Frank Keating, the president and CEO of the American Bankers Association, recently called on the Consumer Financial Protection Bureau to craft “qualified mortgage standard” under its ability-to-repay rule as a legal safe harbor with well-defined limits.
“The bottom line is: The CFPB has to get this right,” Keating said, according to American Banker.
The market for mortgage credit has become increasingly difficult. Ben Bernanke, the chairman of the Federal Reserve, said earlier this month that “overly tight lending standards may be preventing creditworthy borrowers from buying homes, thereby slowing the revival in housing and impeding the economic recovery.”
Under the Dodd-Frank Act, the QM rule will allow lenders a method of demonstrating that a borrower can repay a loan. Applicants must, in order to be approved, meet the requirements of a QM defined by the CFPB. Applicants who are unable to meet the standard will likely be unable to obtain a mortgage.
“Adding to the complexity of the rule-making, the CFPB must determine what legal standards will apply to loans that adhere to the QM standard,” Keating said, American Banker reports. “Lenders must have a safe harbor with clear, well-defined standards. Without it, they face the threat of costly litigation and will be reluctant to offer mortgages to anyone other than those with the highest incomes and credit scores, regardless of how broadly the [QM] might be defined.”
Keating said that the QM definition should include all mortgages underwritten “in the overly tight credit environment Bernanke’s statement acknowledges,” adding that lenders should “be protected from claims when they scrupulously adhere to loan terms under the QM definition.”
Additionally, Keating noted the possibility that the CFPB might be “splitting the baby” by providing a safe harbor for some QM loans considered as mainstream but not for other loans.
“That will only swing the pendulum further in the wrong direction,” Keating said, according to American Banker. “The CFPB should be working to craft the best QM rule possible to determine what borrowers meet the ability to repay test, not working to further stratify the rule in a way that will make it needlessly more difficult—and more costly—for creditworthy borrowers to get loans. That could put homeownership out of reach for thousands of hard-working, creditworthy Americans and bring the housing recovery to an abrupt halt. That’s not something our economy…can afford.”