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CFPB issues Small Entity Compliance Guide for ability to repay mortgage rule; trade groups seek more time for implementation

Posted in Mortgages

The CFPB has issued a  Small Entity Compliance Guide on the ability to repay and qualified mortgage rule.  According to the 45-page guide, it is intended to provide “an easy-to-use summary” of the rule and  “highlights issues that small creditors, and those that work with them, might find helpful to consider when implementing the rule.”  

The guide also discusses the CFPB’s proposed changes to the rule and request for feedback on whether additional guidance is needed regarding the inclusion of loan originator compensation in the qualified mortgage points and fees test. Comments on the proposed changes and request for feedback were due by February 25, 2013.  The guide cautions that it is not a substitute for the underlying rule (as future guides can be expected to also caution), and that the industry should not rely on the proposed ability to repay and qualified mortgage rule changes for compliance purposes. 

Unfortunately, the CFPB’s statement in the guide that it expects to finalize the proposal “well before” the rule’s January 10, 2014 effective date is of little comfort to industry, which is in need of further guidance now to fully implement the CFPB’s mortgage rules by January 10.  The mortgage industry’s need for prompt clarification was forcefully made in a letter to Director Cordray by several prominent industry trade groups which also urged the CFPB to give industry more time to implement the new mortgage rules. 

The letter was sent by the Consumer Bankers Association, the American Bankers Association, The Financial Services Roundtable and the Roundtable’s Housing Policy Council.   The trade groups state that their “most urgent concern right now is ensuring we have sufficient time to fully review all of the final rules; implement new systems, processes and forms; train staff; and test these changes for quality assurance before bringing them online.”  They indicate that implementation is further complicated by the inability of many software and systems vendors used by banks to provide necessary updates until late summer or early fall.  They also indicate that uncertainty about provisions of the rules that industry finds unclear or confusing creates a further challenge to full implementation. 

For these reasons, the trade groups urge the CFPB to (1) publish necessary clarifications to the mortgage rules as quickly as possible, and (2) use its exemption authority “to extend implementation of the mortgage rules to 18-to-24 months.”  The trade groups emphasize the industry is working diligently toward meeting the expected compliance dates, but state that to avoid compliance risks, companies may choose to limit their mortgage lending activities, which “will be devastating to the industry and reduce mortgage loan options for consumers at a time when all agree there should be an increase in responsible mortgage lending.”