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From Banking and Finance Law Daily, May 21, 2013

CFPB Defends QM Rule Against Congressional Critics

By Sarah Borchersen-Keto, Washington News Bureau

The Consumer Financial Protection Bureau defended its Ability-to-Repay/Qualified Mortgage Rule against Congressional claims that it will restrict consumer access to mortgage credit, emphasizing instead that the rule was written to provide appropriate consumer safeguards without becoming a “straightjacket.”

“Washington knows best.” At a May 21, 2013, hearing of the House Financial Institutions and Consumer Credit Subcommittee, Chairman Rep. Shelley Moore Capito (R-WVa) expressed concern that “this approach of ‘Washington knows best’ will harm the very people that the rule seeks to help: borrowers who are on the fringe of lacking access to mainstream financial services.”

Additional adjustments. CFPB Assistant Director for Regulations, Kelly Thompson Cochran, sought to reassure Capito by noting that when the CFPB issued its final QM rule it also issued a proposal to make certain additional adjustments, including potential exceptions for the low-to-moderate income population.

Cochran explained that the final rule also includes adjustments designed to address concerns raised by smaller institutions, such as treating certain balloon-payment loans as QMs if they are originated and held in portfolio by small creditors operating predominantly in rural or underserved areas.

In addition, the CFPB is also considering creating a fourth category of QMs that would be available to small creditors regardless of whether they serve in rural or underserved areas. “We recognize that these institutions are using relationship-based lending that is highly effective, and often leads to lower foreclosure rates,” Cochran said. “We are very sensitive to concerns about how this rule will impact small institutions. That’s one of the main reasons we went back out for comment to continue to consider how the different parts of the rule were going to influence smaller institutions,” she said.

CFPB Assistant Director for Mortgage Markets Peter Carroll, meanwhile, told members that over the short term, given the state of the market, creditors and investors are likely to feel most comfortable making QMs. However, the CFPB is expecting that over time it will become possible to quantify the risks associated with non-QM lending, which in turn will prompt lenders to expand into other sectors of the market.

MainStory: TopStory CFPB DoddFrankAct Mortgages TruthInLending

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