Ability to Repay and Qualified Mortgage Standards Under Regulation Z

Industry Observer with No Longer Processing Mortgages. MLO #293441 expired

Ability to Repay and Qualified Mortgage Standards Under the Truth in Lending Act (Regulation Z)


The CFPB (Consumer Finance Protection Bureau) amended Regulation Z and released their revised rules at 4:30 pm ET today (Jan 10, 2013) regarding the Ability to Repay and Qualified Mortgage Standards.  The final rule implements sections 1411 and 1412 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act), which generally require creditors to make a reasonable, good faith determination of a consumer’s ability to repay any consumer credit transaction secured by a dwelling (excluding an open-end credit plan, timeshare plan, reverse mortgage, or temporary loan) and establishes certain protections from liability under this requirement for “qualified mortgages.”  There are also provisions regarding pre-payment penalties, which are severely restricted due to section 1414 of the Dodd-Frank Act.

The EFFECTIVE date is January 10, 2014, which does allow lenders some time to wade through the 800+ pages of the document, so they can best determine what they will have to do to meet these revised regulations, and get their people trained and any software changes brought into conformity.

At the same time, CFPB issued a concurrant proposal, and part of that shows that The Bureau is seeking feedback on whether additional clarification is needed regarding the inclusion of loan originator compensation in the points and fees calculation.   More on this one later, as I want to peruse the 185 pages before I write on it.



Posted by


Steven CookSteven T Cook
Loan Officer, MLO-293441      

Cascade Pacific Home Loans  NMLS ID 76988
720 S 333rd St  Federal Way  WA  98003
Office 253-874-1111 | Cell 253-677-1064
Toll Free 1-800-874-8760 | fax 253-295-3901
scook@cphloans.com | www.bayeq.com

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Comments (9)

Gene Mundt, IL/WI Mortgage Originator - FHA/VA/Conv/Jumbo/Portfolio/Refi
NMLS #216987, IL Lic. 031.0006220, WI Licensed. APMC NMLS #175656 - New Lenox, IL
708.921.6331 - 40+ yrs experience

This is going to be interesting, Steven ... hang on to your hats.  Lots of discussion to come along with much clarification.  Can you imagine how many potential buyers this will effect too?  Time will tell ...


Jan 10, 2013 10:35 AM
Joe Petrowsky
Mortgage Consultant, Right Trac Financial Group, Inc. NMLS # 2709 - Manchester, CT
Your Mortgage Consultant for Life

I have not read the complete information that was released, but will over the weekend. I am concerned that it will hurt many that want to purchase a home in the future and have to continue renting instead.

Jan 10, 2013 05:01 PM
Steven Cook
No Longer Processing Mortgages. - Tacoma, WA

Gene -- fortunately we have a year to get through it and get it figured out.  This might be the basis for getting some folks off the fence.

Joe -- as I mentioned to Gene, since we have a year before it becomes effective, we might want to be encouraging those renters to get off the fence now, while they still can.

Jan 11, 2013 01:46 AM
William Feela
Realtor, Whispering Pines Realty 651-674-5999 No.

Steven...Depending on the contents ofthe Bill, You would think that making sure that the borrower would have the means to pay back the loan would be in the beswt interest of the lender.

I must be old school or something!

Jan 11, 2013 05:56 AM
Steven Cook
No Longer Processing Mortgages. - Tacoma, WA

Bill -- whatever are you talking about?  Why would the lender be concerned, they are just going to sell the loan to someone else anyway.   Oh, of course, now they have to keep a % interest in the loan, if it doesn't meet the "qualifying" criteria; and groups like Freddie and Fannie, are requiring 100% buyback clauses in their contracts, before they will accept loan (in other words, if the loan EVER defaults, they can sell it back to the original lender at par value.)

Have a fantastic weekend!

Jan 11, 2013 06:06 AM
Suesan Jenifer Therriault
JTHIS-Professional Home Inspection Team - Blakeslee, PA
"Inspecting every purchase as if it were my own".

This sounds to me to be a reversal to how it used to be. When my husband and I purchased our first home we had to prove that we were able to repay the loan. This is a new concept, it's a smart one. 

Jan 12, 2013 07:51 AM
Steven Cook
No Longer Processing Mortgages. - Tacoma, WA

Suesan -- you are right, it is a move back to what the rules used to be (before Congress got involved in directing Treasury to make sure "everyone" could buy a home.)   The catch is many lenders may tighten their criteria some more, and frustrate people who are "on the edge".  Fortunately, there is a year to figure it out and get it implemented in the field.

Jan 12, 2013 02:41 PM
Sussie Sutton
David Tracy Real Estate - Houston, TX
David Tracy Real Estate for Buyers & Sellers

I will be looking forward to more blogs concerning Regulation Z from you as mortgage companies have more time to investigate the meat of the new document.

Jan 16, 2013 12:16 PM
Steven Cook
No Longer Processing Mortgages. - Tacoma, WA

Sussie -- thank you for your comment.  That is the plan, once we can get through all the governmentese.

Jan 17, 2013 05:12 AM

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