Lenders facing legal challenges with respect to possible violations of the “ability to repay” standards in the qualified mortgage rule likely will face significant loan repurchase requests from Fannie Mae and Freddie Mac, as well as rescissions in coverage by mortgage insurers, according to the Clearing House Association (CHA).
“Certainly investors will demand that lenders buy back any loan that is found to have violated the ability to repay requirements. However, it is also possible that investors will demand that lenders buy back loans with similar characteristics, particularly if the loans are delinquent, even if those loans have not been challenged on ATR grounds,” CHA says in a comment letter on the Consumer Financial Protection Bureau’s (CFPB) QM proposal.
The Clearing House represents 18 of the nation’s largest banks. In March, CHA and a few consumer and civil groups agreed on a “bright line” test for determining if a loan is compliant with the QM rule.
The bright line starts with a 43% debt-to-income ratio mark and presents a waterfall of compensating factors that would justify approving borrowers with higher DTIs such as liquid reserves, payment history and residual income.
CHA estimates that 84% of all conventional originations in 2010 and 2011 could have been approved under a 43% DTI cut-off.
Given the “fragile state of the housing market and broader economy, we urge the bureau to proceed with caution, and to adopt unambiguous, bright-line QM standards that cover the vast majority of the current mortgage market and provide the legal certainty required to ensure that consumers continue to have access to low-cost mortgage credit,” CHA says in its July 9 comment letter.