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CFPB ANNOUNCES AMENDMENTS TO ABILITYTO-REPAY RULE FINALIZED The Consumer Financial Protection Bureau (CFPB) announced 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 the CFPB, the 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 38 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' debtto-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-toRepay 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 toward 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 delaying the effective date of a mandate that would prohibit creditors from financing certain credit insurance premiums in connection with certain mortgage loans. Originally set to take effect last month, the provision is now scheduled to go into effect January 10, 2014. TRULIA: HOME PRICE RECOVERY NOT SHAPING INTO ANOTHER BUBBLE While home prices are rising today nearly as fast as they did during the peak bubble years of 2005 and 2006, Trulia reassures "bubble-phobes" that they can rest easy. The company tossed its two cents into the bubble debate with the release of Trulia Bubble Watch, a report that compares various price indexes—including Trulia's own Price Monitor—to per-capita income and rent data obtained from government releases. According to Trulia's findings, home prices are still 7 percent undervalued nationally, having come down from a peak of 39 percent overvalued in 2006. After the bubble burst, prices fell to being 15 percent undervalued at the end of 2011. With prices currently undervalued relative to fundamentals, Trulia insists that today's rapid improvements still qualify as a rebound, not a new bubble. "Home prices fell so much after the last bubble burst that they still remain below normal levels even as prices rise sharply today," explained Trulia chief economist Jed Kolko. "Several forces are waiting in the wings that should slow down today's rapid price gains before they rise into bubble territory again. More inventory, higher mortgage rates, and fading investor activity would each take home-price gains down a notch." That said, it's still important to remain cautious. According to Trulia's report, eight of the country's 100 largest metros are showing evidence of overvalued prices, including four in California (Orange County, Los Angeles, San Jose, and San Francisco) and three in Texas (Austin, San Antonio, and Houston). "Although we're far from bubble territory today, there'll be another home-price bubble someday, somewhere," Kolko said. "The history of American real estate is full of speculation, bubbles, and busts. Even now, most people expect home prices to get back to the peak of the previous bubble again in the next 10 years. Prices may be far from bubble levels today, but we need to stay on guard for signs of the next bubble." STAT INSIGHT -0.2% Annual decline in owneroccupied housing units in the first quarter, compared to a 2.6% increase in renteroccupied housing units. Source: U.S. Department of Commerce

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