The Federal Reserve recently published its quarterly “Senior Loan Officer Opinion Survey on Bank Lending Practices,” based on a survey of large domestic and foreign banks. The survey suggested that the implementation of Ability-to-Repay and Qualified Mortgage rule has resulted in lenders making fewer loans. Under the Dodd-Frank Wall Street Reform and Consumer Protection Act, the Consumer Financial Protection Bureau put into action the Ability-to-Repay and Qualified Mortgage rule earlier this year, requiring creditors to make good-faith and reasonable assessments of a consumer’s ability to repay any loan secured by a dwelling prior to extending credit. Under the Ability-to-Repay rule, lenders must perform certain due diligence to ensure a borrower’s creditworthiness and financial ability to make payments toward a sought-after loan, including the use of reasonable third-party records to verify all information on which it relies. After complying with the requirements under the Ability-to-Repay rule, creditors may be able to originate Qualified Mortgages. Qualified Mortgages were designed to limit high-risk loan products, while offering lenders greater legal protection.
Specifically, the Federal Reserve reported:
Only a small fraction of large banks indicated in the survey that the new rule has affected their approval rates for prime conforming mortgages, while a more substantial share of the other [banks] reported that the rules were lowering their approval rates on such loans … . In contrast, more than half of the respondents indicated that the ATR/QM rule has reduced approval rates on applications for prime jumbo home-purchase loans. Among the institutions indicating lower approval rates for such loans, most reported that each of the following provisions were important reasons for the lower approval rates: the ATR provisions that require mortgage originators to evaluate income and to assess credit history, assets, and debt payments; and the QM provision that caps the borrower’s back-end debt-to-income ratio at 43 percent. Finally, more than half of the 36 respondents that originate nontraditional mortgages also indicated lower approval rates on nontraditional home-purchase loans due to the ATR/QM rule.