WASHINGTON — The Consumer Financial Protection Bureau's mortgage rules have not had the negative effect on lenders' ability to issue loans that many critics expected, according to data released Tuesday.
In the Federal Financial Institutions Examination Council's annual report on Home Mortgage Disclosure Act, regulators concluded that the CFPB's ability-to-repay and Qualified Mortgage rules, which took effect in January 2014, did not have much impact on mortgage lending.
"The HMDA data provide little indication that the new ATR and QM rules significantly curtailed mortgage credit availability in 2014 relative to 2013," the report said.
The news was cheered by consumer groups, who said it shows that lenders are adapting to the new regulatory landscape better than they thought they would.
"The pushback from the private sector was that this was going to completely limit any ability to lend, and we're seeing now that, as they're getting line with understanding these new regulations and the new market, they're maybe doing better than they expected," said Sasha Werblin, economic equity director for economic equality advocacy group Greenlining.
But industry representatives were less convinced, arguing that it was too early to draw conclusions.
"Maybe someone's trying to jump to the inference that, because there was not a big change, there must not have been an effect," said Bob Davis, executive vice president of the American Bankers Association. "Our bankers disagree with that. They think that using the HMDA data to make that determination is a misguided effort."
Regulators acknowledged that the data has limits—and warned that the situation could change.
"There are significant challenges in determining the extent to which the new rules have influenced the mortgage market, and the results here do not necessarily rule out significant effects or the possibility that effects may arise in the future," the report said.
The CFPB implemented the QM and ability-to-repay rules last year after significant pushback from the financial services industry, which warned it would cripple credit availability and spur banks, credit unions and mortgage lenders to quit the business entirely.
The ability-to-repay rule was designed to ensure that lenders verify a borrower has the capacity to pay back a loan. The QM rule, meanwhile, effectively carved out a safe harbor for lenders from civil liability if they originated loans with a certain set of criteria, including a limit on debt-to-income ratios. But the full impact of the QM rule may not be clear for some time because the CFPB automatically exempted any loans purchased by Fannie Mae and Freddie Mac, treating them as QM loans.
The report said that if there were a negative effect so far from the rules, there would be certain indicators that examiners would expect to find. For example, if the rules were preventing lenders from issuing loans, there would be a decline in loans made to minority borrowers, because they tend to have a higher debt-to-income ratio than white borrowers. Similarly, if the DTI cap on non-government-sponsored enterprise loans were preventing lenders from making loans, then jumbo loans — which are inherently excluded from GSE repurchase — would have declined. But the data showed that both categories of loans grew in 2014, suggesting the rules were not having the constraining effect that some critics had predicted.
"Black and Hispanic borrowers' share of home-purchase loans increased in 2014 after having declined for several years," the report said. "Jumbo home-purchase loans, which are not eligible for GSE purchase and would be subject to the DTI cap to qualify as QMs, grew much more rapidly than other home-purchase loans."
The HMDA data also shows that the overall participation rates of banks and credit unions in the mortgage market fell between 2013 and 2014, but that the decrease was consistent with a years-long decline in the number of mortgage lenders in the market. Small banks made up 8.1% of all lenders in 2014, compared to 8.4% of lenders in 2013. Large banks, meanwhile, made up 31.5% of lenders in 2014, down from 34.4% a year earlier. Independent mortgage companies, by contrast, represented 47.2% of lenders, up from 42.8% in 2013. Credit unions increased their market share slightly year-over-year.
CFPB Director Richard Cordray, speaking before a National Association of Realtors' conference last week, said that critics' predictions that the QM rules would collapse the mortgage market were overblown "hyperbole" and that the rules have had little negative effect.
"Some enjoyed describing this rule, which was also known as the 'Qualified Mortgage' or QM rule, as the 'Quitting Mortgages' rule," Cordray said. "They offered dire predictions that our rules would lead to the demise of community banks and credit unions, which would have to withdraw from the mortgage market altogether. We never believed any of this unsupported hyperbole. And it turns out we were right."
But Davis argued that there is ample evidence from his members that the variety of mortgages being offered has narrowed substantially since the passage of the QM rules, saying that many banks won't offer non-QM or GSE-eligible loans at all.
Davis acknowledged that the effect of the rules has not been drastic, but said statistics show that the demand for loans remains higher than the number of lenders willing to lend. That suggests that something is keeping lenders out of the market. Based on his conversations with bankers, that something is the QM restrictions, Davis said.
"The fact that loan demand should have resulted in more rapid growth — of purchased money mortgages in particular — than occurred, suggests that there was a limitation" in the market because of the QM rules, Davis said. "It's a moderate effect on credit availability from the regulation, not a dramatic effect."
But Sarah Wolff, a senior researcher for the Center for Responsible Lending, said that the lack of a profound change in the mortgage market suggests that whatever contraction exists is driven by market forces unrelated to the CFPB rules. She said it was heartening to see a slight uptick in lending to borrowers of color and low-to-moderate income, but said it is still too costly. That is primarily due to changes in the FHA's mortgage rules, which require more expensive mortgage insurance.
"There's a slight increase in the number of loans going to both African and Latino borrowers, but it's very slight and it continues to be well below the makeup of the population," Wolff said. "It's troubling to see a real lack of lending to borrowers of color, and what lending there is … borrowers of color are paying more."
The HMDA data shows that 25.5% of African-Americans and 28.3% of Hispanics entered into higher-priced mortgage agreements in 2014. Those kinds of loans were made out to only 14.2% of African-American borrowers and 16.8% of Hispanic borrowers the year before.
