ABA, Groups Recommend Language to CFPB to Fix ‘QM Patch’

The Honorable Kathleen L. Kraninger
Director
Consumer Financial Protection Bureau (CFPB)
1700 G Street, NW
Washington, DC 20552

Dear Director Kraninger:

The Housing Policy Council (HPC), Center for Responsible Lending (CRL), American Bankers Association, National Association for the Advancement of Colored People (NAACP), and Mortgage Bankers Association (MBA)5 support your decision to propose a rule to amend the Ability-to-Repay (ATR)/ Qualified Mortgage (QM) regulation at expiration of the Government-Sponsored Enterprise (GSE) Patch, to remove a specific debt-to-income (DTI) ratio and associated references to Appendix Q from the QM definition. In response to the CFPB’s Advance Notice of Proposed Rulemaking (ANPR), our organizations submitted separate comment letters and joined with a broad coalition of industry and consumer advocacy and civil rights organizations to provide a strong rationale for this position. That letter outlines our position regarding the framework for replacing the Patch and we are writing to supplement that recommendation with the attached suggested language regarding the documentation and verification of income.

We believe that, with the exception of the 43 percent DTI ratio, Appendix Q, and the GSE Patch provisions, the existing ATR and QM standards are well-developed and provide a solid foundation to further the objectives of the law. From our perspective, the current regulatory text provides an appropriate level of detail regarding the underwriting factors that must be addressed in ATR and the product features and practices required to produce a QM loan.

We would suggest that the Bureau replace the text in section 1026.43(e)(2)(vi) that today establishes the 43 percent DTI ratio and Appendix Q instructions with language stating that, for QM loans, the creditor must document consideration of the DTI ratio or residual income.

The attached redline of the regulation highlights this change and offers minor wording
suggestions to modify section 1026.43(e)(2)(v).

This replacement standard for section 1026.43(e)(2)(vi), requiring documentation of the creditor’s consideration of DTI ratio or residual income, in conjunction with the existing but slightly amended QM mandate that the creditor document and verify the borrower’s income and debts under section 1026.43 (e)(2)(v), would serve as an explicit affirmation that the borrower’s debt and income were taken into account in the underwriting of the mortgage. As such, these standards appropriately reinforce but do not replicate the ATR factors within QM. The ATR provisions of the regulation continue to serve as the prescription for how the underwriting is performed and QM simply requires evidence that the relevant factors were considered. At its core, we believe that these simple modifications to the regulation provide a sound and reasonable approach that achieves objectives promoted by many of the organizations that submitted comments in response to the ANPR. Preservation of the existing regulatory construct and text, with surgical removal of the DTI ratio threshold and Appendix Q from QM:

• reflects and reinforces the original statutory framework;
• preserves access to credit;
  
• retains the sound underwriting standards established in the ATR provisions of the rule, yet permits future improvements as the shift to cash-flow and net income underwriting are perfected; 
  
• retains crucial product feature limitations that promote responsible lending; and
  
• protects the objective nature of the QM definition, which is necessary for the presumption of compliance with ATR to be conclusive for the subset of QM loans that are eligible for Safe Harbor treatment.

We offer these additional thoughts and proposed regulatory text with an appreciation for the broad array of issues that you are considering, so please do not hesitate to contact us with any questions about the ideas presented here or other components of the regulation for which you would like input. We stand ready to engage with you in any way that you deem helpful and appropriate.

Sincerely,

American Bankers Association
Center for Responsible Lending
Housing Policy Council
Mortgage Bankers Association
NAACP