# 79 FR 25730: Amendments to the 2013 Mortgage Rules Under the Truth in Lending Act (Regulation Z)

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URL: https://www.frixlaw.com/law-library/statutes/FR_PRORULE_2014-10207

## Section

- **Citation:** 79 FR 25730
- **Heading:** Amendments to the 2013 Mortgage Rules Under the Truth in Lending Act (Regulation Z)
- **Jurisdiction:** Federal
- **Kind:** Regulations
- **Status:** In force
- **Text as of:** August 14, 2026
- **Source:** Compiled text
- **Location:** Federal Register / Vol. 79 / 79 FR 25730

## Text

BUREAU OF CONSUMER FINANCIAL PROTECTION 12 CFR Part 1026 [Docket No. CFPB-2014-0009] RIN 3170-AA43 Amendments to the 2013 Mortgage Rules Under the Truth in Lending Act (Regulation Z) AGENCY:
Bureau of Consumer Financial Protection.

ACTION:
Proposed rule with request for public comment.

SUMMARY:
The Bureau of Consumer Financial Protection (Bureau) proposes amendments to certain mortgage rules issued in 2013. The proposed rule would provide an alternative small servicer definition for nonprofit entities that meet certain requirements, amend the existing exemption from the ability-to-repay rule for nonprofit entities that meet certain requirements, and provide a limited cure mechanism for the points and fees limit that applies to qualified mortgages.

DATES:
Comments regarding the proposed amendments to 12 CFR 1026.41(e)(4), 1026.43(a)(3), and 1026.43(e)(3) must be received on or before June 5, 2014. For the requests for comment regarding correction or cure of debt-to-income ratio overages and the credit extension limit for the small creditor definition, comments must be received on or before July 7, 2014.

ADDRESSES:
You may submit comments, identified by Docket No. CFPB-2014-0009 or RIN 3170-AA43, by any of the following methods:
• Electronic: http://www.regulations.gov. Follow the instructions for submitting comments.
• Mail/Hand Delivery/Courier: Monica Jackson, Office of the Executive Secretary, Consumer Financial Protection Bureau, 1700 G Street NW., Washington, DC 20552.
Instructions: All submissions should include the agency name and docket number or Regulatory Information Number (RIN) for this rulemaking. Because paper mail in the Washington, http://www.regulations.gov. In addition, comments will be available for public inspection and copying at 1700 G Street NW., Washington, DC 20552, on official business days between the hours of 10 a.m. and 5 p.m. Eastern Time. You can make an appointment to inspect the documents by telephoning (202) 435-7275
ulatory Information Number (RIN) for this rulemaking. Because paper mail in the Washington, http://www.regulations.gov. In addition, comments will be available for public inspection and copying at 1700 G Street NW., Washington, DC 20552, on official business days between the hours of 10 a.m. and 5 p.m. Eastern Time. You can make an appointment to inspect the documents by telephoning (202) 435-7275.
All comments, including attachments and other supporting materials, will become part of the public record and subject to public disclosure. Sensitive personal information, such as account numbers or social security numbers, should not be included. Comments generally will not be edited to remove any identifying or contact information.
FOR FURTHER INFORMATION CONTACT:
Pedro De Oliveira, Counsel; William R. Corbett, Nicholas Hluchyj, and Priscilla Walton-Fein, Senior Counsels, Office of Regulations, at (202) 435-7700.

SUPPLEMENTARY INFORMATION:
I. Summary of Proposed Rule
In January 2013, the Bureau issued several final rules concerning mortgage markets in the United States (2013 Title XIV Final Rules), pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act), Public Law 111-203, 124 Stat. 1376 (2010). 1 The Bureau clarified and revised those rules through notice and comment rulemaking during the summer and fall of 2013. The purpose of those updates was to address important questions raised by industry, consumer groups, or other stakeholders. The Bureau is now proposing several additional amendments to the 2013 Title XIV Final Rules to revise regulatory provisions and official interpretations primarily relating to the Regulation Z ability-to-repay/qualified mortgage requirements and servicing rules, as well as seeking comment on additional issues
to address important questions raised by industry, consumer groups, or other stakeholders. The Bureau is now proposing several additional amendments to the 2013 Title XIV Final Rules to revise regulatory provisions and official interpretations primarily relating to the Regulation Z ability-to-repay/qualified mortgage requirements and servicing rules, as well as seeking comment on additional issues. The Bureau expects to issue additional proposals to address other topics relating to the 2013 Title XIV Final Rules, such as the definition of “rural and underserved” for purposes of certain mortgage provisions affecting small creditors as discussed further below.
1 Specifically, on January 10, 2013, the Bureau issued Escrow Requirements Under the Truth in Lending Act (Regulation Z), 78 FR 4725 (Jan. 22, 2013) (2013 Escrows Final Rule), High-Cost Mortgage and Homeownership Counseling Amendments to the Truth in Lending Act (Regulation Z) and Homeownership Counseling Amendments to the Real Estate Settlement Procedures Act (Regulation X), 78 FR 6855 (Jan. 31, 2013) (2013 HOEPA Final Rule), and Ability to Repay and Qualified Mortgage Standards Under the Truth in Lending Act (Regulation Z), 78 FR 6407 (Jan. 30, 2013) (January 2013 ATR Final Rule). The Bureau concurrently issued a proposal to amend the January 2013 ATR Final Rule, which was finalized on May 29, 2013. See 78 FR 6621 (Jan. 30, 2013) (January 2013 ATR Proposal) and 78 FR 35429 (June 12, 2013) (May 2013 ATR Final Rule). On January 17, 2013, the Bureau issued the Real Estate Settlement Procedures Act (Regulation X) and Truth in Lending Act (Regulation Z) Mortgage Servicing Final Rules, 78 FR 10901 (Feb. 14, 2013) (Regulation Z) and 78 FR 10695 (Feb. 14, 2013) (Regulation X) (2013 Mortgage Servicing Final Rules). On January 18, 2013, the Bureau issued the Disclosure and Delivery Requirements for Copies of Appraisals and Other Written Valuations Under the Equal Credit Opportunity Act (Regulation B), 78 FR 7215 (Jan
ruth in Lending Act (Regulation Z) Mortgage Servicing Final Rules, 78 FR 10901 (Feb. 14, 2013) (Regulation Z) and 78 FR 10695 (Feb. 14, 2013) (Regulation X) (2013 Mortgage Servicing Final Rules). On January 18, 2013, the Bureau issued the Disclosure and Delivery Requirements for Copies of Appraisals and Other Written Valuations Under the Equal Credit Opportunity Act (Regulation B), 78 FR 7215 (Jan. 31, 2013) (2013 ECOA Valuations Final Rule) and, jointly with other agencies, issued Appraisals for Higher-Priced Mortgage Loans (Regulation Z), 78 FR 10367 (Feb. 13, 2013) (2013 Interagency Appraisals Final Rule). On January 20, 2013, the Bureau issued the Loan Originator Compensation Requirements under the Truth in Lending Act (Regulation Z), 78 FR 11279 (Feb. 15, 2013) (2013 Loan Originator Final Rule).
Specifically, the Bureau is proposing three amendments to the 2013 Title XIV Final Rules:
• To provide an alternative definition of the term “small servicer,” that would apply to certain nonprofit entities that service for a fee loans on behalf of other nonprofit chapters of the same organization. Although the Bureau is proposing this change in Regulation Z, the change will also affect several provisions of Regulation X, which cross-reference the Regulation Z small servicer exemption.
• To amend the Regulation Z ability-to-repay requirements to provide that certain interest-free, contingent subordinate liens originated by nonprofit creditors will not be counted towards the credit extension limit that applies to the nonprofit exemption from the ability-to-repay requirements.
• To provide a limited, post-consummation cure mechanism for loans that are originated with the good faith expectation of qualified mortgage status but that actually exceed the points and fees limit for qualified mortgages
liens originated by nonprofit creditors will not be counted towards the credit extension limit that applies to the nonprofit exemption from the ability-to-repay requirements.
• To provide a limited, post-consummation cure mechanism for loans that are originated with the good faith expectation of qualified mortgage status but that actually exceed the points and fees limit for qualified mortgages.
In addition to providing specific proposals on these issues, the Bureau is seeking comment on two additional topics:
• Whether and how to provide a limited, post-consummation cure or correction provision for loans that are originated with the good faith expectation of qualified mortgage status but that actually exceed the 43-percent debt-to-income ratio limit that applies to certain qualified mortgages.
• Feedback and data from smaller creditors regarding implementation of certain provisions in the 2013 Title XIV Final Rules that are tailored to account for small creditor operations and how their origination activities have changed in light of the new rules.
II. Background
A. Title XIV Rulemakings Under the Dodd-Frank Act
In response to an unprecedented cycle of expansion and contraction in the mortgage market that sparked the most severe U.S. recession since the Great Depression, Congress passed the Dodd-Frank Act, which was signed into law on July 21, 2010. In the Dodd-Frank Act, Congress established the Bureau and generally consolidated the rulemaking authority for Federal consumer financial laws, including the Truth in Lending Act (TILA) and the Real Estate Settlement Procedures Act (RESPA), in the Bureau. 2 At the same time, Congress significantly amended the statutory requirements governing mortgage practices, with the intent to restrict the practices that contributed to and exacerbated the crisis. 3 Under the statute, most of these new requirements would have taken effect automatically on January 21, 2013, if the Bureau had not issued implementing regulations by that date
(RESPA), in the Bureau. 2 At the same time, Congress significantly amended the statutory requirements governing mortgage practices, with the intent to restrict the practices that contributed to and exacerbated the crisis. 3 Under the statute, most of these new requirements would have taken effect automatically on January 21, 2013, if the Bureau had not issued implementing regulations by that date. 4 To avoid uncertainty and potential disruption in the national mortgage market at a time of economic vulnerability, the Bureau issued several final rules in a span of less than two weeks in January 2013 to implement these new statutory provisions and provide for an orderly transition.
2 See, e.g., sections 1011 and 1021 of the Dodd-Frank Act, 12 U.S.C. 5491 and 5511 (establishing and setting forth the purpose, objectives, and functions of the Bureau); section 1061 of the Dodd-Frank Act, 12 U.S.C. 5581 (consolidating certain rulemaking authority for Federal consumer financial laws in the Bureau); section 1100A of the Dodd-Frank Act (codified in scattered sections of 15 U.S.C.) (similarly consolidating certain rulemaking authority in the Bureau). But see Section 1029 of the Dodd-Frank Act, 12 U.S.C. 5519 (subject to certain exceptions, excluding from the Bureau's authority any rulemaking authority over a motor vehicle dealer that is predominantly engaged in the sale and servicing of motor vehicles, the leasing and servicing of motor vehicles, or both).
3 See title XIV of the Dodd-Frank Act, Public Law 111-203, 124 Stat. 1376 (2010) (codified in scattered sections of 12 U.S.C., 15 U.S.C., and 42 U.S.C.).
4 See section 1400(c) of the Dodd-Frank Act, 15 U.S.C. 1601 note.
On January 10, 2013, the Bureau issued the 2013 Escrows Final Rule, the January 2013 ATR Final Rule, and the 2013 HOEPA Final Rule. 78 FR 4725 (Jan. 22, 2013); 78 FR 6407 (Jan. 30, 2013); 78 FR 6855 (Jan. 31, 2013). On January 17, 2013, the Bureau issued the 2013 Mortgage Servicing Final Rules. 78 FR 10695 (Feb. 14, 2013); 78 FR 10901 (Feb
tion 1400(c) of the Dodd-Frank Act, 15 U.S.C. 1601 note.
On January 10, 2013, the Bureau issued the 2013 Escrows Final Rule, the January 2013 ATR Final Rule, and the 2013 HOEPA Final Rule. 78 FR 4725 (Jan. 22, 2013); 78 FR 6407 (Jan. 30, 2013); 78 FR 6855 (Jan. 31, 2013). On January 17, 2013, the Bureau issued the 2013 Mortgage Servicing Final Rules. 78 FR 10695 (Feb. 14, 2013); 78 FR 10901 (Feb. 14, 2013). On January 18, 2013, the Bureau issued the 2013 ECOA Valuations Final Rule and, jointly with 5 Pursuant to the Dodd-Frank Act, which permitted a maximum of one year for implementation, most of these rules became effective on January 10, 2014.
