Notices have been issued to seller-servicers by both Fannie Mae and Freddie Mac about the Ability to Repay rule.
Fannie and Freddie have collaborated on formulating and aligning some requirements that address the Ability to Repay final rule from the Consumer Financial Protection Bureau.
The CFPB’s final rule implemented provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act that amended the Truth in Lending Act.
The two secondary lenders worked together in response to direction from their regulator, the Federal Housing Finance Agency.
In Lender Letter LL-2013-07, Fannie reviewed its own eligibility requirements for the Ability to Repay rule, which were also outlined in Announcement SEL-2013-06. The requirements include a maximum loan term of 30 years, full amortization of loans and a 3 percent cap on total points and fees.
Freddie issued an industry letter that indicated it issued Bulletin 2013-16 outlining its own purchase eligibility requirements in relation to the CFPB’s final rule.
On loans that are exempt from Ability to Repay requirements, the cap on points and fees is 5 percent.
Fannie’s lender letter went on to say that due to the complexities of implementing the CFPB’s final rule, lenders need to continually review CFPB updates posted online.
But both lenders discussed flexibility during a transitional period.
“During the initial transitional period, except as indicated below, Fannie Mae will not require repurchase of a loan on the grounds of noncompliance with the applicable QM-related points and fees eligibility requirement as long as it was otherwise eligible for acquisition,” the Washington, D.C.-based firm said. “However, if a court of law, regulator, or other authoritative body determines the loan exceeded the applicable QM-related points and fees limitation in violation of the CFPB final rule, such loan is subject to repurchase.”
Fannie also indicated that any ineligible term or amortization provisions discovered through existing review processes will be grounds for repurchase.
In addition, determinations by a court, regulator or other authoritative bodies that a lender made a loan without determining a borrower’s ability to repay as required under Regulation Z will trigger a repurchase demand — as will loans found to be high-cost under the Home Owners Equity Protection Act.
Freddie outlined similar requirements in its bulletin.
Fannie said that its E-2-07, Post-Closing Mortgage Loan File Documentation, requires lenders to maintain all documents used to support each underwriting decision.
“Since a borrower may assert a lender’s ATR noncompliance as a defense to a foreclosure action, lenders may have to demonstrate, even long after closing, their compliance with the new eligibility criteria in such proceedings,” Fannie’s lender letter stated. “Therefore, Fannie Mae expects lenders to retain all materials in their mortgage files as may be necessary to document such compliance, including those that may traditionally not have been included, such as rate sheets or other materials relating to the interest rate and discount points offered to the borrower.”
Freddie emphasized that lenders are responsible for determining whether point and fee thresholds are impacted when delivery fees are passed on to the borrower in the form of higher rates or fees.
Both lenders said lenders are responsible for adhering to state requirements.
Freddie noted that its anti-predatory lending requirements issued in February 2009 are no longer applicable in light of the CFPB’s final rule.
