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CFPB Approves Regulation Z Mortgage Amendments

Mon, Nov 3, 2014

Washington, District Of Columbia

The CFPB adopted additional changes to Regulation Z, Truth-in-Lending, further tweaking the agency’s mortgage rules. The amendments include the following:


  • Defining nonprofit small servicers: Certain small servicers are exempt from some of the Bureau’s new mortgage servicing rules, so long as they—together with their affiliates—service 5,000 or fewer mortgage loans and meet other requirements. However, the Bureau learned that some nonprofit organizations might service loans, for a fee, from other associated nonprofit lenders. Because of their unique structure, these organizations may not be able to consolidate their servicing activities and still meet the current requirements for the small servicer exemption. The changes provide an alternative definition of a small servicer applicable to certain 501(c)(3) nonprofit organizations so that they can consolidate their servicing activities while maintaining their exemption from some of the servicing rules.


  •  Nonprofit Ability-to-Repay exemption amendment: Certain 501(c)(3) nonprofit organizations that lend to low- and moderate-income consumers were already exempt from the Ability-to- Repay rule if the organization makes no more than 200 mortgages a year, among other limitations. The final rule includes an amendment to this provision so that certain nonprofit groups, such as Habitat for Humanity, can continue to extend certain interest free, forgivable loans, also known as “soft seconds,” without regard to the 200-mortgage loan limit.


  • Refunding excess points and fees: Under the Ability-to-Repay rule, certain loans called Qualified Mortgages are subject to certain requirements that protect consumers. The points and fees charged to a consumer on a Qualified Mortgage generally cannot exceed 3 percent of the loan principal at the time the loan is made. Under the final rule, if a lender discovers after the loan has closed that it has exceeded the 3 percent cap, there are limited circumstances where lenders can pay a refund of the excess amount with interest to the consumer, to have the loan still meet the legal requirements of a Qualified Mortgage. The refund must occur within 210 days after the loan is made. The creditor must also maintain and follow policies and procedures for reviewing points and fees and providing refunds to consumers. The provision also allows secondary market participants to provide these refunds. The change is designed to encourage lenders to provide access to credit to consumers seeking loans that are at or near the points and fees limit. This provision will expire on January 10, 2021. The provisions regarding nonprofit organizations were approved largely as proposed but the final provision on refunding points and fees contains a number of modifications from the proposal issued in April. The modifications include requiring that interest on the overage amount to be paid to consumers getting these refunds, a longer overall refund period (the proposal allowed 120 days for the refund to be paid), and certain limitations on circumstances under which this refund option is available.


CUNA had urged the Bureau to expand the small creditor definition under the agency’s Ability-to-Repay rule to allow more first lien closed-end loans to be made than the current 500 small-creditor threshold allowed under the rule. The Bureau did not make any changes to this provision in the final rule, but indicated that the agency may address this and other matters in a future rulemaking. We will continue to advocate for improvements in this area. Click here for the final rule.