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David Stevens, president and chief executive of the Mortgage Bankers Association, highlighted several critiques of the CFPB's final QM rule during a speech on Wednesday.
January 16 -
Subprime mortgages are likely to become harder to make and more expensive to sell in the secondary market based on the new qualified mortgage rule.
January 11
Community banks "are being
This month the Consumer Financial Protection Bureau issued the much-anticipated QM rule, which puts into practice Dodd-Frank Act provisions intended to ensure that borrowers can repay their mortgages. QM loan status gives lenders important legal protection by deeming them to have complied with Dodd-Frank's borrower ability-to-repay requirements (or, in the case of certain "higher-priced" loans, giving them a presumption of compliance).
Despite the legal protection in the rule given to lenders for many types of loans, I have serious concerns about the protection (or lack thereof) that the rule provides to many community banks in Louisiana and other states that make balloon payment loans and hold in their portfolios.
The CFPB noted that in many rural areas across the country, "
Thus the balloon loan has been a core product of Louisiana banks. It is now jeopardized by the CFPB rule.
To receive QM status, a balloon loan must meet a number of exacting requirements. Among them, the lender that originates the loan must make at least 50% of its first-lien mortgages in counties (or parishes, the Louisiana
So what is rural or underserved? The rule states that the CFPB will designate a list of "rural" or "undeserved" counties each year. However, in its commentary provided in the final rule, the CFPB states that its definition of "rural" is based on the "
I believe the use of the codes is unduly restrictive in defining rural areas for the purposes of the QM balloon loan. The CFPB said it had considered an alternative definition: The one used in the USDA's
"Given the size of some counties, particularly in western States, this approach may provide a more nuanced measure of access to credit in some areas than a county-by-county metric," the bureau acknowledged. But the CFPB rejected the approach, noting that under the Rural Housing Loan program's definition, 37% of the country's population live in "rural" areas, with an average of 10 lenders serving each area.
In other words, there would be too many lenders in the designated areas to justify giving QM protection to balloon loans. But is seems clear that CFPB believes balloon loans are not abusive or predatory. Given that, why does the rule so restrict their use?
I strongly urge the CFPB take a second look at the USDA Rural Housing program definition of rural for the purposes of granting QM's legal protections to balloon loans. Adopting this definition would ensure continued credit availability to rural Americans. With the current definition of rural, I fear many borrowers will no longer have access to credit through the traditional community bank.
Robert T. Taylor is chief executive of the Louisiana Bankers Association.