On October 22, 2014, the CFPB issued a final rule amending the Dodd-Frank mortgage rules that became effective January 10, 2014. The amendments include a points and fees cure under the ATR/QM rule, a modest expansion of the ATR exemption for certain non-profits and a slight expansion of the small servicer exemption for certain non-profit lenders/services.
Under the ATR/QM rule the total points and fees charged to a consumer generally may not exceed 3% of the loan amount in order for the loan to be considered a QM. Higher thresholds which vary with the loan amount apply to loan amounts less than $100,000. Under the amendment, a lender or secondary market lender who learns after loan closing that the points and fees cap was exceeded can retain QM status for the loan if it refunds the excess amount to the consumer with interest at the loan contract rate. The refund must be made within 210 days after consummation of the loan and the ability to cure is cut off if the refund is not made before the consumer files a legal action, gives written notice of the overage to the creditor or servicer, or becomes 60 days or more past due. The right to cure will sunset on January 10, 2021, and the right to cure is only available for loans originated after the effective date of the rule and before the sunset date.
The amendments expand the exemption from the ATR/QM rule for certain non-profits. 501(c)(3) non-profit organizations lending to low and moderate income consumers are exempt from the ATR/QM rule if they make no more than 200 dwelling secured loans a year and meet certain other restrictions. The Bureau's amendment excludes certain subordinate lien loans from the 200 loan limit. Some non-profits extend no interest subordinate lien loans for things like downpayment assistance, foreclosure avoidance, energy efficiency assistance and home rehabilitation where repayment is contingent or forgivable, a so-called "soft second" mortgage loan. The Bureau was concerned that the 200 loan limit may cause some non-profits to curtail their lending in this area. In order to be excluded, a transaction must be secured by a subordinate lien; made for the purpose of homebuyer assistance (such as downpayment or closing cost assistance, principal and interest subsidy, rehab or energy efficiency assistance, or
foreclosure prevention); be interest free; and provide for forgiveness of principal (either incrementally over time or in whole at some point in time) or deferment of principal repayment for at least 20 years or until the property is sold or no longer serves as the consumer's principal dwelling; and the total costs to the consumer are less than 1% of the loan amount with no charges other than recording fees and a reasonable fee for the application and/or housing counseling services.
The amendments also include a modest expansion of the small servicer exemption under the mortgage servicing rules in Regulations Z and X for non-profit entities that service loans for a fee for other non-profit lenders as part of a common network or group of non-profit entities. Under the existing rule, a small servicer is one that, together with any affiliates, services 5,000 or fewer loans for which the servicer and its affiliates are either the creditor or assignee, excluding any loans that are voluntarily serviced for a non-affiliate for no compensation. Some non-profits service loans for a fee for other non-profits as part of a larger network, but the entities are not affiliates. The amendment expands the exemption to cover a non-profit servicing loans originated by an associated non-profit entity using a common name, trademark or tradename and supporting a common charitable mission or purpose.
The amendments will become effective immediately upon publication in the Federal Register.
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