Once again the CFPB has issued another final rule that includes further amendments to clarify portions of its new mortgage lending rules. This final rule addresses the Regulation Z ability-to-repay provisions issued in January 2013, that will go into effect on January 10, 2014.


The CFPB has adopted several amendments in this final rule to allow for certain exemptions, modifications and clarifications to its ability-to-repay requirements. The ability-to-repay requirements generally prohibit a creditor from making a mortgage loan unless it has first determined that the borrower has the ability-to-repay the loan. This final rule provides an exemption to the ability-to-repay requirement for creditors that have certain designations, for loans made under certain programs, by certain non-profit creditors, and for mortgage loans that are made under certain Federal emergency economic stabilization programs.
In addition, this final rule expands the definition of a qualified mortgage to include certain loans that are held in portfolio by small creditors and adds a temporary definition for balloon loans. Also, the final rule modifies the requirements in reference to how loan originator compensation is included in the calculation of points and fees for high-cost mortgages.

Operational Requirements


There are certain types of mortgage loans that are exempt from the new ability-to-repay requirements. This new rule adds some further exemptions for:

  • Mortgages extended through programs administered by a Housing Finance Agency (HFA);
  • Mortgages extended by a creditor designated as a Community Development Financial Institution (CDFI), a Downpayment Assistance Provider (DAP), or a Community Housing Development Organization (CDFO);
  • Mortgages extended by nonprofit creditors with an IRS 501(c)(3) designation and that meet certain other requirements; and
  • Mortgages extended through programs authorized under the Emergency Economic Stabilization Act of 2007.


The CFPB has made several changes to the definition of “qualified mortgages” in order to ensure that consumers have continued access to credit from small creditors. A small creditor is defined as one that does not have more than $2 billion in assets and does not make more than 500 first-lien mortgages covered by the ability-to-repay rules per year. The following additions to the definition of a “qualified mortgage” only apply to small creditors. The definition of a “qualified mortgage” now includes:

  • Certain loans that are originated and held in portfolio by small creditors for at least three years (while the loans have to meet the general restrictions on qualified mortgages and the creditor must evaluate the borrower’s debt-to-income ratio, these loans are not subject to the 43% debt-to-income ratio cap);
  • An increase in the threshold for defining which mortgages receive the safe harbor liability protection for small creditors. The threshold has been raised from 1.5 percentage points to 3.5 percentage points above the average prime offer rate for loans made under the balloon loan or small creditor categories of qualified mortgages; and
  • A two-year transition period during which small creditors that don’t operate primarily in rural or underserved areas can offer balloon-payment mortgages if they hold the mortgages in portfolio.


When you are calculating the points and fees to be used to determine whether a mortgage loan meets the definition of a high-cost mortgage, you do not need to include in the points and fees:

  • Payments made by consumers to mortgage brokers, if these payments have already been included as part of the finance charge;
  • Compensation paid by a mortgage broker to its employees; and
  • Compensation paid by a creditor to its own loan officers.

Keep in mind, however, that compensation paid by a creditor to a mortgage broker is included in the points and fees for the high-cost mortgage calculation. Further guidance is provided for transactions that involve manufactured homes.