House Expands QM Mortgage Definition, Industry Praises Change

Mortgage industry groups are praising a bill approved this week by the U.S. House of Representatives that would clarify certain aspects of the Qualified Mortgage rule, providing a limited “cure” provision that intends to help banks ensure compliance and manage liability more effectively.

Bill H.R. 3211—or The Mortgage Choice Act—was proposed last month by the Consumer Financial Protection Bureau (CFPB) as an amendment to the ability-to-repay rule for the points and fees limit that apply to qualified mortgages.

A key provision outlined in the proposal would allow a lender to review a loan 120 days post-closing to ensure it does not surpass a 3% cap on points and fees.

Mortgage industry members have praised the proposed rule, including the American Bankers Association (ABA), which is also urging the CFPB to extend the time during which banks can “cure” erroneous loans that exceed the 3% cap from 120 days to 180 days.

The 120 days would be “too tight” a timeframe for banks, especially small community lenders, to review consummated mortgages without “dramatically” increasing their compliance costs, ABA wrote in a letter addressed to CFPB’s Office of the Executive Secretary Monica Jackson dated June 5.

“ABA believes the proposed cure provision would significantly improve the ATR regulations by providing banks the ability to assure compliance, control liability, and therefore offer more loans at lower cost to consumers,” wrote ABA’s Robert Davis, executive vice president of mortgage markets, financial management and public policy.

In its letter, ABA is also urging the CFPB to eliminate the “good-faith” requirement, calling it “duplicative” of protections already contained in the law and suggesting it injects a subjective element that would negate the proposed “cure.”

The good faith requirement derives from language in the CFPB’s original ability-to-repay rule for QMs that states a creditor make a “reasonable and good faith determination” that the borrower has a “reasonable ability to repay the loan.”

“Adding a good faith requirement into a cure for a regulatory defect is inconsistent with the QM’s more objective standards and may cause many lenders to remain cautious in their points and fees determinations to avoid the very types of risks they sought to avoid when they opted to originate a QM,” wrote Davis.

The Mortgage Bankers Association (MBA) also applauded the House’s actions Monday night, commending lawmakers for approving the bipartisan legislation that would increase access to mortgage credit for qualified consumers.

“Proper implementation of the ability to repay and QM requirements is crucial to allowing credit-worthy consumers to purchase or refinance a home at affordable rates,” MBA President and CEO David Stevens stated. “MBA looks forward to continuing to work closely with lawmakers as the bill moves to the Senate for consideration.”

While the bill awaits consideration from the U.S. Senate, the CFPB is seeking comment on how to provide an opportunity to correct consummated loans that were originated as QMs, but ended up exceeding the 43% debt-to-income ratio limit.

ABA also intends to solicit comment on this matter by July 9.

The QM rule applies to forward loans and does not encompass reverse mortgages.

Written by Jason Oliva

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