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This is a summary of the Truth in Lending Act. Those agencies are the Board, the OCC, the FDIC, the Securities and Exchange Commission, the FHFA, and HUD (collectively, the QRM agencies). The Bureau issued a proposal in August 2020 to create a new category of QMs, Seasoned QMs. The authority citation for part 1026 continues to read as follows: Authority: Not only would allowing performing loans to season into QM status clarify a creditor's litigation risk, but external feedback suggested this could help provide certainty for secondary market participants that might otherwise be unable or unwilling to accept the litigation risk associated with assignee liability for either rebuttable presumption QM or non-QM loans. [25], In a May 2013 final rule, the Bureau amended the ATR/QM Rule to add, among other things, a new QM categorythe Small Creditor QMfor covered transactions that are originated by creditors that meet certain size criteria and that satisfy certain other requirements. As such, to the extent that all or part of the seasoning period remains after the transfer, the purchaser will have an incentive to ensure the loan is high quality, which in turn will incentivize the creditor to make a diligent ATR determination at consummation. Some workers participate in the gig economy for their sole source of income, while others may do so to supplement their income from more traditional employment. Fin. On June 22, 2020, the Bureau released the Extension Proposal, which would have extended the Temporary GSE QM loan definition to expire on the effective date of final amendments to the General QM loan definition or the date the GSEs cease to operate under conservatorship, whichever comes first. Instead, to comply with the revised General QM consider requirements, a creditor is required to take into account income, assets, debt obligations, alimony, child support, and monthly DTI ratio or residual income in its ATR determination. . The exclusion of any period during which the consumer is in a temporary payment accommodation extended in connection with a disaster or pandemic-related national emergency from the seasoning period is discussed more fully in the section-by-section analysis of 1026.43(e)(7)(iv)(C)(2). Prot., and Fed. Considerations Related to Ability To Repay Discussed in the Proposal, C. Comments in Support of a Seasoned QM Definition, D. Comments in Opposition to a Seasoned QM Definition, 1026.43Minimum Standards for Transactions Secured by a Dwelling, 43(e)(1)Safe Harbor and Presumption of Compliance, 43(e)(2)Qualified Mortgage DefinedGeneral, 43(e)(7)Qualified Mortgage DefinedSeasoned Loans, VIII. They explained that it is very common for struggling homeowners to have rolling delinquencies, paying somewhat late month after month, but never bringing the loan current. TILA section 129C(b)(1) provides a presumption of compliance with ATR requirements if a loan is a qualified mortgage. The numbers of loans designated for private-label securitization from 2011 through 2015 that met the criteria described above (i.e., non-HOEPA, first-lien, fixed-rate loans that did not have features that would make them ineligible to be QMs) were as follows: 9,700, 17,500, 25,720, 22,900, and 16,800. Each document posted on the site includes a link to the Table 6 reports the difference in the share of foreclosures among loans that would have qualified for Seasoned QM status under this final rule with the share of foreclosures among loans that would have been originated as safe harbor QM loans under Baseline 1. the Bureau excluded earlier vintages whose loan performance may have been affected by the 2008 financial crisis. 804(2). The comments addressed a variety of topics, including the General QM loan definition, appendix Q, and the Temporary GSE QM loan definition. while the National Mortgage Settlement generally required acceptance of at least two periodic payments that were short by $50 or less. The comments addressed a variety of topics, including the General QM loan definition and the 43 percent DTI limit; perceived problems with, and potential changes and alternatives to, appendix Q; and how the Bureau should address the expiration of the Temporary GSE QM loan definition. The Truth in Lending Act (TILA) is a federal law enacted in 1968 to help protect consumers in their dealings with lenders and creditors. 22, 2020), https://www.consumerfinance.gov/about-us/newsroom/agencies-provide-additional-information-encourage-financial-institutions-work-borrowers-affected-covid-19;; see also 85 FR 39055 (June 30, 2020) (the Bureau's June 2020 interim final rule amending Regulation X to allow mortgage servicers to finalize loss mitigation options without collecting a complete application in certain circumstances). 