The Consumer Financial Protection Bureau (“CFPB”) issued a true game changer on January 10, 2013, with its Ability to Repay and Qualified Mortgage Rule (the “Final Rule” or the “Rule”). Some industry observers seem to consider Chicken Little an optimist—not only is the sky falling, but the earth is trembling and the seas boiling. But everyone appears to agree that the Rule has caused the ground to shift beneath our feet. As we describe in this Client Alert, the Final Rule will almost certainly result in fewer borrowers qualifying for mortgages, and will likely result in higher interest rates for many who do qualify.

Concurrent with the issuance of the Final Rule, the CFPB issued Proposed Amendments to the Ability to Repay Standards under the Truth in Lending Act (Regulation Z) (the “Concurrent Proposal”). Even if the CFPB follows through on all of the proposed amendments, the mortgage banking industry — and consumers — will face a very changed lending environment.