The Consumer Financial Protection Bureau (CFPB) has thrown a bone to mortgage lenders, stating in a new interpretive rule that when a borrower dies, his or her mortgage can be passed on to heirs without those heirs having to meet the bureau's ability-to-repay (ATR) rules.
By allowing the name of an heir to be added to the mortgage without triggering the ATR rule, the heir can continue to make mortgage payments and potentially keep the home in the family. Also, the heir can apply for refinancing or a mortgage modification in the event he or she is unable to make the current monthly payment.
‘Losing a loved one should not mean also losing your home. Today's interpretive rule makes it clear that when family members inherit property, they can take over the mortgage without jumping through unnecessary hoops,’ says Richard Cordray, director of the CFPB, in a release.
The interpretive rule does not mean that a lender is obligated to allow an heir's name to be added to a mortgage – just that the lender does not have to consider the heir's ability to repay in the case that decision is made. In other words, just because an heir has inherited the home does not mean he or she automatically qualifies to be added to the mortgage.
The interpretive rule can also apply to other transfers, including transfers to living trusts, transfers during life from parents to children, transfers resulting from divorce or legal separation and other family-related transfers, the CFPB says.
In the event that multiple heirs are named, one or more eligible heirs can be added to the mortgage without applying the bureau's ATR rules.
Interestingly, the loan would still be considered a qualified mortgage, if originated as such, even if an heir is added who would not normally qualify due to ATR considerations.
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