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Proposed clarifications of the Ability to Repay/QM and Mortgage Servicing Rules

The CFPB is carrying out a regulatory implementation initiative for our new mortgage rules to ensure that they are implemented accurately and effectively. Last week we issued proposed clarifications to the 2013 Escrows Final Rule. Today we are issuing another proposal to address questions regarding qualified mortgages and servicing that have come up since we first issued those rules 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. This proposal will be published in the Federal Register soon. It will be open for comment for 30 days from the day of publication.

Today’s proposal addresses five topics:

Debt-to-income ratio

Under the Ability to Repay rule, a lender may make a qualified mortgage (QM), a loan for which certain features are prohibited and fees that can be charged are limited. The rule provides for different types of QMs, the main type requiring that a consumer’s debt-to-income ratio (DTI) show that the consumer’s monthly debt payments, including the mortgage, will not be more than 43% of the consumer’s monthly income. Today’s proposal would provide clearer rules for determining DTI. It would amend language pertaining to a consumer’s employment record and income, obtaining business credit reports and other issues relating to self-employed consumers, and the treatment of Social Security and rental income.

Contract variances and the temporary QM provision

A second type of QM that a lender can make under the ability-to-repay rule requires the loan to be eligible either for purchase or guarantee by the government-sponsored enterprises Fannie Mae or Freddie Mac (the GSEs), or for guarantee or insurance by a federal agency such as the Federal Housing Administration or the Veterans Administration. The provision that allows this type of QM is temporary and will expire after seven years or earlier. Today’s proposal would confirm that loans meeting eligibility requirements provided in a separate agreement between a creditor and a GSE or federal agency can be qualified mortgages, not just those that follow the general GSE or agency guidelines.

Purchase, guarantee or insurability status and the temporary QM

Some GSE or agency requirements, such as loan delivery requirements, are not relevant to QM status. The proposal would clarify that the temporary QM provision’s requirement that mortgages be “eligible” for purchase, insurance, or guarantee does not exclude loans that do not satisfy those procedural and technical requirements. In addition, the fact that a GSE or agency demands repurchase or indemnification of a loan would not determine whether or not the loan is a QM. The specific facts and circumstances of each loan would determine that.

No field preemption under Regulation X

Regulation X implements the Real Estate Settlement Procedures Act (RESPA). The preamble to the 2013 Mortgage Servicing Final Rules issued in January made clear that Regulation X does not preempt the field of possible mortgage servicing regulation by states, and the Bureau is proposing the addition of a comment to Regulation X to emphasize this.

Small servicer exemption

The servicing rules for RESPA and the Truth in Lending Act (TILA) that we issued in January included an exemption for institutions with small servicing operations from some requirements. The proposed changes would clarify which mortgage loans to consider in determining whether a servicer qualifies as small. Loans serviced on a charitable basis will not be included. The changes would also provide several additional examples to illustrate application of the exemption to relationships between servicer and affiliate and between master servicer and subservicer, among others.

After considering the comments we receive, we plan to issue final versions of last week’s Escrows proposal and today’s proposal. In June, we plan to issue additional proposed clarifications about the new mortgage rules, including the servicing rules touched on here and the 2013 Loan Originator Final Rule.

We issue these updates to provide further clarity and assistance on complying with the rules we issued in January. We continue to prioritize updates that affect a large number of providers or consumers and that critically affect mortgage originators’ and servicers’ implementation decisions.

To get more details about these changes, please see the proposed rule .

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