CFPB: Ability-To-Repay Rule Issued Today
by Amy Kleinschmit, Director of Compliance
Today the Consumer Financial Protection Bureau will be issuing its Ability-to-Repay Rule. Under this new rule, all new mortgages must comply with basic requirements that protect consumers from taking on loans they don’t have the financial means to pay back. Some of these features include financial information must be supplied and verified; a borrower has to have sufficient assets or income to pay back the loan; and teaser rates can no longer mask the true cost of a mortgage. Also included in this final rule is the much anticipated definition of what a “qualified mortgage” is. These rules will take effect on January 10, 2014.
It is also expected that a proposed rule will be issued today aimed at ensuring that small lenders, such as credit unions, will be able to continue to serve their members’ needs. In his prepared remarks for today’s Ability-to-Repay Rule Field Hearing, Director of the Consumer Financial Protection Bureau Richard Cordray explained, “While working on the Ability-to-Repay rule, we came to another important recognition. Many have said, including myself, that community banks and credit unions did not cause the financial crisis. Their traditional model of relationship lending has been beneficial for many people in rural areas and small towns across this country, including the small town in Ohio where I was born and raised. They find ways to make loans that respond to personal situations and cannot be captured by any generic metrics. They depend on keeping a good reputation in the community, and they often hold those loans in their own portfolio. Accordingly, they have strong incentives to pay close attention to the borrower’s ability to repay.”
He continues “So today we will also be proposing a further adjustment to the Ability-to-Repay rule to create a special category of Qualified Mortgage loans made by smaller lenders such as community banks and credit unions. This proposal also contains measures to ensure that nonprofit groups and state housing agencies that lend to low- and moderate-income families can continue to play a vital role in the housing market. These groups offer a valuable range of financing and support, from down-payment assistance to first-time homebuyer programs to construction programs that build up communities one beam at a time. We look forward to considering your feedback, which has been so helpful to us in resolving the many difficult challenges posed by the Ability-to-Repay rule.” January 10, 2013, Prepared Remarks of Richard Cordray, Director of the Consumer Financial Protection Bureau, Ability-to-Repay Rule Field Hearing, Baltimore, Maryland
To read Director Cordray’s speech in its entirety, click here.
For the CFPB’s press release announcing this new rule, click here
We will be providing additional details of these new requirements and the proposal in very near future. In the meantime, should you have any questions or concerns on this or any other compliance topic, please do not hesitate to contact Amy Kleinschmit at email@example.com or 701.214.9721.