On Compliance: Qualified Mortgage Exception

by Andrea Stritzke

Does CFPB’s new ‘ability to repay/qualified mortgage’ rule apply to my credit union?

As predicted, the Consumer Financial Protection Bureau made plenty of waves with the mortgage regulations it finalized last month. Understandably, many credit unions are confused and maybe even a little anxious about how the new rules will impact their ability to serve members who dream of becoming homeowners.

Beyond simply digesting (and understanding) thousands of pages issued by CFPB, credit union leaders must wrap their heads around a proposed exception that has left many to wonder: “Does this new ‘ability to repay/qualified mortgage’ rule apply to my credit union and, if so, how?”

The short answer is yes. If you originate any consumer credit transaction secured by a dwelling other than home equity lines of credit and timeshares, the rule likely applies to you. Keep in mind that a dwelling includes an individual condominium, mobile home, trailer, even a boat if used as a residence.

As you may know by now, this rule, which is a provision of the Dodd-Frank Act of 2010, requires lenders to determine whether a consumer has the ability to repay the mortgage at the time of closing. There are basically two main ways a lender can meet the ability to repay: 1) by determining the ability to repay using the general ability to repay factors; or 2) by meeting the standards of a qualified mortgage.

Use of the eight ability-to-repay factors to determine compliance is dependent on the creditor’s underwriting standards, as well as how those standards are applied to each individual’s facts and circumstances. The loan can have various terms and features, so long as the eight underwriting factors as applied can show that the member has the ability to repay.

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