The CFPB finalized rules on Wednesday that would ensure credit access through the creation of specific exemptions and modifications to the agency’s ability-to-repay rule for community lenders, small creditors and housing stabilization programs.
“Our Ability-to-Repay rule was crafted to promote responsible lending practices,” CFPB Director Richard Cordray said. “Today’s amendments embody our efforts to make reasonable changes to the rule in order to foster access to responsible credit for consumers.”
The ability-to-repay rule finalized in January mandates that most new mortgages must comply with basic consumer protections that prevent borrowers from taking on loans they cannot pay back.
Lenders are presumed to be in compliance with the rule if they issue “qualified mortgages,” loans that are required to meet certain limits on risky features that hurt consumers during the mortgage crisis.
Under Wednesday’s changes, certain nonprofit and community-based lenders that help low- to moderate-income borrowers obtain affordable housing are exempt from the rule. The exemption generally applies to nonprofit lenders that make no more than 200 loans each year.
The rule also extends QM status to certain loans that small creditors—institutions with less than $2 billion in assets or those that make 500 or fewer first-lien mortgages—hold in portfolio, even if consumers’ debt-to-income ratio exceeds 43 percent. A two-year transition period is provided, during which small lenders are able to make balloon loans that will be classified as QMs, and the final rule allows small institutions to charge a higher APR for certain first-lien QMs.
Additionally, under Dodd-Frank, QMs have limited points and fees, which include compensation paid to loan originators to ensure that the loans do not charge excessively. Wednesday’s amendments provide that loan originator compensation does not count towards the points and fee threshold.
Wednesday’s changes are set to take effect with the ability-to-repay rule on Jan. 10