Coalition urges CFPB to ditch DTI requirement for qualified mortgages

Co-Founder and CEO Gary Acosta is quoted as a key coalition of NAHREP and other industry groups call on CFPB to maintain alternative qualification options for homeowners, increasing access to mortgages.

By Arnie Aurellano

September 11, 2019


A broad coalition of mortgage-industry groups and lenders is calling for the Consumer Financial Protection Bureau (CFPB) to remove the debt-to-income (DTI) ratio requirement from the ability-to-repay standard for qualified mortgages.

The coalition of 23 entities, which includes a diverse swath of lenders, housing organizations and advocacy groups, pushed for the change in a letter responding to the CFPB’s announced intention to let the “GSE patch” expire in January 2021. The coalition offered a “consensus proposal” for the ability to repay/qualified mortgage rule, eliminating the DTI-ratio requirement to coincide with the patch’s expiration.

“The GSE Patch has provided an alternative to the DTI ratio threshold, as well as relief from the rigid requirements for verifying and calculating income, assets, and debts for DTI ratios under Appendix Q for non-W-2 wage earners,” the coalition’s letter stated.

The letter went on to say that “the GSE Patch has facilitated access to homeownership for approximately 3.3 million creditworthy borrowers who collectively represent nearly 20 percent of the loans guaranteed by the GSEs over the last 5 years. …  But lending outside of the Patch and the Federal Housing Administration channel has been limited largely because of the difficulty of complying with QM’s hard DTI cap and the related requirements of Appendix Q, while the Patch has provided the regulatory certainty that was far more attractive to lenders.

“After the Patch expires, the best way to enable fair market competition across all lending channels while also ensuring that these creditworthy individuals can be served in a safe and sound manner under the existing ATR-QM framework is to eliminate the DTI ratio for prime and near-prime loans and with it Appendix Q.”

Beyond removing the DTI requirement, the coalition appears to be OK with the QM rule as currently written. The letter also calls for the CFPB to “maintain and enhance the existing ATR regulatory language” and “maintain the existing QM statutory safe product restrictions that prohibit certain risky loan features,” such as loan terms longer than 30 years, negative amortization and interest-only payments.

The 23 groups pushing for the change are the American Bankers Association; Asian Real Estate Association of America; Bank of America; Bank Policy Institute; Caliber Home Loans; Consumer Bankers Association; Center for Responsible Lending; Credit Union National Association; Housing Policy Council; The Leadership Conference; Mortgage Bankers Association; Manufactured Housing Institute; NAACP; National Association of Hispanic Real Estate Professionals; National Association of Real Estate Brokers; National Community Reinvestment Coalition; National Council of State Housing Agencies; National Fair Housing Alliance; National Housing Conference; National Housing Resource Center; PNC; Quicken Loans; and Wells Fargo.

The list includes several powerful trade organizations and mortgage-industry juggernauts, including four of the largest mortgage lenders in the nation. Whether that gathering of clout, will be enough to sway the CFPB, however, remains to be seen. The coalition’s recommendation may already have one large roadblock in place: The Trump administration’s recently released plan to free Fannie Mae and Freddie Mac from government conservatorship appears to indicate that the U.S. Department of the Treasury is wary of revising guidelines in Appendix Q.

Still, the coalition presents a strong message backed by its unity and diversity. Some of its members have reached out to elaborate on the importance of the proposed change to their stakeholders as well as the market at large.

For example, Gary Acosta, CEO and co-founder of the National Association of Hispanic Real Estate Professionals, said that accounting for Latino-borrower demographics through elimination of the DTI requirement would be pivotal to the continued health of the housing market.

“Household formation growth is being largely driven by communities of color throughout the nation,” Acosta said. “Hispanics are projected to account for 56 percent of all new homeowners between 2020 and 2030. However, communities of color are more likely to have lower incomes, live in multi-generational households, have thin to no traditional credit history, be self-employed and participate in the gig economy. If the mortgage market fails to support those potential new homeowners along their home buying journey, the nation will bear the economic consequences.”