85. [5] As discussed in the proposal and in part VIII below, the Bureau considered alternative seasoning periods and alternative performance requirements of allowable 30-day delinquencies. An industry trade association stated that the product restrictions and continuance of underwriting requirements, along with performance requirements, provide sufficient assurance of ATR compliance. However, the estimates set forth in the January 2013 Final Rule do not predict changes in costs from Baseline 1 on non-QM loans that obtain QM status by seasoning or on the remaining non-QM loans. These practices, which extend to a significant portion of covered transactions, suggest that the GSEs and mortgage insurers have concluded, based on their experience, that payment accommodations resulting from disasters are not likely to be attributed to underwriting.[169]. c. beneficiaries. The current ATR/QM Rule also distinguishes between a failure to repay that can be evidence that a consumer lacked the ability to repay at loan consummation, versus a failure to repay due to a subsequent change in the consumer's circumstances that the creditor could not have reasonably anticipated at consummation. The first additional category consisted of mortgages eligible to be insured or guaranteed (as applicable) by the U.S. Department of Housing and Urban Development, the U.S. Department of Veterans Affairs, the U.S. Department of Agriculture, and the Rural Housing Service. These commenters stated that this, in turn, could enhance capital liquidity in the market, which could expand access to credit. The Bureau also proposed to make a technical correction to comment 43(e)(1)-1 to add references to 1026.43(e)(5) and (6). 78 FR 6408, 6511 (Jan. 30, 2013). While these commenters agreed that performance over time is sufficient evidence of a creditor's ATR determination at consummation, they had varying opinions on the necessity of some of the additional consumer protections in the proposal, as discussed in greater detail in part VI below. The effective date of this final rule is discussed in part VII below. Several other industry commenters also suggested adjustments to the proposed definitions of delinquency, qualifying change, and temporary payment accommodation extended in connection with a disaster or pandemic-related national emergency. The Bureau concludes that the approach to small periodic payment deficiencies in 1026.43(e)(iv)(A)(3) will result in less burden for financial institutions seeking to avail themselves of the Seasoned QM definition, in the event that their servicing systems and practices already make allowances for treating a payment as not delinquent when the payment is deficient by a small amount. Before the Truth in Lending Act, there were no required definitions of loan terms that consumers could view. 154. Hes also a bit of a self-improvement enthusiast, and enjoys sharing what he learns with others. Moreover, while not necessary for the Bureau's conclusion to retain a portfolio requirement, that conclusion is consistent with the Bureau's analysis of the foreclosure start rates of mortgage loans originated between 2003 and 2015 that were designated to be held in portfolio at origination and mortgage loans originated during the same time period that were designated for private-label securitization. Bureau of Consumer Fin. [182] It has handy information like the loan amount, the annual percentage rate (APR), finance charges, late fees, prepayment penalties, payment schedule and the total amount you'll pay. Final 1026.43(e)(7)(ii) is adopted based on the legal authorities discussed in the section-by-section analysis of 1026.43(e)(7)(i) above. Further, for the protection from liability to apply, the institution must consider and document the debt, income, and financial resources of the consumer. Second, the Bureau has also adjusted its analysis to reflect an improved methodology to identify creditors eligible to originate loans as small creditors under 1026.43(e)(5), consistent with the section 1022(b) analysis accompanying the General QM Final Rule. By comparison, 0.1 percent of loans that would have already met General QM's safe harbor requirements entered foreclosure after year three. [173] For the reasons stated below, the Bureau adopts in 1026.43(e)(7)(i)(B) the proposed prohibited product features and points and fees and underwriting requirements as part of the Seasoned QM definition. Apr. As discussed above, a goal of this final rule is to enhance access to responsible, affordable mortgage credit. 