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Monday, July 21, 2014

Complying with the CFPB’s Ability-to-Repay Rule: What Amount of Affiliated Homeowners Insurance Premiums Should be Included in Points and Fees?

By: ABIA Outside Counsel Katie Wechsler, Barnett Sivon & Natter, P.C. and Adam D. Maarec, McIntyre & Lemon, PLLC

The Consumer Financial Protection Bureau’s rule on Ability-to-Repay, which went into effect in January 2014, generally caps “points and fees” for “Qualified Mortgages” at three percent of the loan amount. Charges for title insurance and escrowed homeowners insurance sold by a creditor’s affiliates are included in the points and fees calculation. On the other hand, under the rule the following are not included in points and fees: 1) non-escrowed homeowners insurance sold by an affiliate or non-affiliate, if certain disclosures are provided; 2) title insurance if the charge is reasonable, the creditor receives no direct or indirect compensation in connection with the charge and the charge is not paid to an affiliate of the creditor; or 3) escrowed homeowners insurance if the charge is reasonable, the creditor receives no direct or indirect compensation in connection with the charge, and the charge is not paid to an affiliate of the creditor.

As a result, insurance agencies and underwriters affiliated with creditors are receiving unfavorable regulatory treatment solely because of their affiliation. Moreover, compliance concerns with the CFPB’s Ability-to-Repay rule have been noted with respect to homeowners insurance and the amount of insurance premiums paid to an affiliate to include in the points and fees calculation.

Read a review of compliance concerns with the CFPB’s Ability-to-Repay rule with respect to homeowners insurance. 

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