Written by Michael Coleman, Regulatory Compliance Counsel
Yesterday we blogged about the CFPB’s Small Entity Compliance Guide for the Ability to Repay/Qualified Mortgage final rule (“ATR/QM Guide”). Today we'd like to highlight some of NAFCU's mortgage rules compliance resources (shameless plug alert!).
As we mentioned last week, NAFCU's Mortgage Rules webpage is the ultimate compliance resource center for the CFPB's mortgage rules. It is the "one-stop shop" for all of the NAFCU resources on these rules (NAFCU login required for member resources).
Below is a Question & Answer on the points and fees calculations for qualified mortgages that came from NAFCU's CFPB Mortgage Reform Webcast Series: CFPB’s New Rules: Ability-to-Repay/Qualified Mortgages. The Q&A also appeared in NAFCU’s April 2013 Compliance Monitor’s “Compliance Forum.”
"Question: The qualified mortgage rule has limitations for points and fees depending on the size of the loan. Are third party fees such as appraisal fees and title insurance costs included in the restrictions on points and fees used in the qualified mortgage rule?
Answer: It depends on the type of third party fee. This is a complicated issue and you will have to look closely at the definition of “points and fees” as well as the commentary to determine whether or not the fees you charge are included and whether you exceed the limitations.
The final rule on ability to repay and qualified mortgages section 1026.43(e)(3) contains the restrictions on points and fees for qualified mortgages, which cross references the definition of “points and fees” contained in section 1026.32(b)(1), which reads:
“(b) Definitions. For purposes of this subpart, the following definitions apply:
(1) In connection with a closed-end credit transaction, points and fees means the following fees or charges that are known at or before consummation:
(iii) All items listed in § 1026.4(c)(7) (other than amounts held for future payment of taxes), unless:
(A) The charge is reasonable;
(B) The creditor receives no direct or indirect compensation in connection with the charge; and
(C) The charge is not paid to an affiliate of the creditor;” (Emphasis added.)
Both appraisal fees and title insurance are listed in section 1026.4(c)(7). The next step is to take a look at the official staff commentary from the final rule to section 1026.32(b)(1)(iii):
1. Other charges. Section 1026.32(b)(1)(iii) defines points and fees to include all items listed in § 1026.4(c)(7), other than amounts held for the future payment of taxes, unless certain exclusions apply. An item listed in § 1026.4(c)(7) may be excluded from the points and fees calculation if the charge is reasonable; the creditor receives no direct or indirect compensation from the charge; and the charge is not paid to an affiliate of the creditor. For example, a reasonable fee paid by the consumer to an independent, third-party appraiser may be excluded from the points and fees calculation (assuming no compensation is paid to the creditor or its affiliate and no charge is paid to an affiliate). By contrast, a fee paid by the consumer for an appraisal performed by the creditor must be included in the calculation, even though the fee may be excluded from the finance charge if it is bona fide and reasonable in amount.” (Emphasis added.)
Thus, according to the definition of “points and fees” in section 1026.32(b)(1), the fees listed in section 1026.4(c)(7) would be considered “points and fees” for the purposes of the limitations on points and fees for qualified mortgages under section 1026.43(e)(3), unless they meet the conditions set out in section 1026.32(b)(1)(iii)."
NAFCU Members: This and many other detailed questions and answers on the CFPB's recent mortgage rules can be found on the mortgage rules webpage, as well as in recent issues of NAFCU's Compliance Monitor, available here for download (with NAFCU login). Don't forget to utilize these resources when you are conducting your research!
Non-members: Keep in mind that all of NAFCU’s webcasts (including NAFCU's CFPB Mortgage Reform Webcast Series) and conferences (including our Compliance School each March and our Compliance Seminar each October) are available to all credit unions – regardless of NAFCU membership. You do not even need to be affiliated with a credit union (we have attorneys, consultants, vendors and others attend regularly). The goal is to stay compliant with these increasingly complex issues, we hope you join us!