Transcripts For CSPAN Housing Policy And Homeownership 20140111

Employment, again, a bill that passed with significant bipartisan support in the United States senate. We see no reason why it could not be passed. If it was put on the floor, we think it could get bipartisan we think ad significant number of republicans in the and democrats would be for it. We would like to see a greater investment in infrastructure and job creation. The American Public that ought to be our number one priority. Those are just some of the issues that we would hope would be addressed and that we could accomplish in the second session of the congress. Thatu can see all of interview with maryland congressman steny hoyer tomorrow when newsmakers airs at its regular time 10 00 a. M. And 6 00 p. M. Eastern here on c span. I think that there is a way in which we have set up this impossible series of expectations, especially for our president s, but for elected officials as a whole, that they are going to come in, swooped in, save the day, and when it does not happen, we give congress the 9 Approval Rating in the president 39 Approval Rating. Expectations have to be lowered, and that is part of what is really quite amazing about the american founding. It is not that the founders themselves said, dont expect much from government. It is, government is not going to be the main driver of our liberty. It is going to be civil society. The federal government exists to do certain things, and it better do them well. If it does not do them well, nothing else will be properly situated, but the main area of activity is going to be in the private sphere, in civil society, and in the election of local officers and the carrying out of duties at the local and state level, and there is even in that, i think, a measure of modesty, of recognizing that it is not possible for people from washington, d. C. , to run a nation of 310 million people. Onavon bob david bobb , sunday night on c spans q a. Consumer Financial Protection Bureau joins executives from the National Association of realtors to talk about housing policy and new lending rules that recently went into effect. This is an hour and a half. Good morning. I am the 2014 president elect of the National Association of realtors. Onlyng around, im the practitioner in here that actually lists themselves real estate for a living. I have been doing that for 25 years. I live in Hot Springs National park of arkansas. Each of you for helping the National Association of realtors start the year off. Ith this discussion today we are going to talk about the to payroll. We are going to talk about mortgage lending and what effect the consumer Financial Protection Bureau new rules coming into effect this friday might have on that process. Its an issue thats very important to the real estate industry. It is also very complicated. People have worked long hours to sort out the implications of specific language designed to improve the loan experience for consumers. Through it all, there has been a common goal to ensure Consumer Protection from risky loans but maintain their ready access to credit a tough balance. We have been very involved in shaping the debate surrounding as for theas well important qualified mortgage provision as well. To give you an idea of how we got to where we are today, i thought we all we ought to do. Little background following the financial crisis related to mortgage lending, lawmakers passed and this is a mouthful the dodd frank wall street reform and Consumer Protection act. We have shortened that, thank goodness, but it was signed into law in july 2010. Its purpose was to strengthen the Regulatory Environment and to protect consumers. As written, the rule includes and says provisions that lenders must make responsible, good faith determination that a mortgage is andrdable to the consumer, thats why it is commonly referred to as the ability to. Epay rule it sounds simple, and you would not think it would have needed a law to tell lenders they should make a borrower be able to repay before they lend the money. When i was a lender, we called that banking 101. But it back to the crazy loans. Ade back in 2004, 2005, 2006 you can see why such a rule may have been necessary. Policy supporting this concept went back as far as 2004. To be a qualified mortgage and receive safe harbor protection, the loan must have relatively low points and fees and must follow a number of underwriting guidelines. They must not contain risky features such as interestonly payments or payments that are less than the full amount of so that the borrowers debt might increase as the loan progresses. It cannot exceed 30 years as far as a term. Finally, the borrowers debt to income ratio must not exceed 43 of their gross income before. Axes certain government issued loans, such as fha, you probably know, that are insured by fha are exempt. There is, however, one additional area where we have concerns. Ande a qualified mortgage the seat safe harbor protection, fees and points cannot exceed dirty three percent of the total loan amount. The problem is that under this rule, affiliated and non affiliated firms are treated differently. It is our view that this would be a disadvantage to many real estate affiliate lenders and, more importantly, reduce the available to consumers of where they can get a mortgage. Lender the unaffiliated must be have the filing company, the bottom line is the consumer will still pay the same fee. Mortgage backers have affiliated with affiliated Companies Involved in the transaction have to count more items toward fees than our large Financial Institutions such as Title Insurance charges, escrow for homeowners insurance. It is our view that this would disadvantage many real estate affiliated lenders, thereby again reducing the choice to consumers of where they can go get that mortgage. The Mortgage Choice act introduced by both the house and senate, would address this issue. It would, in our opinion, level the playing field. By not counting the affiliated title these toward the three percent cap, the same way the unaffiliated title fees are. Reated it would also remove being the requirement account escrow from insurance from fees and point calculation, and since the cap impacts lowpriced loans more than highpriced loans, it would give low and moderate income buyers the same choice for mortgage providers as wealthy buyers have. This is the remaining major issue on which the National Association of realtors continues to push for resolution. We believe a legislative fix is necessary to fully address this discrimination and provide greater access to consumers. Nar strongly supports mortgage lending, a fair and transparent process for consumers. The ability to payroll will go a long way toward ensuring a safer lending environment to consumers. It has been suggested that the theule covers about 90 of mortgages made today. I have seen that number as high as 95 . You know that 90 of loans that 757 stilldit score of limits us quite a bit. But wers will make think lenders will make non queuing loans, so the rule should have little impact on the market lenders will make non qm loans. We hope this is correct. We will continue to monitor the impact of the loans on consumers, including these important new protections, and work with cfpb and others to make sure consumers maintain access to affordable mortgage credit. At this time, i would like to introduce a man, whom we all know, is working hard for the consumer everywhere. Of thest erector consumer Financial Protection Bureau, Richard Cordray the first director. Mr. Cordray, where honored you would join us here today to discuss the ability to repay rule and many issues surrounding qualified mortgages. For those of you who probably already most of you probably already know this, but before joining the bureau, mr. Cordray served on the frontline of Consumer Protection as ohios attorney general. There, he recovered more than 2 billion for ohio retirees, investors, and business owners. He took major