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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 -
The CFPB released its long-awaited final rule laying out how lenders must ensure borrowers have the ability to repay a loan, including creating a carve-out for qualified mortgages.
January 10
WASHINGTON — David Stevens, president and chief executive of the Mortgage Bankers Association, is critiquing several provisions included in the Consumer Financial Protection Bureau's qualified mortgage rule released last week.
In a speech Wednesday, Stevens largely praised the much anticipated rule, which sets out ability-to-pay standards for lenders, while highlighting a few areas of concern.
"If you look at the overall final rule, we think the CFPB got a lot right," the former Housing and Urban Development official told the Exchequer Club.
He also applauded the elimination of certain risky mortgage products and the inclusion of safe harbor legal protections for prime mortgages that meet the QM criteria. But Stevens added that several issues have cropped up as the mortgage trade group reviews the Jan. 11 rule, which runs more than 800 pages.
The MBA head noted that a 3% limit on fees and basis points that a lender can charge on a loan doesn't exempt affiliated business or mortgage originator compensation.
"Why do you pick business models in a rule about consumer risk?" he asked during his remarks.
Stevens also warned that the hard cap on a 43% debt-to-income ratio included in the rule is likely to take a big toll on that market. Lenders can still obtain "qualified mortgage" status for loans with a higher DTI ratio in some circumstances during a transitional period, but jumbo loans will not be eligible.
"This rule essentially eliminates approximately 20% of all jumbo loans from being eligible for QM safe harbor simply because they don't have the opportunity for loan prospectors or desktop underwriters and because of the loan size, and they're stuck in a very narrow credit standard," said Stevens.
