The Consumer Financial Protection Bureau (CFPB) has formally released its qualified mortgage (QM) definition and Ability-to-Repay rule, and financial organizations across the board are responding.
In a recently released statement, the Independent Community Bankers of America (ICBA) noted that it is encouraged that the Consumer Financial Protection Bureau’s (CFPB) final rule on consumers’ ability to repay mortgage loans includes ICBA-advocated accommodations for community banks.
The organization notes that provisions structuring the “qualified mortgage” standard as a legal safe harbor and treating certain balloon-payment loans as qualified mortgages will help Main Street lenders continue providing mortgage credit to meet the needs of their customers and communities.
“ICBA and the nation’s community bankers have been strong advocates for tailored rules that will address the problem actors in the mortgage industry while not inhibiting community banks’ ability to provide mortgages to their customers,” ICBA President and CEO Camden R. Fine says. “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. ICBA appreciates CFPB’s recognition of community banks as common-sense, relationship lenders that help their communities thrive.”
The CFPB’s final rule, which takes effect Jan. 10, 2014, implements laws requiring mortgage lenders to consider consumers’ ability to repay home loans before extending them credit. Included in the rule is a definition of “qualified mortgage” loans, which are entitled to a presumption that the creditor making the loan satisfied the ability-to-repay requirements.
Several other organizations released statements. Debra W. Still, CMB, Chairman of the Mortgage Bankers Association (MBA), issued the following statement on the final Qualified Mortgage/Ability to Repay rule.
“Director Cordray and the staff at the CFPB undertook a deliberative and inclusive process to create this rule, and we commend their approach and effort. Every step of the way, they took the time to listen and understand the range of stakeholder concerns with this rule, which may be the single most impactful rule that will affect mortgage lending in this country coming out of the Dodd-Frank law. We look forward to continuing to work with the CFPB on this and other forthcoming rules.
“MBA agrees that the goal of this regulation, ensuring that borrowers receive loans that they can repay, is in everyone’s best interest. We cannot, and should not, go back to the high risk lending environment of the early 2000s. Our concern has always been that we balance this goal with other housing policy objectives, particularly the objective to ensure the availability of mortgage credit to qualified borrowers. And right now, credit is tighter than at any point we can remember.
“The rule was just issued, and we must examine it carefully. Nevertheless, we applaud the Bureau for offering a legal safe harbor to lenders when they originate loans that meet the rigorous ‘qualified mortgage’ standards in the rule. This approach should allow lenders to offer sustainable mortgage credit to a great number of qualified borrowers without having to risk unreasonable and overly punitive litigation and penalties.
“This is a very complex rule. We remain concerned that certain aspects of it could curb competition, increase costs and tighten credit availability for borrowers. In particular, the 3 percent cap on points and fees appears to be overly inclusive as it relates to compensation and affiliates. Loans with the same interest rate, terms and out of pocket costs should be treated the same under the rule regardless of the organizational structure or business model of the lender.
"Additionally, we will be looking carefully at whether the interest rate threshold for the safe harbor, which is set at 150 basis points above the benchmark rate, will adversely impact too many borrowers. These pricing-related restrictions need to be carefully examined to ensure that they do not unnecessarily restrict consumer access to ‘qualified mortgages,’ including smaller balance loans, as well as jumbo loans.
“Ultimately, the final verdict on this rule will be made by the market. We believe the rule will effectively block the return of risky product features and inadequate documentation. If it also provides lenders the certainty needed to originate qualified mortgages broadly across the market to creditworthy borrowers, it will have been a success. However, if the result is a tightening of credit as lenders pull back from offering loans that would create greater risk of litigation, the CFPB may need to quickly revisit the rule to avoid harming the housing recovery.”
While the National Council of La Raza (NCLR) indicated the final rule does not reflect all of its recommendations, the organization, “is pleased that CFPB has crafted a broad and inclusive definition of a Qualified Mortgage that will ensure Hispanic homebuyers are better protected from predatory lenders.”
“Greater numbers of Latinos will become first time homeowners in the years to come helping both the economic mobility of their families and the prosperity of our nation as a whole,” said Janet Murguía, President and CEO of NCLR. “We commend CFPB for adopting a broad definition of a Qualified Mortgage, which will foster an inclusive housing market for Hispanic families just starting out. The rule will require lenders to be sure borrowers can afford their loans, a commonsense protection that will benefit the entire market.”
According to the CFPB, any home loan purchased by Fannie Mae and Freddie Mac, as well as any mortgages insured by the Federal Housing Administration, the U.S. Department of Veterans Affairs and the U.S. Department of Agriculture (USDA) will fall under QM loans. In addition, all loans issued to borrowers whose debt-to-income ratio doesn’t exceed 43 percent will also fall into the QM parameters.
NCLR is the largest national Hispanic civil rights and advocacy organization in the United States.
Stay tuned for further developments.