5 Each of these rules was published in the Federal Register shortly after issuance.
Concurrent with the January 2013 ATR Final Rule, on January 10, 2013, the Bureau issued proposed amendments to the rule ( i.e., the January 2013 ATR Proposal), which the Bureau finalized on May 29, 2013 ( i.e., the May 2013 ATR Final Rule). 78 FR 6621 (Jan. 30, 2013); 78 FR 35429 (June 12, 2013). The Bureau issued additional corrections and clarifications to the 2013 Mortgage Servicing Final Rules and the May 2013 ATR Final Rule in the summer and fall of 2013. 6
6 78 FR 44685 (July 24, 2013) (clarifying which mortgages to consider in determining small servicer status and the application of the small servicer exemption with regard to servicer/affiliate and master servicer/subservicer relationships); 78 FR 45842 (July 30, 2013); 78 FR 60381 (Oct. 1, 2013) (revising exceptions available to small creditors operating predominantly in “rural” or “underserved” areas); 78 FR 62993 (Oct. 23, 2013) (clarifying proper compliance regarding servicing requirements when a consumer is in bankruptcy or sends a cease communication request under the Fair Debt Collection Practice Act).
B
vicer relationships); 78 FR 45842 (July 30, 2013); 78 FR 60381 (Oct. 1, 2013) (revising exceptions available to small creditors operating predominantly in “rural” or “underserved” areas); 78 FR 62993 (Oct. 23, 2013) (clarifying proper compliance regarding servicing requirements when a consumer is in bankruptcy or sends a cease communication request under the Fair Debt Collection Practice Act).
B. Implementation Plan for New Mortgage Rules
On February 13, 2013, the Bureau announced an initiative to support implementation of its new mortgage rules (the Implementation Plan), 7 under which the Bureau would work with the mortgage industry and other stakeholders to ensure that the new rules could be implemented accurately and expeditiously. The Implementation Plan included: (1) Coordination with other agencies, including the development of consistent, updated examination procedures; (2) publication of plain-language guides to the new rules; (3) publication of additional corrections and clarifications of the new rules, as needed; (4) publication of readiness guides for the new rules; and (5) education of consumers on the new rules.
7 Press Release, Consumer Financial Protection Bureau, Consumer Financial Protection Bureau Lays Out Implementation Plan for New Mortgage Rules (Feb. 13, 2013), available at http://www.consumerfinance.gov/newsroom/consumer-financial-protection-bureau-lays-out-implementation-plan-for-new-mortgage-rules/.
This proposal concerns additional revisions to the new rules. The purpose of these updates is to address important questions raised by industry, consumer groups, or other stakeholders. As discussed below, the Bureau contemplates issuing additional updates on additional topics.
III. Legal Authority
The Bureau is issuing this proposed rule pursuant to its authority under TILA, RESPA, and the Dodd-Frank Act
al concerns additional revisions to the new rules. The purpose of these updates is to address important questions raised by industry, consumer groups, or other stakeholders. As discussed below, the Bureau contemplates issuing additional updates on additional topics.
III. Legal Authority
The Bureau is issuing this proposed rule pursuant to its authority under TILA, RESPA, and the Dodd-Frank Act. Section 1061 of the Dodd-Frank Act transferred to the Bureau the “consumer financial protection functions” previously vested in certain other Federal agencies, including the Board of Governors of the Federal Reserve System (Board). The term “consumer financial protection function” is defined to include “all authority to prescribe rules or issue orders or guidelines pursuant to any Federal consumer financial law, including performing appropriate functions to promulgate and review such rules, orders, and guidelines. Section 1061 of the Dodd-Frank Act also transferred to the Bureau all of the Department of Housing and Urban Development's (HUD) consumer protection functions relating to RESPA. Title X of the Dodd-Frank Act, including section 1061 of the Dodd-Frank Act, along with TILA, RESPA, and certain subtitles and provisions of title XIV of the Dodd-Frank Act, are Federal consumer financial laws. 8
8 Dodd-Frank Act section 1002(14), 12 U.S.C. 5481(14) (defining “Federal consumer financial law” to include the “enumerated consumer laws,” the provisions of title X of the Dodd-Frank Act, and the laws for which authorities are transferred under title X subtitles F and H of the Dodd-Frank Act); Dodd-Frank Act section 1002(12), 12 U.S.C. 5481(12) (defining “enumerated consumer laws” to include TILA); Dodd-Frank section 1400(b), 12 U.S.C. 5481(12) note (defining “enumerated consumer laws” to include certain subtitles and provisions of Dodd-Frank Act title XIV); Dodd-Frank Act section 1061(b)(7), 12 U.S.C. 5581(b)(7) (transferring to the Bureau all of HUD's consumer protection functions relating to RESPA).
A
on 1002(12), 12 U.S.C. 5481(12) (defining “enumerated consumer laws” to include TILA); Dodd-Frank section 1400(b), 12 U.S.C. 5481(12) note (defining “enumerated consumer laws” to include certain subtitles and provisions of Dodd-Frank Act title XIV); Dodd-Frank Act section 1061(b)(7), 12 U.S.C. 5581(b)(7) (transferring to the Bureau all of HUD's consumer protection functions relating to RESPA).
A. TILA
Section 105(a) of TILA authorizes the Bureau to prescribe regulations to carry out the purposes of TILA. 15 U.S.C. 1604(a). Under section 105(a), such regulations may contain such additional requirements, classifications, differentiations, or other provisions, and may provide for such adjustments and exceptions for all or any class of transactions, as in the judgment of the Bureau are necessary or proper to effectuate the purposes of TILA, to prevent circumvention or evasion thereof, or to facilitate compliance therewith. A purpose of TILA is “to assure a meaningful disclosure of credit terms so that the consumer will be able to compare more readily the various credit terms available to him and avoid the uninformed use of credit.” TILA section 102(a), 15 U.S.C. 1601(a). In particular, it is a purpose of TILA section 129C, as added by the Dodd-Frank Act, to assure that consumers are offered and receive residential mortgage loans on terms that reasonably reflect their ability to repay the loans and that are understandable and not unfair, deceptive, and abusive. 15 U.S.C. 1639b(a)(2).
Section 105(f) of TILA authorizes the Bureau to exempt from all or part of TILA a class of transactions if the Bureau determines that TILA coverage does not provide a meaningful benefit to consumers in the form of useful information or protection. 15 U.S.C. 1604(f)(1)
flect their ability to repay the loans and that are understandable and not unfair, deceptive, and abusive. 15 U.S.C. 1639b(a)(2).
Section 105(f) of TILA authorizes the Bureau to exempt from all or part of TILA a class of transactions if the Bureau determines that TILA coverage does not provide a meaningful benefit to consumers in the form of useful information or protection. 15 U.S.C. 1604(f)(1). That determination must consider:
• The loan amount and whether TILA's provisions “provide a benefit to the consumers who are parties to such transactions”;
• The extent to which TILA requirements “complicate, hinder, or make more expensive the credit process”;
• The borrowers' “status,” including their “related financial arrangements,” their financial sophistication relative to the type of transaction, and the importance to the borrowers of the credit, related supporting property, and TILA coverage;
• Whether the loan is secured by the consumer's principal residence; and
• Whether consumer protection would be undermined by such an exemption. 15 U.S.C. 1604(f)(2).
TILA section 129C(b)(3)(B)(i) provides the Bureau with authority to prescribe regulations that revise, add to, or subtract from the criteria that define a qualified mortgage upon a finding that such regulations are: necessary or proper to ensure that responsible, affordable mortgage credit remains available to consumers in a manner consistent with the purposes of the ability-to-repay requirements; necessary and appropriate to effectuate the purposes of the ability-to-repay and residential mortgage loan origination requirements; to prevent circumvention or evasion thereof; or to facilitate compliance with TILA sections 129B and 129C. 15 U.S.C. 1639c(b)(3)(B)(i). In addition, TILA section 129C(b)(3)(A) requires the Bureau to prescribe regulations to carry out such purposes. 15 U.S.C. 1639c(b)(3)(A).
B
nd appropriate to effectuate the purposes of the ability-to-repay and residential mortgage loan origination requirements; to prevent circumvention or evasion thereof; or to facilitate compliance with TILA sections 129B and 129C. 15 U.S.C. 1639c(b)(3)(B)(i). In addition, TILA section 129C(b)(3)(A) requires the Bureau to prescribe regulations to carry out such purposes. 15 U.S.C. 1639c(b)(3)(A).
B. RESPA
Section 19(a) of RESPA authorizes the Bureau to prescribe such rules and regulations, to make such interpretations, and to grant such reasonable exemptions for classes of transactions, as may be necessary to
C. The Dodd-Frank Act
Section 1405(b) of the Dodd-Frank Act provides that, “in order to improve consumer awareness and understanding of transactions involving residential mortgage loans through the use of disclosures,” the Bureau may exempt from disclosure requirements, “in whole or in part . . . any class of residential mortgage loans” if the Bureau determines that such exemption “is in the interest of consumers and in the public interest.” 15 U.S.C. 1601 note. 9 Notably, the authority granted by section 1405(b) applies to “disclosure requirements” generally, and is not limited to a specific statute or statutes. Accordingly, Dodd-Frank Act section 1405(b) is a broad source of authority for exemptions from the disclosure requirements of TILA and RESPA.
9 “Residential mortgage loan” is generally defined as any consumer credit transaction (other than open-end credit plans) that is secured by a mortgage (or equivalent security interest) on “a dwelling or on residential real property that includes a dwelling” (except, in certain instances, timeshare plans). 15 U.S.C. 1602(cc)(5).
Moreover, section 1022(b)(1) of the Dodd-Frank Act authorizes the Bureau to prescribe rules “as may be necessary or appropriate to enable the Bureau to administer and carry out the purposes and objectives of the Federal consumer financial laws, and to prevent evasions thereof.” 12 U.S.C. 5512(b)(1)
that includes a dwelling” (except, in certain instances, timeshare plans). 15 U.S.C. 1602(cc)(5).
Moreover, section 1022(b)(1) of the Dodd-Frank Act authorizes the Bureau to prescribe rules “as may be necessary or appropriate to enable the Bureau to administer and carry out the purposes and objectives of the Federal consumer financial laws, and to prevent evasions thereof.” 12 U.S.C. 5512(b)(1). Accordingly, the Bureau is exercising its authority under Dodd-Frank Act section 1022(b) to propose rules that carry out the purposes and objectives of TILA, RESPA, title X of the Dodd-Frank Act, and certain enumerated subtitles and provisions of title XIV of the Dodd-Frank Act, and to prevent evasion of those laws.
The Bureau is proposing to amend rules that implement certain Dodd-Frank Act provisions. In particular, the Bureau is proposing to amend provisions of Regulation Z (and, by reference, Regulation X) adopted by the 2013 Mortgage Servicing Final Rules (including July 2013 amendments thereto), the January 2013 ATR Final Rule, and the May 2013 ATR Final Rule.
IV. Proposed Effective Date
The Bureau proposes that all of the changes proposed herein take effect thirty days after publication of a final rule in the Federal Register . The proposed changes would expand exemptions and provide relief from regulatory requirements; therefore the Bureau believes an effective date of 30 days after publication may be appropriate. The Bureau seeks comment on whether the proposed effective date is appropriate, or whether the Bureau should adopt an alternative effective date.
V. Section-by-Section Analysis
Section 1026.41 Periodic Statements for Residential Mortgage Loans
41(e) Exemptions
41(e)(4) Small Servicers
The Bureau is proposing to revise the scope of the exemption for small servicers that is set forth in § 1026.41 of Regulation Z and incorporated by cross-reference in certain provisions of Regulation X
reau should adopt an alternative effective date.
V. Section-by-Section Analysis
Section 1026.41 Periodic Statements for Residential Mortgage Loans
41(e) Exemptions
41(e)(4) Small Servicers
The Bureau is proposing to revise the scope of the exemption for small servicers that is set forth in § 1026.41 of Regulation Z and incorporated by cross-reference in certain provisions of Regulation X. The proposal would add an alternative definition of small servicer which would apply to certain nonprofit entities that service for a fee only loans for which the servicer or an associated nonprofit entity is the creditor.
The Bureau's 2013 Mortgage Servicing Final Rules exempt small servicers from certain mortgage servicing requirements. Specifically, Regulation Z exempts small servicers, defined in § 1026.41(e)(4)(ii), from the requirement to provide periodic statements for residential mortgage loans. 10 Regulation X incorporates this same definition by reference to § 1026.41(e)(4) and thereby exempts small servicers from: (1) Certain requirements relating to obtaining force-placed insurance, 11 (2) the general servicing policies, procedures, and requirements, 12 and (3) certain requirements and restrictions relating to communicating with borrowers about, and evaluation of applications for, loss mitigation options. 13
10 12 CFR 1026.41(e) (requiring delivery each billing cycle of a periodic statement, with specific content and form). For loans serviced by a small servicer, a creditor or assignee is also exempt from the Regulation Z periodic statement requirements. 12 CFR 1026.41(e)(4)(i).
