A group of strange bedfellows called on mortgage industry regulators to step back from a proposed rule that they say would stifle lending to all but the most well-heeled home buyers.
“When this kind of crowd comes together, my guess is we’ve got a point,” said John Taylor, president of the decidedly pro-consumer National Community Reinvestment Coalition, at a National Press Club briefing. “If all sides say the proposed rule doesn’t make sense, than regulators ought to listen. All biases aside, we are right on this issue.”
Actually, the group, which also includes the Mortgage Bankers Association, the National Housing Conference, Consumer Federation of America and the Center for Responsible Lending, doesn’t have a problem with much of the rule laid down by regulators that would give life to the qualified residential mortgage exemption under the Dodd-Frank Wall Street Reform and Consumer Protection Act.
For example, they have no issue with the portion that would allow only those loans that have been originated using sound underwriting, including full documentation and total verification, to pass muster under the QRM test. “Those are the right steps to return private investment to the housing market and ensure sustainable and affordable housing credit for as many families as possible,” the MBA says in a briefing paper.
But the proposed downpayment requirements and loan-to-value and debt-to-income ratios go too far, the rather unholy alliance agreed. “We support the principles of safe and sound, fully documented loans that reflect the borrowers ability to pay,” said MBA President David Stevens. “We believe in those core variables. But regulators have overreached by including LTV and DTI ratios.”
Calling for a “more balanced” approach that takes into account that loan products are ultimately responsible for loan performance, not downpayments, Stevens said he’s “never seen a rule like this that eliminates so many families” from being able to qualify for a safe and sound mortgage.
“We all recognize that home ownership should decline, that over-enthusiasm pushed too many people into unsafe mortgages on houses they shouldn’t have bought,” the MBA president told reporters. “But (regulators) have gone to the extreme on the other side.”
The rest of the panel agreed, saying they feared the LTV and DTI ratios would become the defacto industry underwriting standard that would exclude not just minorities and low and moderate-income borrowers but also a good portion of working-class whites. “What’s proposed here most definitely will throw a wet rag on the housing recovery,” said the always colorful Taylor. “What got us into trouble were not downpayment issues. From the get-go, it was toxic product and abusive lending practices.”
The press gathering was one of a series of group and one-on-one briefings the group has held this week with Capital Hill staffers and news organizations. The group is hoping to pressure the six banking regulators to extend the comment period on their proposed rule beyond the June 10 closing date. But even if the comment period is not prolonged, the regulators don’t not have to come forth with a final rule.