CFPB’s qualified mortgage rule leads to reduced approval rates

cfpbResults from the Federal Reserve’s latest survey on the impact of the CFPB’s ability-to-repay/qualified mortgage rule showed the rule has reduced approval rates for prime jumbo home mortgages and nontraditional mortgages at many banks across the country.

According to the survey, approximately 48 percent of U.S. banks said the rule has contributed to an approval rate for prime residential mortgages that is “somewhat lower” than what it would be without the regulation.

The rates, however, varied when a consumer’s credit score was factored in. Approval rates for borrowers with a FICO score greater than 680 were said by a majority of banks in the survey—66 percent—to be about the same as before, while a smaller percentage of banks—63 percent—said rates were about the same for borrowers with a FICO score of 680 or less.

Most large banks but only approximately 50 percent of all other banks said the rule has had no effect on their lending, due in part to safe harbor exemptions for mortgages that satisfy Fannie Mae and Freddie Mac’s underwriting models, The American Bankers Association said.

Additionally, according to the survey, banks have continued to ease lending standards for many types of loans amid a strong increase in loan demand. A large number of banks reported easing the terms of commercial and industrial loans over the past three months, while a smaller percentage of banks have eased lending standards.

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