Why the CFPB’s Qualified Mortgage Rule Misses the Mark
Ian Ayres & Joshua Mitts
Last Friday, the Consumer Financial Protection Bureau’s “qualified mortgage” rule went into effect. This rule is designed to put an end to the risky lending practices that led to the financial crisis. But a simpler rule could better assure borrowers’ ability to repay and simultaneously create greater repayment flexibility.
The purpose of the QM rule is to help assure that borrowers have sufficient monthly income to make their required mortgage payments, lessening the risk of large-scale defaults like those experienced after 2008. The rule creates a lender safe harbor for qualifying mortgages. Lenders can still make non-qualifying loans, but must instead meet more onerous multi-factored underwriting standards. Qualifying loans reduce the risk that lenders will be held liable under Dodd-Frank for failing to make a “reasonable, good faith determination of a consumer’s ability to repay.”