An Agency Designed to Guard Against Unscrupulous Bankers Is Now Lending Them a Hand
Get ready for housing crash 2.0. Families are being targeted once more with predatory mortgages. But this time the agency once charged with protecting borrowers has lessened restrictions on lenders and limited the period during which consumers can defend against foreclosures.
As most of the Trump administration is heading out the door, a holdout regime at the Consumer Financial Protection Bureau has rushed out two rules that will strait-jacket borrowers and protect lenders.
“Combined, the new CFPB rules likely will lead to more foreclosures while letting mortgage lenders off the hook for peddling loans that people cannot afford to pay over the long term,” said a National Consumer Law Center attorney, Alys Cohen.
The bureau is making it easier for lenders to push costly loans onto homebuyers while severely limiting the time financially troubled borrowers have to fight foreclosures.
The CFPB rewrote a requirement that loan payments not exceed 43% of a household’s income with a much looser “ability-to-pay” requirement for new “qualified mortgage” loans. The bureau also created a new category of “seasoned” qualified mortgages, which lenders can sell or transfer to other companies sooner than the 36 months formerly required.
Both rules were adopted formally on Dec. 10 and will go into effect 60 days after they are published in the Federal Register.
But the arcane, jargon-laden descriptions of the new rules mask what’s really going on. The bureau is making it easier for lenders to push costly loans onto homebuyers while severely limiting the time financially troubled borrowers have to fight foreclosures.
Qualified mortgages were a post-housing-crisis solution, via the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, to shelter low-income homebuyers from slick home sellers good at pushing small, more expensive loans on buyers who won’t be able to sustain them. But, contrary to the Dodd-Frank Act, which allowed homeowners to fight foreclosure in case of a hardship any time during the life of the debt, the bureau’s new “seasoned qualified mortgage” rule cuts that period to just three years.
And the rule ignores options provided by government-owned home-financing Fannie Mae or Freddie Mac for affordability, such as the borrowers’ budget or cash flow, instead of using the price of the loan.
Not surprisingly, both new rules were welcomed by the lending and home-building industries while criticized by consumer groups.
The National Association of Realtors welcomed the new rules. Charlie Oppler, president of the trade group, said the new rules replace the “onerous 43% debt-to-income requirement while working to balance the best interests of consumers, American real estate, and our nation’s economy.”
But Antonio Carrejo, policy counsel for Consumer Reports, called the CFPB’s action “another disappointing example of how the bureau has stepped back from enacting strong rules to protect consumers.”
Critics of the new rules have charged that the new directive “will allow the agency and others to circumvent the regulatory process. Congress and the states should fill the void and take action to stop abusive debt collection practices and other financial scams,” said Carrejo.
With a COVID-19 freeze on student loan payments running out at the end of this year, a return to normality at the bureau can’t happen fast enough.
Former CFPB student loan ombudsman, Seth Frotman, who resigned in protest in 2018, is looking to better times. “We’ve seen how the current administration has pulled back on every single one of those [protections],” said Frotman, who became executive director of the Student Borrower Protection Center. “The bureau with the right person put in place on day one has the power to nearly immediately use all of those tools.”