11 12 CFR 1024.17(k)(5) (prohibiting purchase of force-placed insurance in certain circumstances).
12 12 CFR 1024.30(b)(1) (exempting small servicers from §§ 1024.38 through 41, except as otherwise provided under 41(j), as discussed in note 13, infra )
iced by a small servicer, a creditor or assignee is also exempt from the Regulation Z periodic statement requirements. 12 CFR 1026.41(e)(4)(i).
11 12 CFR 1024.17(k)(5) (prohibiting purchase of force-placed insurance in certain circumstances).
12 12 CFR 1024.30(b)(1) (exempting small servicers from §§ 1024.38 through 41, except as otherwise provided under 41(j), as discussed in note 13, infra ). Sections 1024.38 through 40 respectively impose general servicing policies, procedures, and requirements; early intervention requirements for delinquent borrowers; and policies and procedures to maintain continuity of contact with delinquent borrowers).
13 See 12 CFR 1024.41 (loss mitigation procedures). Though exempt from most of the rule, small servicers are subject to the prohibition of foreclosure referral before the loan obligation is more than 120 days delinquent and may not make the first notice or filing for foreclosure if a borrower is performing pursuant to the terms of an agreement on a loss mitigation option. 12 CFR 1024.41(j).
Current § 1026.41(e)(4)(ii) defines the term “small servicer” as a servicer that either: (A) Services, together with any affiliates, 5,000 or fewer mortgage loans, for all of which the servicer (or an affiliate) is the creditor or assignee; or (B) is a Housing Finance Agency, as defined in 24 CFR 266.5. “Affiliate” is defined in § 1026.32(b)(5) as any company that controls, is controlled by, or is under common control with another company, as set forth in the Bank Holding Company Act of 1956, 12 U.S.C. 1841 et seq. (BHCA). 14
14 Under the BHCA, a company has “control” over another company if it (i) “directly or indirectly . . . owns, controls, or has power to vote 25 per centum or more of any class of voting securities” of the other company; (ii) “controls . .
ls, is controlled by, or is under common control with another company, as set forth in the Bank Holding Company Act of 1956, 12 U.S.C. 1841 et seq. (BHCA). 14
14 Under the BHCA, a company has “control” over another company if it (i) “directly or indirectly . . . owns, controls, or has power to vote 25 per centum or more of any class of voting securities” of the other company; (ii) “controls . . . the election of a majority of the directors or trustees” of the other company; or (iii) “directly or indirectly exercises a controlling influence over the management or policies” of the other company (based on a determination by the Board). 12 U.S.C. 1841(a)(2).
Generally, under § 1026.41(e)(4)(ii)(A), a servicer cannot be a small servicer if it services any loan for which the servicer or its affiliate is not the creditor or assignee. However, current § 1026.41(e)(4)(iii) excludes from consideration certain types of mortgage loans for purposes of determining whether a servicer qualifies as a small servicer: (A) Mortgage loans voluntarily serviced by the servicer for a creditor or assignee that is not an affiliate of the servicer and for which the servicer does not receive any compensation or fees; (B) reverse mortgage transactions; and (C) mortgage loans secured by consumers' interests in timeshare plans. In the 2013 Mortgage Servicing Final Rules, the Bureau concluded that a separate exemption for nonprofits was not necessary because the Bureau believed that nonprofits would likely fall within the small servicer exemption. See 78 FR 10695, 10720 (Feb. 14, 2013)
ve any compensation or fees; (B) reverse mortgage transactions; and (C) mortgage loans secured by consumers' interests in timeshare plans. In the 2013 Mortgage Servicing Final Rules, the Bureau concluded that a separate exemption for nonprofits was not necessary because the Bureau believed that nonprofits would likely fall within the small servicer exemption. See 78 FR 10695, 10720 (Feb. 14, 2013).
As part of the Bureau's Implementation Plan, the Bureau has learned that certain nonprofit entities may, for a fee, service loans for another nonprofit entity that is the creditor on
The Bureau understands that groups of nonprofit entities that are associated with one another may consolidate servicing activities to achieve economies of scale necessary to service loans cost-effectively, and that such costs savings may reduce the cost of credit or enable the nonprofit to extend a greater number of loans overall. However, because of their corporate structures, such groups of nonprofit entities have a more difficult time than related for-profit servicers qualifying for the small servicer exemption. For the reasons discussed below, the Bureau believes that the ability of such nonprofit entities to consolidate servicing activities may be beneficial to consumers— e.g., to the extent servicing cost savings are passed on to consumers and/or lead to increased credit availability—and may outweigh the consumer protections provided by the servicing rules to those consumers affected by this proposal.
Accordingly, the Bureau is proposing an alternative definition of small servicer that would apply to nonprofit entities that service loans on behalf of other nonprofits within a common network or group of nonprofit entities. Specifically, proposed § 1026.41(e)(4)(ii)(C) provides that a small servicer is a nonprofit entity that services 5,000 or fewer mortgage loans, including any mortgage loans serviced on behalf of associated nonprofit entities, for all of which the servicer or an associated nonprofit entity is the creditor
ce loans on behalf of other nonprofits within a common network or group of nonprofit entities. Specifically, proposed § 1026.41(e)(4)(ii)(C) provides that a small servicer is a nonprofit entity that services 5,000 or fewer mortgage loans, including any mortgage loans serviced on behalf of associated nonprofit entities, for all of which the servicer or an associated nonprofit entity is the creditor. Proposed § 1026.41(e)(4)(ii)(C)( 1 ) provides that, for purposes of proposed § 1026.41(e)(4)(ii)(C), the term “nonprofit entity” means an entity having a tax exemption ruling or determination letter from the Internal Revenue Service under section 501(c)(3) of the Internal Revenue Code of 1986. See 26 U.S.C. 501(c)(3); 26 CFR 1.501(c)(3)-1. Proposed § 1026.41(e)(4)(ii)(C)( 2 ) defines “associated nonprofit entities” to mean nonprofit entities that by agreement operate using a common name, trademark, or servicemark to further and support a common charitable mission or purpose.
The Bureau is also proposing technical changes to § 1026.41(e)(4)(iii), which addresses the timing of the small servicer determination and also excludes certain loans from the 5,000-loan limitation. The proposed changes would add language to the existing timing requirement to limit its application to the small servicer determination for purposes of § 1026.41(e)(4)(ii)(A) and insert a separate timing requirement for purposes of determining whether a nonprofit servicer is a small servicer pursuant to § 1026.41(e)(4)(ii)(C). Specifically, that requirement would provide that the servicer is evaluated based on the mortgage loans serviced by the servicer as of January 1 and for the remainder of the calendar year.
The Bureau is proposing technical changes to comment 41(e)(4)(ii)-2 in light of proposed § 1026.41(e)(4)(ii)(C). In addition, the Bureau is proposing to add a comment to parallel existing comment 41(e)(4)(ii)-2 (that addresses the requirements to be a small servicer under the existing definition in § 1026.41(e)(4)(ii)(A))
y the servicer as of January 1 and for the remainder of the calendar year.
The Bureau is proposing technical changes to comment 41(e)(4)(ii)-2 in light of proposed § 1026.41(e)(4)(ii)(C). In addition, the Bureau is proposing to add a comment to parallel existing comment 41(e)(4)(ii)-2 (that addresses the requirements to be a small servicer under the existing definition in § 1026.41(e)(4)(ii)(A)). Specifically, new comment 41(e)(4)(ii)-4 would clarify that there are two elements to satisfying the nonprofit small creditor definition in proposed § 1026.41(e)(4)(ii)(C). First, the comment would clarify that a nonprofit entity must service 5,000 or fewer mortgage loans, including any mortgage loans serviced on behalf of associated nonprofit entities. For each associated nonprofit entity, the small servicer determination is made separately without consideration of the number of loans serviced by another associated nonprofit entity. Second, the comment would further explain that the nonprofit entity must service only mortgage loans for which the servicer (or an associated nonprofit entity) is the creditor. To be the creditor, the servicer (or an associated nonprofit entity) must have been the entity to which the mortgage loan obligation was initially payable (that is, the originator of the mortgage loan). The comment would explain that a nonprofit entity is not a small servicer under § 1026.41(e)(4)(ii)(C) if it services any mortgage loans for which the servicer or an associated nonprofit entity is not the creditor (that is, for which the servicer or an associated nonprofit entity was not the originator). The comment would provide two examples to demonstrate the application of the small servicer definition under § 1026.41(e)(4)(ii)(C).
The Bureau is also proposing to revise existing comment 41(e)(4)(iii)-3 to specify that it explains the application of § 1026.41(e)(4)(iii) to the small servicer determination under § 1026.41(e)(4)(ii)(A) specifically
iated nonprofit entity was not the originator). The comment would provide two examples to demonstrate the application of the small servicer definition under § 1026.41(e)(4)(ii)(C).
The Bureau is also proposing to revise existing comment 41(e)(4)(iii)-3 to specify that it explains the application of § 1026.41(e)(4)(iii) to the small servicer determination under § 1026.41(e)(4)(ii)(A) specifically. As revised, comment 41(e)(4)(iii)-3 would explain that mortgage loans that are not considered pursuant to § 1026.41(e)(4)(iii) for purposes of the small servicer determination under § 1026.41(e)(4)(ii)(A) are not considered either for determining whether a servicer (together with any affiliates) services 5,000 or fewer mortgage loans or whether a servicer is servicing only mortgage loans that it (or an affiliate) owns or originated. The proposal would also make clarifying changes to the example provided in comment 41(e)(4)(iii)-3 and would move language in existing comment 41(e)(4)(iii)-3 regarding the limited role of voluntarily serviced mortgage loans to new proposed comment 41(e)(4)(iii)-5. The Bureau is also proposing technical changes to comment 41(e)(4)(iii)-2 in light of proposed § 1026.41(e)(4)(ii)(C).
In addition, the Bureau is proposing a new comment 41(e)(4)(iii)-4 to explain the application of § 1026.41(e)(4)(iii) to the nonprofit small servicer determination under proposed § 1026.41(e)(4)(ii)(C) specifically. The proposed comment would explain that mortgage loans that are not considered pursuant to § 1026.41(e)(4)(iii) for purposes of the small servicer determination under § 1026.41(e)(4)(ii)(C) are not considered either for determining whether a nonprofit entity services 5,000 or fewer mortgage loans, including any mortgage loans serviced on behalf of associated nonprofit entities, or whether a nonprofit entity is servicing only mortgage loans that it or an associated nonprofit entity originated. The comment would provide an example of a nonprofit entity that services 5,400 mortgage loans
re not considered either for determining whether a nonprofit entity services 5,000 or fewer mortgage loans, including any mortgage loans serviced on behalf of associated nonprofit entities, or whether a nonprofit entity is servicing only mortgage loans that it or an associated nonprofit entity originated. The comment would provide an example of a nonprofit entity that services 5,400 mortgage loans. Of these mortgage loans, it originated 2,800 mortgage loans and associated nonprofit entities originated 2,000 mortgage loans. The nonprofit entity receives compensation for servicing the loans originated by associated nonprofits. The nonprofit entity also voluntarily services 600 mortgage loans that were originated by an entity that is not an associated nonprofit entity, and receives no compensation or fees for servicing these loans. The voluntarily serviced mortgage loans are not considered in determining whether the servicer qualifies as a small servicer. Thus,
The Bureau believes that nonprofit entities are an important source of credit, particularly for low- and moderate-income consumers. The Bureau understands that nonprofit entities, while they may operate under a common name, trademark, or servicemark, are not typically structured to meet the definition of affiliate under the BHCA. However, nonprofit entities derive less revenue than other creditors or servicers from their lending activities, and therefore the Bureau believes associated nonprofit entities may seek to coordinate activities—including loan servicing—as a means of achieving economies of scale.
Under the existing rule, a servicer qualifies for the small servicer exemption if it services for a fee a loan for which another entity is the creditor or assignee, so long as both entities are affiliates under the BHCA and the servicer and its affiliates together service 5,000 or fewer mortgage loans
k to coordinate activities—including loan servicing—as a means of achieving economies of scale.
Under the existing rule, a servicer qualifies for the small servicer exemption if it services for a fee a loan for which another entity is the creditor or assignee, so long as both entities are affiliates under the BHCA and the servicer and its affiliates together service 5,000 or fewer mortgage loans. Since nonprofit entities are not typically structured to meet the definition of affiliate under the BHCA, a nonprofit entity that services, for a fee, even a single loan of an associated nonprofit entity likely would not qualify as a small servicer under the current rule. The Bureau is proposing an alternative small servicer definition for nonprofits to permit associated nonprofit entities to enter into the type of servicing arrangements, such as consolidation of servicing activities, that are available to affiliates under the current rule.
