Between a host of new rules slated to go into effect under the Dodd-Frank Act—several of which could leave bankers between a rock and a hard place—there is a new “mortgage minefield” on the horizon those in the business will face going forward, writes American Bankers Association President Frank Keating in a Wall Street Journal editorial published this week.
Keating, who also served as governor of Oklahoma and Department of Housing and Urban Development general counsel, points to the Consumer Financial Protection Bureau’s Ability to Repay rule is one of the key mortgage problems under way.
“This Dodd-Frank mandated rule exposes lenders to risk of litigation if borrowers default on a mortgage—unless the loan falls into a legal “safe harbor” under the CFPB’s qualified-mortgage, or QM, guidelines,” he writes. For example, a loan in which the borrower’s total monthly debt payments exceed 43% of his income would presumably fall outside the QM safe harbor.”
Even when lenders can prove they have done their best to serve their customers outside of those safe harbor requirements, the added costs will ultimately be passed along to the consumer, Keating writes.
“This will make lending, even to many creditworthy borrowers, too costly,” he says.
With banks and lenders stuck between the new, conflicting rules and costly consequences, the impact on the housing market coul be dire.
“The end result will be confusion and uncertainty,” Keating says. “Some banks will stop making mortgage loans altogether, which will further cut access to credit, reduce competition and drive up costs for all home buyers.”
Written by Elizabeth Ecker