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CFPB Delays Qualified Mortgage to Get More Data

June 1, 2012

On Thursday May 31, 2012, the Consumer Financial Protection Bureau (CFPB) announced that it would be seeking additional information on loan performance with regard to Debt to Income (DTI) ratios and a few other factors. 

This is widely believed to be part of an effort to further develop a (DTI) test as part of the Qualified Mortgage (QM) test.  If a lender meets the test and makes a QM, they will receive yet to be determined legal protections if a borrrower challenges whether they met the ability to repay requirements of the Dodd-Frank Wall Street Reform and Consumer Protection Act.

In addition, the CFPB is seeking data on the litigation risk of giving a "safe harbor" for those who meet the QM test or a "rebuttable presumption."  The safe harbor is widely viewed  as a better protection against litigation risk because if a safe harbor is met, the legal case ends there in an early stage. With a rebuttable presumption, the borrower must merely allege facts to rebut the presumption in order to continue the litigation often at great expense to the lender. 

It is thought that if there is not a safe harbor, lenders will tighten credit and stay well within the QM test whereas with a safe harbor they would lend up to the limits of QM in most situations.  The QM is widely expected to be the standard for lending for years to come.

CFPB Release and Links