A new rule redefines a 'qualified mortgage'
The Consumer Finance Protection Bureau Thursday unveiled its long-anticipated "qualified mortgage" regulation, designed to guarantee that home loans be given only to borrowers able to repay them.
The Consumer Finance Protection Bureau Thursday unveiled its long-anticipated "qualified mortgage" regulation, designed to guarantee that home loans be given only to borrowers able to repay them.
Under the new rule, a lender must obtain and verify an applicant's financial information, including employment status, income, assets, debts, and credit history; the prospective borrower must have enough income or assets to repay the loans, and teaser rates may no longer hide the true cost of a mortgage.
When it was first proposed more than a year ago, the regulation - essentially a redefinition that takes effect next January - created worries among lenders and the housing industry that it would effectively close off homeownership to millions of Americans and derail the real estate recovery.
The rule announced Thursday appears to have addressed many, though not all, of the concerns expressed by consumer groups in addition to the industry.
"We think the rule will help consumers avoid bad loans, said Pamela Banks, senior policy counsel for Consumers Union. "We urge [the bureau] to keep the pressure on to ensure all mortgages offered to consumers are fair and appropriate."
But Mike Calhoun, president of the Center for Responsible Lending, said the rule left a "pivotal" issue unresolved: How the fee a lender pays to a mortgage broker will be counted when it comes to defining a qualified mortgage.
"These fees, known as yield-spread premiums, provided incentives for brokers to steer borrowers into bad mortgages that fueled the mortgage crisis," Calhoun said. The bureau should not create a loophole that allows high-fee loans to count as qualified mortgages, he said.
National Association of Home Builders chairman Barry Rutenberg, noting that the rule will take effect in 2014, said it was essential that regulators act prudently and thoughtfully to implement it in a sensible manner "to avoid disruptions to the housing finance system and ensure qualified borrowers can obtain affordable credit."
American Bankers Association president Frank Keating said that while the rule codifies many conservative lending standards currently in place, "it is complex and technical, presenting an additional regulatory burden."
The qualified-mortgage rule must interact with other regulations the Consumer Financial Protection Bureau will be crafting this month, Keating said, because all "will transform our lending practices and could restrict access to credit."
Included in the new regulation, the bureau said, are protections for borrowers from risky lending practices such as the no-documentation and interest-only mortgages that contributed to many homeowners ending up in delinquency and foreclosure after the 2008 collapse of the housing market.
The rule features a cap on how much housing income can go toward debt - debt-to-income ratios less than or equal to 43 percent.
Before the crisis, the bureau said, many consumers took on mortgages that raised their debt levels so high that it was nearly impossible for them to repay the mortgages given the total of their financial obligations (car loans, credit-card bills, etc.).
