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Lending

Lenders determine risk appetite

Federal agencies give guidance on CRA, QM, non-QM standards

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With the upcoming January launch of new mortgage rules, financial regulators are corresponding with lenders back and forth to give firms guidance on how to approach qualified and non-qualified mortgages.  

The Federal Reserve Board, the Federal Deposit Insurance Corporation, the National Credit Union Association and the Office of the Currency of the Comptroller released a joint statement to clarify the safety-and-soundness expectations and Community Reinvestment Act considerations related to QM and the Ability-to-Repay rule.

"An institution may originate both Qualified Mortgage and non-Qualified Mortgage loans, based on its business strategy and risk appetite," the regulators said. "The agencies will not subject a residential mortgage loan to safety-and-soundness criticism solely because of the loan's status as a Qualified Mortgage or non-Qualified Mortgage loan."

Despite QM, lenders are still expected to soundly underwrite residential mortgages in a prudent fashion and address key risk areas, including loan terms, borrower qualification standards, loan-to-value limits, documentation requirements and portfolio and risk-management practices.

Lenders are encouraged to originate both QM and non-QM loans, based on their business strategies and risk appetite.

"The requirements of the Consumer Financial Protection Bureau’s Ability-to-Repay Rule and the fair lending laws are compatible," the statement said. "Accordingly, the agencies that conduct CRA evaluations do not anticipate that institutions’ decision to originate only QMs, absent other factors, would adversely affect their CRA evaluations."

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