Letter to Cordray Requests Industry Input into Qualified Mortgage

Thirty-three housing related organizations have signed on to a letter advocating that a broadly defined definition of a Qualified Mortgage (QM) be attached to the forthcoming Ability to Pay regulation being formulated by the Consumer Financial Protection Bureau (CFPB).  The letter, sent today to Richard Cordray, Director of the Bureau, urged the Bureau to avoid an unnecessarily narrow definition of QM that will cover only a “modest proportion loan products and underwriting standards and serve only a small proportion of borrowers.”  This, the letter states, would undermine prospects for a housing recovery and threaten the redevelopment of a sound mortgage market.

The letter was signed by the leading trade associations in the industry including the American Bankers Association, National Association of Realtors, and Mortgage Bankers Association, but also by consumer groups such as Habitat for Humanity, the National Council of State Housing Agencies, and lesser known organizations like the Center for NYC Neighborhoods, Community Associations Institute, and the National Association of Hispanic Real estate Professionals. 

The letter said that while the groups hold different views about whether the QM should be designed as a safe harbor or a rebuttable presumption they are united in urging the CFPB to construct a broadly defined QM using clear standards to help the economy and to ensure that the broadest universe of credit-worthy borrowers are able to obtain safe loan products for all housing types.

Every version of financial reform paired the Ability to Repay provisions with the QM, including the final version of the Dodd-Frank Wall Street Reform Act.  The reasoning, according to the letter’s authors was that pairing the prospect of liability with an exception for well underwritten more sustainable laws was the best way to ensure sound lending.

The law also includes lender liability for steering borrowers to non-QM loans and gives the Bureau leeway to definite QM in a way that will ensure that safe and responsible mortgage credit remains available to borrowers.  Taken together these provisions demonstrate that Congress intended that all creditworthy borrowers, especially low and moderate income borrowers and persons of color should be extended the protections of a QM.

The writers contend that defining QM too narrowly would throw many of today’s loans and borrowers into the non-QM markets, putting lenders and investors at a high risk of an Ability to Pay violation and even a steering violation.  As a result, these loans are unlikely to be made and if they are they will be far costlier, burdening those families least able to bear the expense.  In addition, these higher priced loans would not be exempt from including important protections against the very practices and loan features that drove the highest failures in the mortgage boom, features that are embedded in the QM

The writers say that they support the strong regulatory standards to ensure that earlier mistakes are not repeated and believe that QM is central to that effort but, rather than narrowing the market, “creating a broad QM which includes sound underwriting requirements, excludes risky loan features and gives lenders and investors reasonable protection   against undue litigation risk, will help ensure revival of the home lending market.”

The letter concludes with a request to include representatives from the groups signing the letter in meetings with Bureau staff to “discuss all of these concerns and to share our data.”

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