Big and small lenders alike will be affected by the new QM standards.
In an effort to insure that mortgage loans are only made to borrowers who will actually be able to repay them, the Consumer Finance Protection Bureau (CFPB) is redefining the term “qualified mortgage” (QM). Although lenders do technically have the option of making “unqualified” mortgages to borrowers who do not appear to have the wherewithal or inclination to repay those loans, if and when the loans go into default, the lender would be open to lawsuits from federal agencies, mortgage insurance companies, and even the borrowers themselves. As a result, lenders are unlikely to make loans that do not fit with QM guidelines[1]. Those guidelines will be much stricter than they have been in the past, and many homeowner and consumer advocate groups actually protested the redefinition of the term out of fear that changing the rules of lending could “effectively close off homeownership to millions of Americans and derail the real estate recovery”[2]. Ultimately, the CFPB decided that it was more important to get lending policies under control, however, and came up with a series of regulations that the bureau believes will help lenders identify borrowers and lending parameters that will work for everyone.
A QM now requires the following:
- That lenders must obtain and verify an applicant’s financial information, including employment status, income, debts, assets, and credit history;
- The potential borrower must have enough income and/or assets to repay the loans; and
- “Teaser rates” may no longer be used to hide the “true cost” of a mortgage.
While this all seems fairly straightforward, in reality the ruling and regulations are not done and not simple. Once the information is obtained and verified, myriad other factors must be addressed and the CFPB is not done crafting its new rules. American Bankers Association (ABA) president Frank Keating warned in response to the new QM guidelines that the CFPB will ultimately “transform our lending practices and could restrict access to credit.”
Sounds like more work but not onerous. Your thoughts?
