QM/Ability-to-Pay News – A Matter of Perspective

house-837758_640Last week brought important news relating to qualified mortgage (QM) and ability-to-pay issues. Some in the industry are undoubtedly excited, and others not so much. As with any news, it seems, it is all a matter of perspective.

Firstly, the CFPB announced September 21 that it has finalized a rule that will make it easier for some community banks to make qualified mortgages. The rule will take effect January 1, 2016, and will allow more lenders to be defined as “small” or “rural” creditors. As a result, this will allow these lenders more flexibility in making loans that will be granted QM status.

Under this new rule, lenders will be granted “small” status if they keep their first-lien mortgage loan rate under 2,000 rather than the current number of 500. Moreover, any area that is not specifically deemed “urban” will fall under the “rural” category. The CFPB did put various safeguards in place, however, so lenders will want to study the new rule in detail before assuming they will be granted “small” or “rural” status.

Secondly, on Tuesday, September 22, in the Federal Financial Institutions Examination Council’s annual report on the Home Mortgage Disclosure Act, it was noted that the CFPB’s ability-to-repay and QM rules (which took effect in January 2014) did not have a significant impact on mortgage lending. Specifically, the report noted, “The HDMA data provide little indication that the new ATR and QM rules significantly curtailed mortgage credit availability in 2014 relative to 2013.”

The report was hailed by many as great news. Stated Sasha Werblin, Economic Equity Director for the advocacy group Greenlining, “The pushback from the private sector was that this was going to completely limit any ability to lend, and we’re seeing that now, as they’re getting in line with understanding these new regulations and the new market, they’re maybe doing better than they expected.”

On the other hand, many had reservations – about the data, as well as the fear of jumping to conclusions too quickly. Even the report itself was cautionary, noting, “There are significant challenges in determining the extent to which the new rules have influenced the mortgage market, and the results here do not necessarily rule out significant effects or the possibility that effects may arise in the future.”

Bob Davis, Executive Vice-President of American Bankers Association, made it clear that not everyone is convinced of Ms. Werblin’s interpretation of the report. “Maybe someone’s trying to jump to the inference that, because there was not a big change, there must not have been an effect. . . . Our bankers disagree with that. They [the bankers] think that using the HMDA data to make that determination is a misguided effort. While Davis admitted the effect has not been drastic, he stressed that the current demand for loans remains higher than the number of lenders willing to lend. He suggests that something is causing this, and he says that bankers are telling him it is the QM restrictions.

Clearly, both of last week’s developments appear positive at first glance. The industry can only hope the news holds out to be positive for all in the long run. As always, time will tell.

Sources: 1) Clozel, Lalita – Sep. 21, 2015 – “CFPB Finalizes QM Rule Expanding Small Lender Exemptions – (www.nationalmortgagenews.com) and 2) Heltman, John – Sep. 22, 2015 – “Mortgage Rules Not Chilling Market as Feared, Data Shows” – (www.nationalmortgagenews.com)