01/11/2013 06:33:00 PM EST
CFPB Ability-to-Repy Rule Announcement: Nobody is Completely Satisfied with the Rule
by Ashley Hutto-Schultz
and Jeffrey E.
During yesterday's field hearing in Baltimore, the CFPB
announced its final Ability-to-Repay
(ATR) rule and hosted a panel discussion to discuss the new rule, which had
not been released at the time of the hearing. While the hearing's participants
were generally supportive of the CFPB efforts, representatives from both
consumer rights groups and financial institutions expressed some concerns about
the rule. Banking industry representatives and credit union officials each
suggested that the new regulations could limit their ability to make more home
loans. Consumer groups, on the other hand, argued that rules are not sufficient
to protect consumers. Dykema's Ashley Hutto-Schultz attended the hearing and
provided this report.
The hearing started with words of praise for the CFPB by
some of Maryland's elected officials (Senator Ben Cardin (D-MD), Rep. Elijah
Cummings, Rep. Dona Edwards (D-MD) and the Mayor of Baltimore, Stephanie
Rawlings-Blake) but they also pleaded with Director Cordray to take meaningful
action to monitor the effects of new rules and protect borrowers from practices
that threaten the soundness of the mortgage market.
Next, Director Cordray delivered his prepared
remarks announcing the new rule and identifying its two key goals; (i)
greater protection for consumers; and (ii) improved, reasonable access to
credit for borrowers. In achieving these goals, Director Cordray explained
that the ATR Rule features several protections for borrowers, including
criteria for a Qualified Mortgage loan [add link to qualified mortgage blog
from last night] and prohibitions against risky lending practices such as
no-doc and low-doc loans. As part of the Qualified Mortgage loan section
of the rule, Cordray described a provision that permits "borrowers to rebut the
presumption of ability to repay for subprime loans." Director Cordray
also announced that the CFPB will propose an adjustment to the ATR Rule that
creates a "special category of Qualified Mortgage loans made by smaller lenders
such as community banks and credit unions," in order to allow them to continue
lending on a more personal level in their communities.
Consumer panelists included Michael Calhoun, President,
Center for Responsible Lending; Alys Cohen, Staff Attorney, National Consumer
Law Center; Lisa Rice, Vice President, National Fair Housing Alliance.
The consumer panelists agreed that the ATR Rule is a step in the right
direction and showed support for the broadness of the Qualified Mortgage loan
criteria, which requires no down payments or credit scoring requirements.
However, the panelists voiced concern regarding sections of the ATR Rule that
they believe fall short in protecting borrowers. For example, Ms. Cohen
noted that the 43 percent debt-to-income ratio requirement for qualified loans
fails to protect borrowers from unaffordable loans if their monthly income is
$1,000 or less; instead, she advocated for a residual income analysis
requirement for low-income homeowners. She also warned that although the
rebuttable presumption allows an opportunity for homeowners to seek redress for
a Qualified Mortgage loan "that the lender should have known was, nevertheless,
unaffordable," the same protection will not be available to prime borrowers,
which creates a loophole that may allow institutions to take advantage of
borrowers. Ms. Rice also commented that offering such a safe harbor could
reinforce a dual mortgage market.
Industry Panelists included David Moskowitz, Deputy
General Counsel, Wells Fargo & Company; Karen Thomas, Senior Executive Vice
President of Government Relations and Public Policy, Independent Community
Bankers of America (ICBA); and Susan Wachter, Professor of Real Estate &
Finance, The Wharton School, University of Pennsylvania. Mr. Moskowitz
applauded the CFPB for codifying a "broad and clear Qualified Mortgage
definition" because it will "support robust originations in the primary
mortgage market" and enhance liquidity in the secondary mortgage market.
Giving voice to local community banks, Ms. Thomas stated that the "plethora of
regulatory changes . . . could further stymie the housing market and community
banks' ability to provide mortgage loans to their customers." She urged
the CFPB to tailor rules, as mentioned by Director Cordray, which reflect
distinctions between the business models of the community banks, who retain a
vested interest in the majority of the loans they make, and national banks, who
often sell theirs on the secondary market and do not retain such vested
The hearing ended with a question and answer session
involving preselected members of the audience. The questioners-both consumer
advocates and industry representatives--also expressed concerns about the new
Stay tuned to the CFPB-Lawblog for further analysis and
developments regarding this new rule and the CFPB activities.
Read more articles about the Consumer Financial Protection
Bureau at Dykema's CFPB Blog
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