The Consumer Financial Protection Bureau this week finalized amendments to its ability-to-repay rule to revise how loan origination compensation is calculated for certain purposes. The agency also provided exemptions and modifications for small creditors, community development lenders and housing stabilization programs. The Dodd-Frank Act generally provides that points and fees on a qualified mortgages may not exceed 3 percent of the loan balance, and that points and fees in excess of 5 percent will trigger the protections for high-cost mortgages under the Home Ownership and Equity Protection Act. Dodd-Frank also included a provision requiring that loan originator compensation be counted toward these thresholds, even if it is not paid upfront by the consumer directly to the loan originator. The revised rule excludes...

Loan originators seeking to exclude their compensation from the 3 percent points-and-fees calculation under the Dodd-Frank Act could consider becoming a correspondent lender or a net branch operator to skirt the restriction. But industry experts caution that such a plan has its own pitfalls. The possibility of brokers switching hats surfaced as the mortgage broker industry, once again, struggles against what it deems unfair restrictions on broker compensation. The Consumer Financial Protection Bureau appears to have addressed some of these issues with changes to its ability-to-repay rule designed to eliminate double counting in the calculation of loan originator compensation. [See the story on page 5.] The inclusion of loan originator (LO) compensation in the calculation of points and fees under the CFPB rule raises...

Republicans and even some Democrats in the House are calling for significant changes to the Consumer Financial Protection Bureau’s ability-to-repay rule, but legislative changes appear unlikely as Democrats oppose most of the GOP proposals. One bill that is furthest along the uncertain legislative process is HR 1077, the “Consumer Mortgage Choice Act,” which would exempt certain fees from the 3 percent cap on points and fees for qualified mortgages under the ATR rule. The bill has 34 co-sponsors, including nine Democrats. Sens. Joe Manchin, D-WV, and Mike Johanns, R-NE, introduced companion legislation in the Senate last week. The bills have...

Whichever way the U.S. Supreme Court rules on the constitutionality of presidential recess appointments, the decision would probably cause more uncertainty and turbulence in the industries the ruling will likely affect, according to legal and policy analysts. SCOTUS is considering a petition filed last month by the Obama administration and the National Labor Relations Board to review a controversial ruling by the District of Columbia Court of Appeals that calls into question the validity of President Obama’s appointment of three new members of the board in January. In Noel Canning v. NLRB, the plaintiff challenged...

While non-agency MBS participants largely oppose a credit rating assignment system proposed by Sen. Al Franken, D-MN, some of the main players in the market endorse a model based on ratings rotation. At a roundtable hosted by the Securities and Exchange Commission this week, Martin Hughes, CEO of Redwood Trust, said issuer-paid rating conflicts could be reduced by requiring non-agency MBS issuers to alternate rating services so that one firm didn’t rate more than two consecutive deals from the issuer. He noted that Redwood has established a self-imposed rotation between Moody’s Investors Service and Standard & Poor’s on its non-agency MBS issuance. “The requirement to frequently alternate among the nationally recognized...

A bipartisan group of members of the House Financial Services Committee is coming to agreement on portions of pending legislation to increase non-agency activity. Rep. Scott Garrett, R-NJ, is set to introduce legislation shortly that has some support from Rep. Maxine Waters, D-CA, the ranking Democrat on the committee. Garrett’s “Private Mortgage Market Investment Act” was approved on a party-line vote by the House Financial Services Subcommittee on Capital Markets and Government-Sponsored Enterprises ...

In response to concerns from industry participants, the Consumer Financial Protection Bureau recently issued proposed clarifications to its ability-to-repay and servicing rules. The proposal includes changes to underwriting standards for non-agency “qualified mortgages.” The debt and income ratio standards for non-agency QMs were included in Appendix Q of the ATR rule. The standards were largely based on the FHA’s underwriting process. “The bureau has received numerous inquiries ...

The Consumer Financial Protection Bureau late last week issued a proposed rule to clarify a number of issues about qualified mortgages and other aspects of its ability-to-repay final rule promulgated in January that is set to take effect in early 2014. The agency proposed to clarify a key issue regarding the QM status of loans originally securitized by Fannie Mae or Freddie Mac, or insured by the FHA or VA, that are later subject to repurchase demands. Lenders have been concerned that such loans might lose their automatic QM status as agency loans, but the CFPB said they will not. “The fact that a [government-sponsored enterprise] or agency demands...

The Consumer Financial Protection Bureau last week issued a small-entity compliance guide on its groundbreaking ability-to-repay rule promulgated in January. It’s a document that may help smaller firms but leaves big players wanting more. “Our goal with this guide is to provide a comprehensive rule summary in a plain language and Frequently Asked Questions format, which makes the content more accessible and consumable for a broad array of industry constituents, especially smaller businesses with limited legal and compliance staff,” the CFPB said. The bureau recommended...

The Conference of State Bank Supervisors is calling upon the Consumer Financial Protection Bureau to adopt a petition process to define “rural” counties as the bureau prepares to implement balloon “qualified mortgage” and escrow requirements for rural creditors. The Dodd-Frank Wall Street Reform and Consumer Protection Act confers QM benefits on certain balloon loans if they are made in rural or underserved areas. In implementing the standard, the CFPB decided to use the USDA Economic Research Service’s Urban Influence Codes as...