CFPB Announces Amendments to Ability-to-Repay Rule Finalized

The Consumer Financial Protection Bureau (CFPB) announced Wednesday it has finalized amendments to the Ability-to-Repay rule first handed down in January this year.

The rule, set to take effect January 10, 2014, establishes basic requirements designed to ensure consumers don’t take on loans they can’t pay back. Those guidelines require stricter monitoring and verification by lenders; they also prohibit no- or low-doc loans. Loans issued as “qualified mortgages” are presumed to comply with those terms.

According to CFPB, Wednesday’s amendments are the result of months of input offered by industry groups and the public at large.

“Our Ability-to-Repay rule was crafted to promote responsible lending practices,” said CFPB director Richard Cordray. “Today’s amendments embody our efforts to make reasonable changes to the rule in order to foster access to responsible credit for consumers.”

The new amendments exempt certain nonprofit and community-based lenders who work to help low- and moderate-income consumers get into affordable housing. Generally speaking, the exemptions apply to designated categories of community development lenders and to nonprofits that make no more than 200 loans per year and that only lend to lower income consumers.

On the same token, mortgage loans made by or through a housing finance agency or through certain homeownership stabilization and foreclosure prevention programs are also exempt, CFPB announced.

Another new amendment adjusts the Ability-to-Repay rule in order to facilitate lending by small creditors (including community banks and credit unions that have less than $2 billion in assets and that make 500 or fewer first-lien mortgages annually).

First, the rule extends qualified mortgage status to certain loans those creditors hold in their own portfolios, even if the borrowers’ debt-to-income ratio exceeds 43 percent.

Second, the final rule provides a two-year transition period during which certain balloon loans made by small lenders will still meet the definition of a qualified mortgage as the bureau studies issues concerning credit access and balloon lending.

Finally, the rule allows small creditors to charge a higher annual percentage rate for certain first-lien qualified mortgages while maintaining safe harbor for the Ability-to-Repay requirements.

In addition to expanding exemptions, the amendments to the rule also provide exceptions to the Dodd-Frank mandate that requires loan originator compensation to be included in the total calculation for points and fees.

Under the revised rule, the compensation paid by a mortgage broker or lender to an originator employee does not count towards the points and fees threshold. The amendment does not change the rule under which compensation paid by a creditor to a mortgage broker must be included, however.

CFPB also issued a separate rule Wednesday delaying the effective date of a rule that would prohibit creditors from financing certain credit insurance premiums in connection with certain mortgage loans. Originally set to take effect in June, the provision is now scheduled to go into effect January 10, 2014.


FDIC Institutions See Record Earnings in Q1, Problem List Shrinks

Together, commercial banks and savings institutions insured by the FDIC earned record profits in the first quarter, while the number of “problem” banks continued to decline.

According to the FDIC, net income for FDIC-insured institutions reached an an all-time high of $40.3 billion in Q1, up by 15.8 percent from last year. The increase marks the 15th straight quarter earnings improved year-over-year.

The agency also reported half of the 7.019 insured institutions pulled in higher profits compared to the year before, while 90 percent of institutions recorded positive net income for the quarter.

FDIC’s list of “problem” banks was reduced for the eighth straight quarter, decreasing to 612. Two years ago, 888 banks were on the list.

At the same time, the FDIC saw just four of its institutions collapse in the first quarter, which is the smallest number since the second quarter of 2008 when two institutions failed.

So far his year, regulators closed 13 FDIC-insured institutions, down significantly from 24 during the same period in 2012.

“Today’s report shows further progress in the recovery that has been underway in the banking industry for more than three years. We saw improvement in asset quality indicators over the quarter, a continued increase in the number of profitable institutions, and further declines in the number of problem banks and bank failures,” saidFDIC Chairman Martin J. Gruenberg. “However, tighter net interest margins and slow loan growth create an incentive for institutions to reach for yield, which is a matter of ongoing supervisory attention.”

Meanwhile, noncurrent balances, which stood at $261.2 billion in Q1, shrank to the lowest level since 2008. According to the FDIC, the amount of loans and leases that were 90 days or more past due dropped by $15.7 billion, or 5.7 percent, in Q1. Residential loans drove the decrease, with noncurrent balances in that category falling by $8.7 billion, or 5 percent.

Overall, loan losses in the first quarter totaled $16 billion, the smallest quarterly total since Q3 2007, the FDICreported. Residential loans saw the greatest improvement in charge-off levels, which fell by $2 billion, or 39.1 percent, compared to a year ago, while charge-offs for home equity lines fell by $976 million, or 33.4 percent.

Loan balances experienced a seasonal decline, falling by $36.8 billion, or 0.5 percent. The agency says the decline was partly due to a $35.9 billion drop in credit card balances. Furthermore, home equity lines were down $16 billion, and residential loans fell by $18.3 billion, or 1 percent. However, multifamily residential real estate loans rose $2.7 billion, or 1.2 percent.