steps to strengthen protection against fraudulent foreclosures and financial predators. And franklinurer county treasurer, he led the state and county banking, investment, debt, and financing activities. Early in his career, mr. Cordray served as state representative for the 33rd ohio House District and was the first solicitor general in ohio history. What some of you may not know is argued. Cordray has seven cases before the United States supreme court, both for the clinton and bush justice department. He is a graduate of Michigan State university, oxford university, the university of chicago law school. Speaks,ter mr. Cordray we will do some q a. Then i will be back at that time. Without further ado, ladies and gentlemen, please help me welcome director Richard Cordray. [applause] thank you, chris. Thank you for those remarks, and i will try to address some of those points as we go through. Thank you all for being here today, and i bring you all good tidings and great joy for the new year. If you are like me, change comes hard, and i will still find myself mistakenly writing 2013 on documents such as personal checks for another few weeks, but there will be big differences between last year and this year and the Mortgage Market with the advent of new mortgage rules that congress required our agency to write against a very strict statutory deadline. That was a great deal of work for us, and i know it has meant a great deal of work for many others as well, so i will focus closely on those issues in my remarks today. The consumer Financial Protection Bureau and the National Association of realtors share an important piece of Common Ground and improving Housing Market will help both of us achieve our primary goals. For you, this is your lifeblood. The core of what you do is help people achieve their dreams of homeownership, by matching them up with a home they can love and sustain for as long as they choose to live there. Or us, too, the Central Point is to improve life or consumers, which requires not just sound Legal Protections but also reasonable access to responsible credit. In the Real Estate Market in particular, most people cannot grow into a Brighter Future for themselves and their families without borrowing against their future to fulfill their deepest aspirations. There are very few families can buy a house with ready cash, so drying up access to credit is neither in our interests nor in yours, nor in the countries. However, ande again i believe we share this goal in common, is a world in which mortgage transactions turned out successfully for both borrowers and lenders. We insist terms of the deal be made clear right up front and that they be described accurately. We insist that those involved must care about and document how the deal will be sustainable over the long run. These simple principles will help us ensure that the Mortgage Market never melts down again the way it did just a few short years ago, making peoples lives miserable in the process, including both realtors and consumers. We are putting that sorry chapter behind us and reaching out for better days ahead. Achieving these goals means satisfied customers for every realtor in america and successful consumers who are benefiting by the work done by our new agency. We now asxactly are we ring in the year in 2014 . Five years after the worst financial crisis most of us have ever known, the economy is growing again. People are getting back on their feet. The job market is rebounding, as are the opportunities the jobs can bring. Best of all, we are poised for greater progress in the year ahead. The consumer Financial Protection Bureau is still in our infancy just two and a half years old but we are already putting hundreds of millions of dollars back in the pocket of consumers. We are helping to resolve complaints submitted to us by tens of thousands of consumers. And we are helping americans make smarter financial choices when it comes to managing savings and credit and to dealing with product like mortgages, bank accounts, student loans, auto loans. Each day, we try to put our best foot or word for American Consumers. Most relevant to those of you in this audience is the work we have been doing to improve the functioning of the Mortgage Market, so let me describe the implementation of our new mortgage rules, which chris spoke to to some degree, which are designed to make the Housing Market work at her for all americans, including all of you realtors and your customers. Past look back over the few years, we can start with something Frank Lloyd Wright once said theres nothing more uncommon than common sense. That quotation epitomizes the heady years preceding the financial crisis of 2008. Reason and sound judgment were absent when many banks and other mortgage businesses lent to consumers without even considering whether they could pay back the money. The supposedly rational market. Ad become wildly irrational then it all blew up. You and all your colleagues saw your business drop like a rock. Waves ofwritten the financial booms and busts before, but nothing like we saw five years ago. The collapse of the Housing Market destroyed jobs across every economic sector, and in the communities you serve throughout the country. Out of this mess came demand for financial reform and, among other things, the creation of the new Consumer Bureau. Consumers want and need someone to stand on their side and provide safeguards against bad mortgage deals that ruin their credit, cost them their homes, and saddle them with additional problems. Of course, consumers have to bear responsibility for their own choices, and they had done so in fees and other charges they cannot afford and foreclosure proceedings that up in their lives and in march credit that hangs over them for rs into the future foreclosure proceedings that up and foreclosure proceedings that upend their lives and in marred credit that hangs over them for years into the future. These are bedrock concepts and new commonsense rules that take effect on january 10. These changes will help each of you in the real estate business by creating a more stable and sustainable marketplace. The first back to basics approach addressed by our new mortgage rules is no debt traps. As you know, if a potential client comes to you wanting to buy a home, they need to assess their choices carefully before signing up or a longterm debt. The proposed terms of the mortgage deal should be clear and understandable. If they do their homework and follow plain logic, they should be positioned to make a responsible decision that they can live with potentially for decades. What they should not have to worry about is getting lowered into a loan that will bring them worry. For most people, their mortgage may well be the largest financial obligation of their lifetime, but it can be difficult to figure out how much house and how much mortgage is the right amount. Consumers can be easily confused by the inc. Intricacies of taxes, escrows, Interest Rates, private mortgage insurance, changing Monthly Payments, and various fees. Most people at all levels of income rely on Real Estate Professionals to tell them how it all works, and they assume that the lender will not lend them money unless the lender is confident they will be able to be pay the loan. If the lender does not even check on the important facts like income, savings, and debt load, it is impossible for a lender to know how much the consumer can spend each month on a mortgage. The lender cannot know whether the consumer can truly afford a loan if the lender only looks at whether the consumer can afford Monthly Payments under an introductory teaser rate, which may be irrelevant after the cheaper rate expires. In the lead up to the crisis, we saw this happen over and over again. Some mortgage businesses stopped their inquiries well sort of the kind well short of the kind of Due Diligence needed to lend responsibly. Some joined their customers to engage in wishful thinking. Some trick people into thinking