By Ian McKendry
WASHINGTON (MNI) – U.S. Housing and Urban Development Secretary Shaun Donovan Thursday said as the Consumer Financial Protection Bureau drafts its final rule on what will be considered a “Qualified Mortgage,” it should take into account the kind of loans that contributed to the housing crisis rather than how many loans will be eligible.
“You can’t just look at standards today and say, oh it’s too wide a box because 95% of mortgages would qualify, you have to look at the kinds of mortgages that were being made in the crisis and those are the kinds of loans you want to avoid,” Donovan told MNI on the sidelines of a Mortgage Bankers Association conference.
Donovan said some have advocated for the “widest box” possible while others have argued that it does not make sense to have a qualified mortgage if everyone qualifies.
But Donovan pointed out that lending standards today are much stricter than they were in the run-up to the crisis and while loans being made today are safer, credit standards are likely to ease as the economy improves.
“You can’t just think about the loans that are being made today, you have to think about the loans that were being made 5 years ago,” Donovan said when considering what kind of loans to exclude from QM.
The CFPB took over the responsibility for crafting the QM rule from the Federal Reserve as part of the Dodd-Frank Act and is expected to issue a rule this year.
Under QM, lenders will be relieved of some liabilities by making loans that meet specified criteria.
In a briefing book issued at the conference, the MBA said that “in light of liability considerations, it is anticipated that virtually all mortgages made will be QMs; those that are not, if available at all, will be costlier and not required to offer borrowers QM protections.”
The MBA also joined a wide range of housing advocates and trade associations last Thursday in writing a letter to CFPB Director Richard Cordray urging that QM be “broadly-defined” and “ensure that the largest number of credit worthy borrowers are able to access safe, quality loan products for all housing types.”
QM will also likely set a precedent for Qualified Residential Mortgages — which will exempt mortgage underwriters from retaining some of the risk of the loans that are packaged into mortgage-backed securities.
Speaking to mortgage bankers during the MBA conference, Donovan said “we have to make sure that as much as possible given the range of different regulatory actions and agencies that we are speaking as much as possible with one voice on this issue.”
“One of my biggest concerns is that we had a QM and a QRM that were not necessarily moving together and one of the things we have done over the last few months is we have made a decision on QRM, that we are clearly going to combine it in timing with QM,” Donovan said.
“We are hearing more and more of the arguments of having a single standard that would apply across QM and QRM as much as possible,” he continued, adding “that has been gaining some real traction.”
Donovan also said he is concerned with “overcorrecting” in a time when credit is already tough.
“I am very concerned that some of the proposals that have been out there would go too far in restricting credit going forward,” Donovan said.
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