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The Dodd-Frank QM rule will restrict the availability of credit, but it can be less invasive if the CFPB develops a model that weighs all relevant risk factors, not just a few measures of capacity to repay.
October 26 -
If proposed mortgage rules are too rigid, banks will have little choice but to restrict lending. But if they are ill-defined or too loose, banks say they face higher compliance costs and increased risk of litigation.
October 19 -
Although the consumer bureau is appearing closer to a final plan on defining 'qualified mortgages,' neither lenders nor consumer groups seem very satisfied.
October 16
After years of irresponsible, reckless lending – which resulted in trillions of dollars in lost wealth and millions of foreclosures – Congress finally acted to prevent lenders from selling consumers unsustainable home loans.
It enacted Dodd-Frank and included the category of qualified mortgages to encourage banks and lenders to do the right thing for consumers and themselves by offering safe, affordable and sustainable mortgage products.
Recently, many in the financial services industry have pushed for a weak QM rule, and have even pushed for rolling back Dodd-Frank altogether. Those who are outspoken about weakening regulation seem to have short memories. Only a strong QM rule can prevent a repeat of the past and protect consumers from the type of risky and irresponsible lending that preceded the foreclosure crisis.
At the National Community Reinvestment Coalition, we believe that having strong underwriting requirements and loan parameters in the QM rule is critical to making the mortgage industry safe again for both consumers and lenders. The Consumer Financial Protection Bureau must issue a strong, thoughtful rule that contains robust consumer protections. Such a rule can also clearly provide the bright lines and clarity that the industry asks for while ensuring equal access to sustainable mortgages for America's working families.
The truth is that strong underwriting is in everyone's best interest. Therefore, there's no real reason for anyone to disagree with requiring lenders to factor in and verify factors such as a prospective borrower's credit history, employment status and monthly debt-to-income ratio. Each of these requirements is a reasonable and rational consideration and gives substance to the ability-to-repay assessment in Dodd-Frank.
It's equally important that the definition of a qualified mortgage is not too narrow in terms of what it encompasses, so as not to restrict access to credit. But make no mistake: NCRC supports a QM rule with strong consumer protections and vigorous underwriting requirements to prevent lenders from steering our economy into another mess.
It is also critical that there is a rebuttable presumption for qualified mortgages. Claims that industry litigation expenses associated with a rebuttable presumption will prevent lending are simply false. Commonsense and past experience dictates that we must preserve borrowers' legal rights to protect themselves from any new problematic industry practices that could emerge. The larger burden of proof must be on lenders and not borrowers.
There is a lot of confusion on this matter. At times, this confusion has been deliberately sowed to obscure the importance of Dodd-Frank reforms and the crucial protections they provide for the American public. But the American people have not forgotten that lenders played a central role in the economic crisis, and broad distrust of banks and lenders rightfully persists.
That the financial services industry, still in the wake of the crisis it birthed, has so quickly made a push to roll back and weaken regulations is truly both shameful and shameless. Our collective focus should be ensuring the return of a safe, sound and strong mortgage market.
Dodd-Frank is, in fact, the best hope for the lending industry because it tells investors from around the world that a broken system has been repaired and it is now safe to reinvest in America.
John Taylor is president and CEO of the National Community Reinvestment Coalition.
