Regulator postpones qualified mortgage rule

The Consumer Financial Protection Bureau (CFPR) is delaying publication of its final “qualified mortgage” (QM) rule. The QM, once released, will establish standards so that lenders don’t give money to borrowers who do not have the ability to repay the money.

The QM rule was originally expected this summer, but the agency is reopening the process for comment because it wants the public to look at new data that’s pertinent to the proposed “ability to repay” standards.

The new comment period “gives the public an opportunity to comment on the information we have received,” says CFPB Director Richard Cordray. “The new data concerns the performance of Fannie Mae and Freddie Mac loans from 1997 to 2011, as well as other securitized mortgage loans.

As a result of the reopened comment period, publication of the final rule could be set back, possibly until after the national elections later this year. By law, the agency is to release a final rule by Jan. 21, 2013.

According to the National Association of Realtors® (NAR), the “ability to repay” standards in the proposed rule are written so narrowly that they could make it difficult for even creditworthy borrowers to get a mortgage. NAR prefers broader QM standards that don’t slow loans to creditworthy households while still meeting Congress’ intent to make sure borrowers have the ability to repay.

NAR and other groups also had concerns over whether the rule would include a “safe harbor” or “rebuttable presumption” legal standard. Under a safe harbor requirement, a borrower would have to prove that his loan didn’t meet the “ability to repay” standard and offer lenders some protection. The rebuttable presumption option is a less clear-cut standard for lenders to seek dismissal of a case.

When it takes effect, the QM will apply to all loans.

A separate companion rule – the qualified residential mortgage (QRM) – is currently being created by six other federal banking regulators, including the Federal Reserve and U.S. Treasury Department. The QRM, however, applies to only those mortgages securitized for sale to investors. If a loan meets the QRM standard once it’s published, they’re considered “safe” and can be sold to investors. If loans don’t meet QRM standards, lenders will have to keep at least 5 percent of the amount on their books.

Because QM applies to all loans, regulators have to ensure their QRM rule is consistent with the QM rule before they move forward.

Source: Robert Freedman, Realtor® Magazine & Florida Realtors®