Jan. 15, 2013 – Whether or not a credit union would qualify for the “small institution” exemption from the CFPB’s final mortgage rule on ability to repay would, under a current proposal, depend on institution asset size, the number of loans originated and whether those loans are held in portfolio.
Last week, the CFPB issued a final rule that generally requires mortgage lenders to consider, at a minimum, eight factors in determining whether a mortgage is within the applicant’s ability to repay. One of these requires that the borrower have a debt-to-income ratio no higher than 43 percent to be issued a qualified mortgage.
In proposed revisions to that final rule, the CFPB says it would exempt from the QM debt-to-income ratio loans issued by lenders that:
- had less than $2 billion assets at the end of the previous calendar year; and that,
- with their affiliates, originated 500 or fewer first-lien covered transactions in the same period.
Other ability-to-repay measures would apply. That means the loan, to be considered a QM, could not have:
- negative-amortization, interest-only or balloon-payment features;
- a term longer than 30 years; or
- points and fees greater than 3 percent of the total loan amount (differs under the final rule for certain smaller loans).
Generally, such loans, if they are held in portfolio, would be deemed to fit the qualified mortgage standard of the final rule. There are two caveats: The lender must consider and verify the consumer’s income and assets; and base underwriting on a monthly payment calculated using the maximum interest rate that may apply during the first five years of the loan and that is fully amortizing.
There are a number of other exemptions contemplated in the proposal. NAFCU is preparing a Regulatory Alert seeking members’ input.