The Bank of America, Quicken Loans, Wells Fargo and Caliber Home Loans are joining forces to push for a change in the Consumer Financial Protection Bureau’s Repay/Qualified Mortgage rule, asking it to eliminate its debt-to-income ratio requirement.
The CFPB created the Ability to Repay rule following the financial crisis last decade, HousingWire reported. The rule requires that lenders to verify that each of their borrowers actually has the ability to repay their mortgage before they approve it. In order to be verified, a borrower’s monthly debt-to-income ratio cannot exceed 43%.
That requirement does not apply to government-backed loans, however. As such, critics argue that it gives government sponsored entities such as Fannie Mae and Freddie Mac an unfair advantage in the private loan market, where the DTI mandate is required.
The CFPB has previously said it will allow the stipulation that Fannie and Freddie can bypass the DTI requirement to expire in 2021. After that, Fannie and Freddie would be required to follow the same rule as private lenders, putting them on an equal footing.
But for the coalition of banks that’s not enough, and they have recently been joined by other housing groups including the Mortgage Bankers Association, American Bankers Association, and the National Fair Housing Alliance, asking the CFPB to eliminate the 43% cap on prime and near-prime loans. The coalition says the rule limits lending outside of GSE-backed loans. Furthermore, they say the DTI ratio alone is not a reliable indicator of a borrower’s ability to repay a loan.
“Elimination of the DTI requirement for prime and near-prime loans would preserve access to sustainable credit for the new generation of first-time homebuyers in a safe and sustainable way and in accordance with the fundamental ATR requirements,” the group said in a recent letter to the CFPB. “This change is especially important for reaching historically underserved borrowers, including low- to moderate-income households, and communities of color.”