CFPB issues two reports concerning mortgage rules

Earlier this month, the Consumer Financial Protection Bureau published two reports assessing the effectiveness of its Ability to Repay and Qualified Mortgage Rule and its mortgage servicing rule.

Earlier this month, the Consumer Financial Protection Bureau published two reports assessing the effectiveness of its Ability to Repay and Qualified Mortgage Rule and its mortgage servicing rule.

The Dodd-Frank Act requires the CFPB to review some of its rules within five years after they take effect. In both assessments, the bureau used both its own research and external sources to evaluate the effectiveness of the rules in meeting both the purposes and objectives of the bureau and also the specific goals of each rule as stated by the bureau prior to the rules’ effective dates. 

The 2013 Ability-to-Repay and Qualified Mortgage Rule took effect on Jan. 10, 2014. In general, the Ability-to-Repay and Qualified Mortgage Rule requires creditors to make a reasonable, good faith determination of a consumer’s ability to repay a loan based on documented information before issuing a residential mortgage loan.

The report, found here, found that approximately 50 to 60 percent of mortgages originated between 2005 and 2007 that experienced foreclosure in the first two years after origination were loans with features that the ATR/QM Rule generally eliminates, restricts, or otherwise excludes.

Further, the report concluded that loans with higher debt to income ratios, which is a factor generally required to be considered in making ATR determinations, are historically associated with higher levels of delinquency. Those loans are constrained by a combination of the ATR requirement and other regulatory factors.

The 2013 RESPA Mortgage Servicing Rule took effect on Jan. 10, 2014. The 2013 RESPA Mortgage Servicing Rule granted borrowers new consumer protections related to mortgage loan servicing, many of which were aimed at helping consumers who were having trouble making their mortgage payments. The REPSA report, found here, found that after implementation of the rule, delinquent loans were less likely to proceed to foreclosure, and delinquent loans were more likely to recover.

The unique statutory requirement of rule evaluation places a responsibility on the Bureau to evaluate whether a rule “is achieving its intended objectives,” or whether it is having unintended consequences.

“I see this as a valuable opportunity to assure that public policy is being pursued in an efficient and effective manner,” said CFPB director Kathleen L. Kraninger, “and to facilitate making evidence-based decisions in the future on whether changes are needed.”