Public Comment Comment Letter to the Consumer Financial Protection Bureau on the Qualified Mortgage Rule
Karan Kaul, Laurie Goodman, Jun Zhu
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The January 2021 GSE patch expiration is an opportunity to update the qualified mortgage (QM) rule to make it work better for future borrowers. Evidence presented in this brief shows that the debt-to-income (DTI) ratio is a weaker predictor of default than other risk measures and that its centrality to the current QM rule distorts the market by misrepresenting true loan risk. Karan Kaul, Laurie Goodman, and Jun Zhu recommend that the Consumer Financial Protection Bureau, accordingly, eliminate the DTI cap from the current QM framework. Restrictions on risky features and products should remain in place. As today, rate spread should continue to determine which loans qualify for safe harbor although the rate spread threshold should be increased from 150 to 200 basis points.

Research Areas Wealth and financial well-being Race and equity Housing finance Housing
Tags Federal housing programs and policies Asset and debts Racial and ethnic disparities Housing and the economy Single-family finance Agency securitization Credit availability Housing finance reform Homeownership Financial products and services Housing affordability Inequality and mobility Finance Racial barriers to housing Racial homeownership gap
Policy Centers Housing Finance Policy Center