Compliance Blog

Written by Brandy Bruyere, Regulatory Compliance Counsel

The CFPB released two items of interest on Tuesday, so today’s blog is a bit long for a Friday but we will kill two birds with one stone and address both. The first is an interpretative rule regarding the applicability of the Ability-to-Repay rule to certain mortgage assumptions. The second is a memorandum regarding the treatment of same-sex marriages for the purposes of laws under the CFPB’s jurisdiction.

Assumptions and the Ability-to-Repay Rule

On Tuesday, the CFPB announced it was issuing an interpretative rule to address how the Ability-to-Repay (ATR) applies when adding a successor to an existing mortgage. These situations arise when a member passes away, after a divorce, or another ownership transfer such as from parents to children. Here are key excerpts from the rule with hyperlinks added for reference:

“Under § 1026.43(c), a creditor must make a reasonable and good faith determination that the consumer has the ability to repay at or before consummation of the covered transaction.

…

§ 1026.20(b) [defining “assumption”] applies to changes in the loan’s obligors. Under § 1026.20(b) an assumption occurs when—and only when—the creditor “expressly agrees in writing with a subsequent consumer to accept that consumer as a primary obligor on an existing residential mortgage transaction.”

…

A residential mortgage transaction does not arise where a successor takes on the debt obligation that is secured by property the successor previously acquired. In these situations, § 1026.20(b) does not apply when the successor agrees to be added as an obligor on an existing mortgage loan. Although these transactions are commonly referred to as assumptions, they are not assumptions under § 1026.20(b) because the transaction is not a residential mortgage transaction as to the successor. Accordingly, the ATR Rule in § 1026.43 does not apply to a transaction in which a successor seeks to take on the debt secured by property that the successor previously acquired.

In contrast to the successor situation described above, if a consumer without an existing interest takes on the obligation of the existing borrower in order to finance the acquisition of the consumer’s principal dwelling, the transaction is a residential mortgage transaction. In such a case, where the creditor expressly agrees in writing to the new primary obligor, an assumption has occurred under § 1026.20(b), and it is subject to the ability-to-repay requirements in § 1026.43, in addition to other requirements of Regulation Z.” (Emphasis added.)

In other words, the ATR rule does not apply when someone acquires interest in the property before taking on the mortgage obligation. However, the ATR rule will apply when a person takes over a mortgage obligation in order to acquire an interest in a property that will also be that person’s principal dwelling. Where this can become complicated is that state law will determine the point in time that the member acquired his or her interest in the property.

Memorandum on the Equal Treatment of Same-Sex Married Couples

On June 26, 2013 in United States v. Windsor the Supreme Court struck down a section of the Defense of Marriage Act that limited the definition of marriage under federal law to legal unions between one man and one woman. On July 8, 2014 CFPB announced it issued a memorandum on same-sex marriages stating “the Bureau will regard a person who is married under the laws of any jurisdiction to be married nationwide…regardless of the person’s place of residency.” For the purposes of provisions such as ECOA/Regulation B, TILA/Regulation Z, and RESPA/Regulation X, terms such as “spouse,” “marriage,” “husband,” “wife,” and similar terms will be interpreted to include same-sex marriages and spouses. For example:

“Regulation B defines ‘marital status’ as ‘the state of being unmarried, married, or separated, as defined by applicable state law’ and states that ‘unmarried includes persons who are single, divorced, or widowed’ but does not state that those examples are exhaustive…While referring to ‘applicable state law,’ this definition does not specify which state’s laws is applicable…a person has the marital status of ‘married’ by virtue of being in a marriage under the laws of any jurisdiction while a person has the marital status of ‘unmarried’ by virtue of being in a domestic partnership, civil union, or other relationship not denominated by the law as a marriage.”

Essentially, same-sex couples who married in states where such marriages are legal, but live in or moved to a state that refuses to recognize these marriages are considered “married” for the purposes of the statutes and regulations administered and enforced by the CFPB.

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Hot Dog!

It’s hard to exercise in the summer when you have to wear your coat everywhere you go! Lemmy tends to flop onto the floor for a while after his walks these days, it’s rather pathetic but I feel for him.