Dodd-Frank impact on loan availability remains a concern

The qualified mortgage rule’s full impact on home lending remains somewhat of a mystery, but lawmakers and industry professionals debated the rule’s potential influence on the home lending market during a House Subcommittee hearing Tuesday. 

Industry experts testified in front of the House Financial Services Subcommittee on Financial Institutions and Consumer Credit, sharing fears about certain borrowers being locked out of the lending system.

“We need to make sure we have a financial system that allows access to credit for low and moderate income households,” said Member Gregory Meeks.”The housing sector is vital to our economic recovery.”

Committee member Rep. Sean Duffy, R-Wis., said his main concern is how the ability-to-repay standards in addition to the QM rule will affect his constituents’ ability to get a mortgage.

Rep. Gary Miller, R-Calif., acknowledged QM’s role in protecting consumers from subprime loans and other products, but noted that it also could have the unintended effect of keeping creditworthy borrowers on the sidelines.

Rep. Robert Pittenger, R-N.C., stated that this new rule could end up undermining the housing recovery. He said the CFPB’s QM rule has caused great concerns to both banks and credit unions, who fear regulators will view any loan outside of QM standards as too risky. 

Once each committee member had a chance to testify, the spotlight shifted to the table of witnesses. 

Charles Vice, commissioner of the Kentucky Department of Financial Institutions, said state regulators have found that regulations and supervision needs to be more tailored to how community banks lend.

Vice, who has been in the finance industry for more than 20 years, said it’s crucial that community banks be allowed to positively impact the national and local economy. 

James C. Gardill, chairman of the board at WesBanco, is concerned that many creditworthy families will be denied access to credit as banks become afraid to make any loans outside of QM standards. 

This means that less affluent communities won’t be given what they need to thrive, he said. The end result of the CFPB’s rule will be less available credit to some individuals and communities. 

Some institutions may stop all mortgage lending for some time because the risk is too great if regulations are not complied with properly, said Gardill.

Mortgage Bankers Association Chairman Debra Still said lenders are now fully focused on understanding and implementing the new rule by its effective date. 

“The QM rule is so vital, it is imperative that it be aligned with other federal regulations. Lenders are seeking clear guidance on reconciling QM with other compliance obligations,” she explained.

Of all of the Dodd-Frank rules, QM will have the single most significant impact on consumer access to credit and a vibrant, competitive marketplace,” said Still, who noted that the QM rule will take effect at a time when credit is already tight. 

Still believes that the rule could cause unintentional harm in its current form, making lenders more cautious than they are today. Still said the rule should be revised to raise the small loan limit to $200,000 and the points and fees cap should be increased to 4%. 

“We all share the same goal – to strike the right balance between consumer protection and access to credit. If not appropriately modified, this well-intended rule may fail consumers in the most fundamental way,” said Still.

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