In dealing with mortgage issues, the Consumer Financial Protection Bureau wants to ensure that customers have access to home loans—and that residential lenders have access to the secondary market.
“There can be little or no access to credit unless suppliers of capital are willing to finance home mortgages and other types of consumer loans,” according to CFPB assistant director Patricia McCoy.
But CFPB officials realize these principles will be tested as they draft a final “qualified mortgage” rule mandated by the Dodd-Frank Reform Act.
To date, the agency has received more than 800 comment letters and 1,600 form letters on the QM rule which will set standards for loans that are shielded from lawsuits and, as a result, easier to securitize.
At a recent trade group gathering McCoy told mortgage executives that industry and consumer advocates have provided “extremely thoughtful” comments on the QM proposal.
The assistant director for mortgage markets said the input will help “us as we try to thread the needle on a critical and difficult rulemaking,” she said speaking at the Mortgage Bankers Association regulatory compliance conference late last month.
The QM proposal was originally drafted by the Federal Reserve Board and issued for public comment. However, rulemaking authority for the rule was transferred to the new bureau on July 22 as required by the Dodd-Frank Act statute.
At the SourceMedia Mortgage Regulatory Forum in Washington, mortgage industry officials heard CFPB's Raj Date, the unofficial head of the agency, say that another proposal, the qualified residential mortgage or QRM, would not see a final rule until next year.
CFPB assistant director for regulations Leonard Chanin called some the provisions in the Fed's proposal “perplexing” during his presentation at the MBA conference.
As spelled out in the Dodd-Frank Act, the QM rule will create an “ability to repay” standard for lenders. To meet this standard, lenders must verify income, employment, debt-to-income ratios, and make a good-faith effort to determine if a borrower has a reasonable ability to repay a mortgage.
The QM proposal also contains underwriting standards that lenders must comply with to shield themselves from litigation and possible fines for violations.
“It is not clear if this QM underwriting is a complement to the general ability to repay or completely separate from it,” Chanin said.
The regulation chief also told mortgage bankers that the proposal contains underwriting standards creating a safe harbor from litigation and a rebuttal option for lenders.
“It is a fairly technical legal issue, but a very important issue in terms of whether lenders are going to be willing to make qualified mortgages,” Chanin said.
Without an airtight safe harbor, lenders are concerned they will be unable to sell loans to secondary market investors.
McCoy's mortgage markets group will be working with Chanin's regulations group in drafting the final QM rule. “Our plan is to move forward early next year on a final rule to bring some certainty to the market,” Chanin said.
The QM rulemaking also is related to a separate “qualified residential mortgage” rulemaking that will determine which securitized mortgages are subject to a 5% risk retention requirement.
The CFPB is not a party to the QRM rulemaking, which is a joint effort of six federal regulatory agencies.
Industry groups are concerned the QRM underwriting standards might be stricter than the QM standards. That could leave QM loans that don't meet certain downpayment and debt-to-income ratios of the QRM rule subject to risk retention.
Some industry groups want QRM standards to mirror the QM standards as closely as possible. “It is obviously essential that we coordinate the two rulemakings,” McCoy said.
She told the mortgage bankers that CFPB's QM rule team is planning to have a series of meetings with the QRM rulemaking team. “We have to make sure under any new lending standards that mortgage loans can be rated and sold into the secondary market,” McCoy said.
“Doing so will help make our banks and other lenders stronger and ensure there is funding for every American who wants a home loan and qualifies for one,” she said.