In January, the Consumer Financial Protection Bureau (“CFPB”) bombarded financial institutions with final rules enacting portions of the Dodd-Frank Act, including updated versions of Regulation X and Regulation Z. Last week, the CFPB issued lengthy amendments to the updated Regulation Z that will require financial institutions to revamp efforts to implement regulatory changes associated with the January final rule. Now, financial institutions need to distill and layer into their policies/procedures various amendments.
The CFPB’s announcement highlights the amendment’s creation of specific exemptions and modifications for small creditors, community development lenders, and housing stabilization programs. Within the pages of the lengthy amendment, the CFPB addresses these areas and more. The amendment alters the calculation of loan origination compensation and carves out certain exceptions to the Dodd-Frank requirement contained in the final rule. Under the revised rule, compensation paid by a lender/mortgage broker to a loan originator employee does not count toward the points and fees threshold for qualified mortgages and high-cost loans. Importantly, the amendment does not change the final rule’s application to compensation paid by creditors to mortgage brokers.
Additionally, the amendments clarify exemptions for nonprofit lenders. These exemptions apply to designated categories of community development lenders and to nonprofits that make no more than 200 loans per year and lend only to low- and moderate-income consumers. Additionally, “mortgage loans made by or through a housing finance agency or through certain homeownership stabilization and foreclosure prevention programs are exempted from the Ability-to-Repay rules.”
Finally, for community banks and credit unions, the amendment makes several adjustments to the Ability-to-Repay rule in order to facilitate lending by small creditors, including those that have less than $2 billion in assets and each year make 500 or fewer first-lien mortgages. Qualified mortgage status can be conferred on certain loans these creditors hold in their own portfolios even if the consumers’ backend debt-to-income ratio exceeds 43 percent. Also, the amendments provide a transition period where certain balloon loans will have qualified mortgage status, and provide the ability to charge a higher annual percentage rate for certain first-lien qualified mortgages.
Contact Spilman’s team of regulatory counsel to discuss the Regulation Z amendments that impact your financial institution.