Changes to mortgage lending mandated by the Dodd-Frank Act will make it harder for Americans to own a home and undermine an economic recovery, witnesses told members of the Financial Institutions and Consumer Credit Subcommittee at a hearing today.
One witness told the subcommittee Dodd-Frank will make it virtually impossible for his bank to continue a charitable program that has helped hundreds of families achieve home ownership in West Virginia since 1951.
In January, the Consumer Financial Protection Bureau (CFPB) issued a final rule implementing Dodd-Frank provisions requiring mortgage lenders to determine at the time a loan is made whether the borrower has a reasonable ability to repay it. Lenders can presume a mortgage meets the "Ability to Repay" standard -- and supposedly be shielded from lawsuits by borrowers -- if the mortgage also meets the definition of a "Qualified Mortgage," or QM.
Subcommittee Chairman Shelley Moore Capito (R-WV) noted that the CFPB has amended the rule in an attempt to address concerns that it would constrict credit, but serious problems remain.
"Mortgage lending can be a highly subjective business, especially in rural and underserved areas. This element of relationship-based decision-making is completely ignored by the premise of the rule. It will be nearly impossible for the CFPB to endlessly amend the rule to accommodate the ability of lenders to make these relationship-based loans. Unfortunately, the end result will be some consumers losing access to credit and the ability to own their own home," Chairman Capito said.
James Gardill, Chairman of the Board of Wheeling, West Virginia-based WesBanco, testified before the subcommittee that while Dodd-Frank's Ability to Repay and QM rules may have been well-intentioned, they "will end up restricting mortgage credit, making it more difficult to serve a diverse and creditworthy population."
Gardill also told the subcommittee that a charitable program administered by his bank to help large families buy homes is threatened by the Dodd-Frank rules.
"We currently have approximately 100 active loans under this program, providing homes to families who otherwise would not be able to afford one. We are concerned that, under the new rules, loans like these will not qualify for QM status, and as a result it will be very difficult to continue this program that has given so much back to the community. Of even greater concern is the fact that some borrowers served by this program would not meet the Ability to Repay standards and thus could not be helped by this or any other bank program going forward," Gardill said.
Another hearing witness representing an Alaska credit union said the QM "bureaucratic standard" will hamper homeownership. "The unfortunate result will be that some members who would otherwise have qualified for a mortgage from their credit union may not receive loans," said Jerry Reed, Chief Lending Officer of the Alaska USA Federal Credit Union.
"Congress and the regulators should encourage financial institutions to offer loan products focused more on the individual. Unfortunately, depending upon how the QM rule is interpreted by the prudential regulators and how it is utilized within the marketplace, the QM rule may stop this from happening," said Reed.