The limitation in the current rule to BHCA affiliates may discourage consolidation of servicing among associated nonprofits, even though such consolidation may benefit consumers by increasing access to credit and reducing the cost of credit for low- and moderate-income consumers for whom nonprofits are an important source of credit. In addition, consolidating servicing in one entity within the associated nonprofit structure may enhance the nonprofit's ability to promptly credit payments, administer escrow account obligations, or handle error requests or other requirements under Regulations X and Z, which are applicable regardless of small servicer status. In addition, though small servicers are exempt from the requirements of §§ 1024.38 through 1024.40, as well as most of the loss mitigation provisions under § 1024.41, the Bureau believes that delinquent borrowers may nonetheless benefit from consolidated nonprofit servicers' enhanced ability to devote trained staff to their situation
and Z, which are applicable regardless of small servicer status. In addition, though small servicers are exempt from the requirements of §§ 1024.38 through 1024.40, as well as most of the loss mitigation provisions under § 1024.41, the Bureau believes that delinquent borrowers may nonetheless benefit from consolidated nonprofit servicers' enhanced ability to devote trained staff to their situation.
The Bureau is concerned that if nonprofit servicers are subject to all of the servicing rules, low- and moderate-income consumers may face increased costs or reduced access to credit. Although the Bureau believes the servicing rules provide important protections for consumers, the Bureau is concerned that these protections may not outweigh the risk of reduction in credit access for low- and moderate-income consumers served by nonprofit entities that qualify for the proposed § 1026.41(e)(4)(ii)(C) exemption. Furthermore, the Bureau believes these nonprofit entities, because of their scale and community-focused lending programs, already have incentives to provide high levels of customer contact and information—incentives that warrant exempting those servicers from complying with the periodic statement requirements under Regulation Z and certain requirements of Regulation X discussed above.
The Bureau has narrowly tailored the proposed small servicer definition for nonprofits to prevent evasion of the servicing rules. For example, the proposed definition contains restrictions on nonprofits and requires that a substantial relationship exist among the associated nonprofits to qualify for the exemption. As noted above, the definition would be limited to groups of nonprofits that share a common name, trademark, or servicemark to further and support a common charitable mission or purpose. The Bureau believes that requiring such commonality reduces the risk that the small servicer definition will be used to circumvent the servicing rules
among the associated nonprofits to qualify for the exemption. As noted above, the definition would be limited to groups of nonprofits that share a common name, trademark, or servicemark to further and support a common charitable mission or purpose. The Bureau believes that requiring such commonality reduces the risk that the small servicer definition will be used to circumvent the servicing rules. However, the Bureau seeks comment on whether the proposed definition of “associated nonprofit entities” is appropriate.
The Bureau has further limited the scope of the proposed nonprofit small servicer definition to entities designated with an exemption under 501(c)(3) of the Internal Revenue Code. As the Bureau noted in the January 2013 ATR Proposal, the Bureau believes that 501(c)(3)-designated entities face particular constraints on resources that other tax-exempt organizations may not. See 78 FR 6621, 6644-45 (Jan. 30, 2013). As a result, these entities may have fewer resources to comply with additional rules. In addition, tax-exempt status under section 501(c)(3) requires a formal determination by the government, in contrast to other types of tax-exempt status. Accordingly, limiting the proposed nonprofit small servicer provision to those entities with IRS tax exempt determinations for wholly charitable organizations may help to ensure that the nonprofit small servicer status is not used to evade the servicing rules. However, the Bureau solicits comment on whether limitation of the definition of “nonprofit entity” for purposes of § 1026.41(e)(4)(ii)(C) to entities with a tax exemption ruling or determination letter from the Internal Revenue Service under section 501(c)(3) of the Internal Revenue Code is appropriate
elp to ensure that the nonprofit small servicer status is not used to evade the servicing rules. However, the Bureau solicits comment on whether limitation of the definition of “nonprofit entity” for purposes of § 1026.41(e)(4)(ii)(C) to entities with a tax exemption ruling or determination letter from the Internal Revenue Service under section 501(c)(3) of the Internal Revenue Code is appropriate. The Bureau also seeks comment on whether it is appropriate to include additional criteria regarding the nonprofit entity's activities or the loans' features or purposes, such as those in the nonprofit exemption from the ability to repay requirements in § 1026.43(a)(3)(v)(D) or in other statutory or regulatory schemes.
As noted above, the proposed alternative small servicer definition in § 1026.41(e)(4)(ii)(C) would apply to nonprofit entities that service 5,000 or fewer mortgage loans. The Bureau believes that it is necessary, in general, to limit the number of loans serviced by small servicers to prevent evasion of the servicing rules and because the Bureau believes that entities servicing more than 5,000 mortgage loans are of a sufficient size to comply with the full set of servicing rules. However, the proposed rule would apply that loan limitation to associated nonprofit entities differently than to affiliates. Specifically, the definition of small servicer in § 1026.41(e)(4)(ii)(A) counts towards the 5,000-loan limitation all loans serviced by the servicer together with all loans serviced by any affiliates. In contrast, the proposed rule for nonprofit entities would count towards the 5,000-loan limitation only the loans serviced by a given nonprofit entity (including loans it services on behalf of associated nonprofit entities), and would not consider loans serviced by associated nonprofit entities
-loan limitation all loans serviced by the servicer together with all loans serviced by any affiliates. In contrast, the proposed rule for nonprofit entities would count towards the 5,000-loan limitation only the loans serviced by a given nonprofit entity (including loans it services on behalf of associated nonprofit entities), and would not consider loans serviced by associated nonprofit entities. As noted above, the Bureau is concerned that small servicers generally lack the ability to cost-effectively comply with the full set of servicing rules, a concern that is heightened in the context of nonprofit small servicers which derive less revenue than other creditors or servicers from their lending activities. Some nonprofits may consolidate servicing activities to achieve economies of scale across associated nonprofits. However, the Bureau is also concerned that other nonprofits may be structured differently and that for these nonprofit entities
The proposed exemption would also apply only to a nonprofit entity that services loans for which it or an associated nonprofit entity is the creditor. In contrast with the exemption under § 1026.41(e)(4)(ii)(A), the proposed exemption would not apply to a nonprofit entity that services loans for which it or an associated nonprofit entity is the assignee of the loans being serviced. The Bureau believes that nonprofit entities typically do not service loans for which an entity other than that nonprofit entity or an associated nonprofit is the creditor, nor does the Bureau believe that nonprofit entities typically take an assignment of a loan originated by an entity other than an associated nonprofit entity
ssociated nonprofit entity is the assignee of the loans being serviced. The Bureau believes that nonprofit entities typically do not service loans for which an entity other than that nonprofit entity or an associated nonprofit is the creditor, nor does the Bureau believe that nonprofit entities typically take an assignment of a loan originated by an entity other than an associated nonprofit entity. Further, the Bureau is concerned that a rule that permits a nonprofit servicer to service for a fee loans that were originated by someone other than itself or an associated nonprofit entity while retaining the benefit of the exemption could be used to evade the servicing rules, particularly since the proposed rule would not consider loans serviced by associated nonprofit entities as counting towards the 5,000-loan limit. The Bureau seeks comment on whether limiting the exemption to loans for which the servicer or an associated nonprofit entity is the creditor is appropriate.
Legal Authority
The Bureau is proposing to exempt nonprofit small servicers from the periodic statement requirement under TILA section 128(f) pursuant to its authority under TILA section 105(a) and (f), and Dodd-Frank Act section 1405(b).
For the reasons discussed above, the Bureau believes the proposed exemption is necessary and proper under TILA section 105(a) to facilitate TILA compliance. The purpose of the periodic statement requirement is to ensure that consumers receive ongoing customer contact and account information. As discussed above, the Bureau believes that nonprofit entities that qualify for the exemption have incentives to provide ongoing consumer contact and account information that would exist absent a regulatory requirement to do so. The Bureau also believes that such nonprofits may consolidate servicing functions in an associated nonprofit entity to cost-effectively provide this high level of customer contact and otherwise comply with applicable regulatory requirements
ualify for the exemption have incentives to provide ongoing consumer contact and account information that would exist absent a regulatory requirement to do so. The Bureau also believes that such nonprofits may consolidate servicing functions in an associated nonprofit entity to cost-effectively provide this high level of customer contact and otherwise comply with applicable regulatory requirements. As described above, the Bureau is concerned that the current rule may discourage consolidation of servicing functions. As a result, the current rule may result in nonprofits being unable to provide high-contact servicing or to comply with other applicable regulatory requirements due to the costs that would be imposed on each individual servicer. Accordingly, the Bureau believes the proposed nonprofit small servicer definition facilitates compliance with TILA by allowing nonprofit small servicers to consolidate servicing functions, without losing status as a small servicer, in order to cost-effectively service loans in compliance with applicable regulatory requirements.
In addition, consistent with TILA section 105(f) and in light of the factors in that provision, for a nonprofit entity servicing 5,000 or fewer loans, including those serviced on behalf of associated nonprofits, all of which that servicer or an associated nonprofit originated, the Bureau believes that requiring them to comply with the periodic statement requirement in TILA section 128(f) would not provide a meaningful benefit to consumers in the form of useful information or protection. The Bureau believes, as noted above, that these nonprofit servicers have incentives to provide consumers with necessary information, and that requiring provision of periodic statements would impose significant costs and burden
to comply with the periodic statement requirement in TILA section 128(f) would not provide a meaningful benefit to consumers in the form of useful information or protection. The Bureau believes, as noted above, that these nonprofit servicers have incentives to provide consumers with necessary information, and that requiring provision of periodic statements would impose significant costs and burden. Specifically, the Bureau believes that the proposal will not complicate, hinder, or make more expensive the credit process—and is proper without regard to the amount of the loan, to the status of the consumer (including related financial arrangements, financial sophistication, and the importance to the consumer of the loan or related supporting property), or to whether the loan is secured by the principal residence of the consumer. In addition, consistent with Dodd-Frank Act section 1405(b), for the reasons discussed above, the Bureau believes that exempting nonprofit small servicers from the requirements of TILA section 128(f) would be in the interest of consumers and in the public interest.
As noted above, current Regulation X cross-references the definition of small servicer in § 1026.41(e)(4) for the purpose of exempting small servicers from several mortgage servicing requirements. Accordingly, in proposing to amend that definition, the Bureau is also proposing to amend the current Regulation X exemptions for small servicers. For this purpose, the Bureau is relying on the same authorities on which it relied in promulgating the current Regulation X small servicer exemptions. Specifically, the Bureau is proposing to exempt nonprofit small servicers from the requirements of Regulation X §§ 1024.38 through 41, except as otherwise provided in § 1024.41(j), see § 1024.30(b)(1), as well as certain requirements of § 1024.17(k)(5), pursuant to its authority under section 19(a) of RESPA to grant such reasonable exemptions for classes of transactions as may be necessary to achieve the consumer protection purposes of RESPA
pt nonprofit small servicers from the requirements of Regulation X §§ 1024.38 through 41, except as otherwise provided in § 1024.41(j), see § 1024.30(b)(1), as well as certain requirements of § 1024.17(k)(5), pursuant to its authority under section 19(a) of RESPA to grant such reasonable exemptions for classes of transactions as may be necessary to achieve the consumer protection purposes of RESPA. The consumer protection purposes of RESPA include helping borrowers avoid unwarranted or unnecessary costs and fees. The Bureau believes that the proposed rule would ensure consumers avoid unwarranted and unnecessary costs and fees by encouraging nonprofit small servicers to consolidate servicing functions.
In addition, the Bureau relies on its authority pursuant to section 1022(b) of the Dodd-Frank Act to prescribe regulations necessary or appropriate to carry out the purposes and objectives of Federal consumer financial law, including the purposes and objectives of Title X of the Dodd-Frank Act. Specifically, the Bureau believes that the proposed rule is necessary and appropriate to carry out the purpose under section 1021(a) of the Dodd-Frank Act of ensuring that all consumers have access to markets for consumer financial products and services that are fair, transparent, and competitive, and the objective under section 1021(b) of the Dodd-Frank Act of ensuring that markets for consumer financial products and services operate transparently and efficiently to facilitate access and innovation.
With respect to §§ 1024.17(k)(5), 39, and 41 (except as otherwise provided in § 1024.41(j)), the Bureau is also proposing the nonprofit small servicer definition pursuant to its authority in section 6(j)(3) of RESPA to set forth requirements necessary to carry out section 6 of RESPA and in section 6(k)(1)(E) of RESPA to set forth obligations appropriate to carry out the consumer protection purposes of RESPA
ct to §§ 1024.17(k)(5), 39, and 41 (except as otherwise provided in § 1024.41(j)), the Bureau is also proposing the nonprofit small servicer definition pursuant to its authority in section 6(j)(3) of RESPA to set forth requirements necessary to carry out section 6 of RESPA and in section 6(k)(1)(E) of RESPA to set forth obligations appropriate to carry out the consumer protection purposes of RESPA.
