The final rules issued today by the Consumer Financial Protection Bureau strike the right balance: they safeguard consumers from abusive practices while helping lenders comply with new mortgage lending standards. The rules address two key issues related to the Dodd-Frank Act's mandate that lenders assess a borrower's ability to repay, particularly the standards a loan must meet to qualify as a "Qualified Mortgage." First, they properly prohibit mortgages with higher fees from gaining Qualified Mortgage (QM) status. Second, they tailor the QM standards for small lenders who hold mortgages in portfolio and for other community-based lenders.
Importantly, the rules implement the Dodd-Frank Act requirement that payments from lenders to brokers –so-called "yield spread premiums"—be included when calculating whether a mortgage falls above or below the points-and-fees limit that defines a Qualified Mortgage. Including yield-spread premiums will help prevent a lending abuse that fueled the financial crisis, when brokers were paid big fees to steer borrowers into loans with higher interest rates than what borrowers qualified for. The rules also help lenders by exempting from the Qualified Mortgage calculation the commissions paid by mortgage brokerages to individual brokers and by lenders to individual loan officers.
The rules announced today continue CFPB's approach of expanding access to credit while ensuring that loans are sustainable for the borrower and the overall economy.
For more information, contact Kathleen Day in DC at 202.349.1871 or kathleen.day@responsiblelending.org; Graciela Aponte in Calif. at 510.379.5518 or graciela.aponte@responsiblelending.org; or Ginna Green at 510.866.5989 or ginna.green@responsiblelending.org.