The CFPB's Proposed QM Rule Will Responsibly Ease Credit Availability

Brief

The CFPB's Proposed QM Rule Will Responsibly Ease Credit Availability

Data Show That It Can Go Further

Abstract

The Consumer Financial Protection Bureau (CFPB) is on the verge of revising the qualified mortgage (QM) rule by proposing to move away from a debt-to-income-centric rule to one based on pricing. This change will meaningfully expand access to credit for first-time homebuyers and minorities, while keeping defaults low. At the same time, the proposed price caps for safe harbor and qualified mortgages will prove inadequate given the strong likelihood of price increases under the Federal Housing Finance Agency’s proposed government-sponsored enterprise capital rule. In light of this, and the low incremental default risk, we urge the CFPB to increase the safe harbor cap to 200 basis points and the QM cap to 250 basis points. Doing so would substantially improve access to credit relative to the proposed caps. It would also align conventional and Federal Housing Administration safe harbor caps and leave the QM rule with a buffer to absorb the impact of future price increases. At a minimum, the CFPB should pave the way for an automatic annual re-evaluation of rate spreads and adjust the caps to keep the market functioning smoothly at all times.

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