The Consumer Financial Protection Bureau (CFPB) on May 30 unveiled several revisions to its ability-to-repay mortgage rule. Upon verifying that a borrower can actually afford the loan, which makes it a "qualified mortgage," banks receive protection from litigation. Small community banks, however, had argued that the rules would essentially block access to credit by abolishing balloon loans except in rural or underserved markets. The CFPB responded by giving these institutions two years to continue making balloon loans. The ability-to-repay rule stipulates a debt-to-income ratio no higher than 43 percent to earn the QM label, but regulators have added an exemption for nonprofits and community-based lenders -- a change that consumer advocates say was necessary in order to preserve access to credit for borrowers receiving loan workouts. Additionally, the federal watchdog clarified that compensation paid by a mortgage broker or lender to a loan originator employee does not count toward a 3 percent limit on points and fees -- although it maintained that LO compensation paid by a creditor to a mortgage broker does. "What was most important to us was to make sure payments to a broker from a creditor were counted for because those are payments that lent themselves to abuse," said Julia Gordon of the Center for American Progress. "The CFPB made the right decision to make sure nefarious incentives can't sneak back into the system."
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