On May 6th, the CFPB issued proposed amendments to the 2013 mortgage rules under Regulation Z (click here to read the proposed rule). Of particular importance to credit unions is the proposed cure mechanism for the points and fees cap associated with qualified mortgages (“QM”).
One requirement for making a QM is that the points and fees payable in association with the loan are limited. For example, on a $150,000 mortgage, points and fees may not exceed $4,500 (3% of the loan amount). However, correctly determining what falls within the definition of points and fees is easier said than done. The real possibility that an innocent error could cause a loan to lose its QM status has caused many lenders to take an ultra-conservative approach to underwriting. Many are giving themselves a cushion and walking away from a deal unless the points and fees are well below the applicable cap. Unfortunately, this practice has reduced the availability of credit to some.
The CFPB is proposing a 120-day period within which a lender can remedy a points and fees error by issuing a refund to the borrower. In order to take advantage of the cure mechanism, your credit union must have originated the loan in good faith as a QM, have policies and procedures in place to review the loan after consummation (and actually review it), and issue a refund to the member within 120 days if necessary.
I applaud the CFPB for its common sense approach to a real problem. Rules of the road are necessary and 2008 proved just how necessary they were in the world of real estate lending. But it’s a delicate balancing act. The rules shouldn’t make it more difficult for qualified borrowers to have access to the credit that they need.
Let’s hope the CFPB continues to be open to change when change is necessary. Be sure to submit your comments on the proposed rule by June 5th. Happy Thursday!