Access to safe mortgage products and wealth-building opportunities of homeownership are at stake

Update to implementation of the Dodd-Frank law’s overhaul of the housing market and its requirement that lenders check borrowers’ ability-to-repay

WASHINGTON, D.C. – The Consumer Financial Protection Bureau (CFPB) yesterday released two final rules that update guidelines for what are considered borrower-safe qualified mortgage (QM) loans that provide lenders protection against litigation. The first rule is the General QM Final Rule. The second rule establishes a separate category for QMs, Seasoned QMs, covering certain loans priced above the general QM threshold that are held on lender portfolios for three years. These rules have immense significance for who can obtain sustainable mortgage loans.

Our nation remains in the depths of three ongoing crises: a global health pandemic, a reckoning on racial injustice, and an uneven recovery where low-wealth credit-worthy consumers, disproportionately Black and brown families, are locked out of accessing credit to purchase or refinance a home during a time when Freddie Mac has reported millions of consumers are mortgage-ready and interest rates are at record lows.

Center for Responsible Lending (CRL) President Mike Calhoun and National Fair Housing Alliance (NFHA) CEO Lisa Rice released the following joint statement:

CRL and NFHA support the price-based approach in the General QM rule. We have long advocated for a broad QM eligibility definition in conjunction with the important QM product safeguards to ensure that more potential homebuyers will have access to safe and responsible mortgage products. This rule correctly removes a strict debt-to-income (DTI) cutoff in order for a loan to qualify as QM. Research has demonstrated the limited predictive value of strict DTI limits as well as its effect of excluding credit-worthy borrowers, disproportionately people of color, from QM loans. The rule also includes a requirement to consider and verify a borrower’s DTI or residual income, an essential component of ensuring ability-to-repay. In addition, the rule includes important protections for borrowers who receive adjustable-rate mortgages.

We are pleased that the rule states that there should be no inference that a loan receiving QM safe harbor status complies with anti-discrimination laws. At the same time, we are disappointed that the rule does not adopt the recommendation of civil rights and consumer advocates that loans found to be discriminatory will not receive the QM safe harbor. This is a critical omission. We strongly urge the Bureau to increase fair lending oversight and enforcement, particularly regarding discriminatory mortgage pricing that harms Black, Latino, and other borrowers of color.

While CRL and NFHA have supported the GSE Patch, continuing the Patch was not presented as an option for this rule.

The separate final rule for seasoned loans is a step in the wrong direction. This measure can be used to provide lenders with the liability protection of QM status for loans that are part of an overall unsustainable portfolio. This creates an incentive for predatory lending. It is our hope that this rule will soon be reversed.

Additional Background

Additional information on the two final rules issued yesterday is on the CFPB’s website.

In September, CRL along with civil rights and housing group partners submitted a public comment letter linked here on the proposed rule. View NFHA’s public comment letter on the proposed rule.

In the run-up to the 2008 Financial Crisis, predatory subprime mortgage lenders targeted people of color and low-wealth families with abusive loans. In response to these abuses, the Dodd-Frank Wall Street Reform and Consumer Protection Act established rules ensuring that borrowers have a reasonable ability to repay their mortgage loans at consummation and requiring full documentation of income and assets. The QM statutory product protections ensured that most borrowers will not be placed in loans with built-in payment shock or excessive fees through the following features: 1) the loan cannot have negative amortization, interest-only payments, or balloon payments; 2) adjustable rate mortgages (ARMs) must be underwritten at the maximum rate in the first five years; 3) the mortgage term must be 30 years or less; and 4) total points and fees generally cannot exceed 3 percent of the loan amount.

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