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The Consumer Financial Protection Bureau has managed to take one of the most controversial provisions of the Dodd-Frank Act a rule that would effectively redefine the mortgage market and craft it in a way to please both the banking industry and consumer groups.
May 30
WASHINGTON - Lawmakers and industry officials continue to issue warnings about the impact of the Consumer Financial Protection Bureau's ability-to-pay rule, despite recent efforts by the agency to amend certain provisions to assuage industry concerns.
The agency issued revisions to the controversial "qualified mortgage" rule late last month that were applauded by a wide range of observers, including industry representatives and consumer advocates.
But lawmakers at a House subcommittee hearing said the rule may still curb access to credit.
"Although these revisions attempt to provide clarity to lenders, the need for these changes highlights the fundamental problem with the ability-to-repay rule. Mortgage lending can be highly subjective business, especially in rural and underserved areas," said Rep. Shelley Moore Capito, R-W.Va., who chairs the financial institutions subcommittee. "This element of relationship-based decision making is completely ignored by the premise of the rule. It will be nearly impossible for the CFPB to endlessly amend the rule to accommodate the ability of lenders to make these relationship-based loans. Unfortunately, the end result will be some consumers losing access to credit and the ability to own their own home."
The CFPB issued a final rule in January that requires banks to ensure that borrowers have the ability to repay a loan before extending credit. It also established an ultrasafe class of loans known as qualified mortgages that were protected from legal liability if the loan met certain underwriting criteria. After industry complained that QM was too strict, the CFPB relaxed some standards last month.
But lawmakers on both sides of the political aisle and industry representatives at the hearing raised particular concern about the rule's impact on lending to low- and moderate-income borrowers, warning that few lenders are likely to provide loans outside of qualified mortgages.
"There are a lot of individuals that you can document their employment and their income - that they paid their mortgage, but they paid some other bills late. So they didn't have perfect credit," said Rep. Gregory Meeks, D-N.Y., the top Democrat on the subcommittee. "I'm concerned about those individuals getting locked out of this market - trying to figure out how they can be included."
Industry representatives emphasized how the rule could take away lenders' discretion, even forcing them to roll back specialized programs that lenders use to meet Community Reinvestment Act mandates.
"This straightjacket that we're being put in will limit our ability to design the programs that are necessary and appropriate to meet the needs of our customers," said James Gardill, chairman of the board at WesBanco in West Viriginia, who testified on behalf of the American Bankers Association. "It takes not only the ability to repay but adequate collateral to support the loan. We can't create a straitjacket in how to measure that ability to repay by arbitrary rules that narrow what you can consider. Banks do a balanced approach in measuring credit and that's what we want to retain, but the rules don't do that for us."
As part of its recent revisions, the CFPB extended the timeframe under which small lenders can consider balloon loans as qualified mortgages, but some regulators at the hearing raised concerns about restrictions on the loans.
"This provision effectively limits a bank's flexibility to tailor products to the credit needs of the community," said Charles Vice, commissioner of the Kentucky Department of Financial Institutions, testifying on behalf of the Conference of State Bank Supervisors. "This is a portfolio lending issue, not a rural or underserved issue."
Lawmakers and panelists also debated the Consumer Mortgage Choice Act, introduced in March, which would add certain exceptions to the QM rule's 3% cap on points and fees, including for compensation paid to mortgage brokers and title insurance. The bill, introduced by Rep. Bill Huizenga, R-Mich., has 43 co-sponsors in the House, though some consumer advocates have pushed back, charging that the legislation would add important loopholes to the rule.
Still, Michael Calhoun, president of the Center for Responsible Lending, and others, including Rep. Maxine Waters, D-Calif., the top Democrat on the House Financial Services Committee, defended the rule and the CFPB's efforts to clean up the mortgage market following the financial crisis.
"We support a broad box, and I think when you look hard at the particulars of this rule, it created a broad box," said Calhoun, noting as well that the agency has made concerted efforts to meet industry demands in crafting the rule.
