Under the Microscope – How Effective are QM Rules?

Nearly a decade after the housing crisis in 2008 and the passing of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) in 2010, The Consumer Financial Protection Bureau (CFPB) will soon be required by law to examine the Ability-to-Repay/Qualified Mortgage Rule (ATR/QM Rule) and assess, “the rule’s effectiveness in meeting the purposes and objectives of Title X of the Dodd-Frank Act and the specific goals of the ATR/QM rule, using available evidence and data.”

Implemented on January 10, 2014, the rule’s main goal was to prevent lenders from taking advantage of potential borrowers by awarding loans to people who did not have the financial means to pay them back. It required lenders to, by verifiable means, take into account a person’s income, debt, assets, and potential property taxes before issuing a loan. Under the rule, a person’s income to debt ratio cannot exceed 43 percent unless the loan is guaranteed by Freddie Mac or Fannie Mae.

The ATR/QM Rule also created guidelines for Qualified Mortgages that facilitate the repayment of a debt within a fixed time period. As such, they do not allow stipulations that make it increasingly difficult for borrowers to pay back their mortgage, such as: interest only payments, balloon payments, terms greater than 30 years, or negative amortization.

The CFPB is required to publish their report by January 2019, and has called for a public discourse among industry professionals, consumers, mortgage loan creditors, and anyone interested in the mortgage industry. The organization is looking for sources of data and provide recommendations as they draft the report, and extend criticism after the report is published in January of 2019. Comments will be due 60 days after the report is published.

With the housing market having bounced back in recent years and impending review of the ATR/QM Rule, could some of the guidelines put in place be changed? What might the housing market look like for borrowers and mortgage professionals after the assessment?