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FEB 27, 2013 12:16pm ET

CFPB Wants to Expand QM Safe Harbor for Small Portfolio Lenders

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Mortgage lending standards are very tight today and the newly finalized qualified mortgage rule is not designed to make it tighter, according to Consumer Financial Protection Bureau director Richard Cordray.

Speaking at a credit union conference, Cordray stressed that that criteria for QM loans requires lenders to assess the ability of borrowers to repay the loans. And the “criteria for qualified mortgages are intended to describe only the least-risky loans that can be offered to consumers,” he said.

There are plenty of responsible non-QM loans that CUs and other lenders can originate “outside the qualified mortgage space,” the CFPB director said. “And we encourage you to continue to offer mortgages to those borrowers you can evaluate as posing reasonable credit risk. Those that lend responsibly—like credit unions—have no reason to fear the ability-to-repay rule.”

The QM rule goes into effect next January.

Cordray also told Credit Union National Association members that CFPB is considering a proposal that would expand the QM criteria for small CUs and banks that portfolio the QM loans.

Loans that exceed the 43% debt-to-income ratio would be treated as QMs, as “long as the loans meet the product feature and other requirements for qualified mortgages,” Cordray said.

In addition, small-lender QM loans would have a safe harbor from ability-to-repay liability if the interest rate is within 3.5 percentage points of the average prime offer rate. (The APOR limit for safe harbor QM loans is 1.5 percentage points in the final rule.)

The proposed exemption would cover institutions that hold less than $2 billion in assets and, with affiliates, extend 500 or fewer first-lien mortgage loans a year. The comment period on that small creditor proposal expired Feb. 25.

Meanwhile, a lot of lenders are “leaving good money on the table” by not rejecting low-risk applicants,” he told the CUNA meeting Wednesday morning. “This actually creates a window of opportunity for credit unions that helped ‘write the book,’ so to speak, on what it means to underwrite responsibly.”

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