TODAY'S THE DAY – New Ability-to-Repay and Qualified Mortgage Rules Are In Effect!

Well, today is the day we’ve all been anxious about for the past year; the CFPB’s new Ability-to-Repay and Qualified Mortgage rules have gone into effect.  Mortgage brokers – do you know how your funding lenders are going to handle non-QM loans, if at all?  Are you prepared to review points-and-fees upfront to avoid the need for last minute changes or – worse – fatal compliance issues within the rubrics of your funding lenders?  Mortgage bankers, do you have a plan to handle loans that “fall out” of QM because of issues with points-and-fees calculations or investor interpretations?  Tammy Butler over at Optimal Blue has some excellent advice on having a “Plan B” for the mortgage bankers and depositories out there.  You can check out her latest blog here.

For those of you doing VA loans, the VA issued a circular yesterday indicating that all TILA requirements regarding ATR/QM will apply to VA loans until the VA has issued its own ATR/QM regulations, which it anticipates doing “in the near future.”  Note that any loan that is NOT a QM but meets VA eligibility requirements will still be guaranteed by the VA.

Remember that HUD’s FHA QM definition – implementing rebuttable presumption and safe-harbor thresholds for FHA loans – also goes into effect today.  HUD released a summary of that rule back on December 11 and you can find the actual text of the rule in the Federal Register.

Finally, I’m interested in hearing about your experiences with ATR/QM as we venture into this brave new world together!  If you have any difficulties – or good experiences – that you’d like to share as these new applications make their way to the closing table, feel free to leave a comment below. (Just keep it clean!) or send me an email.

Happy originating!


President Obama to Make ‘Recess Appointment’ of Richard Cordray to Head CFPB

Move has widespread impact for mortgage bankers and brokers.

As was widely expected, the president today announced that former Ohio Attorney General Richard Cordray will be appointed to the position of Director of the Bureau of Consumer Financial Protection (or “CFPB” – Consumer Financial Protection Bureau) while Congress is on recess.  The appointment is intended to circumvent a filibuster that was being staged by 42 senators who wanted to see changes made to the underlying Dodd-Frank legislation before allowing a vote on Cordray’s confirmation. 

What does this mean? My CE students already know.

Those of you who took my continuing education course in 2011 are intimately familiar with both Cordray and the CFPB and understand more than most that this move is NOT an insignificant one.  Without an official director, the CFPB could not utilize many of the powers that were granted to the agency in the Dodd-Frank legislation.  Now that Cordray will be taking the reins of the organization, the CFPB will be able to wield its full power – including supervisory authority over non-bank originators (i.e. mortgage banks and brokers) and rulemaking authority that will impact these businesses (i.e. most of you reading this post).  This move also paves the way for the CFPB to issue the new combined GFE/TIL disclosure that has been in development for the past year, as well as a redesigned HUD-1 settlement statement.  Expect to see those rolled out over the next few months, with a final implementation date later in the year.  Also, we should expect to see a mortgage loan originator “duty of care” rule issued soon as well, clarifying our responsibilities to safeguard borrowers from harm.  I have no advance knowledge of what that will look like, but I will certainly share the critical points with you when it is released.

Possible bump in the road.

There is one minor detail that may pose a bit of a bump in the road for Cordray: Congress is not officially in recess.  The Constitution prohibits either chamber from recessing for longer than three days without the consent of the other chamber.  In this case, the House of Representatives objected to the Senate going into recess, which triggered a series of “pro-forma” sessions where one member of Congress opens and closes a session (of an empty House of Representatives) once every three days.   There are some constitutional questions surrounding this appointment, but Congress has no grounds to challenge this in court.  Any challenge to the appointment’s constitutionality would have to be made by an individual or organization directly affected by the CFPB.  Some members of Congress indicated earlier this morning that they thought such a challenge would be forthcoming.  While this may be true, it will take time, and there is no guarantee of the eventual result. 

Get your house in order – NOW!

The bottom line is, those of you in compliance or ownership positions at non-bank lenders and brokers would be wise to ensure that your business practices are free of unfair, deceptive and abusive acts and practices (UDAAP) and that you’re ready to adapt to any significant changes that may be coming down the pipe.  I also strongly recommend that you obtain a copy of the CFPB’s “Supervision and Examination Manual” to give you a strong reference point for the items that the CFPB will be looking for when conducting examinations of companies (audits).   This is doubly true for any of you who are engaged in servicing loans.

Happy new year to all, and be sure to continue watching this space for updates on critical issues that will affect you in the future.  Happy originating!

Federal Reserve Board Issues Final Rule Implementing MLO Compensation and Anti-Steering Provisions of the Dodd-Frank Act



On Monday afternoon, the Federal Reserve Board issued a final rule effectively implementing the sections of the Dodd-Frank Wall Street Reform and Consumer Protection Act dealing with loan originator compensation and the prohibition against loan steering.  The word “effectively” is used because essentially, this is a modified version of a proposed rule issued last August 26th (which is well before the Dodd-Frank Bill was even debated on Capitol Hill).

The new rules will become mandatory on APRIL 1, 2011, although if past rulemaking is any indication, many banks/investors will begin to implement changes sooner to ensure that loans made under the existing rules are closed before the deadline.

Here are some key details:

  • All loan originators will no longer be permitted to receive compensation based on the loan terms (interest rate, etc.), but will be allowed to be compensated based on a fixed percentage of the loan amount.  Based on the language in the Act and in the rule, it would appear that YSP is effectively eliminated as of April 1st.
  • On a given transaction, loan originator compensation may come from the consumer OR a third party (i.e. a bank in a brokered transaction), but NOT BOTH.
  • Loan originators will be explicitly prohibited from steering borrowers to loans that are “not in their interest” in order to receive more compensation.
  • It establishes a “safe harbor” tolerance for the steering prohibition, saying that no steering is deemed to have occurred if:
    • The Loan Originator presents the Consumer with loan offers for each product in which the consumer states they have an interest AND
    • The loan options that are presented include the lowest rate that the consumer is qualified for on a loan with no high-risk features like a prepayment penalty or negative amortization as well as the lowest origination fees and points that the consumer is qualified for on that loan.

The text of the final rule, which contains all of the provisions and requirements including in-depth detail on safe harbor, can be found at:

In the actual text of the rule, the Federal Reserve Board gives some very specific examples of compensation that would and would not be permitted under the new rule.  A thorough reading of pages 100 – 107 of the rule may prove helpful to loan originators, managers and company owners alike.