The Mortgage Bankers Association issued a letter to the Consumer Finance Protection Bureau advising the agency of ways to improve the ability-to-repay standard among aspects being drafted in the qualified mortgage rule.
While the MBA commended the CFPB's work in developing a 'well-conceived' final qualified mortgage and ability-to-repay rule, the association urged more review. The trade group also wants the regulator to consider additional revisions on the rebuttable presumption standard. For the most part, the QM is a done deal, unless the CFPB is strongly persuaded otherwise.
The CFPB said it would like further guidance on an important protection that's currently drafted into the ability-to-repay rule for lenders who are facing litigation when a borrower defaults on a mortgage.
When the lender is out of the safe harbor QM standard, the MBA appreciates the fact that the rebuttable presumption grants lenders safety; a suing party has to prove a borrower did not have sufficient residual income to pay a mortgage.
Additionally, data complied by MBA members raised concerns about the calculation of the points and fees limits, particularly the inclusion of loan originator pay and affiliate fees. Furthermore, the concerns increase greatly the smaller the size of the loan, the association noted.
As a result, the MBA recommended that the limit be raised to $150,000 from the $100,000 in the Final Rules and that the points and fees limit should be adjusted accordingly to loans from $100,000 to $150,000.
"Absent an increase in the smaller loan size threshold, the rule is likely to harm consumers with low balance loans by either increasing their rates or depriving them of needed credit," said MBA CEO David Stevens.
The CFPB determined that charges to borrowers to pass through the government-sponsored enterprise-established loan-level price adjustments are included in the points and fees calculation.
The MBA suggested that the Bureau should first clarify what is considered to be a LLPA and then either exclude from points and fees or increase the number of eligible discount points that could be excluded in order to accommodate the price adjustments.
"Turning to LLPAs that are currently included, it is clear that treating these charges as points and fees will force many more loans to exceed the points and fees limit. In the current market, some of the GSE’s LLPAs would raise the loans costs or the rate significantly," Stevens noted.
Additionally, the MBA urged for clarification that if the LLPAs are paid through a lender-paid credit in return for a higher rate that these amounts are not included in points and fees.
QMs must satisfy many requirements such as the borrower’s debt-to-income rate must be no greater than 43%. QMs also must satisfy the GSEs’ or agency underwriting requirements as well as be eligible for purchase.
The QM puts into question what happens to jumbo loans — those more than $625,000 — since they generally are not eligible for purchase, insurance or guarantee by Fannie Mae or Freddie Mac, Federal Housing Administration, Rural Housing Service or Veterans Benefits Administration, according to the MBA.
Borrowers with jumbo loans typically make more money and can carry a much higher debt load. Moreover, these are not the borrowers who are the intended beneficiaries of the CFPB’s focus, the MBA stated.
Since the MBA members said that see "no compelling policy rational to distort the jumbo market and put it out of synch with the rest of the mortgage market," jumbo loans should be excluded from the ability to repay requirements pursuant to the CFPB’s exemption authority under TILA as they are under some state laws.
Additionally, jumbo loans should be eligible for QM if they meet the GSEs’ or agency underwriting guidelines regardless if they are eligible for purchase. Also, the APR-APOR (Average Prime Offered Rate) threshold for QM jumbo loans should be adjusted to reflect their pricing difference, the association noted.
Meanwhile, the MBA also stated that the streamlining of FHA underwriting standard guidelines are appropriate for determining liability for violations of QM.
"While MBA appreciates the establishment of bright line standards, the rules regrettably are dated and unduly burdensome, see, for example, the verification of employment section," Stevens said.
The MBA urged that these provisions are carefully reviewed and revised in consultation with industry to better reflect the necessary steps for sounder termination of DTI. The need for this is essential because the standards in Appendix Q were never proposed for comment nor indicated in the proposed rule, according to the MBA.
Building under QM
Another concern raised by the MBA was construction loans longer than 12 months. The exemption in QM for construction loans applies only to loans that are less than a year long, generally. Furthermore, a potential renewal for another year is allowed as long as the initial loan term is 12 months.
Given the fact that fees are not known at closing, "it is impossible to ascertain whether a construction loans satisfies the QM points and fees test."
"We would urge the bureau to permit renewals as long as construction is ongoing so that the QM standards including the exemption for points and fees are not applicable until they can be followed," Stevens said.