Editor: David Reiss
Brooklyn Law School

February 4, 2013

More on CFPB Ability-To-Pay Rule

By David Reiss

Attorney Robert Barnett asks whether the CFPB’s new Ability-To-Pay Rule is too rigid.  He says that ‘the insistence on a solid 43 percent debt-to-income ratio will exclude many very solid applications from qualification as a Qualified Mortgage . . ..” (1)  He also argues that LTV and credit scores are more reliable predictors of default and that there is no reason to trump them with a firm debt-to-income limitation.  Barnett cites a study from the Housing Policy Council that indicates that loan volume would drop more than 18 percent when DTIs were reduced from a range of 44 to 46 percent to a range of 40 to 42 percent.  This drop in loan volume was accompanied by a relatively modest drop in the default rate from 1.59 percent to 1.43 percent.

I can’t speak to the merits on this, but it does raise an important question:  what mechanisms are in place at the CFPB to go back and test such rules to ensure that they are appropriately balancing consumer protection with consumer opportunity.

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