On the heels of its definition of qualified mortgages, the Consumer Financial Protection Bureau released its new rules for high-cost mortgages, as required by Dodd-Frank. Here’s an outline.

One important note, especially for smaller banks and credit unions: Lenders who make at least half their mortgages in rural counties are exempt, as are those in areas with two or fewer major mortgage lenders.

What’s a high-cost loan?

These are the types of loan the CFPB defines as “high cost”:

  • A first mortgage with an APR more than 6.5 percentage points higher than the average prime offer rate.
  • A second mortgage with an APR more than 8.5 percentage points higher than the average prime offer rate for a similar mortgage.
  • A mortgage for less than $50,000 for a personal property dwelling (e.g., a mobile home) with an APR more than 8.5 percentage points higher than the average prime offer rate for a similar mortgage.
  • A loan for less than $20,000 where the points and fees are more than either eight percent of the loan or $1,000.
  • A loan for $20,000 or more where the points and fees are more than five percent of the loan.

What new rules apply to these loans?

  • Consumers must obtain housing counseling before they can take out a high-cost mortgage; lenders will provide them with a list of approved counseling agencies.
  • Balloon payments are banned.
  • Lenders can no longer penalize borrowers for paying off high-cost loans early.
  • Late fees are capped at four percent of the payment that’s past due.
  • Lenders cannot charge fees for modifying the loans.
  • Closing costs cannot be rolled into the loan amount.
  • Lenders can only charge limited fees to provide consumers with payoff statements.
  • Lenders cannot encourage a borrower to default on a high-cost mortgage in order to refinance.
  • Certain high-priced loans will require the lender to establish a five-year escrow account (instead of one year, which is required today).

Click here to read the CFPB’s more-detailed explanation.