CFPB Amends Ability-to-Repay

Rule goes into effect Jan. 10, 2014.

July 1, 2013

The amended ability-to-repay (ATR) rule goes into effect on Jan. 10, 2014.

In May, the Consumer Financial Protection Bureau (CFPB) issued amendments to the rule creating specific exemptions and modifications for small creditors, community development lenders, and housing stabilization programs.

Under the ATR rule, finalized in January 2013, most new mortgages must comply with basic requirements that protect consumers from taking on loans they don’t have the financial means to repay. Lenders are presumed to have complied with the ATR rule if they issue “qualified mortgages” (QMs). The recent amendments to the rule:

Exempt certain nonprofit and community-based lenders that obtain affordable housing for low- and moderate-income consumers. Among other conditions, the exemptions generally apply to designated categories of community development lenders and to nonprofits that make no more than 200 loans per year and lend only to low- and moderate-income consumers.

Facilitate lending by certain small creditors, including credit unions with assets under $2 billion and each year make 500 or fewer first-lien mortgages, as defined in the rule. The rule generally extends QM status to certain loans these creditors hold in their portfolios even if the consumers’ debt-to-income ratio exceeds 43%. It provides a two-year transition period in which small lenders can make balloon loans under certain conditions and meet the QM definition. And it allows small creditors to charge a higher annual percentage rate for certain first-lien QMs while maintaining a safe harbor for the ATR requirements.

Provide certain exceptions to the requirement that loan originator compensation be included in the total permissible points and fees for both QMs and high-cost loans.