New mortgage lending rules to protect consumers from risky loan products will take effect this Friday, and real estate agents will be on the front lines as homebuyers access safer mortgages that meet strong underwriting standards, said Consumer Financial Protection Bureau Director Richard Cordray at an event held by the National Association of Realtors (NAR).
“The Ability-to-Repay rule is straightforward. It puts behind us once and for all the kind of irresponsible lending that disrupted the housing market and so badly damaged our economy, and it provides strong new consumer protections while preserving needed access to mortgage credit,” said Cordray.
NAR President-elect Chris Polychron, a Realtor from Hot Springs, Ark., moderated the briefing and lauded the CFPB for creating a safer, more transparent lending environment with loans that are required to meet stringent underwriting standards. “These regulations will go a long way to protecting consumers from receiving loans that may be inappropriate for them and gives them additional legal protections. NAR supports these changes and has provided input throughout the rulemaking process,” he said.
Cordray acknowledged concerns that the new rules could further constrain credit in an already tight lending environment. “Importantly, our rule also takes careful account of these access-to-credit issues,” he said. “Those lenders that have long upheld strong underwriting standards have little to fear from the Ability-to-Repay rule. Qualified mortgages cover the vast majority of loans made in today’s market, but they are by no means all of the mortgage market.”
Cordray explained the basic criteria for Qualified Mortgages, which cannot be made to a borrower with a debt-to-income ratio greater than 43 percent. “They also cannot have certain risky features, such as paying interest only or even negatively amortizing so that each month the consumer owes more than they did before and loans must have relatively reasonable points and fees,” he said.
The rule includes a three percent cap on points and fees, which NAR believes unfairly discriminates against affiliated lenders who have to count many more items toward fees and points than large retail financial institution, such as title insurance charges and escrow for homeowner’s insurance.
“The problem is that under this rule, affiliated and non-affiliated firms are treated differently,” said Polychron. “It’s NAR’s view that this would be a disadvantage to many real estate affiliated lenders and reduce the choices available to consumers of where they can get a mortgage, and because the unaffiliated lender must still use a title company, the consumer pays the same amount either way.”
Cordray said that Congress drew a line on points and fees, but that going forward, regulators, consumers and Realtors can monitor the market and evaluate the cap’s impact on access to credit.
“It means a great deal to our new Consumer Bureau to know that NAR has members with boots on the ground in communities both small and large all across the U.S. We urge [Realtors] to help us spread the word about how consumers can make the most of this new agency,” said Cordray.
Following Cordray’s remarks, leading housing policy experts participated in a panel discussion about the new Ability-to-Repay and Qualified Mortgage rule. The panelists offered divergent views about the potential impact the rule might have on the overall housing market, and suggested that the lending industry is prepared for implementation.
Jeff Kibbey, primary legal counsel for Century Mortgage Company, asserted that the new rule will restrict lending by at least 10 percent, and higher than that in some regions, which will create some difficulties in our economic recovery as a result of the QM rule.
Economist Ann Schnare, principal at AB Schnare, LLP, emphasized that some of the guidance in the rule to help lenders calculate income, debt, and assets, if left unedited, could potentially create an ossified underwriting system that may be inappropriate for the next generation of homebuyers. “We need to make sure the rules aren’t creating unintentional barriers to access,” she said.
Lawrence Yun, NAR’s chief economist, explained the future of homeownership depends on greater access to credit. “Over the past eight years, homeownership in the U.S. has decreased while many in the growing population have turned to renting instead of buying a home. We need to ensure that good, creditworthy renters can someday have the appropriate access to credit so they can build equity through homeownership.”
Barry Zigas, the director of housing policy for the Consumer Federation of America, applauded the CFPB for listening to stakeholders across the country to create a meaningful rule to protect consumers. “Consumers are finally going to be in an environment where their ability to repay a loan will be the fundamental determining factor about whether they’ll get a loan or not. This is a terrific week for Americans,” he said.
NAR will continue to monitor the rule’s impact on consumers, including the important new protections, and will work closely with CFPB and others to ensure that consumers have access to affordable mortgage credit.