Raj Date, the deputy director of the Consumer Financial Protection Bureau (CFPB), said the agency wants to avoid creating "disincentives" for mortgage lenders and banks as part of the qualified mortgage (QM) rule.Date also assured consumer and civil rights groups that access to credit is a "priority" for the agency and there will be "real consequences" for mortgage lenders that do not properly assess a borrower's ability to repay a loan.
"The bureau wants to ensure that lenders are not creating conditions that make loans more expensive, or access more difficult, for certain populations," he told a group of about 250 attending the Greenlining Institute's economic summit in Los Angeles late last week.
The CFPB is expected to finalize a rule by the end of June requiring lenders to verify a borrower's ability to repay a mortgage, unless a loan falls under the definition of a so-called qualified mortgage.
Consumer groups have complained that a narrow definition of "qualified mortgage," would result in tighter lending standards that could potentially result in fewer loans made to black and Hispanic borrowers that have been were disproportionately hit by the foreclosure crisis.
But banks and mortgage lenders want a broad definition of QM, citing the need to spur a housing recovery and the potential for higher borrowers costs if too many people are shut out of the mortgage market.
"We want to ensure that, as the market stabilizes over time, every segment of prudent loans has the benefit of sufficient investor appetite and a competitive market," Date said. "We want to avoid any inappropriate disincentive that would prevent lenders from making prudent, profitable loans in seemingly higher-risk or nontraditional segments—like loans to self-employed borrowers."
Access to credit has become a rally cry among many groups and the CFPB is clearly listening.
"In a tight credit market like today's, the unfortunate reality is that we need to pay particular attention to credit access issues to ensure that discriminatory practices cannot take root and flourish," Date said in prepared remarks.
The CFPB, which inherited the proposed QM regulation from the Federal Reserve last year, has undertaken what Date called a "significant analytical effort," on the QM issue with a team of economists, lawyers and market experts.
He called qualified mortgages "structurally safer" and said they "pose lower risk for borrowers," because they are "underwritten according to standards that make it reasonable to expect that a borrower has an ability to repay."
Date rattled off a list of issues the CFPB is paying particular attention to.
"First and foremost, we want to ensure that consumers are not sold mortgages they do not understand and cannot afford," he said. "We want to minimize compliance burden where possible, in part through the careful definition of those lower-risk qualified mortgages."