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July 12, 2012 – Witnesses in a hearing Wednesday on Dodd-Frank Act residential mortgage underwriting standards echoed concerns raised by NAFCU in its discussions with and comments to the Consumer Financial Protection Bureau regarding what will be defined as a qualified mortgage.

The hearing, by the House Financial Services Subcommittee on Financial Institutions and Consumer Credit, heard the views of banking, real estate and consumer interests on the Dodd-Frank Act's home mortgage reforms.

Industry witnesses were in agreement in noting potential litigation issues associated with the CFPB's proposed rule on mortgage borrowers' ability to pay. The proposed rule seeks input on whether mortgages challenged under the ability-to-pay standard should be protected by a safe harbor if they meet the definition of a "qualified mortgage"; or if a rebuttable presumption of compliance will suffice. Witnesses said the QM definition, without a safe harbor, will draw challenges from those determined to sue.

Capito said she supports a clear safe harbor. The panel's ranking member, Rep. Carolyn Maloney, D-N.Y., was not so certain. Rep. Stephen Lynch, D-Mass., said a safe harbor would be inadequate in holding lenders responsible for ensuring the loans they issue are made with the borrower's ability to pay in mind.

Capito also noted the Dodd-Frank Act's risk retention rule. Banking and housing regulators have proposed a definition of "qualified residential mortgage" that would be exempt from the risk retention measure. Capito wondered whether that rule would be so prescriptive that small lenders leave the market. Debra Sill, chairman-elect of the Mortgage Bankers Association, said the compliance burden creates a significant liability for small lenders.