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5 changes lenders want from CFPB’s rewrite of QM rule

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Most commenters to the CFPB agreed that the 43% DTI limit should be eliminated entirely and replaced by either compensating factors to assess a borrower’s ability to repay or a higher threshold.

“The simplest reform that the Bureau could undertake would be to remove the DTI ratio threshold,” wrote Broeksmit in MBA’s comment letter. “This approach would effectively set the parameters of the QM general definition as the various product feature requirements currently in place.”

This would ensure that all borrowers would be able to maintain access to credit, agreed the Credit Union National Association in its comment letter.

“CUNA firmly believes that eliminating rigid adherence to the 43% debt-to-income ratio and Appendix Q verification requirements in the underlying qualified mortgage definition would enable credit unions to continue providing access to responsible mortgage credit without introducing additional credit risk into the marketplace,” wrote Mitria Wilson, the group’s senior director of advocacy and counsel.

When the CFPB announced the ANPR, Kraninger suggested changes to the DTI level are on the table.

“We’re taking comment on a few things, first and foremost what that definition of a qualified mortgage would be after the patch is gone, including what debt-to-income ratio looks like, what the ratio should be … in terms of that QM definition, whether 43% DTI is something that makes sense to continue,” she said.

The National Association of Realtors suggested using both DTI and residual income to assess a borrower’s ability to repay.

“NAR supports a QM standard that incorporates a reasonable DTI ratio in conjunction with other factors,” wrote NAR President John Smaby. “Borrowers should have enough residual income after making their monthly mortgage payment, including taxes and insurance, to meet their needs for food, utilities, clothing, transportation, work-related expenses and other essentials.”

Other organizations also appeared to approve of the idea of using compensating factors either instead of or in tandem with a borrower’s DTI ratio.

“While there are many variants of compensating factors, the basic premise is that QM status would be determined through a more holistic view of the consumer’s personal finances and the features of the loan,” said Broeksmit. “This approach ensures that a DTI ratio is not the sole reason that a loan fails to achieve QM status.”

The Leading Builders of America also proposed analyzing factors such as “cash reserves, equity in the property, credit as well as reserves, debt and income.”

“Using these and other factors would clearly allow a more holistic view of the consumer’s ability to repay,” said Gear.

However, Gear advised against using credit scores and loan-to-value ratios, arguing that they could have “unintended consequences.”

“We believe employing an LTV alone as a substitute for DTI would severely disadvantage consumers in many areas where housing prices are low,” he said. “Beyond that, considering the profound differences in wealth across protected classes, we believe the use of LTV alone is likely to present significant Fair Housing Act concerns.”

Using credit scores could also “raise fair lending concerns,” he said.

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