Ability to Repay Standards under the Truth in Lending Act (Regulation Z); Proposed Rule, Comment Request (CFPB - Pre-Fed. Reg. Version) (with Lofchie Comment)

The CFPB has proposed to amend Regulation Z, which implements the Truth in Lending Act ("TILA"). As amended by Dodd-Frank, TILA requires mortgage lenders to make "reasonable, good faith determinations" that customers are able to repay loans, and establishes minimum requirements for making such determinations. The CFPB has proposed amendments to Regulation Z that would provide certain exceptions from these requirements, including exemptions for certain nonprofit creditors and certain homeownership stabilization programs, as well as an additional definition of a "qualified mortgage" for certain loans made and held in portfolio by small creditors.

The CFPB is also seeking feedback on whether additional clarification is needed regarding the inclusion of loan originator compensation in the points and fees calculation.

Comments Due: Comments generally must be received on or before February 25, 2013.

Lofchie Comment: The exceptions raise interesting policy questions; e.g., according to the release, the exceptions are necessary because the requirements raise costs, which could make consumer credit less available. It will eventually be interesting to see the results of the exceptions, many of which involve some government assistance. If the exceptions prove to result in higher mortgage default rates, does that mean that the exceptions should be withdrawn?

Click hereto view rule release in full (Cabinet link).Related News Item: CFPB Issues "Ability-to-Repay" Final Rule Regarding Mortgage Lending.

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