The Federal Reserve has published its draft guidelines implementing Dodd-Frank’s new ability to repay requirements. Under the new rule, lenders would get a safe-harbor if they offer certain safe mortgages including no negative amortization, interest-only payments, or a balloon payment, or a loan term exceeding 30 years and the points and fees do not top 3% of the loan. Those of you in affiliated arrangements should pay close attention to the rule because, as with HOEPA, title fees are rolled into the 3% calculation if they are paid to the lender or their affiliate. Bona fide third party title fees are not included in the points and fees calculation. If lenders do not offer loans within this safe harbor, they will have to follow strict ability to repay underwriting standards or risk giving borrowers an extra defense in foreclosure. The new rules are open for comment until July 22, 2011.
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