United States: CFPB Amends Ability-To-Repay/Qualified Mortgage Regulations To Exclude Creditor's Payment Of Compensation To Loan Originator Employees From Calculation Of Points And Fees

On May 29, 2013, the Consumer Financial Protection Bureau (CFPB) issued a final rule amending its Ability to Repay/Qualified Mortgage (ATR/QM) rule, originally issued on January 10, 2013.

The final rule addresses the following:

  • Removes compensation to individual loan originator employees from the calculation of the points and fees limit for purposes of both the QM and Home Ownership and Equity Protection Act (HOEPA) rule;
  • Establishes a new smaller creditor portfolio QM;
  • Loosens requirements for smaller creditors originating balloon loan QMs for two years; and
  • Establishes new exemptions from the ability to repay requirements for credit extended under Emergency Economic Stabilization Act programs, community-focused lending programs and by certain non-profit creditors.

The final rule does not address the following:

  • Lender paid compensation to mortgage brokers will still be included in the QM points and fees test;
  • Fees paid to lender-affiliated settlement providers will still count toward the 3% QM cap.

For our clients, the most important element of the final rule is the adjustment to the interaction between loan originator compensation and the calculation of "points and fees" as defined by 12 C.F.R. § 1026.32(b)(1)(ii), as discussed further below. The amendments are, on balance, favorable to creditors, mortgage brokers, and loan originators. The amendments will take effect with the ability-to-repay rule on January 10, 2014.


TILA section 129C generally requires creditors to make a reasonable, good faith determination of a consumer's ability to repay a mortgage loan. TILA section 129C also creates a presumption of compliance with these ability-to-repay requirements for certain loans designated as "qualified mortgages." Qualified mortgages of $100,000 or more are permitted to have points and fees that do not exceed 3% of the loan amount (with higher percentages permitted on smaller loan amounts). Points and fees in excess of certain limits trigger protections for high-cost mortgages under the HOEPA.

Prior to the May 29, 2013 amendments, the CFPB defined points and fees as including: "All compensation paid directly or indirectly by a consumer or creditor to a loan originator, as defined in § 1026.36(a)(1), that can be attributed to that transaction at the time the interest rate is set." (Emphasis added.) Under the CFPB's prior definition, loan originator compensation was treated as "additive" to the other elements of points and fees and would be counted as it flowed downstream from one party to another, so that it would be included in points and fees each time it reached a loan originator, whatever the previous source. One effect of the CFPB's prior definition would have been "double-counting," due to the fact that creditors often compensate loan originators with funds collected from consumers at consummation (i.e., the fee paid by the consumer to the creditor and the compensation paid by the creditor to its loan originator would both have been included in the calculation of points and fees).

The May 29, 2013 Amendments

In the May 29, 2013 amendments, the CFPB expressly excluded three categories of compensation from the definition of points and fees:

  1. Compensation paid by a consumer to a mortgage broker which has already been included in the points and fees described in the finance charge;
  2. Compensation paid by a mortgage broker to a loan originator that is an employee of the mortgage broker; or
  3. Compensation paid by a creditor to a loan originator that is an employee of the creditor.

See 12 C.F.R. § 1026.32(b)(1)(ii)(A)-(C) (effective January 10, 2014). The CFPB noted that nearly all commenters (including the FDIC, HUD, the OCC, creditors and many consumer groups) supported these exclusions, and stated that the exclusions were warranted for a number of reasons, including: ensuring that affordable mortgage credit remains available to consumers by preventing the points and fees calculation from being artificially inflated; and facilitating compliance with the points and fees regulatory regime by eliminating the need for further investigation into the employee compensation practices of mortgage brokers and creditors. In response to comments from consumer advocates expressing concerns with the exclusions described above, the CFPB noted its belief that the prohibition on terms-based compensation in 12 C.F.R. § 1026.36(d)(1) will provide substantial protection against problematic loan originator compensation practices. The CFPB also stated that it intended to closely monitor the exclusions to guard against harm to consumers, and that it could, if necessary, issue a new proposal to narrow or eliminate the exclusions.

Important Limitations To The May 29, 2013 Amendments

Despite the exclusions described above, in the May 29, 2013 publication, the CFPB clearly stated that compensation paid by a consumer or creditor to a loan originator who is not employed by the creditor (e.g., a mortgage broker) will continue to be included in the calculation of points and fees under § 1026.32(b)(1)(ii). According to the CFPB, the compliance burden of calculating compensation paid by creditors to loan originators other than their own employees is minimal and does not provide a basis for exclusion based on a rationale relating to facilitating compliance. For transactions in the wholesale channel, the CFPB noted that brokers and creditors can obviate double counting concerns by having consumers pay brokers directly.

Finally, as noted above the CFPB rejected attempts by industry commenters to exclude from points and fees real-estate related charges paid to affiliates and fees paid by lenders to mortgage brokers. The CFPB's failure to address these two issues may well result in loans with identical terms and conditions originated through two different lending models (retail vs. wholesale, or affiliated settlement providers vs. third parties) receiving different treatment under the QM rule.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Events from this Firm
12 Nov 2018, Webinar, Los Angeles, United States

Artificial intelligence (“AI”) is here to stay. Leading healthcare organizations are now determining not whether to leverage AI, but how.

13 Nov 2018, Other, Los Angeles, United States

Public concern about privacy, data security and data sharing is surging, and it is leading to changes in the law and the way we do business

15 Nov 2018, Speaking Engagement, San Francisco, United States

EMPOWERED WOMEN MAKING A DIFFERENCE: Give back to your community and change a life with Sheppard Mullin’s Women Lawyers Group

Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions