Six months ago, the Consumer Financial Protection Bureau (CFPB) began its implementation of the Ability to Repay/Qualified Mortgage (QM) rule under the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank). The short-term results were largely predictable with most lenders availing themselves of the safe harbor protections of the QM and only warily venturing outside the so-called “credit box” created by QM (i.e. the line of demarcation between what is and what is not QM). Two of these, the 3-percent cap on fees and points and the 43-percent debt-to-income (DTI) on loans that are not underwritten to FHA, GSE, or other government programs, are featured prominently in the modest limitations on access to credit.
The broad QM put out by CFPB was a significant victory for both industry and consumers in that, on its face, it does not contribute greatly to an already tight credit market. Some complain that it codifies a needlessly tight credit environment, and certain features, such as the 3-percent cap, are wreaking havoc particularly with low-dollar-amount loans, as well as under a number of affiliate scenarios. The discrimination against affiliates in particular was always of dubious benefit to consumers. This is becoming even clearer as information comes in. For example, one consumer was unable to save several hundred dollars a year in homeowner’s insurance premiums because the insurance provider was an affiliate of the lender and, therefore, the premium had to be counted under the cap.
In another scenario, for a modest FHA loan, the borrower could not use the highly regarded in-house title and closing services because the combination of those services put the transaction just over the cap. Perhaps, more exasperating for both the lender and the consumer was that because the charges were regulated by the state, the title company could not adjust the charges to bring them in under the cap.
In response to issues such as these, CFPB has said publicly that only the amounts retained by the affiliate should be counted toward the cap. This additional leeway was welcome by lenders and affiliates alike. However, in this litigious era and given the now extensive 20/20 hindsight on lending rules of the past, few are willing to except verbal guidance. For this reason, NAR is urging the CFPB to issue written guidance and make critical adjustments, especially with regard to the 3-percent cap calculation. NAR is also asking that CFPB look closely at the 43-percent DTI impact as well.
In addition to regulatory fixes, NAR and industry partners continue to press to enact H.R. 3211/S. 1577, the bipartisan “Mortgage Choice Act.” Congressman Huizenga (R-MI) has made great progress in the House of Representatives and Senator Manchin (D-WV) has been a stalwart with his bipartisan co-sponsors in promoting positive movement in the Senate. The progress on both fronts is encouraging, but it remains unclear whether the legislation will reach the President’s desk. The industry is hopeful. In the meantime, lenders—in particular, those with affiliates—continue to make adjustments to cope with discrimination in the fees and points test while they try to provide consumers with the options they demand and deserve.
Ken Trepeta is the director of Real Estate Services for the National Association of REALTORS®.
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