Interest groups continue to weigh in on the anticipated “qualified mortgage” (QM) rule, which the CFPB expects to propose by the end of June. The CFPB must finalize the QM rule by January 13, 2013 under the Dodd-Frank Act, but hopes to issue a final rule in the third quarter of 2012. Because of the potential liabilities for lending outside of the QM rule in regard to a borrower’s ability to repay, lenders and industry insiders anticipate that once QMs are defined, mortgage lenders will only offer borrowers loans that meet the QM guidelines. Because the QM rule will shape the future of the mortgage industry, advocates and industry insiders have raised a number of issues they hope the CFPB will consider in finalizing the rule.
Comments from the Bureau have indicated that it is well aware of the implications of the rule. Nonetheless, the CFPB wants a qualified mortgage to be structurally safer than mortgages in the past and to pose lower risks to borrowers. Raj Date, the deputy director of the Bureau, has stated that “first and foremost, [the Bureau] want[s] to ensure that consumers are not sold mortgages they do not understand and cannot afford.” At the same time, Mr. Date indicated that the Bureau “want[s] to minimize the compliance burden where possible, in part through the careful definition of those lower-risk qualified mortgages.”
A number of mortgage lender advocates have raised concerns that ambiguity in the QM rule and “ability to repay” underwriting standards will result in significant litigation costs. In particular, housing industry groups have encouraged the CFPB to adopt a safe harbor from liability for mortgagors that comply with the QM rule instead of a rebuttable presumption of compliance. A rebuttable presumption would create a much lower bar for attorneys to challenge a lender’s compliance with the “ability to repay” standard, which could incentivize meritless lawsuits that lenders would have to defend or settle and that could delay or stop foreclosures. Should the CFPB adopt a rebuttable presumption, industry groups fear that litigation costs will prevent most lenders from offering mortgages to all qualified borrowers. Another issue of concern is the definition of points and fees since such charges on a QM of greater than $75,000 may not exceed 3 percent. If the definition of these charges is not precise, lenders may run afoul of the QM exemption.
Consumers groups and mortgage lender advocates alike have raised concerns regarding the breadth of the QM rule. Because it is largely anticipated that lenders will not extend credit beyond the QM guidelines, consumer and industry advocates have both indicated that too many limits on the kind of mortgage that can be offered or the fees that can be associated with the QM loan could create disincentives for mortgage lenders and banks to lend. U.S. Housing and Urban Development (HUD) Secretary Shaun Donovan urged the CFPB to look at the types of loans that created the housing crisis rather than focus on the number of loans that might be eligible under the QM rule. Raj Date has indicated that access to credit is a priority for the CFPB. He noted that a narrow definition of a QM could result in fewer loans made to minority borrowers or in non-traditional markets, such as self-employed borrowers, a result the Bureau hopes to avoid.
The six regulators charged with defining a “qualified residential mortgage” (QRM) for purposes of the Dodd-Frank risk retention rule (HUD, SEC, OCC, FRB, FDIC, FHFA) have indicated that they are awaiting the Bureau’s definition of a QM before they tackle the QRM definition. The QRM rule will establish the guidelines for an exemption from a 5 percent risk retention requirement for certain securitized loans. HUD Secretary Donovan, in speaking at a Mortgage Bankers Association conference, indicated that he favors a single underwriting standard for QM and QRM as much as possible.