On January 14, 2014, the House Subcommittee on Financial Services held a hearing entitled “How Prospective and Current Homeowners Will Be Harmed by the CFPB’s Qualified Mortgage Rule.” Four lender representatives and one consumer law non-profit testified about the necessity to consider changes to the QM rule.
Rep. Shelley Moore Capita (R-WV) and her fellow Republicans said that the QM rule may eliminate non-QM loans, which would impair the ability of lenders to work with borrowers on an individual basis. Rep. Capita warned that “low to moderate income borrowers stand to lose the most if lenders cannot write loans outside of the QM definition.”
Democratic lawmakers expressed confidence that the QM rule is needed to protect borrowers against predatory lender practices. They characterized the rule as simply capping the DTI ratio at 43% and eliminating risky features that may hurt consumers and should be discouraged such as interest only payments, balloon payments, and negative amortization. Notably, the representatives did not express any concern about how QM would adversely impact the availability of mortgage credit to consumers. Rep. Carolyn Maloney (D-NY) did note that she was pleased that a 2 year grace period was granted to small lenders and that the CFPB was open to making changes to the rule based on future data.
Bill Emerson, CEO of Quicken Loans, testified on behalf of the Mortgage Bankers Association that the 3% cap on fees and points will have a significant impact on smaller loans. Mr. Emerson explained that because many origination fees are fixed, the cap will cause loans between $100,000 and $150,000 to trip the threshold and fall outside the QM definition. He noted that because Quicken Loans and many other lenders will not be lending outside the boundaries of QM, low income borrowers and first-time homebuyers will be priced out of the market.
Moreover, Mr. Emerson stated that the inclusion of affiliate fees in points and fees has no benefit to borrowers and places affiliated entities at a competitive disadvantage. “The final rule picks winners and losers between affiliated and unaffiliated settlement service providers, even though their fees are subject to identical regulation. At Quicken Loans, we have chosen to affiliate with title and other service providers to ensure our customers have the best loan experience and that there are no surprises at the closing table.”
Mr. Emerson argued that the CFPB needs to address the legal liability associated with non-QM loans and provide lenders with the ability to cure mistakes for unintended non-QM loans. Under the regulations, lenders will act cautiously because the liability for originating non-QM is high. Due to the liability provisions and lack of statutory limitations on foreclosure claims, Mr. Emerson said that “by the MBA’s calculations, protracted litigation for an average loan can exceed the cost of the loan itself.”
Mr. Frank Spencer, President and CEO of Habitat for Humanity of Charlotte, said that several of the new regulations, particularly the ability-to-repay standards, have the unintended consequence of threatening the continuing work of many Habitat affiliates. He noted that the new regulations fail to take into account the history of success of the Habitat model and the services it provides for non-traditional borrowers. Moreover, Mr. Spencer stated that the human and financial investment to come into compliance with the new rules is significant. According to Mr. Spencer, the cost of compliance for his organization on only the origination side has been over 1,000 hours and $70,000. He noted that is the cost of one house they could not build.
A recording of the event is available here.