CFPB Director Affirms Mortgage Rule Effective Dates, Acknowledges Potential Secondary Market Impacts


On Wednesday, CFPB Director Richard Cordray delivered remarks at an Exchequer Club luncheon in Washington, DC. During a brief question and answer segment, Mr. Cordray confirmed that the Bureau does not intend to delay the effective date of the mortgage rules and fully expects institutions to be in compliance when the rules take effect in January 2014. Financial institutions and their trade associations have expressed concern about implementing certain aspects of the myriad rules in the short time allowed by the CFPB and the potential impact on credit markets. Most recently industry representatives highlighted specific challenges at a House Financial Services Committee hearing that focused on the potential effects of the ability-to-repay/qualified mortgage (ATR/QM) rule.

Mr. Cordray generally downplayed the potential market impact and cost of compliance with the CFPB’s mortgage rules, with a particular focus on the ATR/QM rule.  Mr. Cordray explained the CFPB expects that the spread between QM and non-QM loans, if passed to the consumer, should be only 10 basis points, and that, as a result, concerns over the significant cost of compliance with the ATR/QM rule’s requirements are overblown. Some market participants believe this estimate may be overly optimistic and not in line with the factors they are considering in making pricing decisions on non-QM loans. These observers believe that the underlying CFPB economic analysis for the estimate includes a series of critical assumptions based on limited data, such as the probability that a borrower will allege a rule violation and estimated repurchase and litigation costs.

Mr. Cordray reiterated the agency’s promise to provide further guidance on the interplay of fair lending compliance and QM lending although, given his expectations that QM and non-QM loans will not vary significantly from a pricing perspective, he expressed the view that the issue is not a major concern.  He also downplayed concerns that changes to FHA premium requirements will cause more QM loans to exceed the APR threshold required for QM safe harbor status, an issue recently addressed by FHA Commissioner Galante.

In response to an observation from BuckleySandler Partner Jerry Buckley that the assignee liability provisions of the ATR/QM rule may act as an impediment to private capital re-entering the secondary market — an issue that could become more critical since the Federal Reserve Board has signaled it may soon begin to taper its quantitative easing activities, which have buoyed secondary market liquidity — Mr. Cordray acknowledged that the provision could possibly serve as a brake on secondary market liquidity. He also noted the CFPB’s ongoing work with the FHFA to develop a national mortgage database, which is intended to allow the agencies to monitor, among other things, the health of the secondary market.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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