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Lending

CFPB director addresses QM myths

Borrowers with DTI above 43% will get mortgage options

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The popular assumption that borrowers who fall outside the qualified mortgage definition are essentially blocked from the mortgage finance market is a myth, Consumer Financial Protection Bureau Director Richard Cordray said while speaking in front of the Consumer Federation of America.

During his presentation, Cordray attempted to dispel rumors that the ability-to-repay rule and related QM-standard will disrupt lending to borrowers with debt-to-income ratios above 43%.  

"The rule does not change anything about your current mortgage; it only applies to new mortgages that you apply for on or after January 10, 2014," the director said. "And it does not stop lenders from lending to any borrower with a debt-to-income ratio above 43%; this particular claim is wrong in three ways."

Cordray says lenders can simply rely on the origination standards for loans backed by the government-sponsored enterprises.

Smaller local creditors also are able to issue non-QM loans as long as they hold them within their portfolios. And finally, Cordray said lenders have the ability to issue a non-QM loan by simply using their own judgment after evaluating the borrower’s ability-to-repay and assessing the overall risk.

"Another myth is that this rule restricts down payments; in fact, it says nothing about how much of a down payment you have to make on the house, but leaves that entirely up to you and your lender," Cordray advised.

Still, the residential mortgage-backed securities market remains uncertain about how much risk non-QM loans pose to securitizations.

Moody’s Investors Service released a report, saying litigation risk from non-QM mortgages remains a potential headwind for the private-label RMBS market heading into 2014.
 

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