Last week the CFBP reopened the proposed rule addressing the ability-to repay requirement, which will impact all mortgages originated and the definition of a ‘‘qualified mortgage”. The request for more input virtually guarantees market uncertainty will continue at least until late this year or early next year. The qualified mortgage rule will determine how narrow or expansive the access to lowest cost mortgages will be; and second, whether to provide a legal safe harbor or only a rebuttable presumption when the qualified mortgage standards are met.
So maybe more time and more data is warranted. Ironically, if a legal safe harbor is not provided for qualified mortgages, the practical result will be less access and tighter underwriting regardless how the qualified mortgage is ultimately defined. In fact, today FHA provides a real-time demonstration of how uncertainty has led to mortgage overlays in the basic FHA single-family program. An overlay is a technical term for a tighter underwriting box than required by published standards and translates into harder qualifications for potential homeowners.
Federal Reserve Governor Elizabeth Duke identified the problem of uncertainty as impacting lender’s willingness to lend and the future strength of the housing economy. Gov. Duke went on to identify factors that added to uncertainty, including the regulatory environment and the future structure of the mortgage market. One can only hope that the additional comment period provided by the CFPB for data and comments will lead to an ultimate outcome that recognizes that the level of access is directly correlated with the degree of confidence, which is why a safe harbor must be provided.