Rep. Patrick McHenry, R-N.C., was surprised to hear that the director of the Consumer Financial Protection Bureau would be advising credit unions to make non-QM loans.
The qualified mortgage rule issued by the CFPB created a safe harbor from litigation for lenders that adhere to the QM rule and the ability-to-repay underwriting standards, the congressman says in a letter to CFPB director Richard Cordray.
“Yet you publicly encouraged lenders to make mortgages that fall outside the four corners of the QM rule,” McHenry says in the March 4 letter.
“Mr. Cordray, your statements are at best another mixed message from the CFPB. At worst, your comments display a complete disregard for the reality of the expensive legal consequences to financial institutions for violating the QM rule.”
A CFPB spokesperson declined to comment on the McHenry letter.
The consumer bureau contends that QM loans provide borrowers with the most protection from excessive fees and toxic features such as negative motorization. And lenders that make QM loans deserve the most legal protection.
However, lenders can still make non-QM loans that meet the ability-to-repay rules.
The QM rule, which goes into effect next January, also provides QM protections to Fannie Mae, Freddie Mac and FHA loans that are approved via the agencies’ automated underwriting systems.
In his remarks to the credit unions, Corday encouraged CUs to continue to make mortgages to borrowers after concluding they are a reasonable credit risk. “Those that lend responsibility—like credit unions—have no reason to fear the ability-to-repay rule.”
But the chairman of the House Financial Services Subcommittee on Oversight and Investigations doesn’t see it that way.
“If you truly desire that creditors venture outside the walls of the QM rule, I strongly recommend the CFPB work to remove the repercussions of legal action, rather than simply urge lenders to try their luck,” McHenry said.