The Consumer Financial Protection Bureau (CFPB) has proposed several changes to its mortgage rules aimed at giving some leeway to smaller mortgage companies.
If finalized, the proposal would increase the number of financial institutions able to offer certain types of mortgages in rural and underserved areas, and help small creditors adjust their business practices to comply with the new rules.
“Responsible lending by community banks and credit unions did not cause the financial crisis, and our mortgage rules reflect the fact that small institutions play a vital role in many communities,” CFPB Director Richard Cordray said. “Today’s proposal will help consumers in rural or underserved areas access the mortgage credit they need, while still maintaining these important new consumer protections.”
The National Association of Mortgage Bankers (NAMB) applauded the CFPB’s move and went on to urge the agency to quickly address the need for regulatory relief for mortgage professionals unfairly targeted by unnecessary and harmful regulations in the aftermath of the financial crisis of 2008.
"Any regulation relief that helps a group of consumers is a good start," John Councilman, NAMB president said, "But it's way past time for director Cordray and the CFPB to acknowledge that mortgage professionals were not responsible for causing the financial crisis."
Councilman added, "If Director Cordray truly wants to help serve the underserved and rural areas, he and his agency should offer real regulatory relief to the thousands of mortgage professionals who are both small business owners and the best advocates for consumers."
The bureau stated that a provision in the Ability-to-Repay rule extends Qualified Mortgage (QM) status to loans that small creditors hold in their own portfolios, even if consumers’ debt-to-income ratio exceeds 43%. Small creditors in rural or underserved areas can originate QM loans with balloon payments even though those type of payments aren't allowed under QM.
The CFPB is also changing the definition of "small creditor" in its rules to include lenders that originate up to 2,000 loans per year. Previously, a lender had to originate fewer than 500 first-lien mortgage loans per year in order to meet this definition. The new definition excludes loans held in portfolio by the creditor and its affiliates.
"The real irony under the current set of rules is that many community banks and credit unions essentially act as mortgage brokers because they operate as indirect lenders by outsourcing their mortgage underwriting and using a warehouse line to fund loans," Councilman said.
"If Director Cordray truly wants to help consumers make sure that healthy market competition with consumer protections is maintained, he should use the authority given to the CFPB by the Dodd-Frank Act to eliminate the inclusion of creditor payments to mortgage brokerage entities in the 3% cap on points and fees,” he added.