Mortgage Loan Origination

A mortgage loan product is a bundle of loan terms. That is what the Consumer Financial Protection Bureau (CFPB) reminds us in its latest Supervisory Highlights.

The CFPB first used that phrase back in 2013, but you may have missed it. It appeared in the fine print of footnote 82 in the CFPB’s lengthy

The Consumer Financial Protection Bureau is finalizing its proposal to extend until October 1, 2022 the mandatory effective date of the new Qualified Mortgage definition based largely on a loan’s annual percentage rate (the “APR-Based QM”). For applications received prior to that date, lenders seeking to make QMs may opt for either the original QM

The CFPB announced today that it expects to propose a rule to delay the July 1, 2021 date to comply with the new Qualified Mortgage (“QM”) rule.

The CFPB’s statement provides that the extension would allow lenders more time to make QM loans based on their debt-to-income ratio (and Appendix Q), or based on the

Since the Inauguration on January 20th, the Biden Administration has busily issued orders to reverse certain policies of the prior administration. In customary fashion upon a change in political parties in the White House, President Biden’s Chief of Staff also sent a memorandum to executive departments and agencies to consider postponing pending rulemakings to allow review by the new slate of policymakers. Among those rules are two Qualified Mortgage (“QM”) Rules of the Consumer Financial Protection Bureau (“CFPB”).

New White House Chief of Staff Ronald Klain’s memorandum specifies that for rules that have already been published or issued but have not yet taken effect, the agencies must consider postponing the rules’ effective dates for 60 days from the date of the memorandum (i.e., until March 21, 2021). If the agency postpones the effective date, the agency must consider opening a 30-day period for interested parties to provide more comments. The memorandum then instructs those agencies to consider whether even further delays are appropriate.

Speaking of engaging interested parties, the CFPB has been reconsidering QM issues for years. The agency has been spurred by a statutory requirement to assess and report on the 2013 QM Final Rule, as well as the January 10, 2021 expiration date of the special QM category for loans eligible for purchase by Fannie Mae or Freddie Mac (the so-called “GSE Patch”). In all, over the course of several years, the CFPB has reportedly received more than 680 comments on QMs from creditors, industry groups, consumer advocacy groups, elected officials, and others. In response to that input, the CFPB issued a final rule extending the GSE Patch until the “mandatory compliance date” of a separate final rule that would revise the general QM category (or until the GSEs emerge from conservatorship), essentially erasing that looming GSE Patch expiration date. Then the CFPB issued two other final QM rules – one to revise the general QM definition and establish that mandatory compliance date, and one to create a seasoned QM category for certain mortgage loans that experience a period of timely payments.

In comparing the effective dates of those rulemakings to the White House’s January 20th memorandum, one can see that the CFPB successfully eliminated the January 2021 GSE Patch expiration date, because that rule became effective before the memorandum. However, the other two rules – which establish the Patch’s new expiration date/Mandatory Compliance Date (July 1, 2021), the new definition of QMs, and the seasoned QM – could get caught in the Biden Freeze.
Continue Reading Will the CFPB Freeze the GSE QM Patch?

The Consumer Financial Protection Bureau (“CFPB”) issued two relatively welcome surprises yesterday. First, along with ditching a debt-to-income ratio (“DTI”) ceiling, the agency expanded its proposed general Qualified Mortgage (“QM”) to include loans up to 2.25 percentage points over the average prime offer rate. Mortgage lenders can opt in to the new QM as early as 60 days after the rule is published (so, likely by late February 2021), although compliance becomes mandatory July 1, 2021. Second, the CFPB will begin allowing loans to season into a QM after 36 months of timely payments, so long as the loan is not sold more than once (and is not securitized) during that time.

The CFPB otherwise recently issued a separate final rule, confirming once and for all that the GSE Patch – a temporary QM category for loans eligible for purchase by Fannie Mae or Freddie Mac – would expire on the mandatory compliance date of the agency’s rule revising the general QM definition. Since 2014, in general terms, a closed-end residential mortgage loan could only constitute a QM if the borrower’s DTI did not exceed 43%, or if the loan were GSE-eligible. As the GSE Patch’s expiration date (January 10, 2021) loomed, the CFPB promised to rethink the 43% DTI requirement and provide for a smooth and orderly transition to a post-Patch QM. In considering the public comments it received, the CFPB decided to loosen up on a couple of its proposals.

Specifically, the new general QM and its compliance protection will apply, under the final rule, to a covered transaction with the following characteristics:

  • The loan has an annual percentage rate (“APR”) that does not exceed the average prime offer rate (“APOR”) by 2.25 or more percentage points;
  • The loan meets the existing QM product feature and underwriting requirements and limits on points and fees;
  • The creditor has considered the consumer’s current or reasonably expected income or assets, debt obligations, alimony, child support, and DTI ratio or residual income; and
  • The creditor has verified the consumer’s current or reasonably expected income or assets, debt obligations, alimony, and child support.

The final rule removes the 43% DTI threshold and the troublesome Appendix Q.
Continue Reading CFPB Issues New QM Definition and Seasoning Provisions

On October 20, 2020, the Consumer Financial Protection Bureau (the Bureau) issued a final rule extending the Government-Sponsored Enterprise (GSE) Patch until the Bureau’s general qualified mortgage (QM) changes kick in. To keep from spooking the residential mortgage markets, the Bureau’s final rule accomplishes three main objectives:

  1. Retains the temporary GSE qualified mortgage (QM) safe harbor until compliance with the Bureau’s revised general QM definition becomes mandatory, but without any overlap period as some commenters requested;
  2. Establishes an implementation period to facilitate the transition to the revised general QM loan definition, and suggests the adoption of an “optional early compliance period” for transitioning to the revised general QM before the mandatory compliance date; and
  3. Resolves the frightful gap the Bureau’s proposal threatened to create by terminating the GSE Patch in accordance with the date of loan application, as opposed to the date of loan consummation.

