The CFPB may soon finalize its ability-to-repay rule, which will include the “qualified mortgage” definition, during a Baltimore field hearing planned for Thursday.
The QM rule will implement a provision of Dodd-Frank requiring creditors to determine a consumer’s ability to repay on financial obligations before lending to the applicant.
The original draft of the rule designated a QM as a residential home loan for which the principal balance may not increase if the borrower makes regular payments, the borrower cannot make interest-only payments, balloon payments are prohibited, the loan must fully remunerate during its term, the loan must meet debt-to-income ratio requirements, total fees charged by the originator cannot exceed three percent of the loan amount and the loan’s payback period cannot exceed 30 years.
Critics of the QM rule maintain that it will restrict home loan availability to only the most qualified potential home buyers. A 2011 study by the Government Accountability Office revealed, however, that Dodd-Frank’s QM provisions would have little effect on the market. The study also said that “most mortgages [originated between 2001 and 2010] would likely have met the individual criteria,” the Home Buying Institute reports.
The rule has remained highly contentious in the past few months. Several banks have recently urged the CFPB to craft rules in an orderly fashion in order to ease the compliance process, according to Reverse Mortgage Daily.