Dodd-Frank Act Balances Access to Credit and Key Protections

Published: June 18, 2013

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Date Filed: June 18, 2013

The Consumer Financial Protection Bureau (CFPB) mortgage rules strike the right balance between protecting consumers while also enabling lenders to comply with these new reforms. Throughout the rulemaking process and in the final result, the CFPB has taken a measured and reasonable approach. As a result, these mortgage rules will provide important legal protections for borrowers and for lenders.

The rules - required by the Dodd-Frank Act of 2010 - address head-on a key cause of the mortgage meltdown and ensuing recession: many lenders made high-risk, often deceptively-packaged home loans without considering whether borrowers could repay them. Because of these reforms, lenders now must assess a mortgage borrower’s ability to repay a loan. The rules’ definition of a safe mortgage—known in Dodd-Frank as a “Qualified Mortgage”— also means that restrictions on harmful loan terms such as balloon payments, teaser rates and high fees will extend to families who in the past too often were steered into unfair, harmful financial products. At the same time, the CFPB’s rule provides lenders with significant legal protection when they originate Qualified Mortgages, although they are not required to do so.

  • Qualified Mortgage definition is broadly defined: The CFPB’s rules adopt the widespread view – including from CRL – that Qualified Mortgages should be broadly defined to encompass the vast majority of the current mortgage market. This multi-faceted approach will maintain access to affordable credit for borrowers.

  • The CFPB used clear, bright lines in the Qualified Mortgage definition: In addition, the CFPB used specific standards to define which mortgages will be eligible to obtain QM status.

  • Qualified Mortgage definition protects borrowers with the riskiest loans: Ideally, the new rules would have allowed any borrower with a QM loan to challenge a lender who failed to evaluate whether the borrower could afford the loan. However, the CFPB’s rules do allow borrowers to hold lenders accountable on the riskiest types of mortgages: those in the subprime market where the problems that led to the housing crisis were concentrated.

As a whole, these rules continue the CFPB’s approach of expanding access to credit while ensuring that loans are sustainable for the borrower, the lender and the overall economy.