On May 29, 2013, the Consumer Financial Protection Bureau (CFPB) issued a final rule amending its Ability to Repay/Qualified Mortgage (ATR/QM) rule, originally issued on January 10, 2013.

The final rule addresses the following:

  • Removes compensation to individual loan originator employees from the calculation of the points and fees limit for purposes of both the QM and Home Ownership and Equity Protection Act (HOEPA) rule;
  • Establishes a new smaller creditor portfolio QM;
  • Loosens requirements for smaller creditors originating balloon loan QMs for two years; and
  • Establishes new exemptions from the ability to repay requirements for credit extended under Emergency Economic Stabilization Act programs, community-focused lending programs and by certain non-profit creditors.

The final rule does not address the following:

  • Lender paid compensation to mortgage brokers will still be included in the QM points and fees test;
  • Fees paid to lender-affiliated settlement providers will still count toward the 3% QM cap.

For our clients, the most important element of the final rule is the adjustment to the interaction between loan originator compensation and the calculation of “points and fees” as defined by 12 C.F.R. § 1026.32(b)(1)(ii), as discussed further below. The amendments are, on balance, favorable to creditors, mortgage brokers, and loan originators. The amendments will take effect with the ability-to-repay rule on January 10, 2014.


TILA section 129C generally requires creditors to make a reasonable, good faith determination of a consumer’s ability to repay a mortgage loan. TILA section 129C also creates a presumption of compliance with these ability-to-repay requirements for certain loans designated as “qualified mortgages.” Qualified mortgages of $100,000 or more are permitted to have points and fees that do not exceed 3% of the loan amount (with higher percentages permitted on smaller loan amounts). Points and fees in excess of certain limits trigger protections for high-cost mortgages under the HOEPA.

Prior to the May 29, 2023 amendments, the CFPB defined points and fees as including: “All compensation paid directly or indirectly by a consumer or creditor to a loan originator, as defined in § 1026.36(a)(1), that can be attributed to that transaction at the time the interest rate is set.” (Emphasis added.) Under the CFPB’s prior definition, loan originator compensation was treated as “additive” to the other elements of points and fees and would be counted as it flowed downstream from one party to another, so that it would be included in points and fees each time it reached a loan originator, whatever the previous source. One effect of the CFPB’s prior definition would have been “double-counting,” due to the fact that creditors often compensate loan originators with funds collected from consumers at consummation (i.e., the fee paid by the consumer to the creditor and the compensation paid by the creditor to its loan originator would both have been included in the calculation of points and fees).

The May 29, 2023 Amendments

In the May 29, 2023 amendments, the CFPB expressly excluded three categories of compensation from the definition of points and fees:

  1. Compensation paid by a consumer to a mortgage broker which has already been included in the points and fees described in the finance charge;
  2. Compensation paid by a mortgage broker to a loan originator that is an employee of the mortgage broker; or
  3. Compensation paid by a creditor to a loan originator that is an employee of the creditor.

See 12 C.F.R. § 1026.32(b)(1)(ii)(A)-(C) (effective January 10, 2024). The CFPB noted that nearly all commenters (including the FDIC, HUD, the OCC, creditors and many consumer groups) supported these exclusions, and stated that the exclusions were warranted for a number of reasons, including: ensuring that affordable mortgage credit remains available to consumers by preventing the points and fees calculation from being artificially inflated; and facilitating compliance with the points and fees regulatory regime by eliminating the need for further investigation into the employee compensation practices of mortgage brokers and creditors. In response to comments from consumer advocates expressing concerns with the exclusions described above, the CFPB noted its belief that the prohibition on terms-based compensation in 12 C.F.R. § 1026.36(d)(1) will provide substantial protection against problematic loan originator compensation practices. The CFPB also stated that it intended to closely monitor the exclusions to guard against harm to consumers, and that it could, if necessary, issue a new proposal to narrow or eliminate the exclusions.

Important Limitations To The May 29, 2023 Amendments

Despite the exclusions described above, in the May 29, 2023 publication, the CFPB clearly stated that compensation paid by a consumer or creditor to a loan originator who is not employed by the creditor (e.g., a mortgage broker) will continue to be included in the calculation of points and fees under § 1026.32(b)(1)(ii). According to the CFPB, the compliance burden of calculating compensation paid by creditors to loan originators other than their own employees is minimal and does not provide a basis for exclusion based on a rationale relating to facilitating compliance. For transactions in the wholesale channel, the CFPB noted that brokers and creditors can obviate double counting concerns by having consumers pay brokers directly.

Finally, as noted above the CFPB rejected attempts by industry commenters to exclude from points and fees real-estate related charges paid to affiliates and fees paid by lenders to mortgage brokers. The CFPB’s failure to address these two issues may well result in loans with identical terms and conditions originated through two different lending models (retail vs. wholesale, or affiliated settlement providers vs. third parties) receiving different treatment under the QM rule.