WASHINGTON The head of the Consumer Financial Protection Bureau on Thursday sought to clear up misinformation about the agency's new mortgage rule that takes effect next month.
Starting Jan. 10, the bureau will require that lenders take steps mandated under the Dodd-Frank Act to evaluate borrowers' "ability to repay" mortgages. Gaining the most attention in the rule is the definition for loans to be considered "Qualified Mortgages", which will have certain protections from legal action. Among the criteria for QM are a maximum 43% debt-to-income ratio and a limit on points and fees of 3% of the loan amount.
But CFPB Director Richard Cordray took issue with what he called "myths" about the coming rule that, he said, are simply not true.
"Let me just take a moment to dispel some myths about what our ability-to-repay rule does and does not do, because many rumors have been going around," Cordray said in remarks to a conference hosted by the Consumer Federation of America.
For example, he refuted any notion that complying with the rule is somehow related to the size of a loan's down payment.
One "myth is that this rule restricts down payments; in fact, it says nothing about how much of a down payment you have to make on the house, but leaves that entirely up to you and your lender," Cordray said.
Another common myth, he noted, is that the CFPB rule will apply to loans that were made before the Jan. 10 effective date.
"The rule does not change anything about your current mortgage; it only applies to new mortgages that you apply for on or after January 10, 2014," he said.
He also took issue with the perception that the rule forbids DTI ratios above 43%.
"It does not stop lenders from lending to any borrower with a debt-to-income ratio above 43%; this particular claim is wrong in three ways," Cordray said. "First, lenders can also rely on the standards for loans backed by the GSEs or federal housing agencies. Second, smaller local creditors can make the same kinds of solid loans they have always made if they choose to keep those loans in their own portfolio, as they often have done in the past. Third, lenders can simply use their own judgment when looking at your ability to repay, just as they always have done."