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Protecting Borrowers from the Next Lending Crisis: The CFPB’s Rules on Ability to Repay and Qualified Mortgages

Thursday, January 10, 2013

The Consumer Financial Protection Bureau's new rules generally strike a balanced, reasonable approach to mortgage lending and implement important consumer protections. The standard CFPB establishes for a safe, well-underwritten mortgage is appropriately broad enough to include the vast majority of creditworthy home owners, and it is clear enough for lenders and borrowers alike to understand. And the rules preserve legal protection for borrowers with the riskiest loans.

The rules—required by the Dodd-Frank Act of 2010—address head-on a key cause of the mortgage meltdown and ensuing recession: Lenders who made high-risk, often deceptively packaged home loans without assessing if borrowers could repay them. Because of these reforms, lenders now must actually assess a mortgage borrower's ability to repay. The rules' broad definition of a "Qualified Mortgage" under Dodd-Frank means that the significant protections the Act provides—including 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 abusive financial products.

Ideally, the new rules would have allowed any borrower with a qualified mortgage to challenge a lender who failed to evaluate if the borrower could afford the loan. However, they 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.

CRL will closely monitor how a pivotal issue the CFPB is still considering is resolved: How fees that lenders pay to mortgage brokers will be counted when it comes to defining a qualified mortgage. These fees, known as yield spread premiums, provided incentives for brokers to steer borrowers into bad mortgages that fueled the mortgage crisis. The CFPB should not create a loophole that allows high fee loans to count as a qualified mortgage.

If the broker payment issue is appropriately resolved, the rules will be—all in all—good for consumers, investors and the economy. Applying these fair, understandable standards to the mortgage market will foster a more competitive and robust housing industry.

For more details about the rules, see our fact sheet at

For more information, contact Kathleen Day in DC at 202.349.1871 or; Graciela Aponte in Calif. at 510.379.5518 or; or Ginna Green at 510.379.5513 or