The Consumer Financial Protection Bureau (CFPB) is proposing to make some minor adjustments to its mortgage rules, so as to free up more credit for consumers.
This includes modifying its ‘3% cap’ rule – which limits the fees lenders can charge consumers to 3% of the loan principal – so that if lenders exceed the cap, due to special circumstances, they can refund the difference to the consumer and still have the loan qualify for government backing.
In addition, certain nonprofit organizations that provide mortgage credit and servicing to underserved populations would be exempt from the CFPB's rules, should they grow and begin making more than 200 mortgages a year or start servicing more than 5,000 loans.
Under the current rules, any lender that issues more than 200 mortgages per year is subject to the CFPB's ability-to-repay/qualified mortgage (ATR/QM) rules – and any servicer that services more than 5,000 loans is subject to the bureau's servicing rules.Â Â Â
Exempting certain smaller non-profit lenders, such as Habitat for Humanity, from the size restrictions will allow them continue to extend certain interest-free, forgivable loans, also known as ‘soft seconds,’ without regard to the 200-mortgage loan limit. This, in turn, will allow these non-profits to work with other organizations to consolidate their lending operations while still remaining ‘exempt.’
Similarly, lifting size restrictions on certain non-profit servicers will allow for more consolidation and pooling of resources. The decision to make this change, the CFPB says, is based on the fact that some nonprofit organizations may service loans, for a fee, from other associated nonprofit lenders. Under the current rules, a non-profit servicer cannot grow to more than 5,000 loans and remain exempt from the CFPB's rules.
With regard to the proposed change to the ‘3% cap’ rule, the CFPB emphasizes that lenders will only be allowed to give a refund and ‘cure’ the loan when ‘special circumstances’ come into play. The refund must occur within 120 days after the loan is made.
‘Our mortgage rules are now helping to protect consumers all across the country from debt traps, runarounds and surprises,’ says Richard Cordray, director of the CFPB, in a release. ‘Today's proposal would maintain those strong protections, while making minor changes to ensure consumers have access to credit. This includes helping nonprofits that provide working families with important pathways to affordable homeownership.’
In a statement, David H. Stevens, president and CEO of the Mortgage Bankers Association, applauds the proposed changes.
‘This proposal is a positive development for consumers because it would allow lenders to extend safe, sustainable qualified mortgage loans to considerably more qualified borrowers,’ Stevens says. ‘As is being considered, if a lender believes it has offered a QM loan but later discovers the points and fees exceeded 3 percent of the loan amount,Â the excess could be refunded to the borrower and the loan could still meet QM requirements. MBA looks forward to commenting on this proposal and working with the CFPB to ensure that these proposals work to benefit consumers to the greatest extent possible.’
To view the proposal, which is now subject to public comment, click here.