Washington, D.C. — The Consumer Financial Protection Bureau today released its final rulemaking on the “ability-to-repay” provision of the Dodd-Frank financial regulation law, which requires lenders to consider whether a borrower can afford a mortgage before giving it to them.
Julia Gordon, CAP’s Director of Housing Finance and Policy, issued the following statement in response to the announcement:
This new rule is a crucial step in protecting consumers against the predatory lending practices that crashed our housing market and stripped trillions of dollars from families. At the core of the rule lies a common-sense business principle: If a borrower can’t afford to pay back the loan in full, the lender has no business making that loan in the first place.
Unfortunately, the Consumer Financial Protection Bureau shielded lenders from liability for a large subset of loans, making it more difficult for consumers to enforce this rule than was originally envisioned by lawmakers. We are relieved, however, that the original tougher standards still apply to the most-risky and higher-cost loans.
We were surprised to learn that the Consumer Financial Protection Bureau is considering exempting yield spread premiums from the points and fees cap, which could unacceptably water down the qualified-mortgage standard. These back-door payments from lenders to loan originators encouraged originators to sell borrowers the unnecessarily risky and expensive loans that triggered the financial crisis.
As regulators now turn to implementing Dodd-Frank’s risk-retention requirements for issuers of mortgage-backed securities, we encourage them to use today’s “qualified mortgage” definition as the “qualified residential mortgage” definition. Such alignment would reduce confusion and burden on lenders while providing the protection and flexibility needed to ensure adequate access to credit for all families.
In its final decision, the Consumer Financial Protection Bureau provided details on the definition of a “qualified mortgage,” a category created by Congress to provide lenders with some protection from liability for loans with safer features, while still permitting consumers a measure of recourse. The definition is bifurcated, with lenders receiving a complete safe harbor from liability for market-rate loans and loans that use Fannie Mae, Freddie Mac, or Federal Housing Administration standards, while higher-rate loans still carry the “rebuttable presumption” liability benchmark.
The Consumer Financial Protection Bureau has asked for further input on several issues, including the portion of the “qualified mortgage” definition that caps loan originator points and fees.
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To speak with a CAP housing expert, please contact Katie Peters at firstname.lastname@example.org or 202.741.6285.