The Qualified Residential Mortgage (QRM) provision in the Dodd-Frank bill is unquestionably the most controversial aspect of the legislation’s housing-related rulings, and since the start of 2012, eyes have been fixed on the fledgling Consumer Financial Protection Bureau (CFPB), the agency charged with defining the standards and parameters of a qualified mortgage.
If recent comments by CFPB Director Richard Cordray are any indicator, though, we may be waiting a little bit long for such definitions.
As reported by HousingWire, Cordray said in testimony before Congress yesterday that his agency will spend the first half of this year finalizing its approach to qualified mortgages, using much of the time to weed through the “hundreds, if not thousands,” of comments the agency has received on the QRM rule.
“I don’t have an outcome for you today. It is something that is very much on our minds,” Cordray said. “But we need to move it along.”
Though originally under the guidance of the Federal Reserve, qualified mortgage oversight transferred to the CFPB at the start of the year.
In its present form, the QRM rule would require 20 percent down payments on private loans. FHA and Fannie Mae/Freddie Mac loans would be exempt from the requirement (as long as the GSEs remained under receivership), but any other loan that did not meet the 20 percent requirement would be deemed a riskier loan, and originators would be forced to retain 5 percent in capital on the loan.
Cordray said the rule’s emphasis on the borrower’s ability to cover the cost of the loan seems self-explanatory, if not obvious.
“You wouldn’t think that you would really need a rule that a lender would have to pay attention to whether or not a borrower could repay a loan,” Cordray said.
As HousingWire points out, two other aspects of QRM involve further details of the loans. In the first, loans without negative amortization, balloon payments, interest-only payments or terms exceeding 30 years would be in compliance to the Dodd-Frank rules, as long as banks stayed within the guidelins. The second, the “rebuttable presumption of compliance” clause, presumes the lender compliant if it follows the guidelines of version one and checks on the borrowers credit and financial standing. Some lenders fear that under the second aspect, foreclosure attorneys can file lawsuits against them for not issuing compliant, qualified loans in the event of a foreclosure.