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CRFPB Repayment Rules and Eligible Mortgage Definitions Over twenty years ago, the Board of Governors of the Federal Reserve System (the "Board") first suggested a Regulation Z amendment in order to introduce an extended repayment obligation and redefine a "qualified mortgage" under various changes to the Truth in Lending Act ("TILA") of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act"). CFPB concluded the early stages of this regulatory cycle on 10 January 2013 by adopting a definitive regulation that will radically transform the housing property markets (the 2013 ATR Settlement Finality Rule). With effect from 10 January 2014, the 2013 ATR End Rules (i) establish a wide repayment obligation for practically the whole housing sector, (ii) define a new class of "qualified mortgage" and (iii) establish a two-level safety harbor/rebuttable assumption framework for the assessment of repayment obligations for "qualified mortgages" that makes a rough distinction between "prime" and "subprime".

We cannot overemphasise the importance of the 2013 ATR final rule: the repayment obligation and the "qualified mortgage" standards will determine the US mortgage subprime mortgage subprime markets for the foreseeable near-term. We do not believe at this stage that there will be a credit markets for loans that do not conform to the "qualified mortgage" standards.

Whilst we also believe that these new rules will limit the access to loans and are likely to raise their costs, they will also improve the lending qualities of new housing loans. ATR-Endregel 2013 lays down the following general repayment obligation: "The lender may not grant a secured lending arrangement unless the lender makes a sound and credible assessment at or before consumption that the borrower will be able to pay back the load in accordance with his conditions.

"4 "4 The ATR final regulation 2013 enlarges and thus enlarges the repayment eligibility regulation of Regulation Z, which has applied to "higher-priced mortgage loans" since 20095 , to practically all concluded retail loan business guaranteed by an apartment. Specifically, the repayment obligations of the 2013 final ATR regulation are similar, but not the same, to those that currently apply to "higher-priced mortgage loans" under Regulation Z. Previously, "higher-priced mortgage loans" were raised and subsequently offered on the aftermarket without incidents.

Fannie Mae and Freddie Mac can sell them fully, provided that they meet the relevant endorsement and document requirement for this credit group. Concerns about the housing credit markets are whether or not the 2013 ATR final rule in any way affects the present acceptability of such mortgages in the collateral mortgage or not.

While the ATR End Rule 2013 does not prescribe a specific endorsement scheme, the lender must take into account at least eight (8) discreet endorsement criteria that affect the specific user when assessing the lender's redemption ability: Consumers' actual or reasonably anticipated incomes or wealth (excluding the value of the home, with the exception of all land associated with the home) securing the credit; Consumers' actual job situation if the lender is dependent on earnings from the consumer's job in order to determine their repayability; Consumers' monetary payments for mortgage liabilities (i.e. the amount of the loan).

Indeed, the final rule of ATR 2013 forbids the granting of loans with little or no documentary evidence. ATR-End Rule 2013 provides for a specific waiver of the general repayment obligation for a lender who is refinancing a "riskier" specific mortgage (i.e. a variable-rate mortgage, a purely interest-bearing mortgage or a mortgage with adverse amortisation) into a more " robust " standardised mortgage.

if the lender for the reference mortgage is the present owner or servant of the nonstandard mortgage; the lender will receive the consumer's request in writing within two (2) month after the revision of the nonstandard mortgage; the lender has not made more than one (1) more than thirty (30) day too late repayment during the twelve (12) month period prior to the lender's receiving the request in writing; if the nonstandard mortgage was made after January 10, 2014, it was made in accordance with the repayment obligation or was a "qualified mortgage".

" As regards the default loans, they must include periodical instalments which do not lead to an increased capital amount, do not allow the customer to postpone the reimbursement of the capital amount and do not lead to a payout of the capital amount by balloons. Furthermore, the aggregate score and commissions may not be higher than the amount needed for a "qualifying mortgage", the maturity may not be higher than forty (40) years, the interest must be set for at least the first five (5) years, and the revenue must be used to settle the unpaid balances of the non-standardised mortgage and the acquisition or liquidation commission.

This type of transaction would be used to'save' the consumer in floating rates loans with only interest or adverse repayments that are susceptible to defaults but are likely to have far greater chances of being fulfilled under a more consistent commitment. "The Safe Harbor" and "Refutable Presumption" 1412 of the Dodd-Frank Act have modified the TILA to the effect that a lender, in relation to a private mortgage credit and any assignor of such a credit, can assume that the credit has fulfilled the repayment obligations in the case of a "qualified mortgage".

" As the Board stated in its suggested regulation, however, it is not clear whether Congress was intending this to be a "safe haven" or a "rebuttable presumption" of adherence to the repayment obligation. CFPB adopted both a "safe harbor" and a "rebuttable assumption" in the 2013 ATR final regulation, albeit with a very different policy than the Board of Directors.

