CFPB Issues "Ability-to-Repay" Final Rule Regarding Mortgage Lending

The Consumer Financial Protection Bureau ("CFPB") has adopted an #8220;Ability-to-Repay#8221; rule requiring mortgage lenders to make #8220;reasonable, good faith determinations#8221; that customers are able to repay loans, and establishing minimum requirements for making such determinations. These requirements include:

• Examining and documenting certain financial information;
• Evaluating and concluding, based on factors such as the consumer’s debt-to-income ratio, that the customer will be able to repay the loan; and
• Evaluating the consumer’s ability to repay based on the principal and interest charged over the term of the loan, rather than on lower rates charged during an introductory period.

Lenders will be presumed to have complied with the "Ability-to-Repay" rule if they issue #8220;Qualified Mortgages#8221; that comply with certain requirements specified by the rule.

The "Ability-to-Repay" rule amends Regulation Z adopted by the Federal Reserve Board (before authority passed to the CFPB), which implements the Truth in Lending Act.

Effective Date: January 10, 2014.

See: Full Rule Release; Text of Amendment; Official Interpretations; CFPB Summary of the Rule. Statements by CFPB Director: "Assuring consumers have access to mortgages they can trust" and Prepared Remarks of Richard Cordray at the Ability-to-Repay Rule Field Hearing.Related Press Releases: Consumer Financial Protection Bureau Issues Rule to Protect Consumers from Irresponsible Mortgage Lending; Consumer Financial Protection Bureau Issues Rules to Strengthen Protections for High-Cost Mortgages.