[Update 1: Cordray corrects his timing of finalized rule]
The Consumer Financial Protection Bureau will spend the first half of 2012 finalizing the wide-reaching qualified mortgage standard, its new director told Congress Tuesday.
CFPB Director Richard Cordray said his office has received “hundreds, if not thousands” of comments on the pending QM proposal. Many top mortgage executives at the largest banks believe the rule will set the market for years to come, and a critical detail could affect foreclosure proceedings in the future.
“I don’t have an outcome for you today. It is something that is very much on our minds,” Cordray said. “But we need to move it along.”
Authority to write the rule under the Dodd-Frank Act transferred from the Federal Reserve to the CFPB at the beginning of the year. Cordray said a QM finalized rule is expected by the summer and the bureau will the spend the rest of 2012 working on other mortgage-related rules.
The rule will essentially set the market for what mortgage lenders are legally required to consider when determining a borrower’s “ability to repay.”
“You wouldn’t think that you wound really need a rule that a lender would have to pay attention to whether or not a borrower could repay a loan,” Cordray said.
But securitization and other incentives warped this common-sense approach leading up to the crisis, he added.
In his first two hearings before Congress, Cordray weathered mostly political rhetoric and challenges regarding his recess appointment. But Tuesday, Sen. Kay Hagan, D-N.C., was the first to ask about the controversy surrounding QM.
One version of the QM rule would allow lenders to originate “qualified mortgages” under a legal safe harbor, provided the loans do not have certain features such as negative amortization, balloon payments, interest-only payments, or terms exceeding 30 years. As long as the bank stays within these guidelines, it will be in compliance.
Another direction for QM provides a “rebuttable presumption of compliance” clause, meaning the lender is presumed compliant as long as it follows guidelines in the first option and also verifies the borrower’s employment, debt-to-income ratio and credit history.
According to some, the “rebuttable presumption” would mean any future foreclosure would be thrown into court. Foreclosure defense attorneys will able to challenge whether or not the loan being foreclosed upon was QM compliant, and if it wasn’t, judges could award TILA damages to the borrower.
Should Republicans challenge the legality of Cordray’s recess appointment and win, the CFPB would still have the authority to propose and finalize the QM rule. The new regulator has this power, even without a director, for rules transferred to it from another federal agency.
Regardless, Cordray said he doesn’t think the political controversy surrounding his appointment will effect the QM progress and other work under way at the bureau.
“I don’t know it will impact it at all,” Cordray said.
Write to Jon Prior.
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