The publication of a rule requiring mortgage lenders to confirm a borrower’s ability to repay is the start of an effort by U.S. regulators to reshape the market blamed for sparking the 2008 financial crisis.
The Consumer Financial Protection Bureau is set to follow yesterday’s rule on mortgage underwriting with a second mortgage-related rule, this one on servicing, at a hearing in Atlanta on Jan. 17.
The rule is “a key first step of housing finance reform” by this and other agencies, said Tim Ryan, the outgoing head of the Securities Industry and Financial Markets Association.
“Balanced reform is essential to revitalizing the flow of capital to the private securitization markets and increasing the availability of credit to American consumers,” Ryan, who will leave the group next month to head up policy and regulatory lobbying at JPMorgan Chase & Co., said.
Consumer groups that fought for the creation of the CFPB in the Dodd-Frank law of 2010 say they want the new rules to curb the abusive practices of the housing bubble.
The groups split on the merits of the ability-to-repay rule. The Center for Responsible Lending, a Durham, North Carolina-based advocacy group, applauded the measure, while Alys Cohen, a staff attorney with the National Consumer Law Center, said that the bureau’s new requirement “invites abusive lending” and undermines goals of the Dodd-Frank law.
“The safe harbor the bureau has afforded for prime loans provides absolute shelter to lenders who knowingly make unaffordable loans, in direct violation of congressional intent,” Cohen said in an e-mailed statement.
The rule, mandated by Congress in response to lax underwriting standards before the 2008 financial crisis, will also offer some legal protection for lenders who follow guidelines for so-called qualified mortgages. The measure also insulates issuers of qualified mortgages at prime interest rates from future lawsuits -- a so-called safe harbor -- while preserving the ability of consumers to sue under other federal statutes.
A coalition of consumer groups, civil rights organizations and labor unions in October asked the CFPB to scrap its proposed mortgage-servicing rules and focus on stopping the practice known as dual-tracking, in which lenders pursue loan modifications and foreclosures at the same time. The groups also sought stronger requirements to modify unaffordable mortgages.