Weekly Wrap: Qualifying what 'QM' means
The Consumer Financial Protection Bureau is proposing several changes to "qualified mortgage" standards, ones which could result in a QM loan in 2021 looking far different from the QM originally conceived through the Dodd-Frank Act in 2010.
Last month, the bureau launched plans to introduce a “seasoned” status to mortgages held by lenders, would provide qualified-mortgage eligibility to a loan based on how long a lender kept it on the books (at least three years). The proposal would bring more loans under Dodd-Frank Act’s QM safe-harbor umbrella – even if they did not meet standard documentation or other hurdles that QM loans today must clear at origination.
The bureau’s position is that loans that have three years of satisfactory history should be considered safe, and their originators deserving of legal QM protections.
That proposal is not sitting well with consumer groups, as reported Wednesday by Kate Berry of American Banker. Those advocates have argued borrowing costs would escalate through riskier loans that bear no consequences for lenders), and say the proposal would undermine consumer protections by introducing time limits to borrower claims against lenders.
The CFPB is already considering other QM changes, such as encouraging lenders’ use of alternative data for ability-to-repay standards, in hopes of broadening market access to fintechs as well as consumer access to credit.
The bureau is also looking to replace the strict 43% debt-to-income standard used to define QM. That approach would factor in a price-based threshold based on the loan's APR to the average prime offer rate (APOR).
The latter was also criticized this week, this time by Edward Pinto, a director of the American Enterprise Institute's Housing Center. Pinto noted in a co-authored comment letter that the such a proposed rate-spread threshold has historically varied "greatly" among loans with similar default occurences. Pinto wrote that the rate-spread between 2013 and 2018 indicated declining market risk in mortgages – or when "DTIs and every major hosuing risk indicator" showed the opposite.
These changes are also combining with along with a possible end to the "QM Patch" exemption for GSEs as early as next January (or April...or October).
Other deals, trends and research in structured finance and asset-backed securities for the week of Aug. 28-Sept.3: