TIL Small Creditor Amendment APOR Revision

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    I have reviewed the new finalized amendments to Regulatuion Z for small creditor portfolio loans and balloon payment QMs. The cross-referencing in this regulation is driving me nuts so I need to ensure I interpret the regulation revisions accurately. Our Bank would fall under the amended exemptions as a small creditor despite that we are in a MSA. The rule also increased the safe harbor QM to increase the APOR from 1.5% points to 3.5% points. We do not make HPML loans due to the escrow requirements–our Bank is not set up to escrow currently. Based on my interpretation, even if the APOR is increasing for the QM rule, we still would be required to escrow a loan if we went above the APOR of 1.5% points for a first-lien loan, correct? It seems to defeat the purpose.


    From page 106 of the Ability-to-Repay and Qualified Mortgage Standards Under the Truth in Lending Act final rule: “As discussed below in the section-by-section analysis of § 1026.43(e)(5), the Bureau is adopting § 1026.43(e)(5) consistent with existing § 1026.35(b)(2) with regard to the asset size and annual loan origination thresholds defining a small creditor. The Bureau did not propose and did not solicit comment regarding other amendments to the escrow provisions in § 1026.35(b)(2).”

    The final rule will extend the QM safe harbor to small creditors with first lien qualified mortgages under 1026.43(e)(5) even if the APR is between 1.5 – 3.5 percentage points higher than the APOR. It is raising this threshold to ensure small creditors still make loans that consumers need – since smaller creditors have a higher cost of funds, their rates may be higher and, therefore, they should be given greater tolerance. The CFPB feared that if small creditors can’t make these loans within the safe harbor parameters then they may not be made at all which would leave a segment of consumers unserved.

    If you are not making HPMLs you shouldn’t have a problem with the APOR threshold for the safe harbor. So if you have a qualified mortgage that is not a higher priced covered transactions then you have a safe harbor for that loan. Unfortunately, The escrow trigger is not changing so if you make an HPML under 12 CFR 1026.35 you’ll still have to comply with the escrow requirements unless you meet one of the exemptions in 1026.35(b)(2).

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