they can afford loans when they could not. Some actually falsified numbers to make them look like they would work. Certainly, some consumers should have known better and made very bad choices, but too many others did not even recognize the risk they had taken on until it was too late. Realtors were on the front lines. We are all now familiar with the exotic mortgages. We know people took out loans they cannot afford and could only keep up with for the first year or two. We know people signed onto complicated terms with no real comprehension of how the transaction actually works. We know Loan Originators got kickbacks for putting emilys and higher cost loans than they actually qualified for putting families in higher cost loans than they actually qualified for. Our lending compensation pool bars premiums, which create a financial incentive to push people into loans with higher Interest Rates than they qualify for under their credit history. And under our ability to be make a, lenders must now reasonable, goodfaith determination that the consumer can actually afford the mortgage before they take on the debt. Obviously, mortgage lenders do not have a crystal ball. They cannot predict if someone will lose a job or have an unexpected financial emergency, but they must look at the consumers income or assets and weigh them against the Monthly Payments over the long term, not just the teaser rate period. Lenders can then offer any mortgage they believe the borrower can afford to pay back. This is in fact the very foundation of responsible lending, but the financial mentioned,chris happened because some irresponsible lenders chose a different path and many others followed suit to compete with them. Of course, certain types of mortgages are more likely to become a trap for the borrower, so our role lays out basic criteria for loans known as qualified mortgages, which must follow general that to income guidelines. They also cannot have certain risky features such as paying interest only or negatively amortizing, so that each month the consumer owes more than they did before, and the loan must have relatively simple point to fees. I want to raise something that you mentioned. And our judgment, that was the line Congress Drew pretty explicitly in the statute, and we felt obliged to follow it. We also monitor the market as it moves forward to see how this wantts things, and we realtors, among others, to bring information to us as to what you see happening in the marketplace, and we will be openminded in considering what that means. Lenders can choose not to follow these guidelines and simply make a loan based on a reasonable good faith determination that the consumer is able to repay it, but either way, they cannot track consumers in loans that the lenders should recognize are unaffordable. Of course, consumers are dealing with difficult now than they did leading up to the crisis. As Many Americans struggle to pay their mortgages, and millions more are waiting for the market to recover fully before they consider buying a home or selling one that is still under water. For many, the problem is access to credit, which has become achingly tight. Since 2008, most mortgages have been priced under various tracks in terms, but access to credit has become so constrained that many consumers cannot buy a home even with reasonable credit history. Importantly, our rule makes every effort to take careful account of these access to credit issues. Indeed, those lenders that have long upheld strong underwriting standards have little to fear from the ability to be pay rules. Qualified mortgages cover the vast majority of loans made in todays market, but again, as chris said, they are by no means all of the Mortgage Market. This point is quite important and should not be misunderstood. Seen a stronghave performance of their loans over time. Incentive to pay close attention to the borrowers ability to be pay. Nothing about their traditional lending model has changed, and they should continue to offer such mortgages from the evaluators posing reasonable credit risks, whether or not they meet the criteria to be classified as falsified mortgages. We all do that by recognizing lendingaining falsified when we see it in the market, realtors as much as anyone else. Let me take this moment to dispel some myths about what our ability to repay rule does and does not do because rumors continue to circulate. The rule does not mean consumers, realtors, and lenders have to jump through unreasonable hoops to get a loan. Be truth is that lenders likely will be asking a potential homebuyer what responsible lenders have been asking for all along basic things like proof of income or assets. The rule does not mean only qualified Mortgage Loans will be allowed. Lenders can continue to use their own reasonable judgment when looking at a consumers ability to pay. I have said this many times, and other regulators have issued a statement now saying the same thing. Nor does this rule restricts down payments. It says nothing about how much a down payment the consumer has to make on the house but leaves that entirely up to the homebuyer and lender. Finally, for the millions of americans who already own their homes, the ability to repay rule does not change anything about a consumers current mortgage. It only applies to new mortgages that people apply for on or after january 10, 2014. In the end, our ability to be payroll is straightforward. It puts behind us once and for all the kind of irresponsible lending that disrupted the Housing Market and so badly damaged our economy, and it provides strong new Consumer Protections while preserving needed access to mortgage credit. Our second back to basics approach affects the Mortgage Servicing market, which performs so poorly in recent years. The central principles are no surprises and no runaround. Simply put, consumers should not be hit with surprises by those responsible for collecting their payments. If a consumer buys a home and is paying back the mortgage, our bowls require servicers to keep the homeowner informed about the loan our rules require. Consumers should be able to see how payments are credited, should not be caught off guard when Interest Rates adjust, and they should not be slammed with these that seem to come out of nowhere. Our new rules will help every borrower. Consumers will not have to guess how much money they owe or when nato it because servicers must now send monthly statements showing how the credited the monthly payment. The statement puts all the Important Information in one place, showing the interest rate, loan balance, escrow account balance, and where the payments are going, and consumers will get ample notice when Interest Rates adjust. This is valuable practical information to guide peoples choices and actions exactly what they need. For consumers in trouble, getting the runaround is not just frustrating, but it can mean the loss of their home. They need good information and actual help. Our rules require Mortgage Services to provide consumers with available options to save a home or work out a problem making payments. For example, we restrict dual until the borrower has been delinquent for at least 120 days. Once a borrower has missed payments, servicers must reach out and inform them about available options and how to get more information. These rules should help prevent needless foreclosures, which is best for borrowers, lenders, and our entire economy. Our servicing rule has also spawned an erroneous myth that these new measures will bog people down in that tape. On the contrary these measures are not new at all. They are exactly what this community with Good Community banks in Credit Unions have been doing for many years. They amount to little more than taking the time to work with customers to address their circumstances. Simplyt, our rule means that mortgage servicers must now do their job. You know very well, you realtors, how much different this makes. We have heard wendy from realtors around the country who are