Editor: David Reiss
Brooklyn Law School

October 23, 2013

Qualified Mortgage Fair Lending Concerns Quashed

By David Reiss

Federal regulators (the FRB, CFPB, FDIC, NCUA and OCC) announced that “a creditor’s decision to offer only Qualified Mortgages would, absent other factors, elevate a supervised institution’s fair lending risk.” This announcement was intended to address lenders’ concerns that they could be stuck between a rock (QM regulations) and a hard place (fair lending requirements pursuant to the Equal Credit Opportunity Act and the Fair Housing Act). For instance, a lender might want to limit its risk of lawsuits relating to the mortgages it issues that could arise under a variety of state and federal consumer protection statutes by only issuing QMs only to find itself the defendant in a Fair Housing Act lawsuit that alleges that its lending practices had a disproportionate adverse impact on a protected class.

The five agencies issued an Interagency Statement on Fair Lending Compliance and the Ability-to-Repay and Qualified Mortgage Standards Rule that gives some context for this guidance:

the Agencies recognize that some creditors’ existing business models are such that all of the loans they originate will already satisfy the requirements for Qualified Mortgages. For instance, a creditor that has decided to restrict its mortgage lending only to loans that are purchasable on the secondary market might find that — in the current market — its loans are Qualified Mortgages under the transition provision that gives Qualified Mortgage status to most loans that are eligible for purchase, guarantee, or insurance by Fannie Mae, Freddie Mac, or certain federal agency programs.

With respect to any fair lending risk, the situation here is not substantially different from what creditors have historically faced in developing product offerings or responding to regulatory or market changes. The decisions creditors will make about their product offerings in response to the Ability-to-Repay Rule are similar to the decisions that creditors have made in the past with regard to other significant regulatory changes affecting particular types of loans. Some creditors, for example, decided not to offer “higher-priced mortgage loans” after July 2008, following the adoption of various rules regulating these loans or previously decided not to offer loans subject to the Home Ownership and Equity Protection Act after regulations to implement that statute were first adopted in 1995. We are unaware of any ECOA or Regulation B challenges to those decisions. Creditors should continue to evaluate fair lending risk as they would for other types of product selections, including by carefully monitoring their policies and practices and implementing effective compliance management systems. As with any other compliance matter, individual cases will be evaluated on their own merits. (2-3)

 Lenders and their representatives have raised this issue as a significant obstacle to a vibrant residential mortgage market. This interagency statement should put this concern to rest.

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