CFPB Rules Place Drag on Mortgage Lending Nationwide

Recent regulation enacted by the Consumer Financial Protection Bureau (CFPB) has reduced approval rates on applications for some types of loans and mortgages, according to the Federal Reserve Board’s latest opinion survey on bank lending practices. 

While a small fraction of large banks indicated in the survey that the Ability-to-Repay and Qualified Mortgage Standards under the Truth in Lending Act (the ATR/QM rule) have affected their approval rates for prime conforming mortgages, a more substantial share of the other respondents reported that the rules were lowering their approval rates on such loans. 

“About half of the respondents indicated that the ATR/QM rule has reduced approval rates on applications for prime jumbo home-purchase loans and nontraditional mortgages,” The July 2014 Senior Loan Officer Opinion Survey on Bank Lending Practices says. “In addition, among the banks reporting that the rules had no effect on their approval rates, about half indicated that lending policies would have been tighter without the safe harbor for mortgages that pass the GSEs’ automated underwriting models.”

The findings are based on the responses from 75 domestic banks and 23 U.S. branches and agencies of foreign banks. The survey, released once each quarter, included a set of special questions on the effects on approval rates for home-purchase loans of the ATR/QM rule. The rule went into effect Jan. 10 of this year. 

Among the lenders indicating lower approval rates for such loans, most reported that ability-to-repay provisions, which require mortgage originators to evaluate income and to assess credit history, assets, and debt payments; and the QM provision that caps the borrower’s back-end debt-to-income ratio at 43% contributed to the low rating.

More than half of the 36 respondents that originate nontraditional mortgages also indicated lower approval rates on nontraditional home-purchase loans due to the ATR/QM rule.

Lenders have pushed back against the new rules under the CFPB, urging revisions that will offer fewer restrictions. In July, the Independent Community Bankers of America (ICBA) issued a letter saying the CFPB should revise the ATR/QM rule to allow community bank loans held in portfolio for the life of the loan to receive automatic QM safe harbor status, and an exemption from the escrow requirements if the loans are higher priced.

Under QM and escrow rules’ current requirements, some community banks that would be considered small financial institutions due to their asset size still do not qualify for the small creditor exemption because they exceed the loan volume threshold, ICBA says in the letter.

In addition, in another survey, CFPB’s QM rule commanded the greatest share of lenders’ compliance qualms, with 62.2% of the more than 500 lenders polled saying this is a high concern, according to QuestSoft’s eighth annual compliance survey released in May.

Other Bureau rulings, including Ability-to-Repay violations and the combined Truth in Lending and Good Faith Estimate disclosure forms also ranked as high concerns, with 57.2% and 54.8% of lenders. 

Written by Cassandra Dowell



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