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Lending

Policymakers go head-to-head with CFPB director

Richard Cordray says the mortgage industry is ready for QM

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Representatives took turns firing off questions to Consumer Financial Protection Bureau director Richard Cordray, amid fears that the mortgage market is not properly equipped to handle the implementation of the qualified mortgage rule and the qualified residential mortgage standard in 2014.

The CFPB's QM rule is set to take effect in January.

While the CFPB has adopted comprehensive new mortgage regulations to ban irresponsible lending practices to avoid another housing crisis, some members of the House Financial Services Committee are convinced the QM standard and the ability-to-repay rule will restrict credit to eligible borrowers.

Rep. Gary Miller, R-Calif., demanded to know why Fannie Mae and Freddie Mac were exempted from the QM rules, which will negatively impact the liquidity and stablity of the marketplace.

"By doing this, we're going to have guidelines that are so stringent and based on worst-case situations by using underwriting standards that are not applicable today," Miller argued.

Corday put Congress in the hotseat, stating that the reason the CFPB left both enterprises out of the proposed standards was to allow time for policymakers to draft a timeline and solution for housing reform.

"We tried to give enough room for Congress to look at GSE reform and, as as a result, we had to write a broad enough rule that would cover the market until Congress decided to address some sort of resolution," Cordray explained. 

On a similar note, Rep. Shelley Moore Capito, R-WV, questioned if community institutions would be ready to meet the standards of the rules, given that the criteria are still being revised.

However, Cordray reassured the committee that any concerns were being addressed and all institutions would be in compliance by Jan. 10, 2014.

"We have special provisions for the smaller institutions," the CFPB director stated. "Some of the market worried that with the QM rule that if they make fewer than 500 mortgages a year they do not meet the criteria. However, if they keep a portfolio of the mortgages made they fall under the safe harbor rule."

Nonetheless, some committee members are still apprehensive that categories placed within the QM rules should be revised to allow for fair lending practices and eligibility to all credible borrowers.

"I know you’re not a safety and soundness agency, but you could help the government avoid allowing those types of mortgages that led us into the financial crisis to begin with," explained Rep. Jeb Hensarling, R-TX.

Cordray was quick to defend the QM rule, stating that there are multiple outlets for borrowers to meet the proposed criteria besides the 43% debt-to-income ratio.

For instance, if the loan is eligible for purchase by the government-sponsored enterprises then it does not have to meet the DTI ratio standard. Although market analysts in the past have argued that an exception for the GSE doesn't necessarily curtail market risk.

The critical issue of the hour was community banks and credit unions receiving equal treatment under the QM and QRM rules.

Rep. Maxine Waters, D-Calif., pointed out that these market participants feel as if they’re being sidelined and want further assistance from the CFPB to qualify under the new regulations.

The CFPB director admitted his concerns about providing equality to credit unions under the standards.

However, he pointed out the bureau’s aggressive work to provide plain language guides on the rules to assist community banks, coupled with working with other agencies on Capitol Hill to make provide clearer rules, resulted in better transparency to community banks.

"We’re working to make sure that we understand credit union issues and are better responsive to everyone who has a stake in the mortgage market, most importantly, American taxpayers," Cordray said.

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