CFPB releases QM fact vs. fiction guide

by Ryan Smith07 Jan 2014
The Consumer Financial Protection Bureau has released a “fact vs. fiction guide” about new mortgage rules set to take effect Jan. 10 “to help dispel some of the most common misconceptions about what this new rule actually means for consumers” – but some of the facts the agency cites seem to be at odds with the findings of earlier industry studies.

The CFPB estimates that about 92% of mortgages in the current marketplace will meet the new “Qualified Mortgage” guidelines, which require mortgage originators to verify borrowers’ ability to repay. But an October study by risk management firm ComplianceEase calculated that one in five new mortgages wouldn’t meet the QM guidelines.

In addition, more than half of those loans would have fees that exceed the CFPB’s 3% cap, and loans that exceeded the cap typically exceeded it by more than $1,500. The rest had APRs too high to meet the QM standard.

“Based on current guidelines, these loans also will not be eligible for purchase, insurance or guarantee by government-sponsored enterprises (GSEs) or government agencies,” ComplianceEase said in a statement.

The CFPB insists that the QM rules won’t negatively affect the market. “The Ability-to-Repay Rule is designed to protect consumers without disrupting the U.S. housing market,” the agency said in its fact-vs.-fiction guide. “Some of the nation’s largest banks have already said they plan on making loans that fall outside of the Qualified Mortgage guidelines.”

But ComplianceEase warned that many lenders might try to avoid non-QM loans.

“…Due to lack of marketability, lenders generally try to avoid originating loans known as ‘high-cost’ loans, which are subject to restrictions in the Home Ownership and Equity Protection Act (HOEPA),” the company said. “With new, stricter points and fees thresholds in the amended HOEPA, close to three percent of loans in the study that previously weren't HOEPA loans would move into the federal ‘high-cost’ category.”

The CFPB also called QM’s 3% cap on points and fees “a reasonable limit that protects consumers and gives lenders the incentive to evaluate affordability over the life of the loan.” But the agency itself has previously admitted that the cap could stifle competition and hurt borrowers.
The CFPB acknowledged in January in the Federal Register that in some cases when a qualified mortgage was originated, “the entire payment from creditor to broker would be captured in points and fees” in a wholesale transaction, while “the retail transaction might include no loan origination compensation at all in points and fees.” Such a situation, the CFPB admitted, “could constrict the supply of loan originators and the origination channels available to consumers to their detriment.”