WASHINGTON – The Consumer Financial Protection Bureau (CFPB) is expected to address the standards to define a "qualified mortgage (QM)" under the agency's "ability to repay" rules that are anticipated later today.
CUNA has been consistently seeking to minimize the impact of these rules on credit unions since they were ordered by the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act.
Congress directed that the ability to repay rules include provisions that would help shield lenders whose loans meet QM standards if challenged in court by a borrower alleging the loan is not in compliance. CUNA said the CFPB rule could take differing approaches to higher-priced loans and lower priced ones regarding legal protection.
For lower-priced loans, the CFPB could create a "safe harbor" status for lenders. These prime loans generally are made to consumers who are considered to be lower risk borrowers.
It is anticipated that most credit union mortgage loans would qualify for the safe harbor status, an outcome that CUNA has aggressively pursued. Consumers could challenge their loan if they feel it does not meet the definition of a Qualified Mortgage but such a safe harbor is intended to provide lenders with legal protection that QM standards have been met.
For higher-priced loans, sometimes given to consumers with insufficient or weak credit histories, the CFPB may state that legal challenges would involve a "rebuttable presumption." A borrower seeking to challenge such a loan would have to prove he or she did not have sufficient income to pay the mortgage and other living expenses.
CUNA anticipates that the ability-to-repay rule will include such requirements as:
• Before making a loan, a lender must document such things as a borrower's employment status; income and assets; current debt obligations; credit history; monthly payments on the mortgage; monthly payments on any other mortgages on the same property; and monthly payments for mortgage-related obligations;
• Therefore, lenders would be banned from offering "no-doc" and "low-doc" mortgages--loans that don't ask for documentation of such things as income and assets; and
• A borrower would need to show sufficient assets or income to pay back the loan and lenders must evaluate this information; and
• Lenders would be prohibited from basing their evaluation of a consumer's ability to repay on teaser rates.