186. The CARES Act mandated a 60-day foreclosure moratorium for such mortgages, which has since been extended by the agencies until the end of 2020 or January 31, 2021 in the case of the GSEs. As noted in the proposal, an analysis of rejected applications in the Assessment Report suggested that the January 2013 Final Rule's impact on access to credit among particular categories of consumers did not correlate with traditional indicators of creditworthiness, such as credit score, income, and down payment amount. In a final rule issued on October 20, 2020, the Bureau extended the Temporary GSE QM category until the earlier of the mandatory compliance date of final amendments to the General QM loan definition or the date the GSEs cease to operate under conservatorship. The Bureau estimates that there are 87,122 of these loans. Commenters supporting extension of Seasoned QM eligibility to subordinate liens stated that doing so would encourage innovation, reduce litigation risk, and expand access to credit. Corp., No. 1 in the current ATR/QM Rule. What Are Open Ended and Closed Ended Credit Transactions? Examples provided of borrowers with non-traditional income include those with income sources that are not reported on W-2 forms who have difficulty qualifying under standard underwriting guidelines due to variable amount and timing of their income, such as gig economy workers, seasonal employees, and self-employed borrowers. 78o-11. The act mandates. 5481(14) (defining Federal consumer financial law to include the enumerated consumer laws and the provisions of title X of the Dodd-Frank Act), Dodd-Frank Act section 1002(12)(O), 12 U.S.C. See, e.g., Bureau of Consumer Fin. Second, the proposal explained that an approach that takes loan performance into consideration in evaluating ATR compliance is consistent with the Bureau's prior analyses of repayment ability. [142] The National Emergencies Act, which has been in place for more than 40 years, was invoked to declare a national emergency due to the COVID-19 pandemic. These concerns are addressed in greater detail in part VIII below. TILA and title X of the Dodd-Frank Act are Federal consumer financial laws. The Assessment Report included findings about the effects of the ATR/QM Rule on the mortgage market generally, as well as specific findings about Temporary GSE QM originations. 78 FR 35430, 35485 (June 12, 2013) (The Bureau believes that 1026.43(e)(5) will preserve consumers' access to credit and, because of the characteristics of small creditors and portfolio lending described above, the credit provided generally will be responsible and affordable.). Often, however, the confusion could be traced to different methods of calculating terms or by providing more information than a customer could realistically understand. The Bureau concludes that the number and duration of delinquencies set forth in the performance criteria requirement strike the best balance between allowing flexibility for issues unrelated to a consumer's repayment ability (e.g., a missed payment due to vacation or to a mix-up over automatic withdrawals) and treating payment histories that more clearly signal potential issues with ability to repay as disqualifying. 178. [161] However, the Bureau does not agree with the commenter's premise that if this final rule resulted in an expansion of credit, the new loans would necessarily reflect riskier features, and default and foreclosure start rates would increase. The form mirrors the information provided on the Loan Estimate. 1. Many industry commenters requested that the Bureau apply this final rule to loans existing before the effective date. These commenters stated that this final rule could result in unanticipated disparate Start Printed Page 86418impacts on borrowers of color if they lose their set off or recoupment rights after three years. 12 U.S.C. [71] II, 110 Stat. at 57; Freddie Mac, Seller/Servicer Guide at 1301-19 (Aug. 5, 2020), https://guide.freddiemac.com/ci/okcsFattach/get/1002095_2. B, 108 Stat. Proposed 1026.43(e)(7)(iv)(C)(2) provided that the seasoning period does not include certain periods during which the consumer is in a temporary payment accommodation extended in connection with a disaster or pandemic-related national emergency, provided that during or at the end of the temporary payment accommodation there is a qualifying change or the consumer cures the loan's delinquency under its original terms. 60 days delinquent. Some research center commenters suggested graduated or step approaches. In response to commenter concerns, the Bureau is adding additional language to comment 43(e)(7)(i)(A)-2 to clarify more specifically that 1026.43(e)(7)(i)(A) does not disqualify a loan from seasoning eligibility if the loan undergoes a qualifying change as defined in 1026.43(e)(7)(iv)(B), even if such a qualifying change involves a balloon payment or lengthened loan term. Under 12 CFR 1026.32(a), there are several ways that a loan secured by the consumer's principal dwelling can be a high-cost mortgage subject to HOEPA. The Bureau therefore declines to expand the definition in 1026.43(e)(7)(iv)(D) to include State and local emergency and disaster declarations or a more general financial emergency standard and is adopting 1026.43(e)(7)(iv)(D) as proposed. The Bureau concluded that the statutory language is ambiguous and does not mandate either interpretation and that the presumptions should be tailored to promote the policy goals of the statute. Proposed comment 43(e)(7)(iv)(A)-1 would have clarified that, in determining whether a scheduled periodic payment is delinquent for purposes of proposed 1026.43(e)(7), the due date is the date the payment