Recently the Consumer Financial Protection Bureau (CFPB) announced changes to Regulation Z implementing the Dodd-Frank Act’s requirement that creditors make a “reasonable and good faith determination, at or before consummation, that the consumer will have a reasonable ability to repay the loan according to its terms.”

Rules have been adopted to implement this requirement which will pose significant loan program and compliance challenges to all lenders who make consumer loans secured by a dwelling. Generally, creditors must either:

  • Meet eight specific underwriting criteria;
  • Enter into a “Qualified Mortgage” transaction which, depending on its terms, may provide a safe harbor or a rebuttable presumption of compliance;
  • Be refinancing a “non-standard” mortgage into a “standard” mortgage; or
  • In the case of a balloon mortgage be in a rural or underserved area and meet certain additional tests.

Lenders who fail to meet Ability-to-Repay standards are subject to compliance violations, penalties, private causes of action and defenses to repayment.

Has your financial institution evaluated its ability to implement the new Ability-to-Repay rules?  Does it qualify for the Temporary Qualified Mortgage Exception    intended to prevent chaos in the mortgage industry?  Is your loan program subject to the “Small Creditor Portfolio Balloon Qualified Mortgage” Exception?  Will your Bank choose to deal only in Qualified Mortgages and, if so, what is required and what are the benefits?

Our compliance lawyers have received education and training on the Ability-to-Repay rules as well as the complicated new rules relating to Qualified Mortgages.  Please contact us for assistance with respect to your Bank’s compliance concerns. Source: Davenport Evans Lawyer Dixie K. Hieb.

Davenport, Evans, Hurwitz & Smith, LLP, located in Sioux Falls, South Dakota, is one of the state’s largest law firms. The firm’s attorneys provide business and litigation counsel to individuals and corporate clients in a variety of practice areas. For more information about Davenport Evans, visit