CFPB tweaks rules to offer more mortgage credit

The Consumer Financial Protection Bureau (CFPB) announced plans Wednesday to change the agency’s stringent new mortgage standards to allow borrowers more access to credit.

A pair of tweaks to a slate of regulations enacted in January is designed to ensure nonprofits can continue offering mortgages to underserved populations and allows lenders greater leeway in meeting the government’s new definition of a “qualified mortgage.”

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The three-year-old CFPB developed the regulations in response to the national mortgage crisis of the late 2000s. They are meant to tamp down on risky and predatory lending practices that ushered in the foreclosure crisis and ensure that borrowers have the wherewithal to repay their loans.

“Today’s proposal would maintain those strong protections, while making minor changes to ensure consumers have access to credit,” CFPB Director Richard Cordray said. “This includes helping nonprofits that provide working families with important pathways to affordable homeownership.”

Lenders that service 5,000 or fewer mortgage loans and meet other requirements are exempt from major portions of the CFPB rules. The proposed changes unveiled Wednesday include a provision exempting additional nonprofits that service loans from other associated nonprofit lenders.

Specifically, the agency is proposing an alternative definition of a small servicer that would apply to nonprofits so they can stand exempt from components of the regulations.

In issuing the rules, the consumer agency created guidelines for qualified mortgages, including criteria aimed at preventing bad lending practices. Banks that adhere to the criteria would enjoy “safe harbor” protection from lawsuits.

The qualified mortgages restrict certain points and fees tacked onto loans, generally prohibiting them from exceeding 3 percent of the loan principal.

The proposed changes center on cases when a lender believes it has offered a qualified mortgage but afterwards discovers that it has exceeded the 3 percent cap. Under those circumstances, the loan would still be considered a qualified mortgage if the excess is refunded to the borrower within 120 days after the loan is made under the new proposal.

The National Association of Federal Credit Unions offered tempered praise for the draft rule changes, but suggested more must be done to make sure the trade groups members can stay in the mortgage market.

“We appreciate the CFPB’s review of mortgage rules in order to afford credit unions some regulatory relief while allowing them to continue to offer mortgages to their members,” said Michael Coleman, NAFCU’s director of regulatory affairs. “However, more work needs to be done regarding the rules’ treatment of points and fees and other areas of the mortgage rules.”

The CFPB is opening a 30-day public comment period to solicit feedback about the proposal before final regulations are issued.