The Consumer Financial Protection Bureau's authority to finalize an "ability to repay" standard for lenders is being questioned, a situation that likely will slow efforts by other regulators working on a rule that exempts certain high qualify mortgages from risk retention.
Both rules are mandated under the Dodd-Frank Act which also created
the CFPB. But the new bureau does not have a permanent director who has been confirmed by the Senate and its authority to issue a final "qualified mortgage" rule that incorporates the "ability to repay standard" has become an issue, according to Keefe, Bruyette & Woods senior vice president Brian Gardner.
"There are differences of opinion about whether the CFPB can finish the QM rule given they don't have a permanent director," Gardner said late last week.
Republican senators voted Thursday to block the confirmation of former Ohio attorney General Richard Cordray to be the first CFPB director.
Separately, six other regulators are working on a "qualified residential mortgage" rule that exempts high qualify mortgages from risk retention.
The regulators' first draft of the QRM rule ran into fierce opposition because it required 20% downpayments to escape risk retention. The proposed QRM proposal was blasted by the one of the legislative authors of the original QRM provision -- Sen. Johnny Isakson, R-Ga.
"I think they are going back to the drawing board," Gardner said.
However, the QM and QRM rules are related. And the QM rule sets certain boundaries for the QRM rule.
If the CFPB can't complete the QM rule "then it really complicates matters for the other regulators that are tasked" with drafting the QRM, Gardner said.
Meanwhile, Sen. Isakson has introduced a GSE reform bill that provides an "easy, simple road map" for implementing the QRM rule. Mortgages with minimum downpayments of 5% would be exempt from risk retention under the senator's bill.
QRM exemption should allow a "broad population of prudent and sustainable mortgages" to be securitized without imposing a 5% retention requirement on the MBS issuer, according to a summary of the bill that was introduced on Thursday.