just as frustrated as consumers at poor Mortgage Servicing practices. Positive improvements in this area will benefit you and your businesses as well as consumers. End a failed process in which too many struggling homeowners can be kept in the dark about where they stand. Too Many Americans have been forced to roll this rock up the hill only to see it roll down again repeatedly. People deserve better. They are entitled to be treated with respect, dignity, and fairness. Our new servicing rules will help ensure that happens. Importantly, these new mortgage rules will have to be followed by nonbanks and banks alike, so it no longer matters whether a loan is made by a bank or some other kind of financial firm. It also no longer matters whether a bank or nonbank is playing the role of a mortgage servicer, the same basic rules apply. Mortgage rules are backed by the full supervisory and Enforcement Authority of the that congress has invested in the Consumer Bureau. We will be vigilant about overseeing and enforcing these rules. As we saw in the lead up to the financial crisis, common sense turned out to be not so common. By bringing back these basic opening blocks of responsible lending and servicing the customer, we will improve conditions for consumers seeking to enter the market, for you realtors who are seeking to arrange the purchase and sale of their homes, and for all those still struggling to pay down their existing loans. It means a great deal to our new Consumer Bureau to know that the National Association of realtors has members with boots on the ground and communities in communities both small and large across the United States. We urge you to help us spread the word about how consumers can make the most of this new agency. Make sure they know they can submit consumer complaints about problems they are experiencing with mortgages, credit cards, student loans, auto loans, and bank accounts. Work with us to help educate your clients about the specific ways they can look forward to a new and better marketplace, and share with them that they can find impartial expert answers to their frequently asked questions at askcfpb. Please direct them to our consumerfinance. Gov. Common sense, after all, serves the common good. Make no mistake about it the Consumer Bureau wants to see the Real Estate Market thrive. We are united by our strong desire to put the american Housing Market on a sustainable path fueled by responsible lending. You deserve it. The American Consumers deserve it. Thank you. [applause] thank you, director cordray. I promise you that realtors will be your boots on the ground, and we will be your sounding board. At this time, ive got a couple of questions for you. If we have time, we may take a couple more questions. Strongly supports measuring consumers ability to pay before advancing mortgage credit. In fact, our policy, as i said earlier, goes back as early as 2004. Access too believes credit has tightened significantly since the mortgage crisis and remains tight. How does the definition of a. M. Lified mortgage or q balance the need to ensure borrowers can repay their mortgage and yet have reasonable access to credit . You for the question, chris. First of all, as we work on onse rules as we worked these rules over the 18 months that we were intensively focused on getting these rules done by january 2013, we spent a lot of time listening and learning from people with real experience in the Real Estate Market as well as the experience people brought to our bureau from past work that they had done, and what we learned very clearly from that was that the Mortgage Market up 2012 was very different from the Mortgage Market of 2007 and that access to credit had become a significant problem in the wake of the financial crisis. Let me say for the record, caused by the financial crisis and therefore caused by the mortgage meltdown. In the wake of that, we decided that we withdraw the definition of a qualified mortgage quite broadly we would draw the definition of a qualified mortgage quite broadly, so as to not impair the current market. We also decided to draw the definition of a qualified mortgage with very bright lines, so as to discourage the prospect of litigation over what is a qualified mortgage. There are three main categories for qualified mortgages. First is any mortgage that has a debt to income ratio of 43 or less, which is a quite high number by historical standards. Her years, we talked about spending no more than about a third of your income on housing. Second, though, in addition to that, recognizing that there was uncertainty about gse reform and that fannie mae and freddie mac were significant underpinnings of the Real Estate Market, we also said that any mortgage that is eligible for purchase by the gses, fannie and freddie, while they are in conservatorship, is also eligible to be a qualified artgage and can qualify as safe harbor. Also, those insured and backed by fha, v. A. , and other government agencies. Third, in addition to that and this was after we finalize the rule initially in january 2013 we recognized that for many smaller creditors, in some parts of the market, particularly in rural areas of small towns, they are the key part of the market. And that they did not cause the financial crisis, and that they lend responsibly. For mortgages that they offer that they keep in a portfolio that may be customized to particular personal circumstances of borrowers and customers they know well, and they know the community well, for those servicers with 2 million or less in assets, those would be deemed to be qualified mortgages as well. In addition, as you noted in your opening remarks, there are a number of loans that remain very responsible loans that may or may not qualify under the particular definitions for a qualified mortgage. If lenders know that they have in making these loans according to strong underwriting , they should continue to make those mortgages, even though they are not. Q. M. As long as they make the good faith determination that the consumer has the ability to repay the loan, that is in compliance with the law. I thank you for stressing that today to lenders across the country. Thank you. On the same note, the actual implementation of the rule is important. We heard that some of the smaller mortgage lenders [inaudible] if we start to see that the implementation of the ability to be payroll is reducing access to mortgage credit, such as the calculation of the three percent cap, what are the steps that we as an industry and you as a regulator can take to address this issue . Thank you for that. One of the things i think we have shown all along is that we are very responsive to data and information about what is actually happening in the market. Towernot mean to be ivory regulators. We want to know exactly what is going on. I have said to the community bankers, to the Credit Unions, to the realtors, and i say it again to you today as we go, tell us what you are seeing and finding in the market. Tell us what your actual experiences are. We will be sensitive to what is happening in the market. Our goals are clear we want to provide sound Consumer Protections to people who borrow money to buy homes. We want to make sure that they are being treated responsibly by their lenders and that lending is responsible, and we also want to see that the Real Estate Market is succeeding and that people have access to the credit they need to improve their lives in the ways they would like to, such as buying and owning a home, being able to build a life around that, and to do that successfully. The problem in the runup to the financial crisis was that homeownership much of what was being offered was not sustainable, and putting people in a home on a shortterm illusory basis that is not going to last in the long term is not good for them. It is not good for the lenders, and it is not good for the economy, as we saw. The biggest problem with credit in our time is still digging out from the residue of the financial