Which loans are covered by the prepayment penalty rules?

A prepayment penalty is a charge that the lender imposes on the borrower if the borrower pays all or part of the principal of the loan before its due date. For example, if you pay off your loan, refinance, or sell your home before a certain date, you could be subject to a prepayment penalty. Third, both qualified mortgages and most closed-term mortgage loans and fixed-capital credit schemes guaranteed by a consumer's main dwelling are subject to additional limitations on prepayment penalties by including payment penalties anticipated in the definition of points and charges for qualifying mortgages and high-cost mortgages. See the section-by-section analysis of the proposal in § 226.32 (b) (v) and (vi); 77 FR 49090, 49109-10 (Aug.

Among other things, QM's General Final Rule removes the 43 percent DTI limit and replaces it with price-based thresholds, removes Appendix Q, and maintains “consider and verify” requirements (as discussed in more detail below). The General Final Rule of QM maintains the requirement that lenders meet the requirements to “consider and verify” on or before the consummation of a loan. Specifically, lenders must consider and verify the consumer's current or reasonably expected income or assets (other than the value of the home that secures the loan and any real property attached to that home), debt obligations, alimony and child support. In addition, lenders must consider the DTI ratio or residual income in accordance with the repayment capacity requirements set out in Regulation Z in this regard.

Lenders will no longer be required to comply with Appendix Q to determine debt and monthly income under the new rule. The General Final Rule of QM does not prescribe a particular threshold or subscription method. A creditor may verify the employment status of military personnel by using a Military License and Revenue Statement or by using the electronic database maintained by the Department of Defense to facilitate identification of consumers covered by the credit protections provided by compliant with 10 U. Creditors generally must hold loans in their portfolios for three years to maintain their “qualified” mortgage status.

Given the low population density of the areas currently defined as rural, the corresponding limits on the number of creditors and the challenges of granting loans that could be sold on the secondary market, it is likely that maintaining this source of credit in the community with the safeguards added by the rule will be more important for consumers that consumer protections associated with not allowing global loans to be qualified mortgages. Pursuant to section 129C (a) (B) and (D) of the TILA, the proposal in § 226.43 (c) (ii) (B) provided special rules for interest-only lending. The approach of using the maximum margin that can be applied at any time during the term of the loan is consistent with the legal language contained in section 103 (bb) of the TILA, as amended by section 1431 of the Dodd-Frank Act, which defines a high-cost mortgage. The qualified mortgage standard provides creditors with a presumption of compliance with the requirement of section 129C (a) of TILA to assess a consumer's ability to repay a residential mortgage loan.

CFPB rules prohibit prepayment penalties for most residential mortgage loans, except in some specific circumstances. The Board also specifically requested comments on what criteria should be included in the definition of a qualified mortgage to ensure that the definition provides an incentive for creditors to make qualifying mortgages, while ensuring that consumers have the ability to repay those loans. For loans with a lump sum payment, the rules differ depending on whether the loan is a hedged transaction of higher price, as defined in Article 1026,43 (b) (), or is not a hedged transaction of higher price because the annual percentage rate does not exceed the applicable threshold calculated using the average prime offering rate (APOR) for a comparable transaction. Similarly, the loan agreement may not require the consumer to make fully amortizable payments, but for purposes of determining capacity to repay under § 1026.43 (c) (i), the creditor must convert any non-amortizable payment into fully amortizable payments.

The Office considers that the combination of this restriction and the other protections contained in section 1026.43 (d) is sufficient to prevent unscrupulous creditors from engaging in the investment of loans. In addition to liquidity restrictions for unqualified mortgages, commentators argued that liability and damages arising from a possible breach of TILA's ability to pay would be a disincentive for most creditors to provide unqualified mortgage loans. Requiring creditors to use the maximum interest rate would help ensure that consumers could repay their loans. A commentator on not-for-profit loan originators also argued that including loan originator compensation in points and rates could undermine programs that help low- and moderate-income consumers obtain affordable mortgages.

The proposed comment 43 (c) (ii) (C) -2 provided additional guidance to creditors as to the relevant terms of the loan to be used for the purpose of determining repayment capacity. The Board noted that the exceptions are mortgage insurance premiums and charges for credit insurance and debt cancellation and suspension coverage. . .

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