Magazine article Mortgage Banking

QM Letter to Cordray Signed by 33 Groups

Magazine article Mortgage Banking

QM Letter to Cordray Signed by 33 Groups

Article excerpt

0n April 12, 33 different housing, securities, banking and community groups signed on to a letter urging that a broad definition of a Qualified Mortgage (QM) be adopted in a regulation to be finalized by the Consumer Financial Protection Bureau (CFPB).

In the letter addressed to Richard Cordray, director of the CFPB, the groups admitted they come from different perspectives and share different views, but they added, "[W]e stand united in urging the Bureau of Consumer Financial Protection (CFPB) to construct a broadly defined QM using clear standards."

The broad coalition of groups believe that if the CFPB fails to get the QM definition right, then already tight credit standards will get even tighter, choking off recovery at a bad time for the housing market.

"Our organizations believe that an unnecessarily narrow definition of QM that covers only a modest proportion of loan products and underwriting standards and serves only a small proportion of borrowers would undermine prospects for a housing recovery and threaten the redevelopment of a sound mortgage market," the groups said in their letter.

The QM definition is a key rule-making project triggered by the Dodd-Frank Wall Street Reform and Consumer Protection Act. The provision requires that lenders take certain steps to evaluate whether a borrower has the ability to repay a particular loan product before they originate the loan, and if they don't, they can he exposed to legal liability.

An earlier proposed version of the QM rule offered two potential versions of the liability protection for lenders when they originate a loan. Those two options were either a safe-harbor provision or a rebuttable presumption.

Under Dodd-Frank, the QM definition was intended to provide the parameters of a loan product that was on its face a presumed safe loan product. The thinking was if you originate the QM loan product, then it could be presumed you would avoid liability for unsafe lending.


But now it is up to the CFPB to decide what exactly constitutes a QM. The industry groups have solidly lined up to urge that the definition not be overly narrow in the interest of preserving a recovering housing market.

The letter states, "A narrowly defined QM would put many of today's loans and borrowers into the non-QM market, which means that lenders and investors will face a high risk of an ability-to-pay violation and even a steering violation. …

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