The Consumer Financial Protection Bureau made additional changes to its mortgage rules on Friday in an ongoing effort to respond to lender concerns, but refused to yield to pleas that it delay the January implementation date.
Bankers have become increasingly vocal that they will not be able to comply with the Jan. 10 deadline, particularly because the CFPB continues to update its ability-to-repay and "qualified mortgage" rules.
Although the agency appears flexible on altering other parts of the rules, it gave no sign it intends to back down from the deadline.
"The big takeaway here is that there's absolutely no give whatsoever from the CFPB as to the effective date on the QM rule," said Isaac Boltansky, a policy analyst for Compass Point Research & Trading. "That is in part, due to the importance of the mortgage market and interconnectivity to the QM rule with the [Qualified Residential Mortgages] rule."
Indeed, the agency shortened its timeframe in the most recent changes to its loan originator compensation rule, saying certain provisions would be effective on Jan. 1 instead of Jan. 10. The CFPB said the change was meant to "simplify compliance" because compensation plans, licensing and registration are typically structured on an annual basis.
The latest changes are a source of both relief and frustration to the industry. In many cases, bankers have been seeking alterations to the rule ahead of the implementation date. Yet each change, even if it's in the industry's favor, requires updated compliance systems and more training.
The latest changes follow criticism by lenders and lawmakers that the rules could force smaller lenders out of the market and restrict the flow of credit. CFPB Director Richard Cordray has repeatedly sought to reassure lenders, saying the agency will work with them to prevent a credit crunch.
"Our mortgage rules were designed to eliminate irresponsible practices and foster a thriving, more sustainable marketplace," Cordray said in a press release on Friday. "Today's rule amends and clarifies parts of our mortgage rules to ensure a smoother implementation process, which is helpful to both businesses and consumers."
Although it did not change the implementation deadline, the CFPB did give more leeway to community banks by allowing smaller lenders that do not fall under existing exemptions for rural and underserved counties to be able to offer higher-priced mortgages based on certain restrictions.
The CFPB is also re-examining its definition of the "rural" or "underserved" areas for the next two years, which would have exempted such lenders from having to hold escrow on higher-priced mortgages. The agency clarified Friday that small creditors that faced losing this exemption through 2015 because of Census data will continue to be exempt until the agency finishes its study.
The agency also created more flexibility in its mortgage servicing rule to comply with state law if it conflicts with their new federal law on notifying a delinquent borrower. Under the CFPB's new mortgage servicing rule, servicers are prohibited from issuing the "first notice or filing" during the first 120 days of delinquency but the CFPB amended the rule to take into consideration state law first so long as it provides beneficial information to the borrower.
"There are things in place in state law that are designed to help consumers and that [the CFPB's rule] would have created an inconsistent, illogical responsibility for lenders to comply with it," said Bob Davis, an executive vice president at the American Bankers Association. "Nothing is truly earthshaking here but the adjustments should be made in order to comply with or correspond to the purposes of state law."
The CFPB also made it easier for servicers to offer short-term forbearance plans for delinquent borrowers who need temporary relief without going through a lengthy loss-mitigation evaluation. Under the final rule, a servicer may provide a six-month forbearance, which has always been standard in the industry. Initially the bureau objected to such short-term solutions because they didn't want banks to put consumers through a piecemeal process, but the final rule reverted back to what servicers have done for years.
"It's a big improvement especially for clients who service over a million loans," said Joseph Reilly, a partner at BuckleySandler. "A six-month forbearance has always been the industry standard to give a borrower time to get themselves on their feet. This doesn't require the borrower to fill out a long application. Now they can offer something short-term."
Most of the modifications were simply finalizing amendments proposed June 24 to clarify definitions such as when a creditor's administrative staff is considered a "loan originator" and the types of credit insurance premiums that are considered "financed" by a creditor in a mortgage transaction.
Though the ABA welcomed the changes, Davis said it still does not address greater concerns about restricting the flow of credit or getting vendors and banks up to speed before the deadline.
These modifications are "just tinkering around the edges," he said. "The reality is this constitutes collectively 4,000 pages of new regulations" including the new amendments "and this is the last of the changes that we understand is coming from bureau before implementation."
Kate Berry contributed to this story.