The Consumer Financial Protection Bureau (CFPR) is delaying publication of its final “qualified mortgage” rule, which will set standards for lenders to ensure borrowers have the ability to repay mortgage loans they’ve been given. Release of the rule was expected late this summer, but the agency said it’s reopening the process for comment because it wants the public to look at new data that’s pertinent to the proposed “ability to repay” standards.

The new comment period, says CFPB Director Richard Cordray, “gives the public an opportunity to comment on the information we have received.” The new data concerns the performance of Fannie Mae and Freddie Mac loans from 1997 to 2011, as well as other securitized mortgage loans.

As a result of the reopened comment period, publication of the final rule could be set back, possibly until after the national elections later this year. By law, the agency is to release a final rule by Jan. 21, 2013.  

For NAR, the agency’s decision to reopen the comment period helps slow down a process that was raising concerns among industry groups. NAR has said the ability to repay standards in the proposed rule were written so narrowly that they risked making mortgage loans hard to get even for creditworthy households. What would better match congressional intent, NAR says, are broader standards that give lenders flexibility to make loans to creditworthy households while still meeting Congress’ intent to ensure borrowers have the ability to repay.

NAR and other groups also had concerns over whether the rule would include a “safe harbor” or a “rebuttable presumption” legal standard for lenders to defend themselves against borrower lawsuits. NAR and other groups say lenders should be given a safe harbor, because such a standard would require borrowers filing a lawsuit to show the loans they were given didn’t meet the ability to repay standards. The rebuttable presumption option is a less clear-cut standard for lenders to seek dismissal of a case.

When it takes effect, the qualified mortgage rule will apply to all loans. A group of six other federal banking regulators, including the Federal Reserve and U.S. Treasury Department, is working on a companion rule, called the qualified residential mortgage (QRM) rule, which sets standards for whether or not lenders must retain 5 percent of the loan amount for loans that are securitized for sale to investors. If the loans meet the QRM standard, they’re considered “safe” and lenders can sell 100 percent of the loans to investors; if they don’t meet the standards, lenders have to retain 5 percent of the loan amounts on their books.

NAR is asking the regulators not to impose a minimum down payment or other rigid credit standards on lenders to meet the definition of a safe loan, because that wasn’t congressional intent. Rather, Congress wanted safe loans to be those that are soundly underwritten, regardless of downpayment amount.

Because QM applies to all loans, regulators have to ensure their QRM rule is consistent with the QM rule before they move forward.  

Learn more about QM and QRM.

— Robert Freedman, REALTOR® Magazine