For those who have been cowering in the shadows, the GSE Patch refers to a temporary compliance safe harbor the Bureau granted in 2014 for loans eligible for purchase by Fannie Mae or Freddie Mac. Those GSE-eligible loans have been deemed to comply with federal ability-to-repay requirements applicable to closed-end residential mortgage loans. The GSE Patch grants QM status to certain loans excluded by the general QM definition – notably, loans with a debt-to-income ratio that exceeds 43%. The GSE Patch is set to expire on January 10, 2021, or when the GSEs are released from conservatorship, whichever occurs first. The Bureau is otherwise revising its general QM definition, in part to ensure that the Patch expiration does not deprive worthy borrowers of access to credit.

In establishing the end date for the GSE Patch, the Bureau’s final rule first clarifies that there will not be an “overlap period.”
Continue Reading That’s the Spirit: The Haunting of the CFPB’s GSE Patch

The Real Estate Settlement Procedures Act is ambiguous, and compliance often turns on the facts of arrangements. For that reason, settlement service providers have been asking the Consumer Financial Protection Bureau for guidance since it took responsibility for RESPA nearly 10 years ago. These calls were amplified when Section 8 of RESPA was an early

The Consumer Financial Protection Bureau (CFPB) is proposing to allow a loan to become a Qualified Mortgage (QM) when it grows up. On August 18th, the CFPB issued a proposal that would amend the agency’s Ability-to-Repay (ATR) Rule to provide that a first-lien, fixed-rate loan meeting certain criteria, that the lender has held in its portfolio, could become a QM after 36 months of timely payments. Figuring that if a borrower has made payments on a loan, the lender must have made a reasonable determination of ability-to-repay, the proposal would open the safe harbor door to non-QMs (including those originated as such intentionally or inadvertently) and higher-priced QMs that otherwise receive only a rebuttable presumption of compliance with the Rule. The proposal also would, consequently, close the door on those borrowers’ ability to challenge the lender’s underwriting determination in a foreclosure, which otherwise would last far beyond the three-year period.

Specifically, the CFPB proposes that a covered loan for which an application is received on or after this rule becomes effective could become a “seasoned QM” and earn a conclusive safe harbor under the ATR Rule if:

  1. The loan is secured by a first lien;
  2. The loan has a fixed rate for the full loan term, with fully amortizing payments and no balloon payment;
  3. The loan term does not exceed 30 years; and
  4. The total points and fees do not exceed specified limits (generally 3%).

In addition, the creditor must have considered the consumer’s debt-to-income ratio (DTI) or residual income and verified the consumer’s debt obligations and income. In alignment with the CFPB’s pending rulemaking revising the general QM definition, the creditor would not have to use the Rule’s Appendix Q to determine the DTI. Also, as indicated above, a loan generally would be eligible as a seasoned QM only if the creditor holds it in portfolio until the end of the three-year seasoning period.
Continue Reading A Coming of Age Story: CFPB Proposal to Allow Seasoned Loans to Grow Into QMs

On July 30, 2020, the National Community Reinvestment Coalition (“NCRC”) and several other consumer advocacy organizations filed suit against the Consumer Financial Protection Bureau (“CFPB” or the “Bureau”), claiming that the Bureau’s recent Home Mortgage Disclosure Act (“HMDA”) rulemaking violates the Administrative Procedure Act (“APA”). The challenged rule increases the loan-volume reporting thresholds under Regulation C, which implements HMDA. Under the new rule, entities that originate fewer than 100 qualifying closed-end mortgage loans or fewer than 200 qualifying open-end lines of credit would not be required to collect and report data regarding their mortgage lending activities. The plaintiffs filed the complaint in the U.S. District Court for the District of Columbia and are requesting that the court vacate the new rule and require the Bureau to return to the prior thresholds.

HMDA requires mortgage lenders that originate a minimum number of mortgage loans to collect, report, and disclose certain information related to their mortgage origination and purchase activities. The law’s primary purpose is to provide the public with information on lending practices, including whether lenders are meeting the housing needs of certain communities or potentially engaging in discriminatory practices. HMDA data is a critical tool for plaintiffs and regulators assessing disparate impact claims. The appropriate framework for bringing disparate impact claims has been the subject of recent controversy, with key industry stakeholders asking the Department of Housing and Urban Development to hold off on finalizing its 2019 Proposed Disparate Impact Rule. Regardless of the specifics of the disparate impact legal framework, HMDA data remains a critical component for bringing (and defending) disparate impact claims in mortgage lending.  
Continue Reading NCRC Files Suit Against CFPB over HMDA Reporting Thresholds

On July 15, 2020, the Consumer Financial Protection Bureau filed a lawsuit against Townstone Financial, Inc., a Chicago-based mortgage lender and mortgage broker, alleging that Townstone “redlined” African-American neighborhoods in the Chicago Metropolitan Statistical Area and discouraged prospective applicants from applying to Townstone for mortgage loans on the basis of race. This marks the first