Depending on what study you read, at least 10% and as many as 46% of borrowers are being left out in the cold because of the increasingly tough credit standards. Now, The Consumer Financial Protection Bureau is attempting to make it a little easier for borrowers to gain access to credit.
The CFPB has released a new proposal that would “help certain nonprofit organizations continue to provide mortgage credit and servicing to underserved populations.”
The CFPB’s proposal also establishes limited circumstances where lenders that exceed the points and fees cap can refund the excess amount to consumers and still have the loan be considered a qualified mortgage.
“Our mortgage rules are now helping to protect consumers all across the country from debt traps, runarounds, and surprises,” said CFPB Director Richard Cordray. “Today’s proposal would maintain those strong protections, while making minor changes to ensure consumers have access to credit. This includes helping nonprofits that provide working families with important pathways to affordable homeownership.”
The CFPB’s proposal:
1. Adjusts the definition of nonprofit small servicers
Certain small servicers are exempt from some of the CFPB’s new mortgage servicing rules, as long as they service 5,000 or fewer mortgage loans and meet other requirements. But the CFPB has learned that some nonprofit organizations may service loans, for a fee, from other associated nonprofit lenders.
Because of their unique structure, these organizations may not be able to consolidate their servicing activities and still meet the current requirements for the small servicer exemption. Accordingly, the CFPB’s proposal offers an alternative definition of a small servicer that would apply to certain nonprofit organizations so that they can continue to consolidate their servicing activities while maintaining their exemption from some of the servicing rules.
2. Amends the nonprofit “ability-to-repay” exemption
Certain nonprofit organizations that lend to low and moderate-income consumers are already exempt from the ability-to-repay rule if the organization makes no more than 200 mortgages a year, among other limitations. The CFP’s proposal would carefully tailor an amendment to this provision so that certain nonprofit groups, such as Habitat for Humanity, can continue to extend certain interest-free, forgivable loans, also known as “soft seconds,” without regard to the 200-mortgage loan limit.
3. Enables lenders to exceed QM points and fees cap if the overage is refunded quickly
Under the ability-to-repay rule, QM loans are subject to special consumer protections. The points and fees charged to a consumer on a QM generally cannot exceed 3% of the loan principal. If a lender believes it has offered a QM but afterwards discovers that it has exceeded the 3% cap, the CFPB’s proposal lays out limited circumstances where the excess can be refunded to still have the loan meet the legal requirements of a QM.
The refund must occur within 120 days after the loan is made. The creditor must also maintain and follow policies and procedures for reviewing the loans and providing refunds to consumers. The CFPB’s proposal is designed to encourage lenders to provide access to credit to consumers seeking loans that are at or near the points and fees limit.
The proposal was met with positive reviews from the Mortgage Bankers Association. “This proposal is a positive development for consumers because it would allow lenders to extend safe, sustainable QM loans to considerably more qualified borrowers," said David Stevens, president and CEO of the MBA. "As is being considered, if a lender believes it has offered a QM loan but later discovers the points and fees exceeded 3 percent of the loan amount, the excess could be refunded to the borrower and the loan could still meet QM requirements. MBA looks forward to commenting on this proposal and working with the CFPB to ensure that these proposals work to benefit consumers to the greatest extent possible.”