is due under the terms of the legal obligation, without regard to whether the consumer is afforded a period after the due date to pay before the servicer assesses a late fee. If they do opt to cancel within the time frame, they must make their intention clear using the procedure explained by the lender. These mandates were created over a half-century ago. Proposed 1026.43(e)(7)(i)(B) would have incorporated by cross-reference the QM requirements set out for Small Creditor QMs in 1026.43(e)(5)(i)(A) and (B). Dodd-Frank Act section 1414, adding TILA section 129C(c), 15 U.S.C. However, the Bureau continues to believe that parties to loans existing at the time of the effective date may have significant reliance interests related to the QM status of those loans. Register, and does not replace the official print version or the official 134. On the one hand, decreased litigation risk may translate into lower costs in competitive mortgage markets. Section 15G of the Securities Exchange Act of 1934 provides that the credit risk retention requirements shall not apply to an issuance of ABS if all of the assets that collateralize the ABS are QRMs. The Bureau understands that, in these circumstances, creditors may modify the first payment date after consummation when those dates become clear so that the first payment date is not due until after the consumer occupies the home. This final rule therefore may encourage meaningful innovation and lending to broader groups of creditworthy consumers that would otherwise not occur. The Bureau ultimately interpreted the statute to provide for a rebuttable presumption of compliance with the ATR requirements but used its adjustment authority to establish a conclusive presumption of compliance for loans that are not higher priced.[41], Under the ATR/QM Rule, a creditor that makes a QM is protected from liability presumptively or conclusively, depending on whether the loan is higher priced. The ATR/QM Rule generally defines a higher-priced loan to mean a first-lien mortgage with an APR that exceeded APOR for a comparable transaction as of the date the interest rate was set by 1.5 or more percentage points; or a subordinate-lien mortgage with an APR that exceeded APOR for a comparable transaction as of the date the interest rate was set by 3.5 or more percentage points. A Rule by the Consumer Financial Protection Bureau on 12/29/2020. Truth in Lending Act - Wikipedia The type of transfers that 1026.43(e)(7)(iii)(B)(3) permits commonly occur before or around the due date for the first periodic payment. Top Class It was passed by Congress to create a level playing field for consumers on which the lending industry would be bound by law to treat them fairly. They could even use opaque wording and confusing jargon to take advantage of borrowers. Further, a number of commenters stated that a seasoning approach to QM status would benefit the mortgage market. Upon satisfying all the requirements of the Seasoned QM definition, these loans would obtain QM status or a stronger presumption of compliance, or would not need to satisfy the portfolio retention requirements of the EGRRCPA. TILA section 103 defines residential mortgage loan to mean, with some exceptions including open-end credit plans, any consumer credit transaction that is secured by a mortgage, deed of trust, or other equivalent consensual security interest on a dwelling or on residential real property that includes a dwelling. 15 U.S.C. [97] 176. (E) Is not a high-cost mortgage as defined in 1026.32(a). In recent months, the unemployment rate has declined, and there has been a significant rebound in mortgage origination activity, buoyed by historically low interest rates and by an increasingly large share of government and GSE-backed loans. However, decreased litigation risk for creditors would come from limiting the ability of consumers who make payments throughout the seasoning period to raise violations of ATR requirements as defenses, should they enter foreclosure after the third year. Under the delinquency definition in 1026.43(e)(7)(iv)(A) and the performance requirements in 1026.43(e)(7)(ii), a loan could not season if, for example, a consumer was 30 days or more delinquent on a monthly periodic payment due on January 1 and subsequently failed to make both the periodic payment due on January 1 and the periodic payment due on February 1 before March 1. The Bureau observed in the January 2013 Final Rule that increased legal certainty may benefit consumers if, as a result, creditors are encouraged to make loans that satisfy the statutory QM criteria, and further, that increased legal certainty may result in loans with a lower cost than would be charged in a context of legal uncertainty. The Bureau's adoption of the performance criteria as proposed is also informed by its analysis of potential impacts if the number of permissible 30-day delinquencies were increased from two to three or four 30-day delinquencies.

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