When the housing crisis began, the federal government took measures to stabilize the real estate finance markets, ensure ongoing liquidity and prevent further losses. Congress passed the Dodd-Frank Act that put many of these measures in place, including the establishment of the Consumer Financial Protection Bureau and statutory requirements for federal regulators to create and enforce new regulations to protect consumers and ensure a crisis of this proportion was never allowed to occur again.
Today, the real estate finance industry faces extraordinary changes with Dodd-Frank implementation finally upon us. Mortgage lenders are consumed with the enormous effort it is taking to comply with the unprecedented volume of new rules and regulations stemming from Dodd-Frank. Making it more difficult, all this change must be done while maintaining the high service standards their customers expect and deserve.
The no-doc, no down, negative amortization, “anyone-can-get-a-loan” era is over. We live in a very different world today, a place where all of us — industry leaders, consumer advocates and policymakers — are working together to ensure the high-risk lending practices that ruined the economy and destroyed the household wealth of millions of Americans never happen again. But I believe we risk going too far.
Today, some borrowers with good credit, who are willing to put down 10%-15%, still cannot get a loan. Because of the changing rules that govern lenders today, and the increased risk of litigation, repurchases and indemnification, many qualified borrowers are being edged out of the system. Lenders protect themselves from these new risks the only way they know how — by only approving loans to those with perfect credit.
No one is suggesting that unqualified borrowers should be able to get mortgages. But in today’s environment, lenders are facing insurmountable challenges from regulators that are significantly tightening credit and limiting access for first-time and middle-class borrowers.
With more than 3,500 pages of rules that have already been issued from six different regulators, lenders are consumed with compliance deadlines on rules around qualified mortgages, servicing standards, loan officer compensation and disparate impact.
The final Basel III rule was released in July. The risk retention rule — the qualified residential mortgage rule , or QRM, was re-proposed in late August.
Meanwhile, the lending community continues to brace itself for even more regulations to come. This piling on of regulations only adds to the confusion and complexity that already exists in the marketplace, stifling market growth and restricting access to credit.
So what is being done to alleviate confusion and sort through the tidal wave of regulations? We have been working relentlessly on behalf of our members and the industry at large to ensure coordination, transparency and consistency.
The CFPB has gone to extraordinary efforts to diligently work through the comment and notice process, consistently engaging stakeholders while developing and issuing numerous, difficult rules under strict deadlines mandated by the Dodd-Frank law. Additionally, the bureau’s commitment to “get the rules right” has resulted in iterative revisions and clarifications to the rules designed to address unintended consequences and answer industry questions.
By working together, both as an industry and with the regulators, we scored significant wins for consumers. For example, we were steadfast and successful in obtaining a broadly defined, reasonable safe harbor with flexible underwriting standards that supports a safe market for lenders and consumers under the QM final rule.
The Mortgage Bankers Association worked with the CFPB to lessen the subjectivity of and add clarity to the debt-to-income determination. These improvements ensure that more families will benefit from safe, sustainable QM loans while minimizing the litigation and compliance risk to our companies.
The January 2014 implementation deadline for many of the new rules is approaching quickly, and lenders of all sizes have been working meticulously to analyze and understand thousands of pages of new rules. They need to do so in order to make the necessary business changes to comply.
Beyond the areas that have already been clarified, many others remain outstanding. For example, in April the MBA sent the CFPB an 85-page list requesting needed clarifications of the servicing rule. The MBA and our members look forward to continuing our work with the CFPB to resolve these issues and create a safe, sustainable lending environment for consumers and the industry.
However, one unfortunate byproduct of this iterative process is that lenders’ compliance and systems teams and mortgage industry vendors are still anticipating significant changes to the final rules just a few short months away from implementation deadlines.
For this reason, the MBA has asked the CFPB for a six- to 12-month grace period prior to any enforcement actions under the bureau’s new mortgage rules. This is reasonable under the circumstances and, if granted, should reduce the potential for lenders to unduly tighten credit.
Consumer protections were needed, but when they block the pathway to homeownership for so many borrowers, we must ask: Have we gone too far?
In the United States, we have the fundamentals for a stable, balanced housing system, but regulatory mandates can create barriers to entry in an otherwise recovering housing market. We must have balanced policies for long-term, sustainable growth and a stable housing finance system.
