CFPB Seeks Further Comment on Ability-to-Repay Mortgage Rule

Bureau Asks Public to Weigh in on New Data and Information

WASHINGTON, D.C. — Today the Consumer Financial Protection Bureau (CFPB) announced that it is seeking public comment on new data and information that it has received in a rulemaking to require lenders to assess consumers’ ability to repay mortgage loans before extending them credit. The comment period will close on July 9, 2012.

“Through our ability-to-repay rule, we want to ensure that consumers are not set up to fail with mortgages they cannot afford and we want to protect access to affordable credit,” said CFPB Director Richard Cordray. “We are committed to gathering solid data to inform this important rule. This notice gives the public an opportunity to comment on the information we have received so far, as well as an opportunity to submit additional data.”

The notice to reopen the comment period is available at https://www.consumerfinance.gov/f/201205_cfpb_Ability_to_Repay.pdf

In the run-up to the financial crisis, many borrowers were sold mortgages that they could not afford to pay back. In response, the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) requires lenders to make a reasonable and good-faith assessment of consumers’ ability to repay their mortgages. As part of the broader ability-to-repay mandate, Congress also designated “qualified mortgages,” which are structurally safer and are underwritten according to standards that make it reasonable to expect that borrowers have an ability to repay.

The Board of Governors of the Federal Reserve System issued a proposal on how to implement the new requirements in May 2011. The public comment period for that proposal closed just after the CFPB inherited the implementation authority in July 2011.

The notice to reopen the comment period explains that the CFPB has received data from the Federal Housing Finance Agency (FHFA) tracking the performance of loans purchased or guaranteed by the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac) from 1997 to 2011. The CFPB has also obtained data on other securitized mortgage loans.

The data can be used for a variety of analyses, such as modeling the relationship between ability to repay and variables such as consumers’ ratios of debt to income. Some have urged the CFPB to adopt a debt-to-income threshold when defining “qualified mortgages.”

The notice seeks comment on the data, and requests similar information regarding other types of mortgage loans. It also seeks data on the relationship between ability to repay and other potentially relevant factors such as borrowers’ cash reserves. In addition, the notice summarizes analysis and information that the CFPB has received about the potential risk of litigation in connection with the new requirements and seeks additional data from the public about this issue.

The notice is focused narrowly on these data issues and does not reopen comment on other aspects of the proposed rule. The comment period will conclude on July 9, 2012. The CFPB expects to issue the final rule before the end of 2012. The rule is required under the Dodd-Frank Act by January 2013.