On January 10, 2013, the CFPB announced the issuance of 3 final rules. We all knew it was coming, so buckle your seat belts!
This rule is effective June 1, 2013. Lenders are currently only required to establish an escrow account on Higher-Priced Mortgage Loans (HPML) for a minimum period of 1 year. This final rule will increase that timeframe to 5 years.
This rule is effective January 10, 2014. The purpose of this rule is to protect consumers from risky lending practices and requiring lenders to ensure borrowers have the ability to repay their mortgage. This will impose additional documentation and verification requirements regarding a borrower’s financial position (employment, income, assets, debts, etc.) as well as prohibit lenders from making “no-doc”, “low-doc” or “interest only” loans. Lenders will also be required to base their ability to repay determination on the life of the loan and not just a teaser (introductory) rate period.
If lenders issue “Qualified Mortgages” they will be in compliance with the Ability to Repay requirements. A Qualified Mortgage must meet certain requirements to limit or prohibit risky loan features. This may include limiting upfront points and fees, avoiding “toxic” loan features (negative amortization, terms greater than 30 years, etc.) and capping how much of a borrowers income can go toward debt.
- High-Cost Mortgage and Homeownership Counseling Amendments to the Truth in Lending Act (Regulation Z) and Homeownership Counseling Amendments to the Real Estate Settlement Procedures Act
This rule is effective January 10, 2014. This final rule will ban potentially risky loan features (balloon payments, prepayment penalties, etc.) for certain loan types. The CFPB’s rule bans fees for modifying loans, caps late fees at four percent of the payment that is past due, generally prohibits closing costs from being rolled into the loan amount, and restricts the charging of fees when consumers ask for a payoff statement (a document that tells borrowers how much they need to pay off the loan). The rule also prohibits certain bad practices, such as encouraging a consumer to default on an existing loan to be refinanced by a high-cost mortgage.
Borrower’s will be required to complete homeownership counseling before taking out a high-cost mortgage and lenders will be required to provide a list of counseling organizations shortly after application.
Rest assured we are already dissecting these final rules and will cover them in-depth in upcoming newsletter articles.