HUD Adopts CFPB Changes to Qualified Mortgage Rule

The Department of Housing and Urban Development (HUD) will adopt changes pertaining to its qualified mortgage rule, which could provide more access to credit for borrowers with low and moderate incomes, the agency writes in a notice

In early 2013, the Consumer Financial Protection Bureau (CFPB) announced proposed definitions for “qualified mortgage” and a borrower’s ability to repay his or her loan.  

In an effort to align with the CFPB’s guidelines, later that year HUD published a final rule that established a definition of qualified mortgage for single-family residential mortgages that HUD insures, guarantees or administers. 

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HUD’s alignment to the CFPB’s standards also included cross-references to the CFPB’s list of transactions exempted from the qualified mortgage definition, including a nonprofit transaction exemption, and the CFPB’s limit on points and fees for qualified mortgage status as of Jan. 10, 2014.

When developing its own qualified mortgage definition, HUD incorporated provisions that give it the option to adopt any CFPB change or changes to its definition of qualified mortgage. Recently, HUD followed that provision, announcing it will adopt some of the changes the CFPB made to the “exempted transaction” list. 

The CFPB’s final rule amended the exempted transaction list to provide that certain interest-free, contingent subordinate liens originated by nonprofit creditors would not be counted toward the credit extension limit of 200 transactions that qualifies a nonprofit for the nonprofit exemption.

Specifically, the rule excludes consumer credit transactions if the transaction is secured by a subordinate lien; for the purpose of down payment, closing costs, or other similar home buyer assistance, such as principal or interest subsidies; for property rehabilitation assistance; for energy efficiency assistance; or for the purpose of foreclosure avoidance or prevention. 

By excluding these interest-free, contingent subordinate liens from determining if a nonprofit creditor qualifies for the exemption, more nonprofit creditors will qualify for the exemption and additional consumers with income that does not exceed the low- and moderate-income household limit will have access to credit.

“HUD sees value in maintaining consistency with CFPB’s rule when it is consistent with HUD’s mission and statutes,” the agency writes. “HUD believes that the amendment to the nonprofit exemption in the exempted transaction list is balanced in a way to protect against abuse while providing more access to credit for borrowers with low and moderate incomes, consistent with HUD’s mission.”

The effective date of these changes was Nov. 3, 2014.

However, HUD announced it will not be adopting the new points and fees cure provision adopted by CFPB. Instead, Federal Housing Administration-approved lenders may cure certain errors that occur in origination before submission for insurance endorsement.

Read HUD’s notice here

Written by Emily Study

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