ATR-End Rule 2013 contains a "safe harbor" for a secured business that corresponds to the qualifying mortgage and is not a "higher-priced secured business", a broad ly similar to that for a "higher-priced mortgage loan" in the present Regulation Z.12 The CFPB considers secured business qualifying for the "safe harbor" to be cheaper, less risk "first-class" loans.

In the case of any secured operation which satisfies the qualifying mortgage criterion and which is not a'higher-priced secured operation', the lender or transferee fulfils the repayment obligation (i.e. it is definitively assumed that he has established the consumer's capacity to make repayment in good faith and in a proportionate manner), even though the latter may claim at a later stage that the secured operation did not actually fulfil the qualifying mortgage criterion.

" ATR Final Rule 2013 also contains a "rebuttable assumption standard" for a secured business that fulfils the qualifying mortgage requirement but is a "higher-priced secured business". "CFPB views "higher-priced secured transactions" as "subprime exposures" that are primarily granted to customers with a weak or less developed loan track record.

In the case of any secured operation which satisfies the definitions of a'qualifying mortgage' but which is a'higher-priced secured operation', the assumption shall be that the lender or transferee fulfils the repayment obligation. The 2013 ATR final rule, however, lays down delimited reasons for which the assumption can be refuted. The rebuttal of this assumption for "higher-priced secured transactions" implies proving that the lender did not establish in good faith and in an appropriate manner the consumer's capacity to pay back at the moment of consumption and, in particular, that a customer who alleges a breach of Regulation Z has to prove that at the moment of granting the credit he has to prove the producer's incomes, debts and maintenance,

Kindergeld and montly instalments (including mortgage liabilities) for the business insured and all concurrent loans of which the lender was informed at the time of recourse leave behind inadequate remaining incomes or wealth (with the exception of the value of the home and land) to cover the cost of living, inclusive of all recurrent, substantial, unindebted expenditure of which the lender was informed at the time of recourse.

It is important to note that the CFPB pointed out that a rebuttal of the assumption by a customer is less likely the longer the customer has made punctual repayments without amendment or adjustment and, in the case of variable-rate mortgages, after the recasting. According to the ATR final rule 2013, a "qualified mortgage" must be a secured business that fulfils the following criteria: no capital account surplus enhancement (e.g. no adverse amortisation loans); no postponement of capital repayments by the customer (e.g. no interest-free or staggered loans ); no payout of balloons (e.g.

more than twice the amount of the previous planned payments), except that certain specific conditions are applicable to a smaller lender mainly active in agricultural or under-served areas; the secured operation has no repayment period exceeding thirty (30) years;

there are no aggregate points and charges (including lender's remuneration14) in the Guaranteed Product which exceeds three per cent (3%) of the aggregate principal amount of a principal amount of USD 100,00015 or more, less than two (2) good faith discounting points if the interest without any deduction does not by more than one (1) per cent exeed the weighted offered interest amount;

Creditors subscribe the loans (taking into consideration the montly mortgage payment) using (i) the highest interest rates that may be applicable during the first five (5) years after the date on which the first periodical repayment becomes due, and (ii) periodical repayments and interest rates that will either pay back the amount of the loans (i) the interest rates on the loans or (iii) the interest rates on the loans or the interest rates on the loans or the interest rates on the loans or the interest rates on the loans or the interest rates on the loans or the interest rates on the loans or the interest rates on the loans or the interest rates on the loans or the interest rates on the loans or the interest rates on the loans or the interest rates on the loans or the interest rates on the loans or the interest rates on the loans or the interest rates on the loans or the interest rates on the loans or the interest rates on the interest rates.

e. the nominal amount of the borrower's draft bond or credit agreement, even if not fully paid at issuance) over the life of the borrower's credit or the nominal amount due over the remainder of the life of the borrower's credit at the time when the interest becomes equal to the interest ceiling; the consumer's DTI quota at issuance does not top 43%, calculated on the basis of the consumer's per capita payments17 for the secured operation (including a mortgage obligation) and for each concurrent credit that the lender knows or has reasons to believe.

There is a specific exception to the transition limit for transition periods from the 2013 ATR final rule to the restriction on grants of loans under the terms of the DTT, as the CFPB fears that lenders may not be willing to grant a credit that is not a'qualified mortgage' in the present mortgage markets, even if the credit is subscribed in a responsible manner. According to the specific waiver, a secured operation with a more than 43% Duration of the Arrangement may nevertheless qualify as a "qualifying mortgage" if the other qualifying conditions for a "qualifying mortgage" are met and if the credit (i) can be bought or secured by Fannie Mae or Freddie Mac while they are operating under State supervision (or by a limited-term supervisory authority following the terms of the respective Charter),

When one of the above mentioned agents converts its own defined "qualified mortgage" into (ii) - (v) in accordance with TILA, the specific waiver for that agent expires. Under no circumstances shall the specific waiver be granted in the case of a transaction concluded under cover after 10 January 2021. The private mortgage finance sector is likely to take advantage of this waiver, which comes as close as possible to CFPB, if it gives a near miss class the opportunity to take advantage of a qualifying mortgage.