Report: Foreclosure Inventory Falls 24% from Year Ago

Foreclosure inventory continued to shrink in April, with the number of homes in some stage of the foreclosure process down 24 percent year-over-year, according to data from CoreLogic.

About 1.1 million homes sat in foreclosure inventory in April compared to 1.5 million properties a year ago, CoreLogic reported. Foreclosure inventory also dipped month-over-month, falling 2 percent from March to April.

At the same time, the overall share of mortgaged homes in foreclosure inventory declined to 2.8 percent in April from 3.5 percent in March.

The data provider also reported the number of homes lost to foreclosure decreased 16 percent year-over-year in April to 52,000. Compared to March, the number of homes lost to foreclosure remained unchanged.

Prior to the crisis, completed foreclosures averaged 21,000 per month between 2000 and 2006.

“The shadow of foreclosure and distress continues to fade, with the annualized sum of completed foreclosures having declined for 17 straight months,” noted Dr. Mark Fleming, chief economist for CoreLogic, in a release. “Six states have year-over-year declines in the foreclosure inventory of more than 40 percent, and in Arizona and California the year-over-year decline is more than 50 percent.”

In April, Florida led as the state with the most foreclosure inventory, followed by New Jersey (7.4 percent), New York (5.1 percent), Maine (4.4 percent) and Nevada (4.3 percent).

Florida also ranked highest for completed foreclosures. According to CoreLogic, Florida has seen 102,000 completed foreclosures over a one-year period ending in April. California came in second with 79,000 completed foreclosures, with Michigan (68,000), Texas (53,000), and Georgia (47,000) rounding out the top five.

Since September 2008, an estimated 4.4 million homes have been lost to foreclosure.

Survey Finds Younger Homeowners More Likely to Be Underwater

Younger Americans are more likely to have a home that is underwater, according to a survey from the FINRAInvestor Education Foundation (FINRA Foundation).

Based on survey findings, 25 percent of Americans between 18 and 34 years of age said they have an underwater mortgage. On the other hand, 18 percent of adults aged 35 to 54 said they were underwater, while only 8 percent of individuals 55 or over were underwater.

On a national level, the FINRA Foundation found 14 percent of adults said they were underwater on their mortgage.

For the national online survey, over 25,500 adults participated during a four-month period in 2012.

The survey also reported more than half of Americans would not be prepared to cover living expenses if a financial emergency, such as a job loss or sickness, were to occur. Fifty-six percent said they do not have rainy-day savings to cover three months, which also means they could easily fall behind on their mortgage if they are homeowners and an emergency situation transpired.

According to the FINRA Foundation, younger Americans, or those who are 34 and under, are more likely to show signs of financial stress, including making late mortgage payments.

Individuals were also asked about their ability to save versus spend. The survey revealed 36 percent of Americans break even, while 41 percent spend less than their household income.

When study participants were asked five questions concerning financial literacy, the survey found 61 percent answered three or fewer questions correctly. The questions covered compound interest, inflation, principles relating to risk and diversification, the relationship between bond prices and interest rates, and the impact that a shorter term can have on total interest payments over the life of a mortgage.

“This survey reveals that many Americans continue to struggle to make ends meet, plan ahead and make sound financial decisions-and that financial literacy levels remain low, especially among our youngest workers. No matter how you slice and dice it, this rich, new dataset underscores the need for us to continue to explore innovative ways to build financial capability among consumers,” said FINRA Foundation Chairman Richard Ketchum.

On a state-by-state basis, the survey results showed residents of California, Massachusetts, and New Jersey are the most financially capable, while residents of Mississippi were found to be in the least financially capable state. Arkansas and Kentucky also ranked towards the bottom based on the measurements used in the survey.

NAR Reveals Forecast for Commercial Sector

Although the multifamily sector leads the commercial real estate market in terms of performance, the National Association of Realtors (NAR) expects the apartment rental market to see its vacancy rate tick up over the next year.

The NAR projects the multifamily vacancy rate will rise from 3.9 percent in the second quarter to 4.1 percent during the same quarter in 2014. Though, according to the NAR, a vacancy rate of less than 5 percent makes the sector a landlord’s market, where demand justifies increases.

In some metro areas, the multifamily vacancy rate is well-below the national average. The lowest rates were found in New Haven, Connecticut (2 percent) and New York City (2.2 percent), as well as in Minneapolis and San Diego, where the rate is 2.3 percent for each metro.

The association also forecasts strong increases in rent prices, which are projected to go up by 4.6 percent this year and 4.6 percent in 2014.

At the same time, the NAR says industrial vacancy rates should slip to 8.9 percent from 9.4 percent over the next year.

