Consumer Lending, Economy, Housing Market, Regulation

House hears testimony from witnesses on negative impact of new mortgage rules

MortgageA House subcommittee heard testimony from witnesses last week on how new mortgage rules that took effect earlier this month will negatively impact homeownership and reduce credit availability and access to credit.

The new rules, which include the qualified mortgage and ability-to-repay rules, are mandated under the 2010 Dodd-Frank Act. The House Subcommittee on Financial Institutions and Consumer Credit, chaired by Rep. Shelley Moore Capito (R-W. Va.) held a hearing last Tuesday on how the new rules will impact consumers and the mortgage industry.

Charlotte Habitat for Humanity President and CEO Frank Spencer said the regulations threaten Habitat for Humanity’s self-help homeownership model.

“The ongoing success of Habitat’s self-help homeownership model – a unique approach to home building and mortgage lending that is thriving – merits federal support, not regulatory intervention that threatens its survival,” Spencer said. “Although Habitat was never the target of Dodd-Frank, compliance [with the rules] has required significant commitments of both human and financial resources that would otherwise be invested in meeting critical housing needs in the communities each of you represent.”

The new rules have drawn criticism from community bankers and credit unions, which have said the regulations will make it harder to loan to potential homebuyers.

“There is no question that the new Qualified Mortgage rule will adversely impact my mortgage lending,” Jack Hartings, the president and CEO of Ohio-based The Peoples Bank Company, said, testifying on behalf of the Independent Community Bankers of America. “This is true even though The Peoples Bank Company is currently a ‘small creditor’ under the QM rule because we make fewer than 500 mortgage loans annually and have less than $2 billion in assets. Even though The Peoples Bank is a small creditor, the QM rule poses a daunting challenge, will change the way that we lend, and reduce access to credit in our communities. As a result, certain loans we made in the past to accommodate customers will not be made in the future.”

Daniel Weickenand, the CEO of Orion Credit Union based in Tennessee, said that while 10 percent of all the institution’s mortgage loans over the past few years could be classified as non-QM loans, the loans will no longer be offered by the credit union as a result of the new rules.

“At this time the uncertainty and the liability is just too great,” Weickenand said.

Quicken Loans CEO William Emerson said the rules will “restrict unduly credit opportunities to qualified borrowers.”

“We remain concerned that they are likely to unduly tighten mortgage credit for a significant number of creditworthy families who seek to buy or refinance a home,” Emerson said. “While the housing market is improving, data show that the improvement is predominantly at the higher end of the market, with increasing activity in higher priced homes while the lower end of the market is actually shrinking. Access to credit is clearly constrained with first-time and low- to moderate-income borrowers unable to qualify for a mortgage.”

Additionally, James Gardill, the chairman of WesBanco’s board of directors, said on behalf of the American Bankers Association that the QM and ability-to-repay rules would restrict mortgage credit and make it “more difficult to serve a diverse and creditworthy population.”

“The definition of QM—which covers only a segment of loan products and underwriting standards and serves only a segment of well-qualified and relatively easy-to-document borrowers—could undermine the housing recovery and threaten the redevelopment of a sound mortgage market,” Gardill said.

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