Editor: David Reiss
Brooklyn Law School

June 4, 2013

Effect of Qualified Mortgages on Credit Availability: Little to None

By David Reiss

The Congressional Research Service has issued a somewhat opaque report, The Ability-to-Repay Rule: Possible Effects of the Qualified Mortgage Definition on Credit Availability and Other Selected Issues, that summarizes the Ability-to-Repay Rule.  More importantly, it offers a bit of an evaluation of the impact of the new regulatory regime for mortgages on the availability of credit.

According to the CFPB, “close to 100% of the 2011 mortgage market would have been in compliance with the” Ability-to-Repay Rule. (9) The CFPB thus believes that the rule will “have a minimal effect on access to credit.”  (9) The report reviews two alternative estimates, one by CoreLogic and another by Amherst Securities, that offer a less optimistic forecast.

CoreLogic uses 2010 data for its analysis. The CRS appears to agree with me that the CoreLogic report is misleading, but it does report that CoreLogic believes that nearly half of all mortgages will not meet the Qualified Mortgage rules once temporary compliance options for the rule expire.  I do not credit the CoreLogic report and would discount its findings for the reasons that I have given previously and for the additional reasons contained in the CRS report.

Amherst takes a look at jumbo mortgages in 2012 and finds that a significant portion of them would not comply with the rule. I have not seen the Amherst report, so I can only respond to what I read about it in the CRS report.  The bottom line appears that about eight percent of jumbos are likely not to comply with the rule.  Given that jumbos make up about 10% of the mortgage market (at least according to CoreLogic), we are talking about one percent of the total residential mortgage market.  Many of those non-complying mortgages do not comply because of limitations on debt-to-income ratio.  Thus, it would appear that the affected borrowers could get mortgages for smaller amounts that would comply with the rule.

I think it is safe to say that based on what we know now, the rule will have an extremely modest effect on credit availability.

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