At a time when many have expressed concern over the range and scope of the Consumer Financial Protection Bureau’s regulatory oversight, the Center for Responsible Lending sent a letter this week to the bureau urging its strong consideration of lending practices including qualified residential mortgage and ability-to-repay rules under Dodd-Frank.
“We have not seen a world-wide financial upheaval of this scope in 70 years,” the letter stated. “Bearing this in mind, the [CFPB] should be highly skeptical that immunizing the market from one single litigation risk… is what is needed to get credit flowing again.”
While the letter mainly requests that the CFPB regulate safe lending practices with regard to qualified mortgages, it also notes that reverse mortgage should not be excepted from the general ban on prepayment penalties.
Dodd-Frank gave the authority to the CFPB to allow prepayment penalties in some categories of reverse mortgages, the letter states, though prepayment penalties generally would not be permitted under the law.
“The Board does not propose to create an exception to permit prepayment penalties on these categories of reverse mortgages, noting that most reverse mortgages are FHA insured, which itself includes a ban on prepayment penalties,” the letter states. “We support this position. Because reverse mortgages negatively amortize, homeowners who wish to get out of a reverse mortgage to preserve equity should not be penalized for doing so.”
Among the recommendations from the Center for Responsible Lending regarding the Qualified Mortgage, the center urges that a QM designation for a loan cannot and should not create a safe harbor for the creditor or holder of the mortgage; a QM must fulfill all of the requirements of Dodd-Frank’s ability-to-pay provision; and non-qualified mortgage ARMs should be underwritten beyond the fully-indexed rate to account for index increases in certain cases.
“In the last decade, lenders forgot the most fundamental principle of their business,” the letter states. “Loans should be designed for success, not destined for failure.
View the letter.
Written by Elizabeth Ecker