U.S. Consumer Financial Protection Bureau in Process of Restructuring Regulation of the Residential Mortgage Market: Qualified Mortgage Rule Emerges as Critical Issue

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Under the Dodd-Frank Act, the Consumer Financial Protection Bureau (CFPB) has broad responsibility to regulate the residential mortgage finance industry. The CFPB has recently taken several actions in this area, such as issuing a proposed rule to adopt a new loan estimate form and a new closing disclosure form and announcing that it will issue proposals on mortgage loan originator compensation and on mortgage servicing requirements. However, what may be most important is its current rulemaking to define a “qualified mortgage” (QM) under the Dodd-Frank Act.

Title XIV of the Dodd-Frank Act addresses problems in the U.S. housing mortgage system. A key element of the reforms is an amendment to the Truth in Lending Act (TILA) to ensure that lenders generally do not make residential mortgage loans unless they make a reasonable and good faith determination that the borrower has the ability to repay the loan at the time the loan is made. Lenders can satisfy this requirement by making a QM loan or by making a non-QM loan that satisfies several other underwriting requirements.

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