This is the second in a series of blog posts on the Consumer Financial Protection Bureau (CFPB). It first appeared in National Mortgage News on July 2, 2013 under the title “CFPB Gets it Right… at Least 95% of it.“
Ability-to-Repay (ATR) and Qualified Mortgage (QM) Standards
- This is one our community bank and credit union friends have been screaming about because a significant portion of their mortgage lending would not meet the QM standards thus eliminating their safe harbor protection. Just about every community bank and credit union has a mission statement that includes something to the effect of, “To serve the lending needs of our community” or “To serve the lending needs of our members.” The initial ATR and QM Standards released effectively squashed that notion by restricting points and fees, restricting balloon loans, requiring hoards of customer information and capping DTI at 43%. With the amended rule release, the CFPB has done a good job in relieving some of the pressure. Under the final rule, banks and credit unions with $2 billion in assets or less that fund 500 or fewer first lien mortgages per year will benefit from exemptions to the ATR and QM Standards issued in January. Specifically, small banks and credit unions will be permitted to continue to make balloon mortgages held on portfolio during a 2 year transition period, they will not be subject to the 43% DTI restriction on mortgages held in portfolio for at least 3 years and the can issue mortgages up to 3.5% above the average prime offer rate; an increase of 2%. Raising the threshold defining qualified mortgages thus keeping their safe harbor litigation shield in place.
- I know my eyes crossed when the realization set in that the ATR and QM Standards eliminated safe harbor protection for the FHFA and GSE programs being pushed to aid distressed home homeowners, improve performance of existing mortgage loans owned by the agencies and thus move the housing recovery forward. What about HARP, Refi Plus, Relief Refinance? The good news is that the CFPB has added a provision that says a loan is a qualified mortgage if it meets the statutory limitations on product features, points and fees and is eligible for purchase, guarantee or insurance by Fannie, Freddie, FHA, VA, USDA or RHS. Safe harbor shield preserved. Again, kudos to the CFPB.
- The ATR and QM Standards also placed at risk the numerous nonprofits and community based organizations and small creditors providing vital outreach and home ownership support to underserved communities and low to moderate income borrowers. Will the various nonprofit housing groups and coalitions become a thing of the past? What about community seconds and DPAPs. The CFPB is on a role now, the final amendment exempts certain nonprofits and community based lenders from ATR rules. Exempt are lenders that fund 200 or fewer loans per year and only to low to moderate income borrowers. Also exempt are housing finance agencies and some programs designed for foreclosure prevention.
- I will address this further in the 5% the CFPB got wrong.