BANKTHINK

The QM Rule is Essential for Consumers

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After years of irresponsible, reckless lending – which resulted in trillions of dollars in lost wealth and millions of foreclosures – Congress finally acted to prevent lenders from selling consumers unsustainable home loans.

It enacted Dodd-Frank and included the category of qualified mortgages to encourage banks and lenders to do the right thing for consumers and themselves by offering safe, affordable and sustainable mortgage products.

Recently, many in the financial services industry have pushed for a weak QM rule, and have even pushed for rolling back Dodd-Frank altogether. Those who are outspoken about weakening regulation seem to have short memories. Only a strong QM rule can prevent a repeat of the past and protect consumers from the type of risky and irresponsible lending that preceded the foreclosure crisis.

At the National Community Reinvestment Coalition, we believe that having strong underwriting requirements and loan parameters in the QM rule is critical to making the mortgage industry safe again for both consumers and lenders. The Consumer Financial Protection Bureau must issue a strong, thoughtful rule that contains robust consumer protections. Such a rule can also clearly provide the bright lines and clarity that the industry asks for while ensuring equal access to sustainable mortgages for America's working families.

The truth is that strong underwriting is in everyone's best interest. Therefore, there's no real reason for anyone to disagree with requiring lenders to factor in and verify factors such as a prospective borrower's credit history, employment status and monthly debt-to-income ratio. Each of these requirements is a reasonable and rational consideration and gives substance to the ability-to-repay assessment in Dodd-Frank.  

It's equally important that the definition of a qualified mortgage is not too narrow in terms of what it encompasses, so as not to restrict access to credit. But make no mistake: NCRC supports a QM rule with strong consumer protections and vigorous underwriting requirements to prevent lenders from steering our economy into another mess.

It is also critical that there is a rebuttable presumption for qualified mortgages. Claims that industry litigation expenses associated with a rebuttable presumption will prevent lending are simply false. Commonsense and past experience dictates that we must preserve borrowers' legal rights to protect themselves from any new problematic industry practices that could emerge. The larger burden of proof must be on lenders and not borrowers.

There is a lot of confusion on this matter. At times, this confusion has been deliberately sowed to obscure the importance of Dodd-Frank reforms and the crucial protections they provide for the American public. But the American people have not forgotten that lenders played a central role in the economic crisis, and broad distrust of banks and lenders rightfully persists. 

That the financial services industry, still in the wake of the crisis it birthed, has so quickly made a push to roll back and weaken regulations is truly both shameful and shameless. Our collective focus should be ensuring the return of a safe, sound and strong mortgage market.

Dodd-Frank is, in fact, the best hope for the lending industry because it tells investors from around the world that a broken system has been repaired and it is now safe to reinvest in America.

John Taylor is president and CEO of the National Community Reinvestment Coalition.

 

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Comments (3)
Good article. While the focus of this article is on mortgages, the same is true for other forms of consumer lending. Yet, banks like Wells Fargo, US Bank, Regions, Fifth-Third seek to place their customers into a debt cycle through their versions of payday loans at interest rates in the hundreds of percent and with a ROE to the bank of over 1000%. Is that not irresponsible and reckless? Dodd-Frank will not be reformed while this small group of self-serving bankers continues to extract vigorish from the public.
Posted by frankarauscher | Monday, November 05 2012 at 11:34AM ET
Good article. I came up lending wher you didn't make a loan without looking at employment/income, credit history, and value of security.
The part of the buble burst that is seldom mentioned is that customers went into thos sub-prime loans because they wanted a bigger home, with a smaller payment and the lender had what they WANTED,WHEN they wanted it, not what the could afford, and not a lot of documentation for an old line conservative banker, in a small bank, in a small town.
Posted by small banker | Monday, November 05 2012 at 4:43PM ET
The banker, mortgage lender, Realtor, have a fiduciary responsibility to the consumer, who was told " don't worry about it, just refinance it in a couple years"... These consumers are experts in his or her own fields, not finance, which is why they seek the advice of 'experts' when buying and financing a home.
Posted by JustAthought | Tuesday, December 04 2012 at 4:31PM ET
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