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Could QM hurt mortgage borrowers?

By Polyana da Costa ·
Wednesday, May 22, 2013
Posted: 12 pm ET

The rule that defines what a safe mortgage is could restrict credit and make it difficult for borrowers to get mortgages in 2014, lawmakers told the Consumer Financial Protection Bureau this week.

The CFPB says borrowers won't have a hard time getting loans, and most of the loans being done today will meet the requirements of the qualified mortgage rule. But members of the House Financial Services Committee didn't seem to buy the idea that the mortgage market will be just fine once the QM rule goes into effect in January.

QM and ability to repay

Starting next year, lenders will be required to verify that borrowers have to ability to repay their mortgages. It's a simple notion, but in order to be enforced as a rule, it required complex regulations.

In short, if lenders want to be protected from potential lawsuits from borrowers, they need to stick to the CFPB's guidelines of what constitutes a safe mortgage, or what the CFPB calls a "qualified mortgage."

"I'm hearing the private sector saying we have a major concern because we are not going to do anything that puts us outside of the QM rule," Rep. Gary Miller, R-Calif., told the CFPB during the hearing.

Broad definition allows most current loans

Even if lenders don't issue loans outside of QM, the guidelines and exceptions that have been created will allow most of the borrowers who qualify for a mortgage today to get a mortgage in 2014, Peter Carroll, assistant director of mortgage markets for the CFPB, told lawmakers.

One of the aspects of the rule that worries some lawmakers is that a borrower whose monthly debts exceed 43 percent of gross income would not be eligible to qualify for a "safe" mortgage.

This is a problem for "young people buying homes for the first time who still have student loans," says Rep. Gregory Meeks, D-N.Y. "This could knock them out of the market altogether."

The CFPB has created a seven-year exemption to the 43 percent debt-to-income ratio rule as long as the loan meets Fannie Mae's and Freddie Mac's criteria.

According to CFPB data, with the 43 percent DTI requirement, three-quarters of the loans originated in 2011 would fit the QM definition. When the seven-year extension is factored in, nearly all loans met the qualified mortgage guidelines, Carroll said at the hearing.

There's a reason for the rule

Rep. Keith Ellison, D-Minn., reminded lawmakers why the new mortgage rule was created in the first place.

"We are not here by accident," he says. "We are not here because people like regulations. Four million foreclosures happened."

Follow me on Twitter @Polyanad.

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January 17, 2014 at 11:06 am

Steven, How can this be a HELP to you and your wife? Are you trying to get a mortgage?

Steven Saine
June 25, 2013 at 3:30 am

That's great! I hope that this will be applied as soon as possible. This will be a huge help to my wife and I. Thank you for sharing.