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CFPB Issues Proposed Modifications to Mortgage Rules

Proposal Would Resolve Implementation Issues and Clear Way for Better Consumer Protections

WASHINGTON, D.C. —Today the Consumer Financial Protection Bureau (CFPB) proposed clarifications and some narrow revisions to its January 2013 mortgage rules. The proposal issued today would resolve questions that have been identified during the implementation process and would help the rules deliver their intended value for consumers.

“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 CFPB finalized several mortgage rules in January 2013 that are addressed by today’s proposal. The Ability-to-Repay rule protects consumers from irresponsible mortgage lending by requiring that lenders make a reasonable, good-faith determination that prospective borrowers have the ability to repay their loans. The mortgage servicing rules established strong protections for homeowners facing foreclosure, and the loan originator compensation rules address certain practices that incentivized steering borrowers into risky and/or high-cost loans. The CFPB also finalized rules that strengthened consumer protections for high-cost mortgages, and instituted a requirement that escrow accounts be established for a minimum of five years for certain higher-priced mortgage loans.

The proposal issued today involves clarifications and some narrow revisions to those mortgage rules. Among other things, today’s proposal would:

  • Outline procedures for obtaining follow-up information on loss-mitigation applications: According to the CFPB’s servicing rule, within five days of receipt of a loss mitigation application, a servicer must acknowledge receipt of the application and inform the borrower whether it deems the application complete or incomplete. If incomplete, the servicer must identify for the borrower what is needed to complete it. The proposal would outline procedures for servicers to follow, if, after conducting an initial review and sending the notice to the borrower, they discover that they do not have the information needed to complete an assessment.
    • The proposal clarifies that servicers are required to seek the additional information from the borrower if they cannot complete the assessment without it.
    • The proposal also requires that servicers ensure that the borrower does not lose certain protections under the rule, such as a foreclosure ban during the first 120 days of delinquency, until the borrower has had a reasonable time to supply the needed documents or information.
  • Facilitate servicers’ offering of short-term forbearance plans: The proposal would make it easier for servicers to offer short-term forbearance plans for delinquent borrowers who need only temporary relief without going through a full loss mitigation evaluation process. For example, under the proposal, a servicer could provide a two-month forbearance to a borrower who is suffering a short-term hardship.
  • Facilitate lending in rural or underserved areas: Some of the Bureau’s mortgage rules contain provisions applicable to certain small creditors that operate predominantly in “rural” or “underserved” areas. The Bureau recently announced that it would reexamine the definitions of rural or underserved over the next two years. Today’s proposal would clarify how existing definitions may apply while that reexamination process is underway for purposes of two exceptions under the existing rules.
    • The proposal would extend an exception to a ban on high-cost mortgages featuring balloon payments – large, lump sum payments usually due at the end of the loan – to small creditors that do not operate predominantly in rural or underserved counties so long as the loans meet certain restrictions.
    • The proposal would revise an exemption from a requirement to maintain escrows on certain higher-priced mortgage loans for small creditors who operate predominantly in rural or underserved areas and that also meet other criteria. To prevent creditors from losing eligibility for the exemption in 2014 due to changes in which counties are defined as rural, the proposal would extend availability to small creditors that qualified in any of the previous three calendar years.
  • Make clarifications about financing of credit insurance premiums:The Dodd-Frank Act prohibition on creditors financing credit insurance premiums in connection with certain mortgage transactions was adopted in the Bureau’s loan originator compensation rule. Questions have arisen during the regulatory implementation process concerning the application of that prohibition. Today’s proposal seeks to answer those questions.
    • 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.
    • The proposal would 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.
  • Clarify the definition of a loan originator: Under the CFPB’s new rules, persons classified as loan originators are required to meet qualification requirements, and are also subject to certain restrictions on compensation practices. Creditors and loan originators have expressed concern that tellers or other administrative staff could be unintentionally classified as loan originators for engaging in routine customer service activities. Today’s proposal would clarify the circumstances under which a loan originator’s or creditor’s administrative staff acts as loan originators.
  • Clarify the points and fees thresholds for manufactured housing employees: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.
  • Revise effective dates of Loan Originator rule and ban on financing of credit insurance: Currently, the 2013 Loan Originator Compensation Final Rule is scheduled to take effect on January 10, 2014.
    • The CFPB is seeking comment on whether to change the effective date to January 1, 2014 for portions of the loan originator rule. The Bureau believes that having the rule take effect at the beginning of a calendar year may help compliance since compensation plans, training, and licensing and registration are often structured on an annual basis.
    • The Bureau is also seeking comment on whether to adjust the effective date for the ban on financing credit insurance. The Bureau had previously delayed that date in order to provide additional guidance on the issues discussed above, and is now seeking comment on whether the rule should take effect on January 10, 2014, or earlier in light of how much time creditors would need to adjust billing practices.

The CFPB is committed to assisting with the mortgage industry’s compliance with the new consumer protections. Throughout 2013, the CFPB has been working for a smooth transition. In addition to clarifying critical questions about the new mortgage rules, the Bureau has also published plain-language guides for each rule and some interim examination procedures. The CFPB also plans to educate the public about their protections under the rules.

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:

Comments on today’s proposal must be received on or before July 22, 2013.

A copy of today’s proposal can be found at:

The Consumer Financial Protection Bureau is a 21st century agency that implements and enforces Federal consumer financial law and ensures that markets for consumer financial products are fair, transparent, and competitive. For more information, visit