CFPB Continues to Finalize Elements of "Points and Fees" Test as Implementation Date Draws Closer

The CFPB’s final ability-to-repay rule (Rule), issued January 10, 2013, implements Dodd-Frank mortgage reforms requiring creditors to make good faith determination that a consumer has reasonable ability to repay his or her home loan before the loan is extended.  The CFPB provided certain protections from liability under this requirement for loans that meet the criteria to be a “qualified mortgage.”  A key requirement of a qualified mortgage is that the transaction’s “points and fees” generally cannot exceed 3% of the total loan amount.  Concurrent with its final Rule, the CFPB issued a proposed amendment regarding loan originator compensation, as the CFPB was still grappling with how to address that element in the final rule.

A recent amendment to the Rule finalizes the element of loan originator compensation for the purposes of the points and fees calculation.  Under the revised Rule, compensation mortgage brokers or creditors pay to individual loan originator employees does not count towards the points and fees threshold.  However, the CFPB confirmed that compensation a creditor pays to a mortgage broker must be included in points and fees, in addition to any origination charges a consumer pays to a creditor.

Under another proposed amendment, which is currently pending, the CFPB would clarify the treatment of charges paid by parties other than the consumer for the purposes of the points and fees test.  First, the CFPB would confirm that fees the seller or another third party pays are included in points and fees, unless they qualify for a specific finance charge exclusion from the points and fees test, namely, the exclusion for seller’s points under § 1026.4(c)(5).  The CFPB would also clarify that fees and charges the creditor pays, other than compensation the creditors pays to a mortgage broker, are excluded from points and fees. 

Under this guidance, then, title insurance fees and other § 1026.4(c)(7) charges paid to an affiliate of the creditor would not be counted toward the 3% cap if the creditor pays, but would be counted if the seller pays.

Comments on this proposal are due by July 22, 2013. Among other things, further clarification is needed on what constitutes “seller’s points” that would be subject to exclusion from points and fees.

The Ability to Repay Rule is set to become effective on January 10, 2014.  The CFPB is not expected to delay this implementation date.