The Consumer Financial Protection Bureau (CFPB) issued an interpretive rule in July to clarify the application of Regulation Z’s Ability-to-Repay (ATR) rule to certain situations involving successors-in-interest.
The agency clarified that when a borrower dies, the name of the borrower’s heir generally may be added to the mortgage without triggering the agency’s ATR rule.
“This clarification will help surviving family members who acquire title to a property to take over their loved one’s mortgage, and to be considered for a loan workout, if necessary, to keep their home,” the CFPB says .
The interpretive rule explains that, because an heir has already acquired the title to the home, adding the heir as a borrower on the mortgage doesn’t trigger the ATR requirements.
The rule doesn’t require the creditor to determine the heir’s ability to repay the mortgage before formally recognizing the heir as the borrower.
As the named borrower, the heir may more easily obtain account information, pay off the loan, or seek a loan modification.
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 also maintains a regulatory implementation website, consolidating all of the 2013 mortgage rules and related implementation materials.