WASHINGTON — Banks are stepping up their efforts to win a key exception to the Consumer Financial Protection Bureau's Qualified Mortgage rule.
In a private meeting with President Trump on Thursday, community bankers told the president they would like all mortgages held in portfolio to be considered as QM, according to participants.
Trump appeared sympathetic to the idea, immediately asking Treasury Secretary Steven Mnuchin whether it could be done through executive order (Mnuchin informed him it could not). The episode illustrates banker's ongoing quest to expand a safe harbor for portfolio loans.
"There is a customer relationship and 100% of risk of the loan is in the portfolio. It marries up the interests of the borrowers and lenders in ways that don't happen when loans are sold," said Robert Davis, an executive vice president at the American Bankers Association.
Davis told a National Association of Business Economists meeting this week that banks are reducing the number of non-QM loans they originate, according to the upcoming annual survey of ABA members.
The percentage of non-QM loans dropped to 9% of total loans in 2016 from 14% in the prior year, he said.
The drop in non-QM loans "surprised me," Davis said. "Essentially there has been a pullback on these mortgages. One reason might be, as you build up a portfolio of non-QM loans, you are building up unknown legal liabilities."
It is difficult to sell single-family mortgages to private investors if the loans aren't compliant with QM, which went into effect in January 2014.
"It would be helpful if there was a private-label market" where banks could sell their non-QM loans, Davis said.
The Independent Community Bankers of America also wants to create a regulatory safe harbor for mortgages, including balloon mortgages, held in portfolio.
"If the bank underwrites that loans and it's satisfied with the credit risk, it should be considered a QM loan with a safe harbor," ICBA senior vice president Ron Haynie said in an interview Friday.
It's unlikely the CFPB would make those changes via regulation, Haynie said.
"So we are pushing for legislation" under which mortgages originated and held by banks with assets of $50 billion or less would be granted QM safe harbor status, Haynie said.