Section 1026.43 Minimum Standards for Transactions Secured by a Dwelling
43(a) Scope
43(a)(3)
The Bureau is proposing to amend the nonprofit small creditor exemption from the ability-to-repay rule that is set forth in § 1026.43(a)(3)(v)(D) of Regulation Z. To qualify for this exemption, a creditor must have extended credit secured by a dwelling no more than 200 times during the calendar year preceding receipt of the consumer's application. The proposal would exclude certain subordinate-lien transactions from this credit extension limit.
Section 129C(a)(1) of TILA states that no creditor may make a residential mortgage loan unless the creditor makes a reasonable and good faith determination (based on verified and documented information) that, at the time the loan is consummated, the consumer has a reasonable ability to repay the loan, according to its terms, and all applicable taxes, insurance (including mortgage guarantee insurance), and assessments. 15 U.S.C. 1639c(a)(1). Section 1026.43 of Regulation Z implements the ability-to-repay provisions of section 129C of TILA.
The January 2013 ATR Final Rule implemented statutory exemptions from the ability-to-repay provisions for home equity lines of credit subject to 12 CFR 1026.40, and for mortgage transactions secured by a consumer's interest in a timeshare plan, as defined in 11 U.S.C. 101(53D). See 12 CFR 1026.43(a)
ction 1026.43 of Regulation Z implements the ability-to-repay provisions of section 129C of TILA.
The January 2013 ATR Final Rule implemented statutory exemptions from the ability-to-repay provisions for home equity lines of credit subject to 12 CFR 1026.40, and for mortgage transactions secured by a consumer's interest in a timeshare plan, as defined in 11 U.S.C. 101(53D). See 12 CFR 1026.43(a). The rule also exempted from the ability-to-repay requirements (1) a transaction that is a reverse mortgage subject to 12 CFR 1026.33, (2) temporary or “bridge” loans with a term of 12 months or less, and (3) a construction phase of 12 months or less of a construction-to-permanent loan.
The January 2013 ATR Final Rule did not provide additional exemptions sought by certain commenters in response to an earlier proposal published by the Board in 2011. See 76 FR 27389 (May 11, 2011) (2011 ATR Proposal). However, the January 2013 ATR Proposal sought additional input on some of those exemptions, and contained a specific proposal to exempt certain nonprofit creditors from the ability-to-repay requirements. The Bureau believed that limiting the proposed exemption to creditors designated as nonprofits was appropriate because of the difference in lending practices between nonprofit and other creditors. The proposed exemption was premised on the belief that the additional costs imposed by the ability-to-repay requirements might prompt some nonprofit creditors to cease extending credit, or substantially limit their credit activities, thereby possibly harming low- to moderate-income consumers. The Bureau further stated that for-profit creditors derive more revenue from mortgage lending activity than nonprofit creditors, and therefore presumably are more likely to have the resources to comply with the ability-to-repay requirements.
The Bureau was concerned that an exemption for all nonprofit creditors could allow irresponsible creditors to intentionally circumvent the ability-to-repay requirements and harm consumers
for-profit creditors derive more revenue from mortgage lending activity than nonprofit creditors, and therefore presumably are more likely to have the resources to comply with the ability-to-repay requirements.
The Bureau was concerned that an exemption for all nonprofit creditors could allow irresponsible creditors to intentionally circumvent the ability-to-repay requirements and harm consumers. Thus, under the January 2013 ATR Proposal, the exemption would have been available only if the creditor and the loan met certain criteria. First, the creditor would have been required to have a tax exemption ruling or determination letter from the Internal Revenue Service under section 501(c)(3) of the Internal Revenue Code of 1986 to be eligible for the proposed exemption. Second, the creditor could not have extended credit secured by a dwelling more than 100 times in the calendar year preceding receipt of the consumer's application. Third, the creditor, in the calendar year preceding receipt of the consumer's application, must have extended credit only to consumers whose income did not exceed the low- and moderate-income household limit established by HUD. Fourth, the extension of credit must have been to a consumer with income that does not exceed HUD's low- and moderate-income household limit. Fifth, the creditor must have determined, in accordance with written procedures, that the consumer has a reasonable ability to repay the extension of credit.
The Bureau believed that, in contrast to for-profit creditors and other nonprofit creditors, the nonprofit creditors identified in § 1026.43(a)(3)(v)(D) appeared to elevate long-term community stability over the creditor's economic considerations and to have stronger incentives to determine whether a consumer has the ability to repay a mortgage loan. The Bureau solicited comment regarding whether the proposed exemption was appropriate
to for-profit creditors and other nonprofit creditors, the nonprofit creditors identified in § 1026.43(a)(3)(v)(D) appeared to elevate long-term community stability over the creditor's economic considerations and to have stronger incentives to determine whether a consumer has the ability to repay a mortgage loan. The Bureau solicited comment regarding whether the proposed exemption was appropriate. The Bureau also specifically requested feedback on whether the proposed credit extension limit of 100 transactions was appropriate or should be increased or decreased. The Bureau also requested comment on the costs that would be incurred by nonprofit creditors that exceed that limit; the extent to which these additional costs would affect the ability of nonprofit creditors to extend responsible, affordable credit to low- and moderate-income consumers; and whether consumers could be harmed by the proposed exemption.
Comments Concerning the 100-Credit Extension Limit
The Bureau received many comments regarding the proposed nonprofit exemption. See 78 FR 35429, 35466-67 (June 12, 2013). Most commenters who supported the proposed exemption urged the Bureau to adopt conditions to prevent creditors from using the exemption to circumvent the rule. While many industry representatives, consumer advocates, and nonprofits believed that a 100-credit extension limit would discourage sham nonprofit creditors from exploiting the exemption, several of these commenters asked the Bureau to raise the limit. The commenters were primarily concerned that, in response to the proposed limit, nonprofit creditors would limit certain types of lending. Specifically, a few commenters stated that nonprofit creditors that offer both home-purchase mortgage loans and small-dollar mortgage loans, such as for home energy improvement, would limit small-dollar lending to remain under the 100-credit extension limitation
he commenters were primarily concerned that, in response to the proposed limit, nonprofit creditors would limit certain types of lending. Specifically, a few commenters stated that nonprofit creditors that offer both home-purchase mortgage loans and small-dollar mortgage loans, such as for home energy improvement, would limit small-dollar lending to remain under the 100-credit extension limitation.
The Nonprofit Exemption as Adopted
The May 2013 ATR Final Rule finalized the nonprofit exemption substantially as proposed, but raised the credit extension limit from 100 to 200 credit extensions in the calendar year preceding receipt of the consumer's application. See 78 FR 35429, 35467-69 (June 12, 2013). In finalizing the exemption, the Bureau noted that most commenters believed a credit extension limitation was necessary to prevent unscrupulous creditors from exploiting the exemption. The Bureau concluded that the risks of evasion warranted adopting the limit. The Bureau was concerned, however, that the proposed 100-credit extension limit would effectively restrict nonprofits to 50 home-purchase transactions per year, because nonprofits frequently provide simultaneous primary- and subordinate-lien financing for such transactions. Also, the Bureau was concerned that the proposed limit would reduce certain types of small-dollar lending by nonprofits, including financing home energy improvements.
Accordingly, the Bureau included a 200-credit extension limit in the final rule to address the concerns raised by commenters regarding access to credit. Some commenters had suggested limits as high as 500 credit extensions per
Response to the May 2013 ATR Final Rule and Further Proposal
Since the adoption of the May 2013 ATR Final Rule, the Bureau has heard concerns from some nonprofit creditors about the treatment of certain subordinate-lien programs under the nonprofit exemption from the ability-to-repay requirements
arding access to credit. Some commenters had suggested limits as high as 500 credit extensions per
Response to the May 2013 ATR Final Rule and Further Proposal
Since the adoption of the May 2013 ATR Final Rule, the Bureau has heard concerns from some nonprofit creditors about the treatment of certain subordinate-lien programs under the nonprofit exemption from the ability-to-repay requirements. These creditors are concerned that they may be forced to curtail these subordinate-lien programs or more generally limit their lending activities to avoid exceeding the 200-credit extension limit. In particular, these entities have indicated concern with the treatment of subordinate-lien transactions that charge no interest and for which repayment is generally either forgivable or of a contingent nature. The Bureau understands that, absent an amended nonprofit exemption from the May 2013 ATR Final Rule, these nonprofit creditors may not have the resources to comply with the rule and therefore are likely to curtail their lending to stay within the 200-credit extension limit.
In light of these concerns, the Bureau is proposing to exclude certain deferred or contingent, interest-free subordinate liens from the 200-credit extension limit for purposes of the nonprofit exemption in § 1026.43(a)(3)(v)(D). Specifically, proposed § 1026.43(a)(3)(vii) would provide that consumer credit transactions that meet the following criteria are not considered in determining whether a creditor meets the requirements of § 1026.43(a)(3)(v)(D)( 1 ): (A) The transaction is secured by a subordinate lien; (B) the transaction is for the purpose of downpayment, closing costs, or other similar home buyer assistance, such as principal or interest subsidies, property rehabilitation assistance, energy efficiency assistance, or foreclosure avoidance or prevention; (C) the credit contract does not require payment of interest; (D) the credit contract provides that the repayment of the amount of credit extended is ( 1 ) forgiven incrementally or in whol
payment, closing costs, or other similar home buyer assistance, such as principal or interest subsidies, property rehabilitation assistance, energy efficiency assistance, or foreclosure avoidance or prevention; (C) the credit contract does not require payment of interest; (D) the credit contract provides that the repayment of the amount of credit extended is ( 1 ) forgiven incrementally or in whole, at a date certain, and subject only to specified ownership and occupancy conditions, such as a requirement that the consumer maintain the property as the consumer's principal dwelling for five years, ( 2 ) deferred for a minimum of 20 years after consummation of the transaction, ( 3 ) deferred until sale of the property securing the transaction, or ( 4 ) deferred until the property securing the transaction is no longer the principal dwelling of the consumer; (E) the total of costs payable by the consumer in connection with the transaction at consummation is less than 1 percent of the amount of credit extended and includes no charges other than fees for recordation of security instruments, deeds, and similar documents; a bona fide and reasonable application fee; and a bona fide and reasonable fee for housing counseling services; and (F) in connection with the transaction, the creditor complies with all other applicable requirements of Regulation Z.
Proposed comment 43(a)(3)(vii)-1 would provide that the terms of the credit contract must satisfy the conditions that the transaction not require the payment of interest under § 1026.43(a)(3)(vii)(C) and that repayment of the amount of credit extended be forgiven or deferred in accordance with § 1026.43(a)(3)(vii)(D). The comment would further provide that the other requirements of § 1026.43(a)(3)(vii) need not be reflected in the credit contract, but the creditor must retain evidence of compliance with those provisions, as required by the record retention provisions of § 1026.25(a)
3)(vii)(C) and that repayment of the amount of credit extended be forgiven or deferred in accordance with § 1026.43(a)(3)(vii)(D). The comment would further provide that the other requirements of § 1026.43(a)(3)(vii) need not be reflected in the credit contract, but the creditor must retain evidence of compliance with those provisions, as required by the record retention provisions of § 1026.25(a). In particular, the creditor must have information reflecting that the total of closing costs imposed in connection with the transaction are less than 1 percent of the amount of credit extended—and include no charges other than recordation, application, and housing counseling fees, in accordance with § 1026.43(a)(3)(vii)(E). Unless an itemization of the amount financed sufficiently details this requirement, the creditor must establish compliance with § 1026.43(a)(3)(vii)(E) by some other written document and retain it in accordance with § 1026.25(a).
