The Consumer Financial Protection Bureau’s (CFPB) ability-to-repay (ATR)/qualified mortgage (QM) rule went into effect more than two months ago, and while most industry participants were ready to implement the rule, certain details continue to cause confusion. On March 26, Dodd Frank Update will host a webinar focusing on these ATR/QM rule pressure points. The webinar will feature Paul Schieber, a shareholder at Stevens & Lee, and Richard Andreano, a partner at Ballard Spahr and leader of the firm’s mortgage banking group.
Dodd Frank Update caught up with Schieber to get a preview of some of the issues that will be discussed during the presentation.
Schieber said most industry participants were prepped for the rules, but there are “still some quirks people are having a hard time dealing with.” For instance, industry participants have questions around bona fide discount points and the loan-level price adjustments Fannie Mae and Freddie Mac make to offset certain risks.
The CFPB’s rule establishes a 3 percent points and fees cap for QMs, but it also permits creditors to deduct up to two bona fide discount points from points and fees. Schieber said there is a fair amount of confusion regarding when loan-level price adjustments may and may not be considered bona fide discount points.
“The bureau has given some informal guidance that, for the most part, the industry is accepting, and I think is helpful to the industry,” Schieber said. “But there’s a real fear out there of plaintiffs’ lawyers and consumer advocacy lawyers who are taking a more conservative approach. It would be nice if the CFPB came out with something more formal.”
The webinar will also focus on the affiliate definition upon which the ATR/QM rule relies. The rule provides that fees paid to affiliates of the creditor are included in points and fees. However, fees paid to non-affiliated entities are not included.
Schieber noted that the rule relies on the Bank Holding Company (BHC) Act’s affiliate definition, not the Real Estate Settlement Procedures Act (RESPA) definition with which the mortgage industry is familiar. He added that the BHC Act test that is used to determine whether a person or group has control over an entity is somewhat subjective.
“It’s not like the ‘X percent definition’ under RESPA,” Schieber said. “I get a lot of calls from people saying, ‘The title company is really not mine, it’s my kid’s, it’s my wife’s.’ That’s not the test anymore. It’s really a question of who has effective control.”
Schieber also said the mortgage industry is largely unfamiliar with the Federal Reserve’s guidance on those issues.
“The industry has to get exposed to those definitions and that guidance to determine whether or not they will have effective control over an affiliate,” Schieber said. “I think that [issue] was a little bit of a sleeper that people are first coming to terms with.”
In addition, the webinar will focus on residual income calculations, CFPB examinations and the rule’s impact on the industry to date.
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