Compliance

CFPB Adds to Stack of Mortgage Rules

Here’s a six-point overview of the CFPB’s new mortgage lending regulations.

February 28, 2013
/ PRINT / ShareShare / Text Size +

2. Mortgage lenders must comply with new “ability-to-repay” requirements.

This new section of Regulation Z (Truth in Lending Act) will require credit unions to obtain and verify specific pieces of financial information about the applicant to consider when determining whether the borrower can repay the loan over the long term, including: income or assets; employment status; proposed and current monthly mortgage payments; other current debt obligations including alimony and child support; monthly debt-to-income (DTI) ratio or residual income; and credit history.

This rule applies to any closed-end first-lien or subordinatelien loan secured by a dwelling (both the borrower’s primary residence or second home).

A credit union will be presumed to have complied if it makes a “qualified mortgage” that requires: no excessive up-front points and fees (more than 3% of the loan amount); no “toxic provisions” (such as interest-only, negative amortization, or a maturity longer than 30 years); generally no balloon payment (but with an exception for most credit unions in rural areas); and generally not more than a 43% debt-to-income ratio (but with an exception for loans meeting certain government affordability standards).

There are also restrictions of prepayment penalties.

Qualified mortgages for higher-priced loans (typically for consumers with insufficient or weak credit histories) allow borrowers to later challenge whether the lender properly assessed their ability to repay the loan (a “rebuttable presumption” of compliance).

Qualified mortgages for lower-priced loans cannot be successfully challenged for compliance with the ability-to-repay rules, providing a compliance “safe harbor.” It’s difficult to assess how this different legal treatment on evaluating lenders’ assessment of an applicant’s ability to repay a loan might affect the mortgage market in the future.

CFPB is considering whether to include another category of “qualified mortgages” that would cover certain loans originated by credit unions with $2 billion or less in assets that originate 500 or fewer first-lien transactions annually and that are held in portfolio for at least three years.

All requirements other than the 43% debt-to-income ratio would have to be met.

The comment period on the CFPB proposal closed at the end of February, and the bureau expects to make a decision this spring.

Next: New mandates

Post a comment to this story

heroes

What's Popular

Popular Stories

Recent Discussion

Great article! Unfortunately, most employees don’t feel valued or appreciated by their supervisors or employers. In fact, research has shown that the predominant reason team members quit their jobs is because they don’t feel valued. This is in spite of the fact that employee recognition programs have proliferated in the workplace – over 90% of all organizations in the U.S. has some form of employee recognition activities in place. But most employee recognition programs are viewed with skepticism and cynicism – because they aren’t viewed as being genuine in their communication of appreciation. Getting the “employee of the month” award, receiving a certificate of recognition, or a “Way to go, team!” email just don’t get the job done. How do you communicate authentic appreciation? We have found people have different ways that they want to be shown appreciation, and if you don’t communicate in the language of appreciation important to them, you essentially “miss the mark”. Additionally, employees need to receive recognition more than once a year at their performance review. Otherwise, they view the praise as “going through the motions”. A third component of authentic appreciation is that the communication has to be about them personally – not the department, not their group, but something they did. Finally, they have to believe that you mean what you say. How you treat them has to match the words you use. If you are not sure how your team members want to be shown appreciation, the Motivating By Appreciation Inventory (www.appreciationatwork.com/assess) will identify the language of appreciation and specific actions preferred by each employee. You then can create a group profile for your team, so everyone knows how to encourage one another. Remember, employees want to know that they are valued for what they contribute to the success of the organization. And communicating authentic appreciation in the ways they desire it can make the difference between keeping your quality team members or having a negative work environment that everyone wants to leave. Paul White, Ph.D., is the co-author of The 5 Languages of Appreciation in the Workplace with Dr. Gary Chapman.

Your Say: Who should be Credit Union Magazine's 2014 CU Hero of the Year?

View Results Poll Archive