On April 30, 2014, the Consumer Finance Protection Bureau (“CFPB”) issued three minor proposed changes to the mortgage rules, aimed at ensuring access to credit. One of these proposed changes allows mortgage lenders to refund excess points and fees to borrowers, so that mortgages may remain classified as Qualified Mortgages and allow the lender to retain the protections from liability associated with these mortgages. This proposed change affects what is commonly known as the “Ability-to-Repay” rule under TILA (Regulation Z), and offers certain protections to Qualified Mortgages.
- To be classified as a Qualified Mortgage, among other things, “the up-front points and fees charged in connection with the mortgage must not exceed 3 percent of the total loan amount, with higher thresholds for various categories of loans below $100,000.”
- However, because determining the fees and points is often a complex process and involves judgment calls, there can be inadvertent errors.
- This new proposed change will allow a lender to cure these inadvertent errors up to 120 days after the loan is made by refunding the excess points and fees to the consumer to the extent it exceeds the 3 percent threshold. In particular, this ability to cure has three pre-requisites
- The creditor (or assignee) originated the loan with a good faith intention that the loan constitute a qualified mortgage and otherwise complied with other qualified mortgage pre-requisites, as defined under the regulation.
- The creditor (or assignee) must refund the dollar amount by which the points and fees exceed the applicable limit at consummation within 120 days after consummation of the loan; and
- The creditor (or assignee) must maintain and follow enumerated policies and procedures within the proposed changes for post-consummation review of loans and for refunding to consumers amounts that exceed the limit.
In short, this appears to be a welcome attempt by the CFPB at a limited safe haven provision for lenders or servicers who inadvertently exceed the 3 percent threshold on up-front points and fees. The CFPB is currently seeking public comment on this proposal.