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Regulators Address QM Disparate Lending Concerns

Federal regulators issue interagency statement

Oct. 22, 2013

By Mortgage Daily staff

Concerns about whether mortgage lenders would be liable for discriminatory lending because they originate Qualified Mortgages were addressed by federal regulators.

An interagency statement was issued Tuesday by financial regulators about disparate impact liability for lenders that issue only QMs.

The statement was jointly released by the Consumer Financial Protection Bureau, Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corp., National Credit Union Administration and Office Comptroller of the Currency.

According to the statement, creditors have been inquiring about if they would be liable under the disparate impact doctrine of the Equal Credit Opportunity Act and Regulation B, which implements ECOA, if they originate only QMs as defined by the CFPB's Ability-to-Repay and Qualified Mortgage Standards Rule.

The recently issued rule, which implements provisions of the Truth in Lending Act, takes effect in January.

According to the statement, the regulators view the requirements of the Ability-to-Repay Rule and ECOA as compatible.

"ECOA and Regulation B promote creditors acting on the basis of their legitimate business needs," the statement said. "Viewed in this context, and for the reasons described below, the agencies do not anticipate that a creditor's decision to offer only Qualified Mortgages would, absent other factors, elevate a supervised institution's fair lending risk."

The regulators noted that there are several ways to satisfy the Ability-to-Repay Rule.

This includes making responsibly underwritten loans that are not QMs. The CFPB acknowledged that it is not possible to define by rule each instance when a home loan is affordable for the borrower.

But still, creditors might choose to predominantly originate QMs when the Ability-to-Repay Rule first takes effect, and the rule includes transition mechanisms that will preserve access to credit during the transition period.

Regulators expect creditors to consider demonstrable factors that may include credit risk, secondary market opportunities, capital requirements and liability risk -- and the new rule doesn't dictate how they balance these factors.

"As creditors assess their business models, the agencies understand that implementation of the Ability-to-Repay Rule, other Dodd-Frank Act regulations, and other changes in economic and mortgage market conditions have real world impacts and that creditors may have a legitimate business need to fine-tune their product offerings over the next few years in response," the statement said.

The regulators noted that creditors might find that loans currently eligible for sale on the secondary market are already QMs under the transition provision, which gives QM status to most agency loans.

As far as fair lending concerns go, the regulators suggest that the current situation is similar to historical challenges to developing product offerings .

"Some creditors, for example, decided not to offer 'higher-priced mortgage loans' after July 2008, following the adoption of various rules regulating these loans or previously decided not to offer loans subject to the Home Ownership and Equity Protection Act after regulations to implement that statute were first adopted in 1995," the statement said. "We are unaware of any ECOA or Regulation B challenges to those decisions."

The regulators said that lenders should continue to evaluate fair lending risks in the same manner they would for other product offerings. They should carefully monitor their policies and practices and implement effective compliance systems.

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