According to Dodd-Frank, no creditor may make a mortgage loan without making a reasonable and good faith determination that the borrower has the ability to repay, based on eight statutory criteria. One compliance option is for the creditor to originate a loan that meets the definition of a Qualified Mortgage (QM). By doing so the creditor is presumed to have complied with the general ability to repay standard.
As of the date of this writing, we are not really sure what a QM is. The Consumer Financial Protection Bureau (CFPB) issued a proposed rule in 2011 and opened the floor for comments. Then, it opened the floor again for more comments. We’re still waiting for a final rule.
The official deadline for the CFPB to publish the QM/ability to repay rule is January 21, 2013, which of course has not yet passed. Once issued, the rule must take effect within 12 months. If the CFPB misses the deadline for issuing the final rule, Title XIV of Dodd-Frank (the Mortgage Reform and Anti-Predatory Lending Act section) will take effect anyway on the deadline date.
The fear on both sides of the aisle is that taking flexibility away from lenders in loan decisions will reduce the availability of credit. This bipartisan cooperation has less to do with the greater good than it does with the alignment of constituents: The issue simply does not follow party lines. If your credit score is great, you may think a shrinking credit market is an acceptable outcome. If your credit score is not so great, but you nonetheless believe you can repay a mortgage loan, then you might be in the other camp.
The fear of a shrinking credit market has forced the pro-consumer, bank-bashing CFPB (opinion based on the tenor of CFPB official statements) to consider a navigable safe harbor for lenders. As of now, the CFPB appears to be stuck in the unenviable position between a rock and a hard place.
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