The NAR reported Orange County holds the lowest industrial vacancy rate of 3.9 percent, followed by Los Angeles (4.1 percent), Miami (5.8 percent), and Seattle (6.3 percent). Rents are also expected to increase for the industrial sector and rise 2.4 percent this year and 2.6 percent in the next year.

Retail vacancy rates are forecast to fall to 10.2 percent in the second quarter of 2014 from 10.5 percent the year before.

Areas in California also had the lowest retail vacancy rates such as San Francisco (3.6 percent) and Orange County (5.3 percent). Fairfield County, Connecticut also had a low rate of 4.1 percent.

Rents in the retail sector should inch up by 1.4 percent in 2013 and 2.2 percent next year.

The office sector, which has the highest vacancy rates, will edge down to 15.6 percent from 15.7 percent during the same time period, according to NAR’s projections.

Areas where vacancy rates are the lowest range from markets such as Washington, D.C. (9.4 percent) to New York City (9.9 percent), and Little Rock, Arkansas (12 percent) and Birmingham, Alabama (12.3 percent).

The NAR expects the office sector to increase rents by 2.6 percent this year and 2.8 percent in 2014.

LPS: Home Prices Climb 2.9% from January to March

In its latest reading on home values, Lender Processing Services, Inc. (LPS) reported strong price gains in March and increases in every state and metro the data provider tracks.

In dollar terms, the LPS Home Price Index (HPI) averaged $213,000 in March. The figure represents a 1.4 percent increase from February and a 7.6 percent improvement from March 2012. From January of this year to March, prices have climbed 2.9 percent.

However, national prices remain 19.5 percent below their June 2006 peak. According to LPS, Texas has already returned to its peak level, while Colorado sits just 0.7 percent below its 2007 peak.

Out of the 20 largest states LPS tracks, Georgia posted the biggest gain from February to March, rising 2.6 percent,

followed by Nevada (+2.4 percent), Washington D.C. (+2.1 percent), Washington (+2.1 percent), and Illinois (2.1 percent).

None of the states observed for the month showed price declines, but the states that brought in the smallest gains were Rhode Island, Tennessee, Pennsylvania, Vermont, Oklahoma, and Texas, where price increases ranged from 0.6 percent to 0.7 percent.

After analyzing 40 of the largest metro areas, LPS reported the markets that experienced the largest monthly price gains were San Jose (+3 percent), Atlanta (+2.6 percent), Las Vegas (+2.6 percent), San Francisco (+2.3 percent), and Deltona, Florida (+2.3 percent).

Despite the strong month-over-month gain, Las Vegas is 49 percent below its 2006 peak.

The bottom metro for March was Memphis, where price rose by just 0.2 percent. Prices increased by 0.4 percent for the remaining metros in the bottom five: York, Pennsylvania; Chattanooga, Tennessee; Harrisburg, Pennsylvania; and San Antonio.

For distressed sale prices, LPS data revealed short sales tend to be priced 25 percent below non-distressed properties, while REOs are sold at a discount of 26 percent.

In Nevada, REOs are discounted by just 9 percent, while in New York and New Jersey, the price reductions are much steeper, at 40 and 35 percent, respectively.

Among the largest states, short sale discounts were the biggest in New York, at 35 percent, and the smallest in Texas, where the discount rate averaged 17 percent.

Incorrect, Outdated Information Most Common Issue on Credit Reports

While 22 percent of Americans admitted they have never checked their credit report, nearly a quarter also said they have encountered issues with their credit report, with incorrect or outdated negative marks leading as the main type of problem, according to a recent FindLaw.comsurvey.

Overall, 23 percent of Americans said they have had a problem with their credit report, and 10 percent of problems were related to incorrect or outdated information about their credit history, such as delinquency payments, payment history, collection actions, court judgments, and bankruptcies.

At 9 percent, incorrect or outdated personal information, such as one’s address, marital status, and work history, was the second most commonly reported problem.

Other issues Americans reported included identity theft or credit information getting mixed up with someone else’s (5 percent), as well as credit scores that were incorrectly reported as being too low (3 percent).

Another 4 percent said they have been denied credit because of incorrect information on their credit report.

“Your credit report contains a large amount of information drawn from a wide range of sources,” explained Stephanie Rahlfs, an attorney and editor with “[T]here is always the potential for your credit report to contain inaccurate or outdated information. A credit report can have an enormous influence on a person’s ability to obtain a mortgage, credit card, auto loan or other credit, and can also be used in making hiring decisions.”

Although credit report problems appear to be fairly common, the survey found 68 percent of people who did encounter an issue reported the problem was corrected to their satisfaction, while 18 percent said the problem was not fixed.

For those who had more than one issue, 14 percent said they were able to get at least one issue resolved

“The credit reporting agencies all have detailed procedures for correcting errors. And our survey found that people are generally having success in getting the agencies to correct those errors,” said Rahlfs.

The survey is based on responses gathered in March from over 1,000 participants.