule permits creditors or secondary market purchasers to secure QM protection for loans that otherwise meet QM standards at consummation but that exceed the three-percent limitation on points and fees. Creditors will have a limited time window within which to cure the fee overages by refunding excess charges to the consumer, with interest. The refund must occur within 210 days after consummation and before a consumer either (a) files suit, (b) provides written notice that the cap has been exceeded, or (c) becomes 60 days or more past due. Also, the creditor must maintain and follow policies and procedures for reviewing points and fees and providing refunds to consumers. The rule is designed to alleviate the lending industry practice of keeping a buffer zone around the three-percent points and fees limitation, which the CFPB believes is creating unintended restrictions on access to credit for consumers seeking loans that are at or near the points and fees limit. The cure provision applies to loans consummated from November 3, 2014 to January 10, 2021.
- Expansion of Ability-to-Repay exemption for non-profits – The CFPB’s final rule also includes an amendment to the existing exemption in the Ability-to-Repay rule for certain 501(c)(3) nonprofit organizations that lend to low and moderate income borrowers if they make no more than 200 mortgages per year and meet other specific requirements. The rule amends the exemption so that certain non-profit groups can continue to extend subordinate lien loans for down payment assistance and other purposes that are interest-free, and forgivable loans (referred to as “soft seconds”) without this lending activity counting toward the annual 200 loan limit.
- Exemption for small servicers expanded, but not to credit unions – The final rule also creates an additional small servicer definition for nonprofit entities that originate 5,000 or fewer mortgage loans, including those serviced on behalf of other nonprofit entities that operate under a common name or trademark to further a common charitable goal. The CFPB declined to extend the new exemption to credit unions because, according to the CFPB, credit unions have more ability to comply with the full mortgage servicing rule than other non-profits. The CFPB previously declined to adopt a broad exemption for credit unions under the small servicer definition.