CFPB expects ability-to-repay rule by early next year
Raj Date, special adviser to the Treasury Department and de facto leader of the Consumer Financial Protection Bureau, said the new agency's final rule on identifying qualified mortgages will be released early next year. Date also addressed concerns over mortgage servicing standards, suggesting the CFPB remains focused on improving the default component of the loan life cycle. The qualified mortgage standard is a provision outlined in Dodd-Frank that requires originators to assess a borrower's ability to repay a loan before issuing a home loan. The industry spent the past several months brainstorming the standard and discussing what type of safe harbor should be created to give lenders clear expectations. Speaking at American Banker's Regulatory Symposium Tuesday, Date said the CFPB continues the long process of shaping and discussing the qualified mortgage rule and risk-retention rules drafted in Dodd-Frank. "First, there is the risk-retention provision, which requires sponsors of asset-backed securitizations to retain at least 5% of the credit risk," Date said. "This is meant to align the interests of those who take risk, the investors, with those who make the underwriting decisions in the first place. The CFPB is not one of the agencies responsible for writing the risk-retention regulations." Still, Date said the CFPB is a key player when it comes to the ability-to-repay provision outlined in Dodd-Frank. "On the origination front, the CFPB acquired the Federal Reserve's proposed rule addressing lenders’ duty to determine that consumers have a reasonable ability to repay mortgages," Date said. "We're in the process of carefully reviewing the comments that have been received on the proposal. And we plan to issue a final rule early next year in order to provide clarity to the market as quickly as we can, without sacrificing the quality of our analysis." Date said mortgage servicing standards are not up to par and continue to harm mortgage finance. "Mortgage servicing is marked by two structural features that make it especially prone to consumer harm," he said. "First, in the vast majority of cases, consumers do not choose their mortgage servicer. Mortgage servicing rights can be, and frequently are, bought and sold among servicers. So a servicer can, in a sense, fire a borrower; but a borrower can't fire a servicer. That reduces the incentive for servicers to treat borrowers properly." He also believes the current servicing fee structure does not support needed investments in servicing technology, personnel or servicing processes. "Servicing revenues are mostly fixed," Date said. "Servicing a delinquent loan costs more — dramatically more — than servicing a performing loan. It takes one-on-one contact with borrowers, costly collection efforts, and specialized staff to compare the relative value of workouts or foreclosures." Date told the audience a review of 14 major mortgage servicing firms in the spring showed "weaknesses in servicers' foreclosure processes, were so severe that they had an adverse effect on the functioning of the mortgage markets." "Instead of investing in the necessary resources to properly service delinquent loans, many servicers cut corners, loosened operating protocols, and at times, violated the law," according to Date. Write to Kerri Panchuk.