Press Release: Comment Letter to CFPB For Proposed Rule on the General Qualified Mortgage Definition

September 9, 2020

WASHINGTON — U.S. Mortgage Insurers (USMI), the association representing the nation’s leading private mortgage insurance (MI) companies, submitted its comment letter to the Consumer Financial Protection Bureau (CFPB or Bureau) for its proposed rule on the General Qualified Mortgage (QM) Definition under the Truth in Lending Act (Regulation Z).

“While the CFPB is undertaking a thoughtful process to update the General QM definition, USMI urges the Bureau to strike a proper balance between prudent and transparent underwriting standards, and access to affordable and sustainable mortgage finance credit for home-ready borrowers,” said Lindsey Johnson, President of USMI. “Changes to the QM definition will broadly inform standards and practices across the mortgage market, but the currently proposed rule could limit access to the conventional market for the very borrowers that have traditionally been underserved.”

To ensure the QM definition does not inadvertently limit access to credit for home-ready borrowers, and particularly minority borrowers, USMI recommends that the QM Safe Harbor should be set at 200 basis points (bps) above the Average Prime Offer Rate (APOR). USMI states that this modification to the proposed rule would create a level playing field for the QM standard across the conventional and government mortgage markets, adding that historical delinquency data demonstrates that conventional mortgages with rate spreads between 150 bps and 200 bps are prudently underwritten and sustainable loans that have performed well.

USMI highlights that “[a]ccording to 2019 Home Mortgage Disclosure Act (HMDA) data for conventional low down payment purchase mortgages (>80 percent loan-to-value ratio), Black and Hispanic borrowers were twice as likely as White borrowers to have mortgages with annual percentage rates in excess of the APOR plus 150 bps Safe Harbor spread. Under the proposed rule, many of the borrowers who are above the 150 bps threshold will be left only with the option of a Federal Housing Administration (FHA) loan, which means they have significantly fewer competitive choices in terms of product offerings and loans.”

Further, USMI agrees with the Bureau’s assessment that a hard 43 percent debt-to-income (DTI) ratio cap would be the most harmful option for the General QM definition because it would severely limit access to credit in the conventional market. Consistent with its September 2019 comment letter in response to the CFPB’s Advance Notice of Proposed Rule (ANPR) on the QM Definition, USMI continues to believe that the best approach to a General QM definition would be a standard that includes a higher DTI threshold with specified compensating factors.

In its comments, USMI advises the CFPB to preserve robust and measurable underwriting standards and practices as part of the requirements for “consider and verify” that have been proven to balance access to credit and prudent mortgage underwriting standards. With the elimination of reliance on a DTI cap and the introduction of a “consider and verify” standard for mortgage underwriting, it is critical that the CFPB identify specific requirements or best practices to be used by lenders to qualify for the compliance safe harbor.

Other recommendations to the CFPB include: working closely with federal regulators to implement a transparent and coordinated housing policy that promotes access to credit and prudent mortgage underwriting and creates a level playing field; and reconsidering its approach to adjustable-rate mortgages (ARMs) by amending the NPR to exclude 5-year ARM products from the proposed treatment of short-reset ARMs, as data demonstrates that ≥5-year ARM performance is in line with, or better than, >20-year fixed rate mortgages.

Finally, USMI urges the CFPB to provide sufficient time for a smooth transition from the temporary QM category (known as the government sponsored enterprises or “GSE Patch”) to the new General QM definition. This is particularly important given the extensive and undetermined scope of COVID-19 as the financial services industry appropriately focuses resources on responding to the economic and health fallout from the pandemic.

USMI writes, “[d]epending on the complexity of the finalized revisions to the General QM definition, the significance of the penalties for a violation of the [ability to repay]/QM Rule, and the large number of mortgage industry participants that will need to update their operations and systems, USMI recommends that the Bureau set the sunset date for the GSE Patch to be at least six months after the effective date of the general QM definition final rule. This would allow lenders to use either the GSE Patch or the new General QM definition during the mortgage underwriting process.”

USMI’s full comments on the CFPB’s proposed General QM Definition can be found here; its comment letter to the Bureau on the GSE patch extension can be found here; the 2019 comment letter to the CFPB’s Advance NPR can be found here; and its blog on why the Safe Harbor threshold should be increased can be found here.


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