In writing the final rule, the agency considered nearly 2,000 comments and new data related to the proposed rule, leading it to reopen the comment period for further dialogue.
“With the help of public feedback and our data analysis, we concluded that, in today’s market, access to credit remains so constrained that some consumers, even those with strong credit, may have difficulty refinancing or buying a home,” the CFPB said in testimony prepared ahead of the hearing. “For this reason, we designed the rule not just to ensure more responsible lending by curtailing certain problematic practices, but also to encourage creditors to provide responsible loans to consumers in all segments of the covered market.”
Under the ability-to-repay/QM rule, creditors are required to make a reasonable, good faith determination based on documentation that consumers will be able to meet their financial obligations with certain higher-price mortgages.
Creditors are required to consider income, savings, assets and debts and verify information through third-party records, meaning they can no longer make “no-doc” loans. Creditors are also prohibited from qualifying borrowers based on introductory “teaser” rates.
The rule also implements a number of ability-to-repay requirements for QMs, though it does contain a “safe harbor” provision for loans that meet the definition of a QM but are not considered “higher-priced.”
Additionally, the CFPB addressed the concerns of community banks and credit unions in the final rule, saying it “encourage[s] small creditors to continue providing certain credit products, while carefully balancing consumer protections.
The rule implements a Dodd-Frank provision that would designate certain balloon-payment loans as QMs if they are originated and held in portfolio by creditors that serve a rural or underserved area in order to “assure credit availability in rural areas.”
When it issued the final rule, the CFPB proposed to make amendments to accommodate mortgage lending by small institutions, treating such loans as QMs even if the loans exceed the 43 percent debt-to-income ratio requirement, under the condition that the loans meet other QM requirements.
“In carrying out our statutory requirement to issue the Ability-to-Repay/Qualified Mortgage rule, we have worked hard to strike the appropriate balance between ensuring more responsible lending, providing certainty to the mortgage market, enhancing access to responsible credit and preserving flexibility for the mortgage market to evolve and innovate over time,” the CFPB said. “We have been encouraged by the largely positive feedback to the rule. While we are proud of the work that we have done, we understand that much work remains for the market to adjust to our rule, other regulatory initiatives, and changes in economic conditions. For that reason, we are committed to continuing to observe the health of the mortgage market to ensure that our rules are working to help speed the recovery from the financial crisis while preserving access to credit.”