CFPB Clarifies Ability-to-Repay and Mortgage Servicing Rules

The final rule covers tools to calculate a consumer’s debt-to-income ratio, among other things.

September 26, 2013

In July, CFPB finalized corrections, clarifications, and amendments to its ability-to-repay (ATR) and mortgage servicing rules proposed in April 2013.

Among other implications, the final CFPB rule:

Clarifies how to determine a consumer’s debt-to-income ratio. Under the ATR rule, a lender might make a qualified mortgage— a loan with certain prohibited features and limited fees.

The main type of qualified mortgage requires that a consumer’s monthly debt payments, including the mortgage, not be more than 43% of the consumer’s monthly income.

The final rule clarifies and amends how you can use several factors to calculate a consumer’s debt-to-income ratio, including a consumer’s employment record and income; business credit reports; and other documents relating to self-employed consumers, Social Security income, and nonemployment-related income—such as from a trust or rental property.

Explains CFPB’s Real Estate Settlement Procedures Act (RESPA) rule does not preempt the field of servicing regulation by states. The agency added a comment to the rule to expressly state this point and explain how RESPA preemption works.

Establishes which mortgage loans to consider in determining small-servicer status. The servicing rules issued in January included an exemption from some requirements for small servicers. For example, loans serviced on a charitable basis will not be considered in making that determination.

Clarifies the eligibility standard of the temporary qualified mortgage provision. Under the ATR rule, a loan can be a qualified mortgage if it’s eligible for purchase, guarantee, or insurance by government sponsored enterprises (GSEs) or by certain federal agencies, provided the loan doesn’t contain certain risky loan features and meets certain limitations on points and fees.

The final rule clarified the standards that a loan must meet if the creditor is underwriting it based on GSE or agency guidelines. For example, where a loan is eligible for GSE or agency purchase, guarantee, or insurance, creditors don’t need to satisfy the types of procedural and technical requirements that are completely unrelated to the consumer’s ability to repay.

These changes become effective Jan. 10, 2014, along with the rest of ATR and mortgage servicing rules.

More information about the finalized clarifications is available on the agency’s website.