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Consumer Financial Protection Bureau

Ten Associations Urge CFPB to Adopt Broad Qualified Mortgage Rule, Safe Harbor

September 18, 2012

On Sept. 14, 10 trade associations sent a letter to the Consumer Financial Protection Bureau (CFPB) to reiterate lenders' support for a broadly-defined qualified-mortgage (QM) rule that includes so-called safe harbor legal protection for lenders that meet the rule's standards.

The letter said that “all segments of the mortgage lending industry,” from small credit unions and community banks to the largest depositories, support a broad QM definition that would “include the vast majority of very high quality loans being originated in today’s market.”

The letter also said that the QM product, documentation, and underwriting requirements “must be based on objective, bright line standards.”

Third, the associations said “lenders and investors must be granted a clearly defined legal safe harbor from ability to repay litigation when they originate loans that meet the QM standards.”

The letter was signed by the American Bankers Association, American Financial Services Association, Community Mortgage Banking Project, Consumer Bankers Association, Consumer Mortgage Coalition, Credit Union National Association, Housing Policy Council of the Financial Services Roundtable, Independent Community Bankers of America, Mortgage Bankers Association, and the National Association of Federal Credit Unions. A Good-Faith Determination

The qualified-mortgage (QM) rule will require lenders to reach a good-faith determination, through documentation and other due diligence efforts, that a mortgage borrower has a reasonable ability to repay the home loan. QM loans also must be structurally safer than most other types of mortgages and must pose lower risk for borrowers.

Loans that are defined as QMs will be shielded from potential borrower lawsuits. The agency has not indicated whether it will provide blanket protections under a safe harbor, or go with a “rebuttable presumption” that assumes all QM loans were properly underwritten, but allows more avenues for potential legal challenges.

A day before the letter was sent, CFPB Director Richard Cordray told the Senate Banking Committee that the agency is taking a slow and cautious approach in crafting QM, because of the regulation's impact in reshaping how large numbers of home loans will be underwritten

“It doesn’t do anybody any good for us to develop an elaborate set of protections if nobody’s going to then lend money to consumers,” Cordray said in his testimony. “We absolutely don’t want to make a judgment that’s going to freeze up or further constrict credit in the mortgage market.”

The consumer bureau is focused on completing the QM rule by January 2013, as required by the 2010 Dodd-Frank financial overhaul law. The CFPB originally indicated that it would complete the rule in early 2012, but later reversed course and reopened the proposal for public comment.

Earlier this year, ALTA joined 22 other associations in a letter to the CFPB supporting a broadly-defined QM rule.

ALTA supports strong residential mortgage underwriting standards and an establishment of a broad QM standard that includes sound underwriting requirements, excludes risky loan features and gives lenders and investors reasonable protection against undue litigation.

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