The Consumer Financial Protection Bureau (CFPB) recently finalized clarifications to Truth in Lending Act and Real Estate Settlement Procedures Act (RESPA) rules. The changes, first proposed in April, address concerns raised by industry stakeholders regarding qualified mortgages, mortgage servicing and higher-priced mortgage loans.
The changes apply mainly to the ability-to-repay and servicing rules. The ability-to-repay rule protects consumers from irresponsible mortgage lending by requiring that lenders make a reasonable, good-faith determination that prospective borrowers have the ability to repay their loans.
The mortgage servicing rules establish protections for homeowners as they repay their loans, especially those facing foreclosure.
‘We know that effective implementation helps our rules deliver their intended value to consumers,’ said CFPB Director Richard Cordray in a statement. ‘We are listening closely to feedback on our rules, and today's clarifications show our willingness to make appropriate adjustments to achieve that goal.’
The new rules clarify how lenders determine consumers' debt-to-income (DTI) ratio under the ability-to-repay rule. Several factors can be used to calculate consumers' DTI ratio, including a their employment history, income, business credit reports, social security income and non-employment-related income.
Under the rule, the main type of qualified mortgage requires that a consumer's monthly debt payments, including the mortgage, will not be more than 43% of the consumer's monthly income.
The CFPB also added a comment to the preamble to the mortgage servicing rules that makes it clear that the CFPB's authority on servicing, as per RESPA, does not preempt the field of possible mortgage servicing regulations by states. In addition, the comment helps explain how RESPA preemption works.
The CFPB also clarified which mortgage loans will be considered in determining whether a servicer qualifies as ‘small’ and thus exempt from certain requirements. For example, loans serviced on a charitable basis will not be considered in making that determination.
The bureau also clarified the standards that a loan must meet if the creditor is underwriting it based on government-sponsored enterprise (GSE) or agency guidelines. For example, when a loan is eligible for GSE or agency purchase, guarantee or insurance, creditors do not need to satisfy the types of procedural and technical requirements that are completely unrelated to the consumer's ability to repay.
