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CFPB’s Latest Gift to the Mortgage Industry is Unlawful and Cruel

Thursday, October 1, 2020
Contact: Pamela Russell at 202-618-6433 or prussell@bettermarkets.com
Washington, D.C.  –  Stephen W. Hall, Legal Director and Securities Specialist for Better Markets, issued the following statement after Better Markets filed its comment letter on the Qualified Mortgage proposal issued by the Consumer Financial Protection Bureau (“CFPB”):
“In its latest rule proposal, the CFPB continues its trend of giveaways to the industry at the expense of consumers. The CFPB’s proposal would establish that mortgage lenders cannot be held liable for failing to ensure that mortgage borrowers have the ability to repay their loans if  the borrowers manage to make their payments, even with significant delinquencies,  during the first three years of the loan.
“The CFPB’s proposal is unlawful, dangerous, and unfair to consumers in the market for home loans. The Dodd-Frank Act simply didn’t give the CFPB the authority to create such a loophole in the law. Worse, the proposal ignores the obvious lessons of the 2008 financial crisis. Badly underwritten mortgage loans, issued without regard to borrowers’ ability to repay, were the fuel for that crisis. Those loans were issued by the millions, bundled into toxic investments by Wall Street banks, and peddled to unwitting investors. When the housing market tumbled, homeowner defaults sky-rocketed, the value of the mortgage-backed securities packed with those loans tumbled, and the financial crisis was in full swing.
“Now the CFPB wants to loosen the “ability to requirement” and give lenders a free pass. Under the rule, loans with the three-year payment record would become “qualified mortgages” and the lenders would get an irrebuttable presumption that they had met their obligation to ensure homeowners had the ability to repay their loans. But three years of mortgage payments is a poor substitute for a thorough, front-end assessment as to whether a borrower has the ability to repay a loan, especially if the borrower routinely makes late payments for those three years as allowed under the proposal.
“As a result, the underwriting for home loans will get weaker and that will head us back in the direction of a fragile mortgage market. And under the proposal, once the three years is up, homeowners will lose the right to assert violations of the “ability to pay” rule as a defense to foreclosure. To cap it off, nowhere in the proposal does the CFPB offer any credible evidence that the proposal would help consumers—it’s all about helping the mortgage lending industry.
“This proposal is unwise, unfair, and contrary to law and the CFPB should abandon it.”
Better Markets is a non-profit, non-partisan, and independent organization founded in the wake of the 2008 financial crisis to promote the public interest in the financial markets, support the financial reform of Wall Street and make our financial system work for all Americans again. Better Markets works with allies – including many in finance – to promote pro-market, pro-business and pro-growth policies that help build a stronger, safer financial system that protects and promotes Americans’ jobs, savings, retirements and more. To learn more, visit www.bettermarkets.com.

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