crisis that should not have occurred or should never have occurred to the degree that it did. Thank you. Again, thank you for being with us today. Thank you of some one million members for what you do for us, and we look forward to working with you in the future. Thank you. [applause] do you want to take a couple of questions from the media . Do you have any questions . Should i stand . You can stand or you can [inaudible] question for you about the non q. M. Side of this thing. Three days to implementation of this, we are also three days from your Year Anniversary of evangelizing about this pretty much nonstop. In particular on this point about, look, you can still do mortgages. Has it worked . Do you detect a rising willingness of institutions to go down that path . Have created a number of provisions in the rule. We made some changes after the rule was first finalized to take account of the needs of small creditors, so for small creditors, much of what they do is covered by the qualified mortgage will, almost regardless of what kind of loan they make. If they make a loan and keep it in portfolio, that is covered under our small creditor provision. If they make a loan and sell it in the secondary market, if they are selling it to fannie or freddie, which is typically what they would do, that is covered under that provision of the qualified mortgage rule. The only loans small creditors are making that would not be covered would be loans they are not keeping in portfolio, that they are selling in the secondary market to someone other than fannie and freddie. We expect that market will develop over time, but it is not a real significant market at this time. For other lenders, we are hearing and seeing that many have said they are going to make where they feel comfortable that they can do so responsibly and they can document the consumers ability to pay. There is a bank just this morning in the clip that is going to continue to make interestonly loans. There are some other bankers that will continue to make certain interestonly loans when they think the customer profile can sustain that over the long term, and they can document and show that. Other larger lenders have said they will continue to make non q. M. Loans where they have a model that they feel strongly is a performing model and it shows it is an amazing thing that you need a role to tell a lender who is going to lend a money to a are over they have to take attend of the borrowers ability to pay that back to you. It had been transformed by the secondary market where a could make loans and shut them off their books and get rid of them. That was not the ethic of the Mortgage Market in the years of the last decade. Been inles, had they place, and there is notable and analysis Goldman Sachs it did lately that set of the mortgages that were made that defaulted in 2005, 2006, 2007, half of them would not have been made if the qm rule had been in place. What are your instructions about giving winters a fair shake . You encourage them to do q. M. We have been very transparent about that. The procedures in the way in which we are going to be examining around these roles have been published and on our website since june of last year. They were worked out in close consultation with the of your aimr regulators, taking credit union. All of us will proceed under the protocols. There was a joint Statement Issued recently affirming what i have been trying to say all along. As long as lenders are le nding responsibly, whether a mortgage is a q. M. Or nonq. M. , it is not something they will penalize them for. We will take it where we can find it. Time for one more. Creditor the small exemption you mention, a lot of the small banks and Credit Unions say 500 loans is not a lots of loans. They could be reaching a situation where they reached that 500 low copy in june or july. What happens then . Will that be an issue you are monitoring . That is something we will continue to monitor. When we write a rule and when Congress Writes a statue, there are points at which you have to draw certain lines and you make your best judgment about where and how. We try to rest on data here. We drew in 2 billion in assets does cover the vast majority of smaller creditors, community banks, and Credit Unions. Well over 95 . It does not cover 100 . You will always hear from those not within that. I hear from. These have nothing to do with our roles. Interest rates will go up and down over time. The economy will go up and down over time. The interest people have in renting versus owning will change in various raise ways over time. We will be sensitive to considering whether we got that line right or whether we should put in a different place. The worst thing we could do right now is would be a lot of additional tinkering with the rules in the early stages. But see how they are working. To see if interested it is dramatically out of balance. We want to hear it from the realtors and the Credit Unions. Anybody who has line of sight in this market in order to think about what that means. Ok. Thank you. Thanks. Now for our panel today. They can come up and i will introduce them as they start to come up. Representing various aspects of our industry and we are looking forward to hearing from them. Kibbey, the first i would like to introduce. Us the lending perspective. He has been the primary Legal Counsel to the Lending Company since 1976. Including the creation of the Lending Division and its recent expansion. Century, he was a recognized leader in Financial Services and litigation. He has been repeatedly of the topas one is the attorneys for litigation. Cfpb taskved on the force testifying before congress on Regulatory Reform and its affect on Community Mortgage lending. He is in our undergraduate from Tulane University and tulane law school. Thank you for joining us. Thank you for having me. Schnare. N here she is. I think there is another chair. Is there not . Seat. N have my i do not need to be up here. Trust me. I am going to go to the podium. She is a former senior mortgage industry executive as well as an expert on Consumer Credit and affiliates. She is president of her own consulting worm which specializes in housing and mortgage finance. She has extensive experience in the mortgage industry including serving as a Senior Vice President of housing, economics and financial resort for freddie mac. She graduated summa cum laude from Washington University in st. Louis. Thank you. Own dr. Panelist is our lawrence yun. He is the Senior Vice President at the National Association of realtors. He directs regular commentary. Today amongd by usa the tossed economic top Economic Forecasters in the country. He received his undergraduate degree from Purdue University and earned his phd from the university of maryland at college park. Thank you. Dr. Yun. Berry ziggas is the director of the Consumer Federation of american housing. Previously he was a Senior Vice President of fannie mae, leading the Community Lending initiative. He has been an advocate for low and moderate income borrowers and underserved communities working to make housing more affordable. Has a ba in history and graduated from the advanced Management Program at the Wharton School of business at the university of pennsylvania. Thank you, sir. Lets get started. I am going to start off with you, jeff. For some time, he is a working to better understand how lenders large and small are prepared or the ability to repay. Can you talk to us about the q. M. Standards and the changes . Absolutely. First of all, thank you for having us. This is an important issue in our industry. When we have been tracking for a number of months. Years, actually. We are glad to have the opportunity to comment on it this morning. Is hard to argue with the concept of the ability to reach standard. Every lender wants to make a loan that the borrower can repay. That is our ultimate goal. B has done an admirable job of striking the balance between the difficulties of q. M. And the difficulties of making