The Consumer Financial Protection Bureau’s (CFPB) definition of a “qualified mortgage” under its Ability-to-Repay rule has warranted praise among the mortgage industry in response, however, mortgage lenders and bankers caution that the rule could do harm to the housing recovery.
Particularly, the rule’s 3% cap on “points and fees” has caught some flak from the mortgage industry in that it has the potential to discriminate against small businesses and limit credit access for low- to moderate-inome borrowers, according to those industry participants.
Though calling CFPB’s QM rule “the single most impactful rule that will affect mortgage lending,” and praising the CFPB for its work on the rule making, the Mortgage Bankers Association (MBA) believes that certain aspects could “curb competition, increase costs and tighten credit availability to borrowers.”
Slated to go into effect January 2014, CFPB’s Ability-to-Repay rule requires lenders to ensure borrowers have the financial means to repay their mortgages. This entails financial history reports on prospective borrowers including current income or assets, credit history and even employment status.
CFPB’s definition of what constitutes a “qualified mortgage” has the industry clamoring over the rule, established to prevent “risky” lending practices that played a hand in the housing market collapse of 2008.
Believing the rule will effectively prevent risky product features and insufficient documentation, MBA suggests the CFPB may need revisit its decision if it results in a tightening of credit as lenders shy away from offering loans that create greater legal risks.
Among the provisions under the newly defined QM loans is a “safe harbor” status given to less risky borrowers, a crucial feature that the Independent Community Bankers of America (ICBA) believes will help keep community banks lending.
“Excessively rigid rules would threaten to force community banks out of the mortgage market, making it harder for Main Street consumers to get a home loan and slowing the nation’s housing recovery,” said Camden Fine, president and CEO of ICBA.
MBA expressed that they would be looking at the interest rate threshold for the safe harbor, set at 150 basis points above the benchmark rate, and whether it will adversely impact borrowers.
“These pricing-related restrictions need to be carefully examined to ensure that they do not unnecessarily restart consumer access to ‘qualified mortgages,’ including smaller balance loans, as well as jumbo loans,” said MBA’s Still.
With the definition of the Qualified Mortgage rule announced, the next step for federal regulators will be finalizing the Qualified Residential Mortgage (QRM).
Regulators have had to reconsider their initial QRM proposal, as additional down payment requirements would have kept millions borrowers out of the market and would have prolonged the housing crisis, believes the Coalition for Sensible Housing Policy.
“Regulators should preserve a role for prudently underwritten, privately-insured low down payment loans,” writes the Coalition.
Comprised of lenders, real estate professionals, consumer and civil rights advocates, the Coalition also calls on regulators to proposed revised QRM definition that tracks the QM to ensure that all qualified borrowers have access to affordable and safe mortgage credit.
Consumer advocates largely praised the announcement, with the Center for Responsible Lending stating the rule will benefit both lenders and borrowers.
Written by Jason Oliva