Mortgage lenders will have 210 days to fix errors in their calculations of points and fees and reimburse borrowers for any overages under a final rule issued by the Consumer Financial Protection Bureau.
The CFPB originally proposed a120-day period to correct and remedy charges that exceed the 3% points-and-fees cap under the qualified mortgage rule. However, the agency concluded a longer review period will give lenders an incentive to do post-closing audits to detect any errors.
"Lenders currently have an incentive to do post-closing audits on their loans and make sure they were done appropriately," said Anne Canfield, executive director of the Consumer Mortgage Coalition. "The longer period will give them a little more time, especially in periods of heavy loan volume, to do post-closing audits."
During the comment period, several industry groups and individual lenders complained that 120 days was too short. They proposed a 180-day review period so small lenders have time to review and cure loans. It also gives mortgage aggregators enough time to review and rectify any errors in loans they buy from other lenders.
A provision in the final rule also allows secondary market entities to pay refunds for errors made by the originator of the loan.
"The change is designed to encourage lenders to provide access to credit to consumers seeking loans that are at or near the points-and-fees limit," the CFPB said in a summary of the final rule.
Several consumer groups opposed the cure proposal that was issued for public comment in April, claiming it would "incentivize inaccurate points and fee calculations."
In response, the CFPB decided to sunset the cure provision so it expires after Jan. 10, 2021 — the same date that Fannie Mae, Freddie Mac and other government-guaranteed mortgages lose their protected status as QM loans.
The final rule also allows the borrower to cut off the lender's ability to cure an error by taking legal action or by notifying the lender in writing that they believe they were overcharged. "In that case, the lender can't cure the overage, if there was an overage" said Chris Harrington, the counsel for the Consumer Mortgage Coalition.
Lenders also should be aware that "CFPB examiners are likely to sample loan files for errors in this area," Canfield added.
Without a cure mechanism, the CFPB officials were concerned lenders would resort to a "buffer" that would turn the 3% point-and-fees cap into a 2.75% cap or a 2.5% cap to protect themselves.
"The bureau notes that the final cure provision has been carefully calibrated to incentivize lenders to ease current buffers (which should in turn increase access to responsible, affordable mortgage credit) while limiting the ability and incentives for lenders to abuse the cure," the final rule says.
The points-and-fees error resolution rule goes into effect once it is published in the Federal Register.
The CFFB also issued two other mortgage rules on Wednesday to accommodate the operations of nonprofit lenders and servicers. One rule allows nonprofits to consolidate their servicing activities and still remain exempt from the bureau's servicing rules. Entities that service more than 5,000 mortgages are required to comply with bureau's servicing rules.
Meanwhile, nonprofits like Habitat for Humanity are exempt from the overall ability-to-repay rule if they originate no more than 200 mortgages a year. A rule issued Wednesday exempts "soft second" loans from the 200-loan limit. This exemption applies to "certain interest-free, forgivable loans," the CFPB said.
