Tag Archives: access to credit

Gimme (Mortgage) Data

Posted on by

The CFPB announced that it is seeking feedback on potential changes to mortgage information reported under the Home Mortgage Disclosure Act (HMDA). Data collection seems like a pretty obscure issue, but some Republicans and financial industry interests have been attacking the CFPB for collecting so much data. Given the rapid changes in the consumer financial services sector, it seems to me that collecting more data about the types of products being offered to different types of consumers is essential to regulating that sector. For those unfamiliar with HMDA, it

was enacted in 1975 to provide information that the public and financial regulators could use to monitor whether financial institutions were serving the housing needs of their communities and providing access to residential mortgage credit. The law requires lenders to disclose information about the home mortgage loans they sell to consumers. HMDA was later expanded to capture information useful for identifying possible discriminatory lending patterns.

In the wake of the recent mortgage market crisis, the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) transferred HMDA rulemaking authority to the CFPB. The law directs the Bureau to expand the HMDA dataset to include additional loan information that would be helpful in spotting troublesome trends. (1)

 The CFPB is considering requiring the following information pursuant to HMDA:

  • total points and fees, and rate spreads for all loans
  • riskier loan features including teaser rates, prepayment penalties, and non-amortizing features
  • lender information, including unique identifier for the loan officer and the loan
  • property value and improved property location information
  • age and credit score (1-2)

There are additional data points under consideration, but these five alone would go a long way to identifyingpredatory trends as they are developing in the mortgage market. Lay people are probably unaware of the rate of change in the industry, but during boom times the kinds of products that are popular can change dramatically in a few months. It is hard enough for regulators to keep on top of such rapid changes, but it is even harder when they only have access to some of the relevant information. The CFPB’s proposal is a step in the right direction as it seeks to get a handle on the market that it regulates.

Balancing Consumer Protection and Access to Credit

Posted on by

S&P posted U.S. RMBS Roundtable: Originators, Aggregators, and Counsel Discuss New Qualified Mortgage Rules. In summarizing the roundtable, S&P notes that

The ability-to-repay rule, ostensibly to prevent defaults and another housing crisis, is still very much open to interpretation. To that end, Standard & Poor’s Ratings Services recently held a private roundtable with several market participants. The confidential discussion offered the attendees an opportunity to share their views and interpretations of these rules, offer opinions on how to operate efficiently within the scope of the rules, and highlight perceived conflicts the rules still present.

In our view, the discussion identified some common themes, notably:

    • Most originators will focus on QM-Safe Harbor loans to avoid liability and achieve the best execution.
    • Many originators will also find attractive opportunities to originate non-QM loans.
    • Non-agency originations of QM or non-QM loans will continue to focus on super-prime borrowers as lenders find that the best defense is to limit the potential for default.
    • The documentation standards used by originators will be the key to compliance with the rule. (2)

There are a lot of interesting tidbits in this document, including speculation about the role of technology in the brave new world of mortgage lending.  The summary ended on a guardedly optimistic note:

While the rule leaves significant room for interpretation, originators generally felt that the final rule to be implemented in January 2014 is better than expected. They expressed hope that regulators will be vigilant in pursuing violations that are reasonable. Originators still see challenges for originations of non-QM loans, but they don’t believe they are insurmountable, and many expect that non-QM loans will be represented in origination volume throughout 2014. The challenges that remain are the market’s pricing of QM safe harbor, rebuttable presumption, and non-QM loans; required credit enhancement levels; the effects of risk retention rules, which have yet to be finalized; and the ultimate costs associated with the assignee liability provisions in the rule. (7)

If these industry participants are right, it will look like regulators did a pretty good job of balancing consumer protection and access to credit. Let’s hope!