Heirs to Mortgages Excused from Underwriting, CFPB Says
Lenders can skip the Consumer Financial Protection Bureau's ability-to-repay requirements when transferring mortgages from deceased borrowers to their next of kin, the bureau said Tuesday.
In January, the CFPB issued a sweeping regulation required under the Dodd-Frank Act imposing a new underwriting process for mortgages, including consideration of a borrower’s debt-to-income ratio. But the "interpretive rule" issued Tuesday essentially allows creditors to add successor borrowers, who have inherited the loan as the result of a family member’s death, without triggering the ability-to-repay requirements.
The clarification—one of several adjustments the CFPB has made to the ability-to-repay regulation—is intended in part to allow more timely consideration of a loan workout for the new borrower, if needed. Before the clarification, the CFPB said, lenders at times had refused to consider a loan modification in cases when the heir's name had not been officially to the loan. But the new rule is intended to speed up that process.
The interpretive rule can also apply to mortgage transfers resulting from other situations, such as divorces or when a living parent transfers property to a child.
"Losing a loved one should not mean also losing your home," said CFPB Director Richard Cordray in a press release. "Today's interpretive rule makes it clear that when family members inherit property, they can take over the mortgage without jumping through unnecessary hoops. This gives heirs an opportunity to work with the lender to pay off the loan or seek a loan modification."