Federal legislators are pressuring the Consumer Financial Protection Bureau to modify a new mortgage rule so that community banks can continue to make loans, The Wall Street Journal reported May 21.
During a House hearing, CFPB officials received numerous complaints from both Democrats and Republicans, who claimed that the new rule, published in January 2013, will result in a reduction in lending — especially at small banks.
The regulator’s mortgage-lending standards were mandated by the Dodd-Frank Act of 2010 and were designed to ensure that lenders consider consumers’ ability to repay their mortgages.
When the ability-to-pay rule was announced, the initial response from banks and consumer advocates was positive, and they praised CFPB for creating a manageable rule. However, many small lenders have told their congressional representatives that the rule would curtail the availability of loans to certain borrowers, the Journal reported.
The lawmakers appear to be moved.
“We’re all unhappy,” said Rep. Gary Miller, R-Calif., the Journal reported. “It appears to me that the rule is much more restrictive than the legislation that enabled you to do what you’re doing.”
Several legislators expressed concern that the rule doesn’t offer small lenders enough flexibility to make loans with balloon payments — a product that requires a sizeable final payment of the principal balance.
Those loans connect to the CFPB’s ability-to-repay structure for loans that lenders keep on their books in some rural areas, and lawmakers want to see those areas expanded, the Journal reported. The Independent Community Bankers of America is lobbying to have the definition of “rural” adjusted to include areas with fewer than 50,000 residents.
According to the Journal, another contentious issue is a part of the rule that mandates a fee cap of 3 percent of the total amount. CFPB officials still are deciding which fees should be tied to the cap.
At the hearing, two CFPB officials in charge of the mortgage regulations said they are considering a number of adjustments. “We will continue to watch the health of mortgage markets once this rule takes effect to ensure it is working as we expect it will,” Peter Carroll, the regulator’s assistant director for mortgage markets, said, the Journal reported.