Proposed § 1026.43(a)(3)(vii) and the accompanying comment largely mirror a provision that was finalized as part of the Bureau's December 2013 TILA-RESPA Final Rule. See 78 FR 79729 (Dec. 31, 2013). That provision, which was finalized in both Regulation X, at § 1024.5(d), and Regulation Z, at § 1026.3(h)—and which will take effect on August 1, 2015, provides a partial exemption from the integrated disclosure requirements for loans that meet the above-described criteria. The Bureau finalized this partial exemption in the December 2013 TILA-RESPA Final Rule to preserve an existing exemption from Regulation X issued by HUD and to facilitate compliance with TILA and RESPA. See 78 FR 79729, 79758 and 79772 (Dec. 31, 2013). In proposing that exemption, the Bureau explained that the exemption was intended to describe criteria associated with certain housing assistance loan programs for low- and moderate-income persons. See 77 FR 51115, 51138 (Aug. 23, 2012)
preserve an existing exemption from Regulation X issued by HUD and to facilitate compliance with TILA and RESPA. See 78 FR 79729, 79758 and 79772 (Dec. 31, 2013). In proposing that exemption, the Bureau explained that the exemption was intended to describe criteria associated with certain housing assistance loan programs for low- and moderate-income persons. See 77 FR 51115, 51138 (Aug. 23, 2012). The Bureau believes the same criteria describe the class of transactions that may appropriately be excluded from the 200-credit extension limit in the ability-to-repay exemption for nonprofits. The Bureau also believes that defining a single class of transactions for purposes of § 1024.5(d), § 1026.3(h), and § 1026.43(a)(3)(vii) may facilitate compliance for creditors.
The Bureau believes the § 1026.43(a)(3)(v)(D) exemption as amended by the proposal would be limited to creditors with characteristics that ensure consumers are offered responsible, affordable credit on reasonably repayable terms. The Bureau also believes that subordinate-lien transactions meeting the proposed exclusion's criteria pose low risk to consumers, and that excluding these transactions from the credit extension limit is consistent with TILA's purposes. For example, in transactions that would be covered by proposed § 1026.43(a)(3)(vii), consumers often benefit from a reduction in their repayment obligations on an accompanying first-lien mortgage and often control the triggering of any subordinate-lien repayment requirement for at least a twenty-year period. Therefore, the subordinate-lien transactions may enhance the consumer's ability to repay their monthly mortgage obligations. Further, the prohibition against charging interest and strict limitation on fees reduces the likelihood that borrowers will be misled about the extent of their financial obligations, as the amounts of their obligations (if at all repayable) remain essentially fixed
r period. Therefore, the subordinate-lien transactions may enhance the consumer's ability to repay their monthly mortgage obligations. Further, the prohibition against charging interest and strict limitation on fees reduces the likelihood that borrowers will be misled about the extent of their financial obligations, as the amounts of their obligations (if at all repayable) remain essentially fixed. The Bureau believes that limiting the exclusion to loans with these characteristics may also reduce the likelihood that the provision would be used to evade the ability-to-repay requirements.
The Bureau also believes the proposed exclusion would facilitate access to credit for low- and moderate-
The Bureau believes that, without the proposed exclusion for these transactions, nonprofit creditors may limit such extensions of credit, or may limit their overall credit activity. As a result, low- and moderate-income consumers who would otherwise qualify for a nonprofit creditor's program may be denied credit. As noted in the January 2013 ATR Proposal, the current exemption for nonprofit creditors was premised on the belief that the additional costs imposed by the ability-to-repay requirements might prompt certain nonprofit creditors to cease extending credit, or substantially limit their credit activities, thereby possibly harming low- and moderate-income consumers. See 78 FR 6621, 6645 (Jan. 30, 2013). Because of their limited resources to bear the compliance burden of the ability-to-repay rule, the Bureau believes at least some nonprofit creditors may limit lending activity to maintain their exemption. The proposed amendment to the § 1026.43(a)(3)(v)(D) exemption is intended to minimize this effect by allowing nonprofit creditors to originate subordinate-lien transactions meeting the proposed § 1026.43(a)(3)(vii) criteria without the risk of losing that exemption
e ability-to-repay rule, the Bureau believes at least some nonprofit creditors may limit lending activity to maintain their exemption. The proposed amendment to the § 1026.43(a)(3)(v)(D) exemption is intended to minimize this effect by allowing nonprofit creditors to originate subordinate-lien transactions meeting the proposed § 1026.43(a)(3)(vii) criteria without the risk of losing that exemption.
In addition, the Bureau believes that excluding these subordinate-lien transactions from the transaction-count limitation may be appropriate because the origination of these loans is not necessarily indicative of a creditor's capacity to comply with the ability-to-repay requirements. As noted above, the Bureau believes that creditors extending credit in more than 200 dwelling-secured transactions per year are likely to have the resources and capacity to comply with the ability-to-repay requirements. However, subordinate-lien transactions typically involve small loan amounts and, as limited by the proposed exclusion's criteria, would generate little revenue to support a creditor's capacity to comply. Absent the exclusion, those creditors might curtail lending—with potential negative impacts for consumer's access to credit. Particularly when such a subordinate-lien transaction is originated in connection with a first-lien transaction, counting both transactions towards the 200-credit extension limit may not provide the appropriate indication of a creditor's capacity to comply.
As noted above, in adopting the current nonprofit exemption in § 1026.43(a)(3)(v)(D), the Bureau did not distinguish between first- and subordinate-lien transactions for purposes of the credit extension limit out of concerns that doing so would affect creditors' allocations of loans. However, the Bureau does not believe the proposed exclusion is likely to significantly affect such allocations
y.
As noted above, in adopting the current nonprofit exemption in § 1026.43(a)(3)(v)(D), the Bureau did not distinguish between first- and subordinate-lien transactions for purposes of the credit extension limit out of concerns that doing so would affect creditors' allocations of loans. However, the Bureau does not believe the proposed exclusion is likely to significantly affect such allocations. As noted above, the proposed exclusion permits nonprofit creditors to allocate resources to subordinate-lien transactions without risking their exemption from the ability-to-repay rule. To the extent the proposed exclusion encourages origination of these subordinate-lien transactions, the Bureau believes that the limitations on the borrower's repayment obligations as well as on the creditor's ability to charge interest and fees may minimize the risk that, as a result of the exclusion, creditors would allocate greater amounts of their lending to these transactions. In fact, to the extent many affordable homeownership programs use such subordinate-lien transactions in tandem with first-lien mortgages, excluding these subordinate-lien transactions from the credit extension limit count may reduce the current § 1026.43(a)(3)(v)(D) exemption's impact on nonprofit creditors' allocation of financing between first- and subordinate-lien transactions.
To address nonprofit creditor concerns, the Bureau also considered whether it would be appropriate to remove the credit extension limitation from the § 1026.43(a)(3)(v)(D) nonprofit exemption altogether. The Bureau believes that nonprofit creditors who originate 200 or more dwelling-secured transactions in a year generally have the resources necessary to comply with TILA ability-to-repay requirements
address nonprofit creditor concerns, the Bureau also considered whether it would be appropriate to remove the credit extension limitation from the § 1026.43(a)(3)(v)(D) nonprofit exemption altogether. The Bureau believes that nonprofit creditors who originate 200 or more dwelling-secured transactions in a year generally have the resources necessary to comply with TILA ability-to-repay requirements. The Bureau believes that the exemption properly balances relevant considerations, including the nature of credit extended, safeguards and other factors that may protect consumers from harm, and the extent to which application of the regulatory requirements would affect access to responsible, affordable credit. Accordingly, the Bureau continues to believe that the credit extension limit is necessary to prevent evasion, but is proposing to exclude from the 200-credit extension limit a narrow class of subordinate-lien transactions to address concerns expressed by nonprofit creditors and avoid potential negative impacts on access to credit, particularly for low- and moderate-income consumers.
Legal Authority
The current § 1026.43(a)(3)(v)(D) exemption from the ability-to-repay requirements was adopted pursuant to the Bureau's authority under section 105(a) and (f) of TILA. Pursuant to section 105(a) of TILA, the Bureau generally may prescribe regulations that provide for such adjustments and exceptions for all or any class of transactions that the Bureau judges are necessary or proper to effectuate, among other things, the purposes of TILA. For the reasons discussed in more detail above, the Bureau believes that the proposed amendment of the current § 1026.43(a)(3)(v)(D) exemption from the TILA ability-to-repay requirements is necessary and proper to effectuate the purposes of TILA, which include the purposes of TILA section 129C
s that the Bureau judges are necessary or proper to effectuate, among other things, the purposes of TILA. For the reasons discussed in more detail above, the Bureau believes that the proposed amendment of the current § 1026.43(a)(3)(v)(D) exemption from the TILA ability-to-repay requirements is necessary and proper to effectuate the purposes of TILA, which include the purposes of TILA section 129C. The Bureau believes that the proposed amendment of the exemption ensures that consumers are offered and receive residential mortgage loans on terms that reasonably reflect their ability to repay by helping to ensure the viability of the mortgage market for low- and moderate-income consumers. The Bureau believes that the mortgage loans originated by nonprofit creditors identified in § 1026.43(e)(4)(v)(D) generally account for a consumer's ability to repay. Without the proposed amendment to the exemption, the Bureau believes that low- and moderate-income consumers might be at risk of being denied access to the responsible and affordable credit offered by these creditors, which is contrary to the purposes of TILA. The proposed amendment to the exemption is consistent with the purposes of TILA by ensuring that consumers are able to obtain responsible, affordable credit from the nonprofit creditors discussed above.
The Bureau has considered the factors in TILA section 105(f) and believes that, for the reasons discussed above, the proposed amendment of the exemption is appropriate under that provision. For the reasons discussed above, the Bureau believes that the proposed amendment to § 1026.43(a)(3)(v)(D) would exempt
43(e) Qualified Mortgages
43(e)(3) Limits on Points and Fees for Qualified Mortgages
The Dodd-Frank Act provides that “qualified mortgages” are entitled to a presumption that the creditor making the loan satisfied the ability-to-repay requirements. The qualified mortgage provisions are implemented in § 1026.43(e)
reau believes that the proposed amendment to § 1026.43(a)(3)(v)(D) would exempt
43(e) Qualified Mortgages
43(e)(3) Limits on Points and Fees for Qualified Mortgages
The Dodd-Frank Act provides that “qualified mortgages” are entitled to a presumption that the creditor making the loan satisfied the ability-to-repay requirements. The qualified mortgage provisions are implemented in § 1026.43(e). Current § 1026.43(e)(3)(i) provides that a covered transaction is not a qualified mortgage if the transaction's total points and fees exceed certain limits set forth in § 1026.43(e)(3)(i)(A) through (E). For the reasons set forth below, the Bureau is proposing to permit a creditor or assignee to cure an inadvertent excess over the qualified mortgage points and fees limits by refunding to the consumer the amount of excess, under certain conditions. As discussed in part VI.A. below, the Bureau is also requesting comment on issues related to inadvertent debt-to-income ratio overages, but at this time is not proposing a specific change to the regulation. For purposes of these discussions, “cure” means a procedure to reduce points and fees or debt-to-income ratios after consummation when the qualified mortgage limits have been inadvertently exceeded, while “correction” means post-consummation revisions to documentation or calculations, or both, to reflect conditions as they actually existed at consummation.
43(e)(3)(i)
As discussed below, the Bureau is proposing a new § 1026.43(e)(3)(iii) to establish a cure procedure where a creditor inadvertently exceeds the qualified mortgage points and fees limits, under certain conditions
ly exceeded, while “correction” means post-consummation revisions to documentation or calculations, or both, to reflect conditions as they actually existed at consummation.
43(e)(3)(i)
As discussed below, the Bureau is proposing a new § 1026.43(e)(3)(iii) to establish a cure procedure where a creditor inadvertently exceeds the qualified mortgage points and fees limits, under certain conditions. As a conforming change, the Bureau is also proposing to amend § 1026.43(e)(3)(i), to add the introductory phrase “Except as provided in paragraph (e)(3)(iii) of this section” to § 1026.43(e)(3)(i), to specify that the cure provision in proposed § 1026.43(e)(3)(iii) is an exception to the general rule that a covered transaction is not a qualified mortgage if the transaction's total points and fees exceed the applicable limit set forth in § 1026.43(e)(3)(i)(A) through (E).
43(e)(3)(iii)
Section 1411 of the Dodd-Frank Act added new TILA section 129C to require a creditor making a residential mortgage loan to make a reasonable and good faith determination (based on verified and documented information) that, at the time the loan is consummated, the consumer has a reasonable ability to repay the loan. 15 U.S.C. 1639c. TILA section 129C(b) further provides that the ability-to-repay requirements are presumed to be met if the loan is a qualified mortgage. TILA section 129C(b)(2) sets certain product-feature and underwriting requirements for qualified mortgages, including a 3-percent limit on points and fees, but gives the Bureau authority to revise, add to, or subtract from these requirements. 15 Those requirements are implemented by the January 2013 ATR Final Rule, as amended by the May 2013 ATR Final Rule.
15 See TILA section 129C(b)(3)(B)(i)
. TILA section 129C(b)(2) sets certain product-feature and underwriting requirements for qualified mortgages, including a 3-percent limit on points and fees, but gives the Bureau authority to revise, add to, or subtract from these requirements. 15 Those requirements are implemented by the January 2013 ATR Final Rule, as amended by the May 2013 ATR Final Rule.