that analysis. Pb has been very detailed in the manner in which they have written their regulation. However, the devil can be in the details. There are some lingering issues that we foresee with q. M. And the implementation with the ability to repay. Rule a delay in the q. M. Been an appropriate spots . Director cordray pointed out that the economy is still recovering. We are still trying to move forward. At the same time, we foresee the ability to repay standard to restrict lending by at least two andral by at least 10 in high loan balance areas certainly significantly higher than that. We foresee there may be sent difficulties in the economic recovery as a result of the q. M. Rule. Director cordray made mention of the exemption. So long as the loan qualifies for delivery of Freddie Mac Freddie fannie mae and freddie mac it will have a great manypt. It will allow lenders and Community Lenders to continue moving forward with their plans and with their susiness so long as the gsc remain in effect. Nothey find themselves longer in existence, we could have an exemption that becomes meaningless at that point. You have also mentioned the ability tool. We anticipate having some of the quilty with that as well. The 3 rule, all charges must fit within the 3 cap for fees in order for the loan to qualify for q. M. Status. This is a standard in which it does not matter whether the service being performed has the appropriate value. It does not matter whether the service being performed is adequate or competent. It only matters if the party are forming the service is affiliated with the lender. That is something we believe may need some further study and may have impact on Community Lenders. You. Ank in your practice you probably consulted with a number of Financial Institutions. This rule might change the way institutions run their Mortgage Operations . Thank you. Thank you again for inviting me. I have worked on this issue for quite a while. I think for the most part most of my clients tend to be large depositary in situations and are prepared. Will heard earlier, there continue to be nonq. M. Loans made. One of the issues is what withns to jumbo mortgages numbers above 41 . I and some Portfolio Lenders may be willing to take the credit on. The ultimate outcome will depend on the extent to which these get challenged in court and the courts treatment of the challenges. Having said that i think there are a couple of areas that are very important Going Forward. They have been touched on a little bit. To appendix q which is a detailed guideline about how to calculate income and debts and assets. It was simple in concept but gets incredibly detailed. Things are ranging from the treatment of selfemployed extended income from extended family members. Are only guidelines, what has really happened is that they will be really codifying underwriting guidelines for typical loans. While that is necessary, it has a real danger of creating and underwriting system that may be inappropriate over time. Aboutot just talking fixing the initial glitches that will undoubtedly occur and will be asked. It is talking about making sure these guidelines evolved with oath the economy and the changing demographics. One of the clearest examples is recent immigrants who often have multiple family members contributing to income. They often have nontraditional jobs. That will be an increasingly important segment for the first time homebuyer market. On the agency to monitor these trends and make sure they are not creating unintended barriers to access, particularly about segment of the population that were most interested in we are most interested in protect. The other aspect is the current exemptions for gse loans, particularly, which basically exists for seven years or gse reform, which ever comes first. My guess is seven years. [laughter] again too soon to to begin to prepare for this. Right now it would have a devastating impact on the market in these suddenly went away. It is not too soon for them to in to really articulate what this exemption is trying to explore alternative ways to achieve the same desired results. I think otherwise it really could have a significantly higher impact on either cost or availability of reddit. Credit your inor the obvious thing is the exemption allows for the use of compensating factors. If you are above 34 , there are other things that could be weighed to determine the overall Credit Profile of the borrower. B waserstand why the cfp reluctant to put certain compensate factors into the guideline. I propose the use of some of those. I think this is a very good solution. I think Going Forward it is a real concern. Need to be prepared for that. With this i say that the cfpb beginfriends at the cfpb, to prepare for this and get some data that could push that push pasto sort of the simple bright line cut up with is extremely important to have an begin to work on if the exemption went away or if the gses went away and was replaced by something he fell was you felt was not an appropriate extent, what should you do to allow for more flexible underwriting guidelines . , one of the crisis biggest problems or a lot of was a checkbook underwriting. You have to have this and you got to do that. Compensating factors. I think it is very important. The last thing i want to say is it is really related to overall Credit Access. If you talk to people about what is causing the extremely tight Credit Conditions that exist today, i do not hear q. M. Mentioned. The agency has done a good job to avoid that. There are other factors that are effect and that and going for these are important issues, whether the recent use of orurchase requests from fha the gses is causing a very Chilling Effect on the lending industry. It is the ambiguous nature of many underwriting guidelines. It makes lenders less willing to stretch to the full credit bob that they might otherwise do. Servicing standards and higher costs and higher obligations for servicing nonperforming loans. The nature of the servicing contract and the fact that compensation is the same regardless of whether or not the loan performance. Ultimately, it is the reputation risk that occurs to lenders and making loans that default. Realistically, some of the standards that maybe fha would be willing to make, not all are willing to do that because of reputation risk and because it business. Re there are a lot of challenges. The q. M. Is the, really minor. N made an excellent point about the rigidity of the standards. You want to look at the whole borrower and the whole loan and you want to fit the whole borrower into a loan that makes sense. Q does not allow you to do that. Ossification is a great word for underwriting standards. By nature they need to have a level of flexibility. I also mentioned the possibility of portfolios that do not meet the standard. There is no secondary market for a nonq. M. Loan. Theres no way for it to take it and transfer it on the secondary market on a reasonable basis. In the community of America Group do not have the ability to portfolio the loans. They become almost unmakeable for many of our colleagues. Thank you. The ability to repay will be effective in three days. What are you going to be watching for . What are you expecting the result to be . You see happening in the future . My thanks for inviting the speak. R to come toe i find it hard to add anything. He gave as comprehensive explanation as possible. It is easy to forget that this whole topic has been under discussion for going on ive years when you include the formulation of the dodd frank act. They have done a terrific job. The last things we have to discuss are a disagreement about the issue of nontransparent bundled charges to consumers and how they should be treated and what is going to happen seven years from now when fannie mae and freddie mac may or may not be around, we have done a hell of a job. I want to congratulate the bureau. Think consumers are going to be in an environment finally where they can be confident that