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CFPB Issues Qualified Mortgage Standards

The Consumer Financial Protection Bureau (CFPB) has finalized the qualified mortgages (QM) regulations, also known as the "ability-to-repay" mortgage rule. The rules are posted to the bureau's website and now may be considered "issued."

Congress directed that the ability-to-repay rules include provisions that would help shield lenders whose loans meet QM standards if challenged in court by a borrower alleging the loan is not in compliance. The new CFPB rules take a dual approach to higher-priced loans and lower-priced ones regarding legal protection. For lower-priced loans, the CFPB rule creates a "safe harbor" status for lenders. These prime loans generally are made to consumers who are considered to be lower risk borrowers.

It is anticipated that most credit union mortgage loans would qualify for the safe harbor status. Consumers may challenge their loan under the new rule if they feel the loan does not meet the definition of a Qualified Mortgage, but the safe harbor is intended to provide lenders with legal protection that QM standards have been met.

For higher-priced loans, sometimes given to consumers with insufficient or weak credit histories, the CFPB rules would allow a "rebuttable presumption" in legal challenges. A borrower seeking to challenge such a loan will have to prove he or she did not have sufficient income to pay the mortgage and other living expenses.

Additionally, the CFPB has also posted final rules to its website for Home Ownership and Equity Protection Act (HOEPA) "high cost" mortgages and mortgage escrows, as mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act.

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