" ATR Final Rule 2013 deals with questions related to the computation of the points and charges that are part of a wider, comprehensive package of reviews of Regulation Z. The rules adopted in ATR Final Rule 2013 will result in some secured operations being excluded from the "qualifying mortgages" class as they cross the overall score and charge bound.

The efficiency gains that related services can provide may not benefit the consumer (i.e. the consumer may be paying higher overall closure costs) and the creditor may easily refuse to grant credits when faced with the emergence of a less lucrative mortgage in order to qualify as a 'qualified mortgage'.

" At any rate, there is a chance that the consumer will pay higher mortgage charges, while the creditor will receive less under these new regulations. In this context, the CFPB also asked for an opinion on the computation of the credit award indemnity, which is part of the points and fee computation for the'qualified mortgage' criterion.

CFPB assumes that these supplementary issues can be resolved in spring 2013, well before the entry into force of 10 January 2014. ATR Endregel 2013 also contains other regulations related to legal seats in the Dodd-Frank Act, including: CFPB also requested comments on the suggested changes to the general repayability rules and the'qualified mortgage' rules, which were not included in either the initial draft or the text of the Dodd-Frank Act, including: exceptions for non-profit community-based borrowers who help low-income households to obtain accessible accommodation; exceptions for house financing agents and lending institutions who participate in municipal support programmes; exceptions for house property stabilisation programmes aimed at preventing foreclosure (e.g.

g. programmes working in tandem with the Making Home Affordable Programme ); raising the barrier between secure harbour and rebutable presumption qualifying loans for smaller lenders (e.g. country ballon qualifying mortgages) to 3.5 percent above the mean base lending interest rates for first mortgage loans to mirror the higher costs of funding for these lenders.

When assessing the 2013 final ATR rule, mortgage lenders must evaluate the possible effects on prime and collateral lending activity. Given that an unqualified mortgage that does not fulfil the repayment obligation, a decision that would be well taken after being granted, is likely to avoid the owner excluding the credit and having to pay back the consumer's financing costs, it is unlikely that in the near term a credit other than a'qualified mortgage' will be available for sale on the usual mortgage retail shelves.

Loans of this kind would probably be very illiquid and part of a relational loan transaction. Refutable assumption' for'higher-priced underlying transactions' may adversely impact the viability of loans that have been readily available for sale in the alternative markets. When such loans are considered less negotiable due to increased process risks, lenders may be discouraged from paying out loans to marginal customers, leading to a net reduction in poor consumers' exposure to loans.

The same dynamics may also limit lending to credible customers who have a source of revenue or other financing that does not comply with the documentary or review requirement of the 2013 ATR End Rule. Defining a "qualifying mortgage" would provide a tough 43% DTI quota for primary loans (i.e. loans whose balance exceeds the compliant Fannie Mae or Freddie Mac purchasing limit but which otherwise fulfil the qualifying criteria).

However, the exemption of the transition from the 43% DTI quota would not be applicable to such loans because of their incorrect balance. Conversely, loans with compliant balance, but with a DTI rate above 43%, may be purchased from Fannie Mae or Freddie Mac on the basis of equalisation coefficients applicable under their individual subscription policies and may therefore fulfil the qualifying mortgage definitions.

According to present credit practice, high leverage jump origination can be allowed under a creditor's subscription policy on the grounds of countervailing items such as liquid assets or retained earnings. ATR-End Rule 2013 may lead to a situation where lenders are not willing to lend to primary DTI debtors with a DTI rate above 43%, even if they have countervailing elements, which may prevent some credible customers from obtaining funding.

Branching the mortgage markets between "safe haven" and "rebuttable presumption" loans may have accidental commercial implications for those with relatively better loans. In view of the different regulatory risks for lenders between the two classes, lenders may be tempted to lower interest rate levels for otherwise'higher-priced secured transactions' in order to fulfil'safe harbor' conditions.

At the same time, however, lenders can try to compensate for this loss of revenue and compensate for the greater pecuniary risks they would be taking by reducing interest rate levels for less credible customers by gradually increasing interest rate levels for peak loans. Effects on the requirements for hedging risks. 941 of the Dodd-Frank Act provides that the scope of the QRM may not be wider than the scope of the TILA scope of the TILA scope of the QRM for the purpose of the outstanding exposure deduction provisions for asset-backed securities. 941 of the Dodd-Frank Act provides that the TILA scope of the QRM may not be wider than the scope of the TILA scope of the TILA scope of the TILA scope of the QRM.

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