CHLA implores CFPB to delay, reconsider new QM rules

With the new rules regarding qualified mortgages (QM) set to take effect in less than a month, at least one lender organization is doubling down on its efforts to have the Consumer Financial Protection Bureau (CFPB) halt their implementation.

The Community Home Lenders Association (CHLA) sent a letter to acting CFPB Director Dave Uejio this week, imploring the bureau head to delay and reconsider the new QM ruleset. According to CHLA Executive Director Scott Olson, the letter was sent in response to a Feb. 4 blog post by Uejio on the CFPB website which mentioned asking the bureau’s Division of Research, Markets and Regulations to “explore options for preserving the status quo with respect to QM and debt collection rules.”

Much of the lending sphere has lauded the new rules, which include discarding the previous 43% debt-to-income (DTI) ratio threshold with a new approach based on the average prime offer rate (APOR) of comparable transactions. Final rules on the changes were issued in December

But Olson and the CHLA have asked Uejio to reinstate the DTI standard, along with raising the threshold to 45% and allowing some loans up to 50% DTI “in conjunction with compensating factors.” The CHLA has also asked the CFPB to “maintain some type of GSE patch while the delay and rule revisions take place.”

“It is a truism that an Ability to Repay standard should measure — an ability to repay. While the previous 43% DTI standard was not perfect — as it was not flexible enough to encompass the range of loans that should be considered a Qualified Mortgage — a DTI standard is the most direct measurement of an ability to repay a mortgage loan,” the CHLA’s letter said.

“The QM Ability to Repay requirement Congress adopted was a response to lax underwriting standards, including no-doc loans, that were a major factor in the 2008 Housing Crisis. Notably, these risky loans with lax underwriting standards were attractively priced and might have met the APOR standard that the CFPB recently promulgated.

“Therefore, we fear that replacement of a DTI standard with an APOR standard will change the essence of an ‘Ability to Repay’ requirement to an ‘Ability to Price’ requirement. In turn, the statutory objective of barring loans without an ability on the part of the borrower to repay the loan would be fundamentally undermined.”

Rather, the CHLA argued, setting mitigating criteria — such as a borrower having liquid reserves, outstanding monthly payment records, or downpayments of at least 5% from the borrower’s own funds — for mortgages with DTI ratios from 43% to 50% offers a safer way to provide lending flexibility via a QM pathway. The CHLA suggested such an approach in a letter to former CFPB head Kathy Kraninger sent jointly in January by a coalition of real estate groups, including the Community Home Mortgage Lenders of America, Independent Community Bankers of America, National Association of Federally-Insured Credit Unions and National Association of Realtors.

Now, with Uejio providing an opening, the CHLA is hoping to bring such an option back into the conversation.

“The suggested approach outlined above is not a perfect reflection of a borrower’s ability to repay,” said the CHLA’s new letter. “However, bright line and transparent changes can be implemented that would provide an appropriate increase in underwriting flexibility – and would be far more accurate in measuring ability to repay than the recently adopted APOR standard.”


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