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From Banking and Finance Law Daily, May 29, 2013

ATR Amendments Finalized

By John M. Pachkowski, J.D.

The Consumer Financial Protection Bureau has finalized amendments to its January 2013 Ability-to-Repay (ATR) rule that create exemptions and modifications to the ATR rule for small creditors, community development lenders, and housing stabilization programs. The ATR rule amendments were proposed by the CFPB concurrently with the January 2013 ATR rule.

The ATR rule requires lenders to ensure that prospective borrowers can repay their mortgages and sets up a presumption that they issue “Qualified Mortgages” (QMs)—loans meeting certain requirements including prohibitions or limitations on risky features, such as teaser rates; and debt-to-income ratios of less than or equal to 43 percent.

Nonprofit creditor exemption. Certain nonprofit and community-based lenders that work to help low- and moderate-income consumers obtain affordable housing will be exempt from the ATR rule. The exemptions generally apply to designated categories of community development lenders and to nonprofits that make no more than 200 loans per year and lend only to low- and moderate-income consumers. Mortgage loans made by or through a housing finance agency or through certain homeownership stabilization and foreclosure prevention programs are exempted from the ATR rules.

Facilitate lending. The ATR rule is also adjusted to facilitate lending by small creditors, including community banks and credit unions that have less than $2 billion in assets and each year make 500 or fewer first-lien mortgages. The ATR amendments extend Qualified Mortgage status to certain loans that these creditors hold in their own portfolios even if the consumers’ debt-to-income ratio exceeds 43 percent. The ATR amendments also provide a two-year transition period during which small lenders can make balloon loans under certain conditions and those loans will meet the definition of QMs. Finally, the ATR amendments will allow small creditors to charge a higher annual percentage rate for certain first-lien QMs while maintaining a safe harbor for the Ability-to-Repay requirements.

Loan origination compensation. The ATR amendments also provide certain exceptions to the Dodd-Frank requirement that loan originator compensation be included in the total permissible points and fees for both QMs and high-cost loans. For example, the compensation paid by a mortgage broker to a loan originator employee or paid by a lender to a loan originator employee does not count towards the points and fees threshold. The CFPB stresses, however, that the ATR amendments do not change the January 2013 final rule under which compensation paid by a creditor to a mortgage broker must be included in points and fees, in addition to any origination charges paid by a consumer to a creditor.

Commenting on the ATR amendments, CFPB Director Richard Cordray noted, “Our Ability-to-Repay rule was crafted to promote responsible lending practices. Today’s amendments embody our efforts to make reasonable changes to the rule in order to foster access to responsible credit for consumers.”

Industry reaction. The American Bankers Association issued a statement “welcome[ing] adjustments made by [the] CFPB today to the ability-to-repay rules to accommodate certain types of mortgage lending and consumer needs. In particular, ABA is pleased that rule changes were adopted that will exclude compensation paid by lenders to loan originators from the calculation of points and fees limits.” However, the ABA was “disappointed” that recommended changes to limitations on balloon mortgage loans were not adopted.”

MainStory: TopStory CFPB DoddFrankAct Loans Mortgages TruthInLending

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