CFPB Delays Long-Awaited QM Rule Until 'End of 2012'

WASHINGTON — The Consumer Financial Protection Bureau said Thursday it was seeking additional comments on a long-awaited rule defining a "qualified mortgage," pushing back the expected release date by six months.

Agency officials have repeatedly said the final rule, which would require mortgage lenders to verify a borrower's ability to repay, would be issued by the end of June. On Thursday, however, the agency issued a request for comment on new loan data it has obtained from the Federal Housing Finance Agency, and said it now expects to issue a final rule "before the end of 2012."

Although the delay had been rumored for the past couple weeks, observers were still surprised that a final version may take several more months to complete. Some said it's another sign of the difficulty regulators are having interpreting and implementing the language in the Dodd-Frank Act.

"You can't overstate how important this rule is," said Don Lampe, a partner with the Dykema law firm. "This rule represents housing policy in the United States, because how available credit will be will have a big impact on the housing recovery. And that's another reason why CFPB is having to be very careful here and wants to look at more available data."

The bureau inherited the rule from the Federal Reserve Board, which issued an initial proposal in May 2011. Comments for that proposal were due last July, and CFPB has been working since then to craft a final version.

But it recently received new data tracking the performance of loans purchased or guaranteed by Fannie Mae and Freddie Mac from 1997 to 2011, as well as other data on securitized mortgage loans.

The notice issued Thursday seeks comment on the new data, which the bureau said can be used for a variety of analyses, including modeling the relationship between a borrower's ability to repay, and variables such as consumers' ratio of debt to income. The comment period closes on July 9.

"Through our ability-to-repay rule, we want to ensure that consumers are not set up to fail with mortgages they cannot afford and we want to protect access to affordable credit," CFPB Director Richard Corday said in a press release. "We are committed to gathering solid data to inform this important rule. This notice gives the public an opportunity to comment on the information we have received so far, as well as an opportunity to submit additional data."

The delay will almost certainly mean a longer wait for its sister regulation, the so-called risk retention rule, which includes a class of high quality loans known as "qualified residential mortgages." Lenders would have to hold a 5% stake in any loans that are not considered QRMs.

Because QRM is supposed to be more broadly defined than QM, observers expect that regulators will continue to wait for the CFPB to finish its rule before they move ahead.

Still, many industry observers said a delay is preferable to the CFPB moving ahead without understanding the implications of its rule.

"All told, it's better to get it right even if that requires some delay to look at new information or analyze data in a new way, than to issue something and then realize that maybe the entire picture was not viewed before the rule was issued," said Kevin Petrasic, a partner with the law firm Paul, Hastings, Janofsky & Walker.

Observers said the move — as well as Cordray's own comments — reaffirms the bureau's stated intent to be an agency driven by data.

"I think this is really a wake-up call for the industry in terms of understanding the extent and resources that the CFPB has and will apply to data analysis and collection that will produce policy responses that could have fairly significant repercussions for segments of the financial services sector," Petrasic said.

CFPB is also asking the public for similar information on other types of loans not covered in the FHFA data set, including loans insured by the Federal Housing Administration, the Department of Veterans Affairs, the Department of Agriculture and the Rural Housing Service, or loans held in portfolio or securitized outside of the government sponsored enterprises or federal agencies.

The agency is also seeking data on the litigation costs and liability risks that could result from borrower lawsuits if a lender violates the rule.

Industry groups have called for a legal safe harbor to protect lenders that make qualified mortgages, while consumer groups have argued that the litigation risk is minimal, and said a rebuttable presumption provision would give borrowers more leeway to pursue lawsuits.

In a comment letter to the Fed last year, Mortgage Bankers Association President David Stevens said violating the rule could cost lenders as much as $70,000 to $110,000 per loan in possible damages and attorneys' fees.

The agency was careful to say that the notice is focused narrowly on the new data and the litigation costs, and does not reopen comments on other aspects of the proposed rule.

Isaac Boltansky, an analyst with Compass Point Research and Trading, said the notice seems to indicate that the bureau is leaning toward the more borrower-friendly rebuttable presumption, rather than a safe harbor.

"I think part of this is what's now becoming the normal CFPB M.O., which is compile as much data as possible, cover all of the bases publicly," Boltansky said. "But I think with asking all these questions about litigation costs, to me it really says that they are gearing up for a release that will involve the rebuttable presumption alternative."