Would Proposed Changes Ease Mortgage Restrictions?

A CFPB proposal that would consider mortgages “qualified” after three years of stability could give banks more money to lend. Opponents eyeing Great Recession problems object to the easing. NAR considers it a step in the right direction, but it suggests a roster of changes.

WASHINGTON – If lenders follow specific rules for a mortgage loan, it’s considered a qualified mortgage (QM) that Fannie Mae or Freddie Mac will buy. When that happens, the lender sells the loan to Fannie or Freddie and makes more loans with the money.

As a result, lenders tend to avoid non-qualified loans that they must keep on their books or sell privately.

However, the Consumer Financial Protection Bureau (CFPB) that oversees Fannie and Freddie proposed a rule that would extend the QM definition to loans that didn’t qualify as QM if the borrower stays current on the loan for at least three years.

Organizations in favor of the change say it will add money into the mortgage loan market. Those opposed to the change note the nation’s housing problems during the Great Recession and fear it could potentially make Fannie Mae and Freddie Mac accept more risky mortgages, which would put taxpayers at risk in another housing crisis.

The National Association of Realtors® (NAR) falls somewhere in the middle. In a six-page comment letter set to CFPB, NAR President Vince Malta says he “appreciates the CFPB’s efforts to clarify a market-wide rule,” but says a “higher cost to consumers, weakened safety and soundness of the market, and other underlying concerns will likely remain.”

The issue is complicated. Malta says CFPB’s proposal attempts to bring a “more wholistic approach rather than a limited, single debt-to-income (DTI) rule,” and that it’s a “notable improvement.” However, the association also suggests a long roster of tweaks to avoid potential future problems in the lending market.

Opponents of the rule change – including a group of 19 organizations that includes legal service firms – fear that lenders will start to make loans to buyers who cannot reasonably repay them, knowing that a borrower only has to successfully make payments for three years before the loans can be sold to Fannie Mae and Freddie Mac.

“This rule will mislabel a significant number of unaffordable, high-priced loans as affordable QM loans,” the group asserts.

A final decision on the rule has not been made. CFPB says it will consider all comments before making a final decision.

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