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  • Special Alert: CFPB Proposes Amendments To Mortgage Rules

    Lending

    On April 30, the Consumer Financial Protection Bureau (CFPB or Bureau) proposed targeted amendments to the Dodd-Frank Act mortgage rules that took effect in January 2014. Comments are due 30 days after publication of the proposal in the Federal Register.

    Ability-to-Repay/Qualified Mortgage

    • Points and fees cure. The CFPB proposed a post-consummation cure mechanism for loans that are originated with the good faith expectation of qualified mortgage (QM) status but exceed the points and fees limit for QMs. Specifically, the Bureau’s proposal would allow the loan to retain QM status if the excess points and fees are refunded to the borrower within 120 days after consummation by the creditor or assignee.

      In proposing this amendment, the Bureau acknowledged that “[t]he calculation of points and fees is complex and can involve the exercise of judgment that may lead to inadvertent errors.” The Bureau further acknowledged that “some creditors may not originate, and some secondary market participants may not purchase, mortgage loans that are near the [QM] limits on points and fees because of concern that the limits may be inadvertently exceeded at the time of consummation.” As a result, creditors seeking to originate QMs may establish buffers to avoid exceeding the points and fees limit and “refuse to extend mortgage credit to consumers whose loans would exceed the buffer threshold, either due to the creditors’ concerns about the potential liability attending loans originated under the general ability-to-repay standard or the risk of repurchase demands from the secondary market if the qualified mortgage points and fees limit is later found to have been exceeded.” The Bureau expressed concern that such buffers would negatively affect the cost and availability of credit.

    • Debt-to-income cure. The Bureau did not propose a cure for loans that inadvertently exceed the 43% debt-to-income ratio (DTI) requirement for QMs made under Appendix Q. The Bureau did, however, request comment on the question, noting concerns that creditors may establish DTI buffers that would affect access to credit. For a DTI cure provision to be considered, the Bureau stated that “creditors would need to maintain and follow policies and procedures of post-consummation review of loans to restructure them and refund amounts as necessary to bring the debt-to-income ratio within the 43-percent limit.” However, the Bureau expressed skepticism that creditors could realistically meet such a requirement.

      The Bureau stated that it would also consider allowing creditors or assignees to correct DTI overages that result solely from errors in documentation of debt or income. However, the Bureau expressed concern that such a process might lead to post-consummation underwriting and requested comment on “whether or how a debt-to-income cure or correction provision might be exploited by unscrupulous creditors to undermine consumer protections and undercut incentives for strict compliance efforts by creditors or assignees.”

    • Non-profit small creditor exemption. The CFPB proposed to amend the exemption for non-profit lenders that make 200 or fewer dwelling-secured loans in a year to exclude from that limit certain interest-free, contingent subordinate liens commonly offered by affordable homeownership programs.
    • Other small creditor exemptions. The Bureau requested feedback and data from smaller creditors regarding the 500 loan limit on first lien mortgages for “small creditor” status, the implementation of the Dodd-Frank Act mortgage rules by small creditors, and how small creditors’ origination activities have changed in light of the new rules.

    Mortgage Servicing

    • Non-profit small servicer exemption. The CFPB proposed to provide an alternative definition of “small servicer,” that would apply to certain non-profit entities that service for a fee loans on behalf of other non-profit chapters of the same organization that do not fall within the Bank Holding Company Act definition of “affiliate.” Adoption of the proposal would exempt these entities would be exempt from the Regulation Z periodic statement requirements as well as certain provisions in Regulation X regarding force-placed insurance, servicing policies and procedures, and loss mitigation.

    Additional Amendments

    The CFPB also stated that it expects to issue additional proposals to address other topics relating to the Dodd-Frank Act mortgage rules, including the definition of “rural and underserved” for purposes of certain mortgage provisions affecting small creditors.

     

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    Questions regarding the matters discussed in the Alert may be directed to any of our lawyers listed below, or to any other BuckleySandler attorney with whom you have consulted in the past.

     

    CFPB Mortgage Origination Mortgage Servicing Qualified Mortgage Ability To Repay Loss Mitigation

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  • Idaho Bill Regulates Payday Loan Terms

    Consumer Finance

    On March 26, Idaho enacted SB 1314, which, among other things, prohibits payday lenders from making a loan that exceeds 25% of the borrower’s gross monthly income at the time the loan is made. The bill provides a safe harbor for lenders if the borrower presents evidence of gross monthly income or represents in writing that the payday loan does not exceed 25% of the borrower's gross monthly income. The bill also requires lenders to, upon request, allow borrowers to enter into extended repayment plans. Lenders cannot charge any additional fees related to such plans, but lenders are not required to enter into an extended plan with a borrower more than one time in any 12-month period. Finally, the bill requires specific written disclosures and prohibits payday lenders from presenting a borrower’s check to a depository institution more than two times. The changes take effect July 1, 2014.

    Payday Lending Ability To Repay

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  • New Mexico Supreme Court Analyzes State's Foreclosure Standing Requirements, Ability To Repay Standard

    Lending

    On February 13, the New Mexico Supreme Court held that a borrower’s ability to repay a home mortgage loan is one of the “borrower’s circumstances” that lenders and courts must consider in determining compliance with the New Mexico Home Loan Protection Act (HLPA). Bank of New York v. Romero, No. 33,224, 2014 WL 576151 (N.M. S. Ct. February 13, 2014). In this case, after two borrowers became delinquent on a cash-out refinance mortgage loan, a bank initiated a foreclosure action in state court. The trial court and appellate court rejected the borrowers’ arguments that the bank failed to establish that it was the holder of the note and that the loan violated the “anti-flipping provision” of the HLPA, which prohibits creditors from knowingly and intentionally making a refinance loan when the new loan does not have reasonable, tangible net benefit to the borrower considering all of the circumstances—i.e. “flipping” a home loan. The Supreme Court reviewed the state’s stringent standing requirements and held that possession of the note alone is insufficient to establish standing and that the bank failed to provide other evidence sufficient to demonstrate transfer of the note. Although its decision on standing mooted the issue of the alleged HLPA violation, the court decided to address the issue given some party may eventually establish standing to foreclose. The court, in what might be considered dicta, stated that although the “anti-flipping provision” of the HLPA did not specifically include ability to repay as a factor to be considered in assessing the “borrower’s circumstances,” it could find “no conceivable reason why the Legislature in 2003 would consciously exclude consideration of a borrower’s ability to repay the loan as a factor of the borrower’s circumstances.” As such, the court stated that the HLPA’s “reasonable, tangible net benefit” requirement must include as a factor “the ability of a homeowner to have a reasonable chance of repaying a mortgage loan,” and that here the lender failed to do so when it claimed to rely solely on the borrowers’ assertions about their income and failed to review tax returns or other documents to confirm those assertions. Finally, the court also stated that (i) the National Bank Act does not expressly preempt the HLPA; (ii) the bank failed to prove that conforming to the dictates of the HLPA prevents or significantly interferes with its operations; and (iii) the HLPA does not create a discriminatory effect. The Supreme Court reversed the lower courts’ decisions and remanded to the district court with instructions to vacate its foreclosure judgment and to dismiss the bank’s foreclosure action for lack of standing.

    Foreclosure Mortgage Origination Mortgage Servicing Refinance Ability To Repay

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