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January 15th, 2013

Industry groups praise Qualified Mortgage definition

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Real Estate Market-MoneyThe Consumer Financial Protection Bureau (CFPB) has released the Ability-to-Repay rule of its new Qualified Mortgage (QM) definition, and so far, the industry has given the definition mostly praise. The definition is intended to curb reckless mortgage lending by giving lenders a legal safe harbor if they originate loans that meet the definition.

Industry reaction has been positive

The Mortgage Bankers Association (MBA), National Association of Home Builders and National Association of Realtors (NAR), three trade groups that represent real estate finance, construction and brokerage companies, respectively, all issued statements in which they applauded and commended the CFPB and the Ability-to-Repay section of the QM definition.

“It is essential that [the QM definition] strikes the proper balance that encourages lenders to provide creditworthy borrowers access to affordable home loans, and also gives assurances to financial institutions that they will be protected from lawsuits if they meet the criteria set forth in the rules,” said Barry Rutenberg, chairman of the NAHB, in a statement.

Skeptics might wonder at their enthusiasm for a rule that’s supposed to restrict loan products. But the key issue is the safe harbor, which offers lenders broad protection from lawsuits if they originate loans that qualify as QMs. Whether that will play out as a win-win for lenders and borrowers or a win-lose with lenders scoring the win and borrowers left with the loss remains to be seen.

The industry groups also expressed some concerns

MBA Chairman Debra W. Still said in a statement that the safe harbor approach should allow lenders to offer qualified borrowers sustainable mortgages without the risk of unreasonable or overly punitive litigation and penalties. But she was less enthusiastic about the cap on points and fees and an interest rate threshold required to trigger the safe harbor.

“These pricing-related restrictions need to be carefully examined to ensure that they do not unnecessarily restrict consumer access to ‘qualified mortgages,’ including smaller balance loans, as well as jumbo loans,” Still said.

Still awaiting ‘QRM’ definition

The NAR pointed out that federal regulators also still need to issue another definition that’s intertwined with the QM, that is, the Qualified Residential Mortgage (QRM), which will exempt lenders from a requirement that they retain a piece of non-QRM mortgages they originate and securitize.

The NAR wants the QRM to mirror the QM, resulting in one rule for lenders rather than two as a practical matter. Whether that wish will be granted is also an open issue.

The QM rule kicks in Jan. 10, 2014, though lenders aren’t required to wait until then to originate mortgages that fit the definition.

After the rule takes effect, lenders will still be allowed to originate loans that aren’t QMs. Whether they’ll be willing to forgo the safe harbor to do so, and if so, at what cost to borrowers, are more yet-to-be-answered questions.

Borrowers should stay tuned.

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About the HSH Blog

HSH.com's daily blog focuses on the latest developments in the mortgage and housing markets. Our mission is to relate how changes in mortgage rates and housing policy, as well as the latest financial news, impacts consumers, homebuyers and industry insiders alike. Our 30-plus years of experience in the mortgage industry gives us an edge as we break down the latest changes in an ever-changing market.

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Tim Manni

Tim Manni is the Managing Editor of HSH.com and the author of their daily blog, which concentrates on the latest developments in the mortgage and housing markets.

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