Saturday, January 12, 2013

Securities Industry Applauds CFBP for Including Safe Harbor in Definition of Qualified Mortgage

The securities industry is pleased that the Consumer Financial Protection Bureau regulations implementing Dodd-Frank Act requirements that mortgage lenders consider consumers’ ability to repay home loans before extending them credit contains a true legal safe harbor for mortgages that fall within the scope of the qualified mortgage definition. The Dodd-Frank Act provides that qualified mortgages are entitled to a presumption that the creditor making the loan satisfied the ability-to-repay requirements. However, the Act did not specify whether the presumption of compliance is conclusive, thereby creating a safe harbor, or is rebuttable. The regulations provide a safe harbor for loans that satisfy the definition of a qualified mortgage

In a statement, SIFMA said it believes that few rebuttable presumption loans are likely to be made and that safe harbor loans will define the market. Therefore it is critical that appropriate, balanced parameters be chosen. SIFMA urged the CFPB to show similar flexibility, inclusiveness, and responsiveness to feedback and be willing to calibrate various parameters of the rules prior to the implementation date.

SIFMA notes that the qualified mortgage definition is a key first step of housing finance reform, which is essential to revitalizing the flow of capital to the private securitization markets and increasing the availability of credit to U.S. consumers. As regulators continue to finalize new rules, including risk retention rules and the associated qualified residential mortgage definition and the capital rules that apply to mortgage lending and securitization, it is vital that they coordinate to ensure that all the rules work together seamlessly. SIFMA cautioned that a failure to coordinate these new rules could lead to conflicting and restrictive regulation that would slow the flow of credit to consumers and hamper the housing market recovery and economic growth. SIFMA said that the qualified mortgage definition is very important since it will set the
parameters for the vast majority of mortgage lending in the United States.

On July 11, 2012, in Congressional testimony, the securities industry urged the Consumer Financial Protection Board to adopt a safe harbor in the qualified mortgage regulations under the Dodd-Frank Act and reject the alternative of a rebuttable presumption which, according to SIFMA, carries the risk of assignee liability. In testimony before the House Financial Institutions Subcommittee. SIFMA senior official Ken Bentsen, cautioned that a rebuttable presumption in the qualified mortgage regulations would have transferred liability to securitizers and investor, SIFMA urged a safe harbor. Given the impact of assignee liability, SIFMA believes it critical that the final rules provide for certainty of compliance with ability to repay requirements.