When the Qualified Mortgage rule came out in January 2014, people in the industry were worried that the rule would contribute to a reduction in mortgage credit availability.
However, an updated analysis from Urban Institute housing and mortgage experts Bing Bai, Laurie Goodman and Ellen Seidman finds that the rule does little to impact the availability of mortgage credit, largely because the market had changed well before the rule took effect.
To explain their reasoning, Bai, Goodman and Seidman said in a blog post for the nonprofit think tank, that after they tracked down four potential indicators, none showed a connection to reduced lending.
1. The number of interest-only and prepayment penalty loans didn’t increase
The QM rule disqualifies loans that are interest-only or have a prepayment penalty. A reduction in these loans might show QM impact, but both types of mortgages were virtually extinct before QM took effect.
2. The share of loans with debt-to-income ratios above 43% is unchanged
The QM rule disqualifies loans with a debt-to-income ratio above 43 percent except for loans with government backing.
3. The adjustable-rate mortgage share still tracks interest rates
Due to fluctuating rates, people will either use ARMs or not. The QM rule requires that ARMs be underwritten to the maximum interest rate that could be charged during the loan’s first five years—a restriction that might deter ARMs and disrupt the interest-rate tracking. But after the QM rule took effect, the ARM share continues to track interest rate changes.
4. The number of small loans has dropped but not much
The QM rule’s 3 percent limit on points and fees could discourage lenders from making smaller loans. But the slight drop since the rule took effect is largely attributable to home price appreciation.
In December 2013, while speaking at the Consumer Federation of America, Consumer Financial Protection Bureau Director Richard Cordray tried 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%.
In November 2015, by a vote of 255-174, the House of Representatives approved the “Portfolio Lending and Mortgage Access Act,” which would broaden the definition of qualified mortgages – those that qualify for the safe harbor – to include all mortgages held on a lender's balance sheet.
The new QM rule would recognize all residential mortgage loans held in portfolio by credit unions and other lenders as qualified mortgages for the purposes of the CFPB’s mortgage lending rules.