June 20 - The American Bankers Association has testified that the new Ability to Repay and Qualified Mortgage rule should be revised to avoid harming creditworthy borrowers that want to own a home and undermining the housing recovery.
James Gardill, chairman of the board of WesBanco, testified on behalf of ABA before the House Financial Institutions Subcommittee. WesBanco is a community bank in Wheeling, W.Va.
In his testimony, Gardill emphasized that the new rules represent a fundamental change in the housing-finance market, which comprises a substantial portion of our nation’s GDP and touches the lives of nearly every American household.
“Despite the good intentions behind the QM rules, as currently designed, these rules will restrict, rather than facilitate credit to mortgage borrowers, most particularly borrowers on the margins,” Gardill said. “These rules need to be revised so that they help the economy and at the same time ensure the largest number of creditworthy borrowers are able to access safe, quality loan products.”
Under the ATR rule, underwriters must consider a borrower’s ability to repay a mortgage loan, which is a subjective determination based upon a number of variable factors. Qualified mortgages are designed to offer a “safe harbor” within which loans are assumed to meet the ATR requirement. Gardill testified that the definition of QM, along with compliance and legal risks, could significantly harm the mortgage market.
“The definition of QM - which covers only a segment of loan products and underwriting standards, and serves only a segment of well-qualified and relatively easy-to-document borrowers – could undermine the housing recovery and threaten the redevelopment of a sound mortgage market,” Gardill said. “Given the legal and reputational risks imposed by this regulation, banks are not likely to venture outside the bounds of the QM safe harbors.”
Gardill testified that the new rules create a narrowly defined box that consumers must fit in to qualify for a QM-covered loan, limiting access to mortgage credit.
“Since banks will make few, if any loans that do not meet QM standards, many American families that are creditworthy but don’t fit inside the QM ‘box’ will be denied access to credit,” Gardill said. “In practice, this also likely means that less affluent communities may not be given the support they need to thrive. These rules may leave many communities largely underserved in the mortgage space.”
Gardill expressed concern that the rulemaking has left banks with little time to comply with QM regulations despite their wide-reaching market implications and the tremendous amount of work required to comply with the rules. Currently, these rules are scheduled to go into effect in January 2014.
“We must get this right for the sake of our customers, our banks’ reputations, and to promote the nascent recovery of the housing market,” Gardill said. “For some institutions, stopping any mortgage lending is the answer to this unreasonable deadline because the consequences are too great if the implementation is not done correctly. We need to extend the existing deadlines as well as address outstanding issues to ensure that all creditworthy borrowers have access to credit.”