QUESTION
We are a mortgage banker. Our policy is to place limits on points and
fees in our residential mortgage loan transactions. But an applicant complained
to the CFPB that we denied the application because of our limits on points and
fees. Our regulator has told us that a lender does have limits on points and
fees based on certain guidelines. What are those guidelines?
ANSWER
At a rudimentary level, the CFPB expects lenders to (1) document the loan transaction, and (2)
determine the consumer’s ability to repay the loan. Depending on the loan
transaction, the ability-to-repay feature – which offers certain standards for
demonstrating a good faith effort to determine that the consumer is likely to
be able to pay back the loan – may have some bearing on the points and fees
concern.
If a consumer does not have the ability to repay the loan, the lender
may not offer the credit extension. In fact, some lenders may choose to comply
with the ability-to-repay rule by making only “Qualified Mortgages,” which do
have caps on upfront points and fees.
Certain loan features are not permitted in Qualified Mortgages, such as
an “interest-only” period, negative amortization, balloon payments, loan terms
that are longer than 30 years, a limit on how much of the consumer’s income can
go towards debt, and no excess upfront points and fees. If the consumer applies
for a Qualified Mortgage, there are limits on the amount of certain upfront
points and fees the lender can charge. These limits will depend on the size of
the loan. Not all charges, like the cost of a credit report, for example, are
included in this limit. If the points and fees exceed the threshold, then the
loan can’t be a Qualified Mortgage.
The reason for the CFPB’s position is clear: the consumer needs
protection from paying very high fees; therefore, a lender making a Qualified
Mortgage can only charge up to the following upfront points and fees:
- For a loan of $100,000 or more: 3% of the total loan amount or less.
- For a loan of $60,000 to $100,000: $3,000 or less.
- For a loan of $20,000 to $60,000: 5% of the total loan amount or less.
- For a loan of $12,500 to $20,000: $1,000 or less.
- For a loan of $12,500 or less: 8% of the total loan amount or less.
The foregoing loan amounts reflect the initial statutory base. There have been annual adjustments to these tiers. Under the CFPB’s rules, only Qualified Mortgages have a limit on points
and fees. But, lenders are not required to make Qualified Mortgages, so they
can charge higher points and fees if they so choose.
Jonathan Foxx
Managing Director
Lenders Compliance Group
Managing Director
Lenders Compliance Group
