Letter: Comments on CFPB’s Advance Notice of Proposed Rulemaking on the Qualified Mortgage Definition
WASHINGTON — Lindsey Johnson, President of U.S. Mortgage Insurers (USMI), today released the following statement on the organization’s comment letter submitted in response to the Consumer Financial Protection Bureau’s (“the Bureau”) Advance Notice of Proposed Rulemaking on the “Qualified Mortgage (QM) Definition under the Truth in Lending Act (Regulation Z).”
“As takers of first-loss mortgage credit risk with more than six decades of expertise and experience underwriting and actively managing that risk, USMI members understand the need to balance prudent underwriting with a clear and transparent standard that maintains access to affordable and sustainable mortgage finance credit for home-ready borrowers. The upcoming expiration of the temporary QM category, often referred to as the “GSE Patch,” provides an important opportunity for the Bureau to assess what has developed within the marketplace since the enactment of the QM Rule. Notably, mortgage lending has been done with far greater diligence by market participants to ensure consumers have a reasonable ability-to-repay (ATR) and has resulted in a much stronger housing finance system. Further, the GSE Patch has played a critical role in maintaining credit availability. In our comments to the Bureau, we offer specific recommendations for replacing the current GSE Patch to establish a single transparent and consistent QM definition in a way to balance access to mortgage finance credit and proper underwriting guardrails to ensure consumers’ ATR. USMI’s recommendations include:
- Maintaining the ATR and product restrictions as part of any updates to the QM definition to ensure discipline in the lending community and to protect consumers;
- Retaining specific underwriting guardrails such as the current debt-to-income (DTI) component of the QM definition, but modifying the specific threshold to better serve consumers; and
- Developing a single set of transparent compensating factors for loans with DTIs above 45 and up to 50 percent for defining QM across all markets, similar to how the GSEs, FHA, and VA use compensating factors in their respective markets today.
“Retaining specific thresholds in measuring a consumer’s income, assets, and financial obligations better serves consumers and ensures that the statutory and regulatory intent of measuring a consumer’s ATR is met. Further, adjusting the current DTI limit from 43% to 45% for all loans, and up to 50% for loans with accompanying compensating factors creates a more transparent and level playing field that provides greater certainty for borrowers and lenders and reduces the impact of the expiration of the GSE Patch. USMI believes that the development of a single transparent industry standard will facilitate greater consistency across all lending channels and ensure there is not market arbitrage to achieve QM status.
“USMI applauds the Bureau for undertaking the necessary process for updating this critical rule that is aimed at enhancing lending standards and consumer protection. We look forward to working with the Bureau as it seeks to implement any changes to this important rule.”
Following the release of the Bureau’s ANPR in July, USMI published a blog with observations and recommendations for replacing the GSE Patch.
U.S. Mortgage Insurers (USMI) is dedicated to a housing finance system backed by private capital that enables access to housing finance for borrowers while protecting taxpayers. Mortgage insurance offers an effective way to make mortgage credit available to more people. USMI is ready to help build the future of homeownership. Learn more at www.usmi.org.