15 See TILA section 129C(b)(3)(B)(i). TILA section 129C(b)(2)(D) requires the Bureau to prescribe rules adjusting the 3-percent points and fees limit to “permit lenders that extend smaller loans to meet the requirements of the presumption of compliance.”
The current ability-to-repay rule provides for four categories of qualified mortgages: a “general” qualified mortgage definition that is available to any creditor; 16 a temporary qualified mortgage definition for loans eligible for sale to or guarantee by a government sponsored enterprise (GSE) or eligible for guarantee by or insurance under certain Federal agency programs; 17 and two qualified mortgage definitions available to small creditors. 18 The current rule provides that for all types of qualified mortgages, 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 specified for various categories of loans below $100,000. 19 Pursuant to § 1026.32(b)(1), points and fees are the “fees or charges that are known at or before consummation.”
16 12 CFR 1026.43(e)(2). Under the general qualified mortgage definition, the loan must meet certain restrictions on loan features, points and fees, and underwriting.
17 Section 1026.43(e)(4). The temporary GSE/agency qualified mortgage definition will sunset on the earlier of January 10, 2021, or, with respect to GSE-eligible loans, when the GSEs exit government conservatorship, or, with respect to agency-eligible loans, when those agencies' qualified mortgage definitions take effect
t certain restrictions on loan features, points and fees, and underwriting.
17 Section 1026.43(e)(4). The temporary GSE/agency qualified mortgage definition will sunset on the earlier of January 10, 2021, or, with respect to GSE-eligible loans, when the GSEs exit government conservatorship, or, with respect to agency-eligible loans, when those agencies' qualified mortgage definitions take effect.
18 Section 1026.43(e)(5) contains a special qualified mortgage definition for small creditors that hold loans in portfolio, while § 1026.43(f) permits small creditors that operate predominantly in rural or underserved areas to originate qualified mortgages with balloon-payment features, despite the general prohibition on qualified mortgages containing balloon payments. For a two-year transitional period, § 1026.43(e)(6) permits all small creditors, regardless of their areas of operation, to originate qualified mortgages with balloon-payment features. “Small creditor” is defined in § 1026.35(b)(2)(iii)(B) and (C), and generally includes creditors that, in the preceding calendar year, originated 500 or fewer covered transactions, including transactions originated by affiliates, and had less than $2 billion in assets.
19 See § 1026.43(e)(2) and (3). For loans of $60,000 up to $100,000, § 1026.43(e)(3)(i) allows points and fees of no more than $3,000. For loans of $20,000 up to $60,000, § 1026.43(e)(3)(i) allows points and fees of no more than 5 percent of the total loan amount. For loans of $12,500 up to $20,000, § 1026.43(e)(3)(i) allows points and fees of no more than $1,000. For loan amounts less than $12,500, § 1026.43(e)(3)(i) allows points and fees of no more than 8 percent of the total loan amount.
The calculation of points and fees is complex and can involve the exercise of judgment that may lead to inadvertent errors with respect to charges imposed at or before consummation
12,500 up to $20,000, § 1026.43(e)(3)(i) allows points and fees of no more than $1,000. For loan amounts less than $12,500, § 1026.43(e)(3)(i) allows points and fees of no more than 8 percent of the total loan amount.
The calculation of points and fees is complex and can involve the exercise of judgment that may lead to inadvertent errors with respect to charges imposed at or before consummation. For example, discount points may be mistakenly excluded from, or included in, the points and fees calculation as bona fide third-party charges, or bona fide discount points, under § 1026.32(b)(1)(i)(D) or (E). Mortgage insurance premiums under § 1026.32(b)(1)(i)(C) or loan originator compensation under § 1026.32(b)(1)(ii) may also mistakenly be excluded from, or included in, the points and fees calculation. A rigorous post-consummation review by the creditor or assignee of loans originated with the good faith expectation of qualified mortgage status may uncover such inadvertent errors. However, the current rule does not provide a mechanism for curing such inadvertent points and fees overages that are discovered after consummation.
Based on information received in the course of outreach in connection with the Bureau's Implementation Plan, the Bureau understands that some creditors
In light of these concerns, the Bureau is proposing to permit a creditor or assignee to cure an inadvertent excess over the qualified mortgage points and fees limit under certain defined conditions, including the requirement that the loan was originated in good faith as a qualified mortgage and that the cure be provided in the form of a refund to the consumer within 120 days after consummation. The Bureau notes that, where the loan was originated in good faith as a qualified mortgage, consumers likely received the benefit of qualified mortgage treatment by receiving lower overall loan pricing
including the requirement that the loan was originated in good faith as a qualified mortgage and that the cure be provided in the form of a refund to the consumer within 120 days after consummation. The Bureau notes that, where the loan was originated in good faith as a qualified mortgage, consumers likely received the benefit of qualified mortgage treatment by receiving lower overall loan pricing. For this reason, the Bureau believes that a cure provision, if appropriately limited, would reflect the expectations of both consumers and creditors at the time of consummation, would not result in significant consumer harm, and may increase access to credit by encouraging creditors to extend credit to consumers seeking loans at the margins of the points and fees limits. In addition, the Bureau believes that a limited cure provision may promote consistent pricing within the qualified mortgage range by decreasing the market's perceived need for higher pricing (due to compliance or secondary market repurchase risk) at the margins of the points and fees limits. The Bureau also believes this would promote stability in the market by limiting the need for repurchase demands that may otherwise be triggered without the proposed cure option.
The Bureau expects that, over time, creditors will develop greater familiarity with, and capabilities for, originating loans that are not qualified mortgages under the general ability-to-repay requirements, as well as greater confidence in general compliance systems. As they do so, creditors may relax internal buffers regarding points and fees that are predicated on the qualified mortgage threshold. However, the Bureau believes the impacts on access to credit may make a points and fees cure provision appropriate at this time. In addition, the Bureau believes that the cure provision will encourage post-consummation quality control review of loans, which will improve the origination process over time
rnal buffers regarding points and fees that are predicated on the qualified mortgage threshold. However, the Bureau believes the impacts on access to credit may make a points and fees cure provision appropriate at this time. In addition, the Bureau believes that the cure provision will encourage post-consummation quality control review of loans, which will improve the origination process over time.
Accordingly, proposed § 1026.43(e)(3)(iii) would provide that if the creditor or assignee determines after consummation that the total points and fees payable in connection with a loan exceed the applicable limit under § 1026.43(e)(3)(i), the loan is not precluded from being a qualified mortgage if certain conditions, discussed below, are met.
43(e)(3)(iii)(A)
First, new § 1026.43(e)(3)(iii)(A) would require that the creditor originated the loan in good faith as a qualified mortgage and the loan otherwise meets the requirements of § 1026.43(e)(2), (e)(4), (e)(5), (e)(6), or (f), as applicable. Comment 43(e)(3)(iii)-1 would provide examples of circumstances that may be evidence that a loan was or was not originated in good faith as a qualified mortgage. First, the comment would provide that maintaining and following policies and procedures designed to ensure that points and fees are correctly calculated and do not exceed the applicable limit under § 1026.43(e)(3)(i) may be evidence that the creditor originated the loan in good faith as a qualified mortgage. In addition, the comment would provide that if the pricing on the loan is consistent with pricing on qualified mortgages originated contemporaneously by the same creditor, that may be evidence that the loan was originated in good faith as a qualified mortgage. The comment would also provide examples of circumstances that may be evidence that the loan was not originated in good faith as a qualified mortgage
on, the comment would provide that if the pricing on the loan is consistent with pricing on qualified mortgages originated contemporaneously by the same creditor, that may be evidence that the loan was originated in good faith as a qualified mortgage. The comment would also provide examples of circumstances that may be evidence that the loan was not originated in good faith as a qualified mortgage. Specifically, the comment would provide that, if a creditor does not maintain—or has but does not follow—policies and procedures designed to ensure that points and fees are correctly calculated and do not exceed the applicable limit described in § 1026.43(e)(3)(i), that may be evidence that the creditor did not originate the loan in good faith as a qualified mortgage. If the pricing on the loan is not consistent with pricing on qualified mortgages originated contemporaneously by the same creditor, that may also be evidence that a loan was not originated in good faith as a qualified mortgage.
The Bureau is proposing to allow for a post-consummation cure of points and fees overages only where the loan was originated in good faith as a qualified mortgage to ensure that the cure provision is available only to creditors who make inadvertent errors in the origination process and to prevent creditors from exploiting the cure provision by intentionally exceeding the points and fees limits. However, the Bureau seeks comment on whether the good faith element of § 1026.43(e)(3)(iii)(A) is necessary in light of the other proposed limitations on the cure provision. The Bureau also seeks comment on the proposed examples in comment 43(e)(3)(iii)-1, specifically including whether additional guidance regarding the term “contemporaneously” in comments 43(e)(3)-1.i.B and 43(e)(3)-1.ii.B is necessary, and whether additional examples would be useful
aith element of § 1026.43(e)(3)(iii)(A) is necessary in light of the other proposed limitations on the cure provision. The Bureau also seeks comment on the proposed examples in comment 43(e)(3)(iii)-1, specifically including whether additional guidance regarding the term “contemporaneously” in comments 43(e)(3)-1.i.B and 43(e)(3)-1.ii.B is necessary, and whether additional examples would be useful.
43(e)(3)(iii)(B)
Second, to cure a points and fees overage, proposed § 1026.43(e)(3)(iii)(B) would require that within 120 days after consummation, the creditor or assignee refunds to the consumer the dollar amount by which the transaction's points and fees exceeded the applicable limit under § 1026.43(e)(3)(i) at consummation.
The Bureau believes that requiring a refund to occur within a short period after consummation is consistent with the requirement that the loan be originated in good faith as a qualified mortgage. The Bureau understands that many creditors and secondary market purchasers conduct audits or quality control reviews of loan files in the period immediately following consummation to ensure, among other things, compliance with regulatory requirements. During this review phase, a creditor that originated a loan in good faith as a qualified mortgage (or the creditor's assignee) may discover an inadvertent points and fees overage. Indeed, providing a reasonable but limited time period for cure may actually promote strong post-consummation quality control efforts,
The Bureau believes that the proposed 120-day period would result in reasonably prompt refunds to affected consumers and provide sufficient time to accommodate communication with the consumer. A 120-day period should also allow sufficient time for creditors and secondary market participants to conduct post-consummation reviews that may uncover inadvertent points and fees overages. In contrast, a longer period would not result in prompt refunds and would provide less incentive for rigorous review immediately after consummation
fficient time to accommodate communication with the consumer. A 120-day period should also allow sufficient time for creditors and secondary market participants to conduct post-consummation reviews that may uncover inadvertent points and fees overages. In contrast, a longer period would not result in prompt refunds and would provide less incentive for rigorous review immediately after consummation. In outreach to industry stakeholders prior to this proposal, the Bureau learned that 120 days is a time period within which post-consummation quality control reviews generally are completed. The Bureau specifically requests comment more broadly, however, on whether 120 days is an appropriate time period for post-consummation cure of a points and fees overage, or whether a longer or shorter period should be provided; what factors would support any recommended time period; and, if the cure were available for a longer period, whether additional conditions should be applied beyond those in this proposal.
The Bureau considered whether the cure provision should run from the date of discovery of the points and fees overage or within a limited number of days after transfer of the loan, rather than the time of consummation, but the Bureau believes that such alternative provisions would be inappropriate. The Bureau is concerned that allowing an extended period of time for cure would create incentives for bad faith actors to intentionally violate the points and fees limit and selectively wait for discovery to cure the violation only when it would be to their advantage to do so. Such actions would not be consistent with the statutory requirement of making a good faith determination of a consumer's ability-to-repay
oncerned that allowing an extended period of time for cure would create incentives for bad faith actors to intentionally violate the points and fees limit and selectively wait for discovery to cure the violation only when it would be to their advantage to do so. Such actions would not be consistent with the statutory requirement of making a good faith determination of a consumer's ability-to-repay. Similarly, the Bureau is concerned that, particularly later in the life of the loan, giving the creditor a unilateral option to change the status of the loan to a qualified mortgage, thereby providing the creditor with enhanced protection from liability, would facilitate evasion of regulatory requirements by the creditor.
