Lenders are unlikely to originate home loans outside of the upcoming Qualified Mortgage universe for up to three years, Consumer Financial Protection Bureau Director Richard Cordray told a House subcommittee Tuesday.
"It's hard to know what will happen in the long run in the mortgage market. In the next couple, maybe three years, there is unlikely to be a lot of lending done outside of QM," Cordray said. "It's important to be more inclusive."
The CFPB extended the comment period on the QM proposal in May to determine what rules lenders will have to follow in order to determine a borrower's ability to repay the mortgage.
A variety of different thresholds will be drawn. The bureau is considering an alternative to some, such as the 43% debt-to-income limit. Should a borrower's total debt payments along with those on the mortgage are more than 43% of monthly income, lenders may be able to consider other factors in order to fit the loan under the QM umbrella.
The bureau is also considering other changes, including providing a safe harbor for lenders who meet the guidelines. A rebuttable presumption clause, also under consideration, would give borrowers the ability to submit future evidence in court to show a lender knowingly wrote an unaffordable mortgage.
Lenders tightened standards on the mortgages written post-crisis. The median credit score on new prime mortgages increased from 720 in 2007 to nearly 770 today, said Mark Calabria, director of financial regulation studies at the Cato Institute, in his testimony.
"By my estimate about a fifth of the mortgage market has disappeared, holding back housing demand," Calabria told the House subcommittee.
Cordray said in his written testimony Tuesday that the bureau still wants to ensure borrowers are not sold mortgages they cannot afford. The CFPB will craft the QM rule in such a way that works throughout the credit cycle – even the current fragile and risk-averse moment.
"If the QM is drawn too narrowly that could upset the mortgage market," Cordray said. "That could be a notable example of a rule itself restricting access to credit."