Consumer watchdog releases final amendment on ability-to-pay rule

"Nevertheless, more work needs to be done to ensure that consumers nationwide continue to have access to the mortgage market so our housing and financial systems can continue their recovery.” 

Community banks and credit unions were pressing the agency to take into account their responsible lending practices combined with their lack of involvement in the financial crisis nearly five years ago when making the changes. 

“NAFCU appreciates the CFPB making these revisions, and we will see if they go far enough to ease the requirements so that credit unions will feel confident in continuing to offer qualified mortgages to their members," said Fred Becker, president and CEO of the National Association of Federal Credit Unions (NAFCU). 

"Credit unions have been and continue to be readily recognized as responsible, prudent lenders.They know their members and their circumstances well and work with them to provide the right mortgage for their needs and should be allowed to continue to do so," he said.

“We will continue to review these revisions and continue to push for additional changes, especially in regards to debt-to-income ratio and points and fees.”

The amendments, which apply to the final rule announced in January, provide community banks and credit unions with less stringent requirements under the QM rule and readjusts how loan origination compensation is calculated. 

The rules, required by the Dodd-Frank financial law and goes into effect next year, force banks to verify borrowers’ finances and prohibit so-called no-doc loans and others with risky features that harmed consumers in the recent mortgage crisis. 

"Today’s amendments embody our efforts to make reasonable changes to the rule in order to foster access to responsible credit for consumers," said CFPB Director Richard Cordray in a statement. 

As part of those changes announced Wednesday, the rule will extend QM status to certain loans that creditors hold in portfolio, even if the consumer’s debt-to-income ratio exceeds 43 percent. 

The initial rule said required that the monthly payments of potential borrowers could not total more than 43 percent of their income on any loan to qualify. 

Credit unions have argued that even though they are conservative in their lending practices, some loans they make may fall outside the requirements and without the QM label would be difficult to sell on the secondary market. 

The amendments also allow small creditors to charge a higher annual percentage rate — 3.5 percent over the average prime — for certain first-lien loans while maintaining a safe harbor for the repay requirements.

The changes provide for a two-year transition period for small lenders to continue making balloon loans while the bureau studies whether the definition of rural or underserved needs to be changed.

“ABA is disappointed, however, that recommended changes to limitations on balloon mortgage loans were not adopted, other than to permit balloon mortgages to be made by small lenders under certain conditions during a two-year transition period.

The ICBA has said that the agency's definitions include only a small amount of the population and should be expanded. 

The adjustments generally applies to smaller lenders that have less than $2 billion in assets and make 500 or fewer first-lien mortgages a year.

In a recent survey, the ICBA found that 75 percent of its membership said they offer balloon loans and that they make up between 45 and 50 percent of their portfolios. 

Lastly, the agency decided that loan originator compensation will not be included in the 3 percent cap on points and fees. 

The American Bankers Association (ABA) expressed support for the change to exclude the compensation.

In addition, the amendments exempt certain nonprofit and community-based lenders that work to help low- and moderate-income consumers obtain affordable housing. 

Similarly, mortgage loans made by or through a housing finance agency or through certain homeownership stabilization and foreclosure prevention programs are exempted from the rule.

Still, the ABA remains concerns that the mortgage rules will restrict lending. 

“The likely response is that many lenders will seek protection in ever more conservative underwriting standards, jeopardizing the housing recovery. Congress and the agency should address this problem by shifting most of the effective dates to January 2015," said Robert Davis, executive vice president, mortgage markets, financial management and public policy at the ABA. 

This posted was updated at 4:30 p.m.