WASHINGTON The Consumer Financial Protection Bureau issued updated exam procedures on Thursday for a slew of mortgage rules due to take effect next year.
The interim exam procedures cover far more details and rules related to mortgages than when the agency issued its first round of exam guidance in June. The newest updates cover how the CFPB will examine lenders for compliance with rules governing ability-to-repay standards, qualified mortgages, high-cost mortgages and appraisals for higher-priced mortgages.
"We are committed to transparency around our examination process," CFPB Director Richard Cordray, said in a press release. "So we have worked hard to provide industry with advance notice of what we will be expecting. That, in turn, will improve compliance and benefit consumers. "
The most significant rules to the industry are the CFPB's ability-to-repay and QM regulations, which establishes legal protections for lenders that make loans with certain underwriting criteria, including a debt-to-income ratio no higher than 43%. Under the new exam guidance, the CFPB said that lenders cannot base a borrower's DTI ratio on teaser rates. In addition, the lender must show that the borrower can repay both the principal and the interest over the long term, not just during an introductory period where the rate is lower.
The CFPB also emphasized that a qualified mortgage has limitations on points and fees in that the mortgage term cannot exceed 30 years or have interest-only payments, among other restrictions. As for points-and-fees limitations under the high-cost mortgages rule, the CFPB said it has "generally banned" balloon payments and fees for modifying loans.
The CFPB's exam procedures also now cover the mortgage origination rules issued on May 29 and the mortgage servicing rules issued on July 10. Along with the guidance, the CFPB said it also issued amendments to its escrow rules and updated recent changes to credit card rules.
One of the rulemaking tasks that the CFPB has yet to complete is consolidating the mortgage disclosures from the Truth in Lending Act and the Real Estate Settlement Procedures Act into one document. However, the agency issued exam procedures on Thursday for certain parts of the two rules when looking at companies based on the new mortgage regulations. The CFPB imbedded its updated exam procedures for the new mortgage rules within the TILA/Respa exam guidance attached to the announcement.
"The CFPB is also coordinating with other federal government regulators that also conduct examinations of mortgage companies and financial institutions to ensure all regulators have a shared understanding of the CFPB's new rules," the agency said in the release.