When the Consumer Financial Protection Bureau finalizes its qualified mortgage rule later this year the regulation will apply to all mortgage bankers and all loans—whether they are backed by the government or not.
Recent reports that the bureau is moving toward crafting a QM rule that provides a legal “safe harbor” for prime loans with a maximum debt-to-income ratio of up to 43% has raised questions on how it will impact GSE and FHA lending programs. Both programs allow for slightly higher DTIs.
The Center for Responsible Lending and American Bankers Association are on record supporting higher DTIs on QM loans. “We think you can have safe lending in that space,” said CRL president Michael Calhoun, provided the interest rate and fees are reasonable.
Loans with an interest rate 150 basis points above the prime rate would be considered “subprime” by CFPB and afforded less legal protection under a “rebuttable presumption” standard. That would encourage litigation when a subprime borrower defaults, one attorney said.
If CFPB is going to give a safe harbor for prime loans, “they should extend it to ‘rate and term’ refinancings since those people have already shown an ability to make their payments,” according to Anne Canfield, executive director of the Consumer Mortgage Coalition, whose clients include large banks.
Canfield noted that VA lenders use a residual income test in qualifying borrowers for Department of Veterans Affairs guaranteed loans.
In general VA loans have performed well during the housing crisis. “I would also recommend that they include loans that meet the VA residual income test,” Canfield said.
Such a move would help first-time homebuyers and other borrowers seeking low-downpayment FHA and VA loans. “They should get the benefit of a well-defined safe harbor,” she added.
