CFPB's Latest Proposed Rulemaking (TILA/HMDA) Focused on Mortgage Markets

Financial Services Law

It has been an unusually busy rule-making stretch for the consumer mortgage markets at the Consumer Financial Protection Bureau (CFPB or Bureau), marked by its issuance of an advanced notice of proposed rule-making (ANPR) relating to its proposal to allow expiration of the temporary qualified mortgage provision granted to Fannie Mae and Freddie Mac as part of the Ability to Repay/Qualified Mortgage (ATR/QM) Rule, and its reopening of the comment period for certain comments on Regulation C, implementing the Home Mortgage Disclosure Act (HMDA).
 
What happened

ATR/QM — Dodd-Frank amended the Truth in Lending Act (TILA) to establish ability-to-repay requirements for most residential mortgage loans. TILA prohibits a creditor from making a residential mortgage loan unless the creditor makes a reasonable and good faith determination based on verified and documented information that the consumer has a reasonable ability to repay the loan. TILA identifies factors a creditor must consider in making a reasonable and good faith assessment of a consumer’s ability to repay. TILA also defines a category of loans called “qualified mortgages” for which creditors “may presume that the loan has met” ATR requirements per 15 U.S.C. § 1639c(b)(1). Generally speaking, qualified mortgages are those for which:

  • There is no negative amortization, interest-only payment or balloon payment.
  • The loan term does not exceed 30 years.
  • The total points and fees generally do not exceed 3 percent of the loan amount.
  • The creditor considers and verifies the consumer’s income and debt obligations.
  • The underwriter uses a monthly payment based on the maximum rate during the first five years, uses a payment schedule that fully amortizes the loan over the loan term and takes into account all mortgage-related obligations.
  • The loan complies with any CFPB guidelines or regulations relating to the ratio of total monthly debt to monthly income (currently at 43 percent) or alternative measures of ability to pay regular expenses after payment of total monthly debt.

The so-called GSE Patch expands the QM definition to include certain mortgage loans eligible for purchase or guarantee by Fannie and Freddie, and in most cases these loans are granted a safe harbor from legal liability in connection with the ATR requirements. These temporary GSE QM loans generally qualify for that safe harbor from legal liability even if the consumer’s debt-to-income ratio exceeds the general 43 percent threshold.

The ANPR states that the Bureau plans to allow the GSE Patch to expire in January 2021 or after a short extension, if necessary, to facilitate a smooth and orderly transition away from the GSE Patch. The Bureau is soliciting comments on possible amendments to the ATR/QM Rule, including whether to revise Regulation Z’s definition of a qualified mortgage in light of the GSE Patch’s scheduled expiration; whether the definition of a qualified mortgage should retain a direct measure of a consumer’s personal finances (for example, debt-to-income ratio); and whether the definition should include an alternative method for assessing financial capacity.

To view the ANPR, click here.

Regulation C — Back on May 3, 2019, the CFPB issued a Notice of Proposed Rulemaking (NPRM) relating to HMDA coverage thresholds and partial exemptions, and an ANPR relating to HMDA data points and coverage of certain business- or commercial-purpose loans. We discussed that event here

To facilitate the potential revisions of the thresholds that the CFPB proposed to take effect on January 1, 2020, the Bureau used a 30-day comment period, which ended on June 12, 2019. However, the national loan level data set for 2018 and the Bureau’s annual overview of residential mortgage lending based on that data (collectively, the 2018 HMDA Data) will not be released until later this summer. As a result, stakeholders asked to submit comments on the May 2019 proposal that likewise reflects the 2018 HMDA Data.

In response to this request, on July 31, the Bureau announced that it is reopening the comment period for certain aspects of the May 2019 NPRM. Specifically, the CFPB is requesting comments on (1) its proposed changes to the permanent coverage threshold for closed-end mortgage loans, (2) its proposed changes to the permanent coverage threshold for open-end lines of credit, and (3) the “appropriate effective date” for any change to the closed-end coverage threshold. Comments must be received by October 15, 2019. The notice announcing the reopening of the comment period is available here.

Why it matters

The CFPB is paying increased attention to the mortgage lending market. Fannie- and Freddie-backed loans currently have a distinct competitive advantage. “The national mortgage market readjusting away from the Patch can facilitate a more transparent, level playing field,” CFPB’s Kathy Kraninger said in the press release. Such leveling “ultimately benefits consumers through stronger consumer protection.” But ending the Patch could adversely impact credit availability and harm the markets. These and other issues are sure to arise in industry comments to the CFPB.