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From Banking and Finance Law Daily, October 22, 2014

‘Tweaks’ to CFPB’s mortgage rules aid nonprofits and allow fees and points refunds

By John M. Pachkowski, J.D.

In a 100-page draft final rule, the Consumer Financial Protection Bureau has adopted minor adjustments to its 2013 Mortgage Rules to ensure access to credit.

The adjustments, which were proposed in April, include two changes that will help certain nonprofit organizations continue to provide mortgage credit and servicing to underserved populations. The amendments also spell out limited circumstances where lenders that exceed the points and fees cap can pay a refund of the excess amount plus interest to consumers and still have the loan be considered a Qualified Mortgage.

Nonprofit loan servicers. One aspect of the final rule addresses the fact that some nonprofit organizations may not qualify for the small servicer exemption found in the CFPB’s mortgage servicing rules due to their unique structure and inability to consolidate their servicing activities to meet the exemption’s current requirements. Generally, these nonprofit servicers are separately incorporated but operate under mutual contractual obligations to serve the same charitable mission, and use a common name, trademark or servicemark, and likely do not meet the definition of “affiliate” under Regulation Z.

The CFPB’s amendments provide an alternative definition of a small servicer applicable to certain 501(c)(3) nonprofit organizations so that they can consolidate their servicing activities while maintaining their exemption from some of the servicing rules.

Nonprofit ATR exemption. The second amendment focuses on concerns from some nonprofit creditors about the treatment of certain subordinate-lien programs under the nonprofit exemption from the ability-to-repay requirements. These creditors expressed concern that they may be forced to curtail their subordinate-lien programs or more generally limit their lending activities to avoid exceeding the 200-credit extension limit.

The change to the bureau’s mortgage rules now allows certain nonprofit groups, 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.

Post-consummation cure mechanism. The final amendment to the mortgage rules allows a lender to cure overages that exceed the points and fees limitations for Qualified Mortgages. Generally, points and fees on a Qualified Mortgage cannot exceed 3 percent of the loan principal at the time the loan is made. The amendment is designed to encourage lenders to provide access to credit to consumers seeking loans that are at or near the points and fees limit. The CFPB noted that some lenders seeking to originate and some secondary market participants seeking to purchase qualified mortgages may establish buffers, set at a level below the applicable points and fees limit to avoid inadvertently exceeding those limits and will not make mortgages that would exceed the buffers, or charge more for loans exceeding the buffer threshold.

Under the amendment, if a lender discovers after the loan has closed that it has exceeded the 3 percent cap, the lender can pay a refund of the excess amount with interest to the consumer, to have the loan still meet the legal requirements of a Qualified Mortgage.

To avail itself to the cure mechanism, the lender must: make the refund within 210 days after the loan is made; and maintain and follow policies and procedures for reviewing points and fees and providing refunds to consumers. The cure mechanism, which expires on Jan. 10, 2021, is also available to secondary market participants.

Maintaining strong protections. Commenting on the final rule, CFPB Director Richard Cordray stated, “Our mortgage rules are protecting consumers from debt traps, runarounds, and surprises. These adjustments will maintain those strong protections, while ensuring consumers have access to credit. This includes helping nonprofits that provide working families with important pathways to affordable homeownership.”

Companies: Habitat for Humanity

MainStory: TopStory CFPB DoddFrankAct Loans Mortgages TruthInLending

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