Richard Cordray, director of the Consumer Financial Protection Bureau, testifies during a Senate Banking Committee hearing in Washington, D.C., U.S., on Wednesday, June 6, 2012. JPMorgan Chase & Co.s trading loss of more than $2 billion shows that no institution is immune from bad judgment, U.S. Senate Banking Committee Chairman Tim Johnson said. Photographer: Joshua Roberts/Bloomberg *** Local Caption *** Richard Cordray
Joshua Roberts/Bloomberg
An interagency memo has advised lenders that offering only qualified mortgages will not create fair lending concerns. The memorandum jointly issued by multiple agencies, including the Federal Deposit Insurance Corp. and Consumer Financial Protection Bureau, confirms that lenders who choose to offer only qualified mortgages due to an inability to sell non-QM loans on the secondary market and an unwillingness to hold such loans will not be considered a violation of fair lending laws.
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The memorandum states “[t]he decisions creditors will make about their product offerings in response to the Ability-to-Repay Rule are similar to the decisions that creditors have made in the past with regard to other significant regulatory changes affecting particular types of loans. Some creditors, for example, decided not to offer 'higher-priced mortgage loans' after July 2008, following the adoption of various rules regulating these loans or previously decided not to offer loans subject to the Home Ownership and Equity Protection Act after regulations to implement that statute were first adopted in 1995. We are unaware of any [Equal Credit Opportunity Act] or Regulation B challenges to those decisions.”
As important as this announcement is directly, it supports other bright lines many lenders have been interesting in adopting in terms of loan size and loan programs. If, for instance, a lender is free to adopt a policy prohibiting high-cost loans, why could it not decide to cease offering bond loans or a minimum dollar amount for loans? Of course, before adopting any such policy a lender needs to assess whether it has a legitimate business reason. Clearly, the inability to offer such loans at a profit as a result of loan officer compensation laws would justify a banks’ decision not to offer such products. Of course, before making such decisions banks should consult with legal counsel.
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The threshold regards loans where the annual percentage rate is at least 1.5 percentage points higher than the average prime offer rate on first liens.
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