CFPB Publishes Assessments of Ability-to-Repay, Mortgage Servicing Rules

The Consumer Financial Protection Bureau last week published two reports: one that largely favorably assesses effectiveness of its Ability-to-Repay and Qualified Mortgage Rule; the second that assesses effectiveness of its mortgage servicing rule issued under the Real Estate Settlement Procedures Act.

In the first report (https://files.consumerfinance.gov/f/documents/cfpb_ability-to-repay-qualified-mortgage_assessment-report.pdf), the Bureau concludes the ATR/QM Rule is a “significant” rule.

“A primary purpose of the Rule is to prevent the extension of mortgage credit for which consumers lack the ability to repay, based on information available at the time of origination,” the report said. “Approximately 50 to 60 percent of mortgages originated between 2005 and 2007 that experienced foreclosure in the first two years after origination were mortgage loans with features that the ATR/QM Rule generally eliminates, restricts or otherwise excludes from the definition of a qualified mortgage, such as loans that combined low initial monthly payments with subsequent payment reset or those made with limited or no documentation of the consumer’s income or assets. Loans with these features had largely disappeared from the market prior to the adoption of the Rule, and today they appear to be restricted to a limited market of highly credit-worthy borrowers.”

The report said even though house prices have largely returned to pre-crisis levels, currently 5-8 percent of conventional loans for home purchase have DTI exceeding 45 percent; in contrast, 24 to 25 percent of loans originated in 2005-2007 exceeded that ratio.

The report also noted at the aggregate market level, the Rule does not appear to have materially increased costs or prices, citing the Mortgage Bankers Association’s quarterly Mortgage Bankers Performance Report indicating while costs of originating mortgage loans have increased over the past decade, “there was not a distinct increase around the time of the implementation of the Rule. Similarly, the Bureau’s analysis indicates that the spread between the average interest rate on 30-year fixed-rate mortgages over the relevant Treasury rate has remained constant since the implementation of the Rule.”

Similarly, the second report (https://files.consumerfinance.gov/f/documents/cfpb_mortgage-servicing-rule-assessment_report.pdf) also deems the 2013 Servicing rule as “significant,” saying loans that became delinquent were less likely to proceed to a foreclosure sale during the months after the Rule’s effective date compared to months prior to the effective date. The Bureau estimated if the Rule had not gone into effect in 2014, at least 26,000 additional borrowers who became delinquent that year would have experienced foreclosure within three years of becoming delinquent.

The report also said loans that became delinquent were more likely to recover from delinquency (that is, to return to current status, including through a modification of the loan terms) following the Rule’s effective date. The Bureau estimated if the Rule had not gone into effect in 2014, at least 127,000 fewer borrowers who became delinquent that year would have recovered from delinquency within three years of becoming delinquent.

Also citing MBA data, the report noted some servicers reported “significant ongoing costs” in complying with the Rule. “Larger servicers estimated that the Rule had increased annual costs by amounts ranging from approximately $3.00 per loan to more than $11.00 per loan,” the report said. However, the Bureau said servicers interviewed generally said that the Rule’s early intervention requirements were consistent with their practice prior to the Rule and did not require substantial operational changes other than tracking and monitoring compliance with the Rule’s requirements.

Justin Wiseman, MBA Associate Vice President of and Managing Regulatory Counsel, said MBA staff will review and analyze the ATR-QM Rule assessment, as well as the 2013 RESPA Servicing Rule assessment, in the coming days.

The reports are required under The Dodd-Frank Act, which mandates the Bureau to review some of its rules within five years after they take effect. Both the ATR-QM Rule and the Servicing Rule took were promulgated in 2013 and took effect in 2014.

“Issuance of these reports is not the end of the line for the Bureau,” said CFPB Director Kathy Kraninger. “The agency is interested in hearing reactions from stakeholders to the reports’ findings and conclusions. The Bureau anticipates that continued interaction with and receipt of information from stakeholders about these rules will help inform the Bureau’s future policy decisions.”