A former leader of the Consumer Financial Protection Bureau on Thursday will announce the launch of Fenway Summer LLC, a startup mortgage lending and business advisory firm. The company, based in Washington's Georgetown neighborhood, will focus on loans that dont count as qualified mortgages" as defined by the CFPB.
Starting next year, lenders will use a standard, mandated under Dodd-Frank, to meet a requirement that lenders evaluate a borrowers ability to pay back the loan. Roughly 95% of current home loans will fall under these standards as currently structured, according to the CFPB.
The CFPBs final rule, which takes effect Jan. 10, 2014, implements laws requiring mortgage lenders to consider consumers ability to repay home loans before extending them credit. Included in the rule is a definition of qualified mortgage loans, which are entitled to a presumption that the creditor making the loan satisfied the ability-to-repay requirements.
Date, former deputy director at the CFPB, believes theres a strong business to be built around loans that dont meet these standards, with potential lending volume of $250 billion a year. Many lenders say they will avoid lending outside the qualified mortgage realm, because the lack of protections from lawsuits from borrowers who fall into default and contend their loan should never have been made. Date believes the litigation risk is manageable as long as the overall lending standards are sound.
Others are more cautious about the size of this market. Out of $1.25 trillion in projected mortgage lending this year, only about $20 billion would fall outside the qualified mortgage restrictions, according to Mark Zandi, chief economist at Moodys Analytics.
One possible source of business for Dates firm could be wealthy borrowers with large jumbo mortgages that cant be sold to mortgage giants Fannie Mae or Freddie Mac. If those borrowers spend 43% or more of their income on debt, their loans are not considered qualified mortgages. The qualified mortgage rule also excludes interest-only loans.
Date has hired several former CFPB officials to run the venture including: Garry Reeder, the bureaus former chief of staff, mortgage servicing expert Chris Haspel and Mitchell Hochberg, a former CFPB regulatory lawyer.
