It looks like the Consumer Financial Protection Bureau's (CFPB) deliberations over the qualified mortgage rule will go down to the wire, with agency officials still divided over underwriting requirements that could set the standard for years to come.
The agency has until Jan. 21 to issue the QM rule as mandated by the Dodd-Frank Act. And around the same time, the loan officer compensation rule might finally be unveiled.
The mortgage industry is anxiously waiting on both rules, which represent the agency’s first major rulemaking tasks since officially opening its doors 16 months ago.
American Bankers Association senior vice president Bob Davis said CFPB essentially has a choice: it can embrace the underwriting standards that currently exist in the mortgage marketplace or make them more restrictive. “The agency is in a tough situation trying to meet the statutory mandate, while using their discretion to prevent credit contraction,” said Davis.
K&L Gates partner Larry Platt said CFPB officials are still divided over the QM mortgage rule, which will set the underwriting standards lenders must use to determine a borrower’s ability to repay. Mortgages meeting the QM requirements will be shielded from litigation. Other loans will not.
Within the bureau, Platt said, “there is a battle going on between those who think they should fulfill the original statutory language” of the Dodd-Frank Act, which would constrict mortgage credit. Other bureau officials want a broader QM rule because credit standards are already too tight.
Davis believes it’s a good sign the agency is taking its time to finalize the QM rule. “The longer the deliberations take, the more likely the rule will be less restrictive,” the ABA executive said.
As reported a few months ago, the bureau was considering a QM rule that provides a legal “safe harbor” for prime loans with a maximum debt-to-income ratio of up to 43%. Such a measure could curtail lending by GSE and FHA lenders. These entities allow for higher debt to income ratios.
As for the loan officer compensation rule, brokers and loan officers who work for nonbanks are closely watching the issue because it could directly affect how much money they can earn on a transaction.
For the National Association of Independent Housing Professionals, a key issue to watch is dual compensation, where the loan officer is paid by both the consumer and the wholesaler. “If dual compensation is an unfair and deceptive practice, why are creditors permitted to receive the same?” asked Marc Savitt, president of the trade group. “Dual compensation is not double compensation.”
The CFPB has proposed a rule that strictly prohibits brokers and their originators from being compensated by both the borrower and creditor.
NAIHP, whose membership includes mostly brokers and appraisers, believes it’s unfair to allow for the paying of servicing-released premiums to mortgage banking firms (creditors) while banning dual compensation.
Although studies are hard to come by, it’s generally assumed that over the past year or so loan offficer who work for nonbanks are being offered better compensation plans than their counterparts at depositories.
The Mortgage Bankers Association, in its comment letter on the rule, says it opposes the so-called zero-zero exemption.
The zero-zero exemption would require that mortgage bankers (creditors) and loan brokers make available to borrowers a mortgage “with no upfront discount points, origination points, or fees that are retained by the creditor, broker, or an affiliate of either if commission-based compensation is paid to an originator.”
The trade group says that overall it supports an exemption from the provision of Dodd-Frank that can be read to restrict the payment of a transaction specific commission to a loan originator by a creditor or a brokerage if the creditor or brokerage also receives points and fees from the borrower, but MBA opposes the zero-zero exemption as currently proposed.
CFPB declined to comment on the release date of the rule.