There has been a lot of change in mortgage rules in the last few years, many of which were designed to better protect consumers from predatory or problematic lending practices, and now those protective measures seem to be becoming points of contention.
Two regulatory changes to the ways in which mortgages are handled, one which already happened and another that seems at least a few months away, are at the center of a political controversy in Washington, D.C., according to a report from the Capitol Hill news site Politico. The first is a rule put into effect by the Consumer Financial Protection Bureau earlier this year which mandates a number of ways in which lenders have to verify that a person can afford a loan for which they are applying to have it count as a “qualified mortgage.” The point of the rule is to both make sure that lenders do not begin granting unsafe mortgages as they did prior to the recent recession, but also to give banks a better chance of avoiding the losses that typically come with loans that slip into default.
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The other regulation, which is expected to be put forward around midyear by a number of regulatory bodies, including the Federal Reserve Board and the Federal Deposit Insurance Corp., involves the ways in which lenders are allowed to sell packages of mortgages to investors, the report said. This is because while the CFPB has defined its own “qualified mortgage” rules, the other regulatory bodies have not defined what constitutes a “qualified residential mortgage,” meaning that there may be some ambiguity and even confusion about the process.
Some experts have advocated that the rules for QRMs should just mirror those for QMs, which would help to clarify the entire process, the report said. If one regulatory agency holds mortgages to one standard, and others to another, that could make the market significantly more complex not only for lenders, but for borrowers as well, as any discrepancy would likely lead mortgage issuers to simply comply with whichever was more stringent. That, in turn, could make it more difficult for would-be borrowers to obtain home loans.
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Currently, many experts say that it’s already difficult for consumers to get mortgages because lending remains particularly tight for this type of credit, even as it has broadened significantly for most other types of credit in the last few years.