CFPB Opens Proposed Mortgage Rule Changes for Public Comment

The Consumer Financial Protection Bureau (CFPB) has issued another set of proposed clarifications and revisions to the mortgage rules it released in January. The Bureau said it hoped the changes would resolve questions that have arisen during the initial implementation of the rules and "help the rules deliver their intended value for consumers."

The changes involve three sets of rules;

• The Ability-to-Repay rule which sets out requirements for lenders to make a reasonable, good-faith determination that prospective borrowers can repay the loans for which they are applying;

• Mortgage servicing rules which establish protections for homeowners facing foreclosure;

• Loan originator compensation rules that prohibit some of the activities that encouraged originators to steer borrowers toward risky or high-priced loans.

CFPB is inviting public comment on the following proposed changes until July 22.

The CFPB servicing rules mandate a five-day deadline to acknowledge receipt of a loss mitigation application and note whether or not that application is complete. The proposal clarifies that servicers are required to seek the additional information from the borrower if they cannot complete the assessment without it and requires that servicers ensure that borrowers do not lose certain protections under the rule until the borrower has had a reasonable time to remedy the application's deficiencies.

Another proposed change would make it easier for servicers to offer short-term forbearance plans for delinquent borrowers who need only temporary relief. This would avoid the need for a full loss-mitigation evaluation process.

Some Ability-to-Repay prohibitions contain exceptions for small creditors that operate primarily in "rural" or "underserved" areas. CFPB previously announced it would reexamine the definitions of those two terms over the next two years but is now proposing to clarify how creditors might proceed while that reexamination is underway. The Bureau proposes to extend an exemption to a ban on high-cost mortgages with balloon payments and would revise an exemption from a requirement to maintain escrows on certain higher priced mortgages to small creditors that do not operate primarily in rural or underserved areas as long as the loans meet certain restrictions and criteria. .The proposal would extend availability to small creditors that qualified as such in any of the previous three calendar years.

A number of questions have arisen about the Dodd-Frank Act prohibition of creditors financing of credit insurance premiums. The proposal would clarify what constitutes financing of credit insurance premiums by a creditor - particularly as the rule applies to "level" or "levelized" premiums, where the monthly premium is the same each month rather than decreasing along with the loan balance. It would also provide guidance on when credit insurance premiums are considered to be calculated and paid on a monthly basis for purposes of an exclusion from the statutory prohibition.

Under the CFPB's new rules, persons classified as loan originators are required to meet qualification requirements, and are subject to certain restrictions on compensation practices. Today's proposal would clarify the circumstances under which a loan originator's or creditor's administrative staff acts as loan originators.

For retailers of manufactured homes and their employees, the proposal would clarify what compensation must be counted toward certain thresholds for points and fees under the ability-to-repay and high-cost mortgage rules.

CFPB is also seeking comment on whether the effective date of portions of the loan originator rule and the ban on financing of credit insurance should be changed slightly from their current effective dates of January 14, 2010.

"When we published our mortgage rules, we pledged to be attentive to issues that arose through the implementation process," said CFPB Director Richard Cordray. "Today's proposal revises and clarifies certain aspects of our rules to ease implementation and to pave the way for more effective consumer protections in the marketplace."

The Bureau recently published a new Regulatory Implementation web page, which consolidates all of the new 2013 mortgage rules and related implementation materials, and can be found here: http://www.consumerfinance.gov/regulatory-implementation