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CFPB Proposes Amendments to Clarify Mortgage Guidelines

As part of its ongoing efforts to assist the industry in the implementation of new mortgage guidelines, the ""Consumer Financial Protection Bureau"":http://www.consumerfinance.gov/ (CFPB) issued proposed amendments to address questions and clarify the qualified mortgage (QM) and servicing rules first laid out in January.


""These proposals are part of our commitment to facilitate implementation of the rules issued in January under the Dodd-Frank Act. We at the Bureau believe that we have a responsibility not just to write a rule, but to see that it is implemented effectively,"" CFPB said in a release.

The proposal addresses five topics: the debt-to-income (DTI) ratio under the Ability to Repay rule; contract variances related to purchase or guarantee agreements with government entities; purchase, guarantee, or insurability status under the temporary QM provision; the possible preemption of mortgage servicing regulation by states; and the small servicer exemption.

On the Ability to Repay front, CFPB amended the language surrounding the requirement that a consumer must have ""stable income"" and solid ""probability of future employment"" following stakeholder complaints that it is too difficult to forecast a borrowers' career track. There was also the issue that creditors may not be suited to evaluate a potential borrowers' education, training, and job qualifications.

For those reasons, the bureau proposes to remove those particular requirements and to instead require only that creditors examine a confirmation of current, ongoing employment.

Turning to the temporary QM provision--which will qualify loans based on eligibility for purchase or guarantee by the GSEs or for guarantee or insurance by a federal agency--CFPB changed some language to acknowledge the fact that each organization imposes a variety of requirements governing the underwriting, sale, guarantee, or insurance of loans.

Specifically, the bureau clarified that because existing guidelines require assessment of a borrower's ability to repay at the time of consummation, GSE or agency requirements related to post-consummation activities should not be relevant to QM status. Also added was an amendment to confirm that loans meeting eligibility requirements provided in a separate agreement between a creditor and a GSE/federal agency can fall under the QM protections, not just those that follow general GSE or agency guidelines.

Furthermore, CFPB proposed changes to make clear which mortgage loans to consider in determining whether a servicer qualifies as ""small"" (and thus whether or not it is exempt from certain requirements). According to the bureau, the proposed text ""clarifies that, in general, a servicer determines whether it is a small servicer by considering the closed-end consumer credit transactions secured by a dwelling that it services.""

However, reverse mortgages, transactions secured by consumers' interests in timeshares, and loans serviced on a charitable basis will not be included.

Finally, based on continued questions posed to the agency, CFPB proposed commentary to ""state further that nothing in RESPA [the Real Estate Settlement Procedures Act] or Regulation X ... should be construed to preempt the entire field of regulation of the covered practices"" regarding mortgage servicers. While the preamble to January's servicing rules addressed that concern, CFPB included additional language to emphasize that.

According to the bureau, the proposal will be published in the Federal Register shortly and will be open for comment for 30 days from the day of publication. CFPB plans to issue additional proposed clarifications about the new mortgage rules--including servicing rules and the 2013 Loan Originator Final Rule--in June.

The document detailing each proposed amendment can be found at CFPB's ""website"":http://files.consumerfinance.gov/f/201304_cfpb_proposed-rule_amending-atr-qm-and-servicing-mortgage-rules.pdf.


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