The Bureau also considered whether it would be appropriate to limit a creditor's or assignee's ability to cure points and fees overages for qualified mortgage purposes to the time prior to the receipt of written notice of the error from or the institution of any action by the consumer. The Bureau believes that such a requirement may not be necessary because the points and fees cure must occur within 120 days after consummation such that it is unlikely that the consumer would provide such notice or institute such action during that period. Further, the Bureau believes that such a requirement might undercut the purposes of the cure provision—to encourage both lending up to the points and fees limits and post-consummation quality control review of loans—since creditors and assignees could not be certain of their ability to review the loan post-consummation and provide a refund, if appropriate. However, the Bureau solicits comment on whether cure should be permitted only prior to receipt of written notice of the error from or the institution of any action by the consumer
points and fees limits and post-consummation quality control review of loans—since creditors and assignees could not be certain of their ability to review the loan post-consummation and provide a refund, if appropriate. However, the Bureau solicits comment on whether cure should be permitted only prior to receipt of written notice of the error from or the institution of any action by the consumer.
The Bureau recognizes that, where points and fees have been financed as part of the loan amount and an overage is refunded to the consumer after consummation, the consumer will continue to pay interest on a loan amount that includes the overage. As a result, the consumer may pay more interest over the life of the loan than would have been paid absent the inadvertent points and fees overage. Although the Bureau believes such circumstances will be limited, the Bureau acknowledges that a post-consummation refund of the amount of points and fees overage alone would not make the consumer whole in most such cases. 20 For this reason, the Bureau considered whether the cure provision should require other means of restitution to the consumer, such as restructuring the loan to provide a lower loan amount commensurate with deducting the points and fees overage, or requiring any refund to the consumer to include the present value of excess interest that the consumer would pay over the life of the loan. However, the Bureau believes there are complications to these approaches. For example, the Bureau expects that creditors would have difficulty systematically restructuring loans within a short time after consummation, especially where the loan has already been, or shortly will be, securitized. The Bureau also notes potential difficulties in determining the period over which excess interest should be calculated, since few consumers hold their loans for the entire loan term
r example, the Bureau expects that creditors would have difficulty systematically restructuring loans within a short time after consummation, especially where the loan has already been, or shortly will be, securitized. The Bureau also notes potential difficulties in determining the period over which excess interest should be calculated, since few consumers hold their loans for the entire loan term. In light of these considerations, the Bureau is not proposing that the cure provision require any means of restitution other than a refund of the actual overage amount to the consumer. However, the Bureau solicits comment on other appropriate means of restitution and in what circumstances they may be appropriate.
20 There may be circumstances where the consumer pays discount points to obtain a lower interest rate and the post-consummation review determines the payments do not qualify as bona fide discount points. In such cases, a refund of the discount points, without additional changes to the loan, may result in a net benefit to the consumer.
43(e)(3)(iii)(C)
The third criteria for a cure is set forth in proposed § 1026.43(e)(3)(iii)(C), which would provide that the creditor or assignee must maintain and follow policies and procedures for post-consummation review of loans and for refunding to consumers amounts that exceed the applicable limit under § 1026.43(e)(3)(i). Comment 43(e)(3)(iii)-2 would provide that a creditor or assignee satisfies § 1026.43(e)(3)(iii) if it maintains and follows policies and procedures for post-consummation quality control loan review and for curing (by providing a refund) errors in points and fees calculations that occur at or before consummation.
The Bureau believes this requirement will provide an incentive for creditors to maintain rigorous quality control measures on a consistent and continuing basis
§ 1026.43(e)(3)(iii) if it maintains and follows policies and procedures for post-consummation quality control loan review and for curing (by providing a refund) errors in points and fees calculations that occur at or before consummation.
The Bureau believes this requirement will provide an incentive for creditors to maintain rigorous quality control measures on a consistent and continuing basis. The Bureau believes that conditioning a cure on a consistently applied policy promotes and incentivizes good faith efforts to identify and minimize errors that may occur at or before consummation, with resulting benefits to consumers, as well as creditors and assignees.
The Bureau requests comment on all aspects of the proposal to permit creditors to cure inadvertent excesses over the points and fees limit, including whether a post-consummation cure should be permitted, and whether different, additional, or fewer conditions should be imposed upon its availability, such as whether the consumer must be current on loan payments at the time of the cure.
Legal Authority
The Bureau proposes § 1026.43(e)(3)(iii) pursuant to its authority under TILA section 129C(b)(3)(B)(i) to promulgate regulations that revise, add to, or subtract from the criteria that define a qualified mortgage. For the reasons discussed above, the Bureau believes
In addition, because proposed § 1026.43(e)(3)(iii) permits creditors to cure inadvertent non-compliance with the general qualified mortgage points and fees limitation up to 120 days after consummation, the Bureau also proposes § 1026.43(e)(3)(iii) pursuant to its authority under section 105(a) and (f) of TILA. Pursuant to section 105(a) of TILA, the Bureau generally may prescribe regulations that provide for such adjustments and exceptions for all or any class of transactions that the Bureau judges are necessary or proper to, among other things, effectuate the purposes of TILA
fter consummation, the Bureau also proposes § 1026.43(e)(3)(iii) pursuant to its authority under section 105(a) and (f) of TILA. Pursuant to section 105(a) of TILA, the Bureau generally may prescribe regulations that provide for such adjustments and exceptions for all or any class of transactions that the Bureau judges are necessary or proper to, among other things, effectuate the purposes of TILA. For the reasons discussed above, the Bureau believes that exempting the class of qualified mortgages that involve a post-consummation points and fees cure from the statutory requirement that the creditor make a good faith determination that the consumer has the ability to repay “at the time the loan is consummated” is necessary and proper to effectuate the purposes of TILA. The Bureau believes that limited post-consummation cure of points and fees overages will preserve access to credit to the extent it encourages creditors to extend credit to consumers seeking loans with points and fees up to the 3-percent limit. Without a points and fees cure provision, the Bureau believes that some consumers might be at risk of being denied access to responsible, affordable credit, which is contrary to the purposes of TILA. The Bureau also believes a limited post-consummation cure provision will facilitate compliance with TILA section 129C by encouraging strict, post-consummation quality control loan reviews that will, over time, improve the origination process.
The Bureau has considered the factors in TILA section 105(f) and believes that a limited points and fees cure provision is appropriate under that provision. The Bureau believes that the exemption, with the specific conditions required by the proposal, is appropriate for all affected consumers; specifically, those seeking loans at the margins of the points and fees limit whose access to credit may be affected adversely without the exemption. Similarly, the Bureau believes that the exemption is appropriate for all affected loans covered under the exemption, i.e
au believes that the exemption, with the specific conditions required by the proposal, is appropriate for all affected consumers; specifically, those seeking loans at the margins of the points and fees limit whose access to credit may be affected adversely without the exemption. Similarly, the Bureau believes that the exemption is appropriate for all affected loans covered under the exemption, i.e. those made in good faith as qualified mortgages, regardless of the amount of the loan and whether the loan is secured by the principal residence of the consumer. Furthermore, the Bureau believes that, on balance, the exemption would not undermine the goal of consumer protection or increase the complexity or expense of (or otherwise hinder) the credit process, because costs may actually decrease, as noted above. While the exemption may result in consumers in affected transactions losing some of TILA's benefits, potentially including some aspects of a foreclosure legal defense, the Bureau believes such potential losses are outweighed by the potentially increased access to responsible, affordable credit, an important benefit to consumers. The Bureau believes that is the case for all affected consumers, regardless of their other financial arrangements, their financial sophistication, and the importance of the loan and supporting property to them.
VI. Other Requests for Comment
A. Request for Comment on Cure or Correction of Debt-to-Income Overages
To satisfy the general qualified mortgage definition in § 1026.43(e)(2), the consumer's total monthly debt-to-income ratio—verified, documented, and calculated in accordance with § 1026.43(e)(2)(vi)(B) and appendix Q—cannot exceed 43 percent at the time of consummation. 21 Similar to an error made in calculating points and fees, errors made in calculating debt-to-income ratios could jeopardize a loan's qualified mortgage status under § 1026.43(e)(2)
in § 1026.43(e)(2), the consumer's total monthly debt-to-income ratio—verified, documented, and calculated in accordance with § 1026.43(e)(2)(vi)(B) and appendix Q—cannot exceed 43 percent at the time of consummation. 21 Similar to an error made in calculating points and fees, errors made in calculating debt-to-income ratios could jeopardize a loan's qualified mortgage status under § 1026.43(e)(2). Some industry stakeholders have suggested that creditors seeking to originate § 1026.43(e)(2) qualified mortgages may establish buffers that relate to debt-to-income ratios— i.e., buffers set at a level below the rule's 43-percent debt-to-income ratio limit. Some creditors may, in turn, refuse to extend mortgage credit to consumers whose loans would exceed the buffer threshold, either due to concerns about potential liability associated with loans originated under the general ability-to-repay standard or the risk of repurchase demands from the secondary market, if the debt-to-income ratio limit is exceeded. Such practices may reduce access to credit to consumers at the margins of the debt-to-income ratio limit.
21 In contrast to the 3-percent cap on points and fees, which applies to all qualified mortgages, the 43-percent debt-to-income ratio limit applies only to the “general” qualified mortgage category (§ 1026.43(e)(2)), and not to the temporary GSE/agency category (§ 1026.43(e)(4)) or the small creditor categories (§ 1026.43(e)(5), (e)(6), and (f)).
As explained above, the Bureau is proposing § 1026.43(e)(3)(iii) to permit cure of inadvertent points and fees overages by refunding to the consumer the dollar amount that exceeds the applicable points and fees limit, under certain defined conditions. The Bureau is also considering whether a similar cure provision may be appropriate in the context of debt-to-income overages. As discussed above, the proposed points and fees cure procedure may benefit consumers and the market in various ways
points and fees overages by refunding to the consumer the dollar amount that exceeds the applicable points and fees limit, under certain defined conditions. The Bureau is also considering whether a similar cure provision may be appropriate in the context of debt-to-income overages. As discussed above, the proposed points and fees cure procedure may benefit consumers and the market in various ways. A debt-to-income cure provision has the potential to benefit consumers and the market in a similar manner. However, as discussed below, the Bureau believes that miscalculations of debt-to-income ratios are fundamentally different in nature than errors in calculating points and fees, and may be less suitable to a cure provision similar to proposed § 1026.43(e)(3)(iii).
The Bureau is also considering whether it may be appropriate to address the more limited scenario where debt-to-income overages result from errors in calculation or documentation, or both, of debt or income. Specifically, the Bureau is considering whether, in such situations, it would be feasible to permit post-consummation corrections to the documentation, which would result in a corresponding recalculation of the debt-to income ratio. While such a correction mechanism has the potential to benefit consumers and the market, there are a number of reasons, discussed below, why it may be inappropriate and impracticable.
In light of these difficulties and concerns, the Bureau is not proposing a specific debt-to-income ratio cure or correction provision at this time. However, to aid its ongoing consideration of these options, the Bureau is requesting comment on any and all aspects of potential cure and correction provisions for debt-to-income overages described below.
Debt-to-Income Cure
As noted, the Bureau recognizes that a debt-to-income cure mechanism has the potential to benefit consumers and the market
ratio cure or correction provision at this time. However, to aid its ongoing consideration of these options, the Bureau is requesting comment on any and all aspects of potential cure and correction provisions for debt-to-income overages described below.
Debt-to-Income Cure
As noted, the Bureau recognizes that a debt-to-income cure mechanism has the potential to benefit consumers and the market. However, the Bureau is concerned that such a procedure may be inappropriate because a miscalculation of debt-to-income ratios cannot be remedied in a manner similar to, or as equally practicable as, remedying a i.e., understating the numerator or overstating the denominator in the mathematical equation that derives the debt-to-income ratio. In these situations, a creditor or secondary market purchaser would need to alter the consumer's debts and/or income to bring the debt-to-income ratio within the 43-percent limit or the ratio would exceed qualified mortgage limits.
It is unclear how creditors could raise consumers' incomes or lower their debts systematically to bring the ratio within the 43-percent limit. Of course, creditors cannot increase a consumer's income. It may be possible in some situations for creditors to modify the underlying mortgage and lower the consumer's monthly payment on the loan so that the “debt” is low enough to bring the ratio back within the 43-percent limit—or to pay down other debts of the consumer to achieve the same result. However, the Bureau believes this approach would require a complex restructuring of the loan, which may itself trigger a repurchase demand from the secondary market, and possibly require a refund of excess payments collected from the time of consummation.
For any such cure provision to be considered, creditors would need to maintain and follow policies and procedures of post-consummation review of loans to restructure them and refund amounts as necessary to bring the debt-to-income ratio within the 43-percent limit
epurchase demand from the secondary market, and possibly require a refund of excess payments collected from the time of consummation.
For any such cure provision to be considered, creditors would need to maintain and follow policies and procedures of post-consummation review of loans to restructure them

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Source: Frix Law Library, https://www.frixlaw.com/law-library/statutes/FR_PRORULE_2014-10207. Check the current official text before relying on it. Not legal advice.