May 9, 2014
Authored by: Amy Thompson
On May 6, 2014, the CFPB issued proposed amendments to the mortgage rules under the Truth in Lending Act (TILA) affecting Regulations Z and X. The proposed amendments affect the small servicer/small creditor exceptions to the mortgage rules and the “Qualified Mortgage” determination. The CFPB proposes to partially re-define who may qualify as a “small servicer” under § 1026.41 of Regulation Z (incorporated by cross reference in Regulation X), revise the scope of the nonprofit small creditor exemption from the ability-to-repay rule in § 1026.43(a)(3)(v)(D) of Regulation Z, and establish a limited cure procedure where a creditor inadvertently exceeds the “Qualified Mortgage” points and fees limits.
Amendment to the “Small Servicer” Definition: The CFPB originally presumed that most nonprofits would qualify for the “small servicer” exemptions. However, during implementation of the mortgage rules, the CFPB learned that certain nonprofits might not qualify as “small servicers” because they were part of a larger association of nonprofits that are separately incorporated but that may operate under mutual contractual obligations, share a charitable mission, and use a common name or trademark. In order to save resources, such associations sometimes consolidate servicing activities, with one of the associated entities providing loan servicing to one or more others, for a fee. Under current rules, such nonprofit servicers would not qualify for the “Small Servicer” exemptions because they service, for a fee, loans on behalf of a non-“affiliated” entity. The CFPB proposes to amend the definition of “Small Servicer” so as not to exclude qualified nonprofit entities within such formal associations where certain requirements are met. Related changes to the section’s formal comments are also proposed.