WASHINGTON, DC – July 26, 2011 – (RealEstateRama) — In a comment letter Friday, the American Bankers Association offered an alternative solution to strengthen the “qualified mortgage” option’s safe-harbor protections in the Federal Reserve’s proposed rule that would require creditors to determine a consumer’s ability to repay a mortgage before making the loan.
The Fed’s Dodd-Frank Act-mandated proposal provides four options for complying with the ability-to-repay requirement, and ABA emphasized that banks would seek the options that minimize legal risks. In the letter, ABA pushed the Bureau to enact QM options that provide creditors with special protection from liability if the loan meets specific loan standards, including no negative amortizations and fees within certain limits.
The association supports the first of two Fed approaches for defining the QM that would provide safe-harbor protections to creditors for making loans that meet certain conditions. But to help regulators craft a safe-harbor structure that is both protective and broad enough to support needed mortgage lending, ABA proposed an alternative solution with amplified consumer protections and provisions that incentivize increases in safe and sound lending activities.
ABA said its proposal supports QM standards that are generally consistent with the Fed’s, and with changes to the points and fees calculation.
“A most important element of this alternative approach is that the proposal requires that the rules be finalized with full safe harbor protections and would pledge ABA support for stricter standards than even those proposed by the Board under either alternative 1 or 2,” the association explained.
ABA added that it is critical for the Consumer Financial Protection Bureau, which is taking over the final rulemaking, to provide lenders with clear, understandable rules and a safe harbor to properly shield lenders when they make safe loans.
“A final rule that does not give lenders clarity in standards and a safe harbor will not prove sufficient to achieve the stated goal of promoting a robust mortgage lending market for all borrowers and to satisfy our nation’s reasonable housing finance expectations,” ABA said.
The American Bankers Association represents banks of all sizes and charters and is the voice for the nation’s $13 trillion banking industry and its two million employees. The majority of ABA’s members are banks with less than $165 million in assets. Learn more at aba.com.
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