ATLANTIC CITY, NJ—The qualified mortgage definition, which should come out next month from the Consumer Financial Protection Board, needs to be carefully crafted, otherwise it will affect credit availability and affordability, said the regulatory counsel for the Mortgage Bankers Association.
Speaking at the Regional Conference of Mortgage Bankers Associations in Atlantic City, Ken Markison explained there are four ways to comply with the ability-to-repay standard that is part of the Dodd-Frank law, including QM. But nearly all mortgages made once the QM rule goes into effect, will comply with that standard, except for some niche products, he said.
Markison's comments were in line with remarks made earlier in the show by Tim Dale, mortgage lending manager of Winston-Salem, N.C.-based BB&T, who said the future size of the mortgage market will be determined by the QM definition. (See related story, page 3) Dale added that the QM rule is more important to the industry than the definition of qualified residential mortgage in the short term.
Markison added that without what the industry perceives to be a workable QM definition, originators would turn to the Federal Housing Administration program, putting further pressure on the government guarantor.
The writers of the QM definition should look to the Home Owners Equity Protection Act as an example of what could happen. There are virtually no loans that are written outside of the thresholds created by HOEPA, he pointed out.
This history should guide regulators in writing the QM rule, Markison continued.
Tim Dale said if regulators do not come out with a clear definition of a consumer's ability to repay, plus what will make up a rebuttable presumption to that, there will be very few non-QM loans made. As a result, lenders will be subject to such draconian foreclosure defenses for non-QM loans.
So depending on how the definition is worded, it will impact how much home lending will be done because it addresses access to credit, Dale said. If it is not done right, mortgage credit opportunities for low- and moderate-income families will be limited, he continued.
The mortgage industry can live with a rebuttable presumption rather than a safe harbor test, if regulators word it correctly. There are ways to create a rebuttable presumption that will allow the consumer groups to be comfortable that it protects borrowers while at the same time allowing the mortgage industry to make loans, Dale said.
Markison spoke about a proposal a group of large lenders made to CFPB which would establish a waterfall of standards to meet QM. It includes imposing a 43% total debt to income ratio line. If the borrower is above that, certain other tests apply.
