(CFPB) Recently, we released the Ability-to-Repay rule designed to protect consumers from irresponsible lending and begin to lay the framework for stability in the mortgage market.
This week, we issued an implementation plan to help ensure the industry effectively and efficiently puts these new protections into place, with the understanding that our rule should not unduly restrict lenders’ ability to make responsible loans. We estimate that the vast majority of loans originated today will meet the standards for a “Qualified Mortgage” so long as creditors follow the required procedures.
As part of the new rule, Congress also directed us to define a category of loans where borrowers would be more protected. So we released the criteria for a Qualified Mortgage. If you are a borrower getting a Qualified Mortgage, your loan cannot contain certain features that often have harmed consumers in the past, such as excess points and fees.
MAKING THE RULE
In crafting the rule, we carefully considered a wide array of perspectives and analyzed market data to help ensure that our rule would not unduly restrict lenders’ ability to make responsible loans.
According to data estimates we developed, roughly three-quarters of residential mortgages originated in 2011 meet the required debt-to-income ratio of 43 percent or below and also meet the other characteristics of a Qualified Mortgage loan. This does not, however, factor in the potential impacts of any caps on points and fees which are still pending clarification under our concurrent Qualified Mortgage proposal, among other relevant factors.
Our Ability-to-Repay rule also contains a temporary provision that treats loans that meet eligibility requirements set by the government sponsored enterprises and various Federal agency programs as Qualified Mortgages. This provision is a transitional measure meant to allow time to adjust to the new rules and for a full recovery of the mortgage markets. According to these same data estimates, roughly 20 percent of residential mortgages meeting these transitional criteria are above 43 percent monthly debt-to-income ratio. Again, this figure does not factor in potential impacts of the cap on points and fees.
MORTGAGE MARKET RECOVERY
Over time, we expect to see responsible lending practices flourish for all residential mortgage loans, including both Qualified Mortgages and other loans. We will continue to listen to consumers and businesses as we work to help the mortgage market – and consumers – recover from the financial crisis. We believe that our Ability-to-Repay rule is an important step toward bringing certainty to the mortgage market and the recovery.