their ability to pay will be the fundamental pivot on which the lender makes a decision about whether to make a loan or not. Reason these regulations were mandated by congress and the law was adopted was because the lending industry as a whole just simply forgot the basic rules of lending. Lending 101. You cannot have a trust me attitude after that. The rules lay out the ground rules. It is important to make the point that on the one hand lenders throughout this process thought clarity, and bright minds, a clear box, a past fail nd atr. H for the q. M. Adn a bring your underwriters into the room. You know how to do this. We did it for most of the history of homeownership lending. I think the market will be fine. Is moresumers may face requests for verification and documentation. I have no problem telling consumers to suck it up and provide the information. Rule, we of the can always ask for more time but sooner or later we have to ask for implementation. This role was put out for two separate areas on topics. The bureau made an incredible out reach to every sector of the market. I think it is time to move forward. There may be glitches. S they are making an effort. These were all dead for now. Gses are the main execution. Them have been given a special exemption from the rules which makes it much easier for lenders to do lending the way they are accustomed. I am pleased. I think we are at a traffic starting point. This is an important week for consumers all over america. Quite what are your thoughts on the impact of the consumer with regard to cost and access . 32,000e start with the question. 32,000 is the amount of equity a typical buyer would have accumulated in the past couple of years. A person who bought a home two years ago would now have 32,000 in equity. What is the profile of home buyers today . If one looks at the past eight years, the number of homeowners have now increased. It is completely contrary to historical normal. Circumstances, because of the growing population, america has a one million additional homeowners. To say that the past eight years we did not accumulate any additional homeowners, that should be something shocking. The other part is that the number of renters over the time span has increased by roughly 5 million. The population increase and subsequent household formation is all rent or population. Even though we want to assure the consumers are protected, we have to balance that out with consumer access. Tightnow it is extremely eerie the Federal Reserve has tight. The Federal Reserve has a mark on that and is holding back potentially 15 of homebuyers. They could have anticipated in the 32,000 dollars gain. They do not participate. You have tight underwriting standards. What does q. M. Do . It will cut underwriting i and on top of the credit restriction we already encounter. Only compensating factor is for nonq. M. To increase. Will it increase with the threat of lawsuits hanging over the lenders . Lending could increase but only on the upper end segment. For people who are extremely and high income but do not meet the debt income ratio situation, recent medical graduate with a huge debt load, maybe they will get that nonq. M. Laoan. If one looks at the overall incentive of the job they were assigned to monitor, director quarter a director cordray will probably not be around four or six years. The Civil Service incentive is to protect consumers. He will be judged on the level of consumer default. The way to do that is to restrict underwriting, restrict lending. Default,consider low good outcome. To survive this outcome we may be shifting toward where we have clearly too tight underwriting standards, less people participating in homeownership. Homeownership from the perspective of nar has been the key fact to in moving the country from workingclass country to a middleclass country. We may be losing out on that. Can i address that . Both ann and lawrence have made an incredible point about the restrictions of credit. They have been in effect for the last two or three years. They are the result of other factors. Response to are a the loose lending practices that led to the crisis that is causing a reaction. Some of it is because fannie mae and freddie mac have tightened up their underwriting guidelines, restrict it credit scores. Restricted credit scores. Housing expenses are at historic lows. It is a huge missed opportunity that is not at all a result of these requirements that are in dodd frank. To turn oured attention away from focusing on which i think the bureau got right and focusing on the larger issues that will play it will reg because play into the different of some of the loans. They have been loaded up with in my estimation are superfluous and too high and are denying credit to too many people. Low income renters are paying percentages ofgh rent. We are seeing populations will be the rising generation of homebuyers from now until the end of my life for sure. Those are families that do not start typically with large amounts of family wealth. It can be used for down payments. They are populations that tended to skew lower in credit scores. We have to get the system back to adapting to those realities and doing the kind of lending that we know how to do and we historically have done successfully. I do not think the difference will be about whether they are q. M. Loans or not. The question is whether people get qualified even if they have low wealth. We put a lot of work into this. What impact do you foresee this rule having on home sales this spring and maybe even further into the future . Are there any bigger issues out there we have not covered . Will clearly impact the mortgage underwriting rules. There could be other fact theres that is a bigger driver of the Housing Market recovery. In a lessl reserve is accommodating mood now. We are monitoring that. It was very good to hear director cordray mentioned that he wants to see what is happening in the field. He is asking nar to track how the q. M. May be hindering. It is very good to hear that. We will supply that information. We are in a rising interestrate environment and a job creating environment. The Housing Market perspective amah i think respective, i think q. M. Has an impact. For the Housing Market as a whole, i do not see the Housing Market moving strongly upward or downward. I think it is stabilized at this point. A nice, Healthy Activity level. Lawrence has made a great point about the direct tour wanting director wanting to hear what is going on in the field. Through Century Mortgage Company hopefully we can provide some guidance in that regard as well. Although it is true there will be some noncommunity excuse willonq. M. Lending it be at the larger institutional level and not necessarily at the community level. Ability toy have no generate a nonq. M. Loan. View of a community inder may be too restrictive our view because of the 100 organizations which are members of the Community Mortgage lenders of america. That definition does not cover a single one of our entities. To take into that account not only entities which are truly our Community Lenders but also not depositories as well. Thank you. Do you expect something similar to what lawrence said or do you have different ideas . I basically agree with what lawrence said and others have said that q. M. In terms of Credit Access is not the issue. I think the cfpb has done a great job in setting the initial regs. They are continuing to monitor the market which i think is critical. Both the economy and the demographic base is changing. Of regs out there now will be treated as not guidelines of that firm rules. It is something that they should continue to monitor. One of the ironies of this week is he saying we that the atr and q. M. Rule becomes effective, mel watt was sworn in yesterday. As we have said, fannie mae and freddie mac have this exemption. Markete basically the for all but the jumbo loans. I think this is a great opportunity for consumers, lenders to shift away from what i think