Cordray Says Lenders Ready for Compliance With Mortgage Rule

Mortgage lenders will be ready to follow a new underwriting rule that takes effect in January, the director of the Consumer Financial Protection Bureau, Richard Cordray, said today.

“Most of the institutions have told us that they will be in compliance,” Cordray said at a hearing of the House Financial Services Committee in Washington.

As part of its overhaul of mortgage rules in the wake of the 2008 financial crisis, CFPB finalized a regulation in January, to take effect one year later, that imposes new mortgage underwriting requirements on lenders. In exchange, they can receive a measure of protection from lawsuits associated with loan origination.

Among the requirements of the qualified mortgage rule, as it is called, is that lenders take certain steps to confirm a borrower’s ability to repay the mortgage. The rule will apply equally to banks such as Wells Fargo & Co. and JPMorgan Chase & Co. that originate mortgages, and non-bank lenders such as Ocwen Financial Corp. and Nationstar Mortgage Holdings Inc.

Smaller banks have complained that the rule is burdensome enough to drive them out of mortgage lending. Cordray stressed that there are exemptions that often apply to them. For example, if a bank keeps a loan in its portfolio and has less than $2 billion in assets, the loan is automatically a qualified mortgage.

“Many of them don’t seem to fully appreciate that,” Cordray said. Later he added, “it would be a bad business decision if they left that money on the table and did not make those loans.”

Some Democrats who support the CFPB also raised the issue of the regulatory burden associated with the qualified mortgage rule.

“Paperwork is a nebulous term until you see what paperwork means to a smaller bank,” Representative Al Green, a Texas Democrat, told Cordray.

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