When the Consumer Financial Protection Bureau implemented rules to protect consumers from getting caught in mortgage “debt traps” earlier this year, the regulators may have missed one section of not-so-typical borrowers: consumers who inherit a family member’s home – mortgage and all.
In an attempt to make things easier on surviving family members when a homeowner dies, the CFPB issued an interpretive rule that would allow survivors to be added to outstanding mortgages without the fear of losing their home because of newly enacted rules.
The interpretive rule clarifies that when a borrower dies, the name of the borrower’s heir generally may be added to the mortgage without triggering the Ability-to-Repay rule.
Under the Ability-to-Pay rule, which went into effect in January, lenders are required to make a reasonable, good-faith determination that a borrower has the ability to repay their loans, something that makes sense.
However, the CFPB notes that there are significant consequences, such as losing the home, when heirs are unable to add their names to the outstanding mortgage of a home that has legally been transferred to them because the Ability-to-Repay rule was triggered by a lender.
Today’s move by the CFPB would allow surviving family members to acquire the title to the property and take over the mortgage or to be considered for a loan workout.
“Losing a loved one should not mean also losing your home. Today’s interpretive rule makes it clear that when family members inherit property, they can take over the mortgage without jumping through unnecessary hoops,” CFPB Director Richard Cordray says in a news release. “This gives heirs an opportunity to work with the lender to pay off the loan or seek a loan modification.”
The interpretive rule can also apply to other transfers, including transfers to living trusts, transfers during life from parents to children, transfers resulting from divorce or legal separation, and other family-related transfers.
CFPB Clarifies Mortgage Lending Rules to Assist Surviving Family Members [Consumer Financial Protection Bureau]