CFPB Issues Highly Anticipated Ability-to-Repay Mortgage Rule

The Consumer Financial Protection Bureau (CFPB) issued a rule today that protects consumers from certain irresponsible mortgage lending practices and essentially requires lenders to ensure that homebuyers will be able to repay their mortgages. The rule includes some safe harbors and exemptions for credit unions thanks to the advocacy efforts of the Northwest Credit Union Association (NWCUA), Credit Union National Association (CUNA) and member credit unions.

The new regulation, known as the Ability-to-Repay rule, was mandated by the Dodd Frank Act, with a deadline for implementation of Jan. 21. The rule has an effective date of Jan. 10, 2014.

When the CFPB issued the rule, the agency also asked for additional comments on whether to include an amendment to give qualified mortgage status to small creditors that make and hold loans in their own portfolios, such as community banks and credit unions. The Association encourages credit unions to submit comments on this proposed amendment and will also be preparing a comment letter encouraging the CFPB to adopt this amendment.

The financial information required by the Ability-to-Repay provision is consistent with lending practices that most credit unions already use. One component of the rule that credit unions will appreciate is the ability to refinance risky loans without complying with full underwriting standards. This will allow credit unions to quickly and efficiently help their members that have subprime loans, through, for example, the Home Affordable Refinance Program (HARP).

The rule creates two types of qualified mortgages. One is meant for higher-priced mortgages for riskier borrowers that still meet strict underwriting standards. This type of loan gives consumers the ability to challenge a lender for inaccurately determining they had the ability to repay. The second type of qualified mortgage includes a safe harbor provision for lenders that issue qualified mortgages to low-risk borrowers, shielding the lender from legal action.

Interest-only loans, negative-amortization loans and loans with terms greater than 30 years will not be considered qualified mortgages. Credit unions and community banks will be able to issue qualified mortgage balloon loans in rural or underserved areas if they have a fixed interest rate and at least a five-year term.

The rule also limits the up-front points and fees for qualified mortgages to 3 percent, which could result in more consumers choosing a credit union rather than an independent broker. One concern is that the debt-to-income ratio for the majority of qualified mortgages needs to be no more than 43 percent.

The CFPB believes this is justified to ensure consumers are getting a mortgage product that they can afford. According to Jeff Miller, mortgage lending manager for Rivermark Credit Union, this may significantly lower the number of consumers eligible for a prime loan.

Mortgages purchased by Government Sponsored Entities (GSEs) such as Fannie Mae and Freddie Mac on the secondary market will need to meet the qualified mortgage definition.


The NWCUA Regulatory Advocacy team works with state and federal regulators to help reduce the regulatory burden on credit unions and protect the credit union movement. The Association encourages members to participate in the regulatory process. If you have any questions on these or any regulatory issues, please contact Director of Regulatory Advocacy John Trull at, or at 503.350.2209.

Posted in Advocacy News.