Editor: David Reiss
Brooklyn Law School

May 22, 2013

Reiss on Qualified Mortgage Rule

By David Reiss quoted me in a story, New Mortgage Lending Rule Intended to Protect Borrowers May Hurt Self-Employed.  It reads in part,

“Lenders are incentivized to originate qualified mortgages, because doing so makes it easier to defend against borrower lawsuits,” says David Reiss, a law professor at Brooklyn Law School. “In return, lenders must ensure that the terms of the mortgage conform with certain requirements that protect borrowers from abusive terms.”

Qualified mortgage loans cannot have interest-only periods, negative amortization, exceed 30 years, and cannot have balloon payments at the end of the term, with exceptions in rural or underserved areas. Further, qualified mortgage loans cannot exceed 43% of the borrower’s monthly pretax income, and borrowers must provide proof of income or assets.

“Determining whether self-employed individuals are able to make the loan payments presents particular challenges,” says Reiss. “The Consumer Financial Protection Bureau had originally proposed that self-employed individuals provide heavy documentation of their income, and for the lender to make sophisticated judgments about that income.”

In response to comments, the CFPB, in its proposal, subsequently reduced income documentation requirements and the level of lender income analysis required, Reiss says, but adds that “applicants must still demonstrate that their income is stable or increasing.”

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