are really quite minor e ands in the atr q. M. Rul shifted back to how do we make sure these institutions which are in conservative ship become a positive or send moving forward . I think it is a great confluence of opportunity that can bring the industry, consumer organization, lenders together to try to move on these issues. No big fan of new unregulated lending or irresponsible lending. Muchso pleased you have so confidence in the regulators. I am just wondering where they 2005. Etween 2000 and maybe they have all retired. This is why we had to have. Ring have dodd frank. What impact you see the rules having on the application process and the quality of underwriting . Do you think we in the field will notice the difference . I am not sure you in the field will notice the difference as has been stated repeatedly. Veryfpb has been transparent and forthcoming and has been very communicative and responsive. Numerousen through testing procedures, rulemaking procedures. Any lenders who has been paying attention knows what q. M. Is. They should be prepared to implement q. M. From a procedural standpoint and from and underwriting standpoint. I am not sure you will notice much impact. Lenders may still have concerns about implementation of ,he rural but should rule but are they sufficiently protected . I think they are more than sufficiently protected. Theyve done a good job of balancing the interests of consumers for whom this was meant to protect and for lenders who have legitimate concerns about the requirements that are imposed on them. I would just reflect on the experience that lenders have had that so many have found themselves in dust in trouble because they were sold loans foundannot afford themselves in trouble because they were sold loans they cannot afford. Theyve been trying to desperately work with the lender to find a way they can get back on track, make their obligations and pay back the loan. I understand that lawyers have to focus on liabilities. It is important for lenders not to lose sight of the fact were talking about your customers, not adversaries. People do not buy a home owned the first. Being how can i sue thoughtys first being how can i sue these guys . I think we should have a much higher degree of confidence in how this will work and not focus on potential isolated instances where there is a problem. It makes lending the normal process of lending for consumers. They are assured of access to a loan. Everybody wins. Todays questions are and jeff. O vbarry do tolse can the cfpb improve the implementation of the rules and what can other agencies to, for example those finalizing the q. M. Rules . Typical response of a consumer has not been to violate lawsuit. However, that has been a common problem in the q. M. Rule. I think well see an increase in litigation in the event that nonexemption loans a pass through in q. M. Agencies do to insist in the implementation . Right now there is quite a bit of uncertainty. Has been clear that it is not intended to look at a lender who does only cfp cfpb q. Lending. The exemption standards tend to shift away from the goals of unfair lending at least to some extent. The other agencies have not expressed a clear indication of how they intend to look at fair lending in regard to the q. M. Rule. Fair lending is a hugely important issue. The agencies responsible for enforcing the statute released a joint statement and made it very clear that lenders who restrict their business to q. M. Loans, as long as it is a straightforward business decision, it will be treated like any other business practice. Lenders should take comfort from that. It is an area that theres a closer examination as things go on. I do not think any of us want this to become a means that are worse are discriminated against or lenders are liable. There is the issue of Credit Access and how it gets enlarged so that we can move forward to hunt me the need of rising homeowners who are not going to look like the generation of homeowners who benefited from the great expansion of home ownership. They will have less wealth. They will come from families who cannot provide them with down payments. They may provide themselves with different kinds of work histories. All of those things need to be incorporated into our underwriting process. Good. M. And atr give guidance on that but it is an unfinished book. We will have to be adaptable and taxable. Is regulated at local as well. Not all have followed through. I would like to ask each of you to give a brief answer. What is the single because revelatory obstacle to have a more robust mortgage lending market . What can we do to achieve a more normal looking balance between first home firsttime homebuyers . The longer they are there, the better guyons the more guidance the more it will help us even this out. I am sorry. They have mortgage and cash buyers. I am sorry. Well move on. Thank you. I think there is not a single one. Barriers,multiple some regulatory and some not, that are causing the tight Credit Conditions we are seeing today. I went into some of those earlier. I think they are the new servicing standards that are imposing additional requirements that make it very expensive when a borrower goes into default and services will tend to avoid that. It is the internal policies of fannie and freddie that have tightened up, the fear of repurchase. T has become less many feel there is a gotcha mentality. Way to shove a back what they see as legitimate credit risk on the lender. I do think there is just the general environment that we have just come to that have made many Loan Originators overly conservative. More conservative than they should. There is also the changing nature of the Housing Market that, while house prices are picking up, i think the assumptions in terms of robust house price appreciation that covered many mistakes of the past, i think we are going to a time when house rise appreciation is likely to be more modest. Borrowers are likely to be much was, 10 years ago when i afraid he we would call nontraditional bar were borrowers. It is institutional but also the evolving nature of the demographic. This is typically very true of and making groups of immigrant groups. This will be a real challenge for people in the industry to continue some of the progress that was made over the last 20 years. A lot of progress was made. We see as a is what major challenge Going Forward. You have any comment on the firsttime homebuyer worse . Homebuyers . And they will come with less wealth. It will come with probably less credit or nontraditional sources of credit. A lot of recent immigrant groups image use credit like the of what the typical Credit Profile would be. There was a lot of progress in made on these issues at the and of end of the 90s. A lot was pushed back because lending became so easy. People were working on these issues in the late 90s and stopped because they were largely unnecessary. My feeling is that there is a lot of work to be done and will have to be done. If we want to support the Housing Market and shore up housing prices by allowing continued access to homebuyers. If i may. Having had a moment to think about it, the Community Lender is in the perfect addition to help firsttime home buyer. We know our community. We know our borrowers. The Community Lender as a much Smaller Community than what they really are. It is a deeper look at what is a Community Lender and what is a small lender. I will pick one. Hope this would be regulation of the dsps. Being a realist, i will pick one ableis a compostable to be accomplished. This is the last piece of the Mortgage Market that remains unfinished. The regulators made the correct sync it up with q. M. It is something that many lenders have agreed on. The quicker it can get resolved he quicker the Capital Markets will have a clearer roadmap on how they should move forward. Regulators addressed a number of issues which are much more technical and were of more concern to the lenders. I think they were positive in their imp