As the Qualified Mortgage (QM), Ability-to-Repay (ATR), and new mortgage servicing rules created by theConsumer Financial Protection Bureau (CFPB) took effect on Friday, CFPB Director Richard Cordray addressed an audience in Phoenix, publicly lauding the new rules.
Referencing Frank Lloyd Wright’s common witticism, “There is nothing more uncommon than common sense,” which Cordray said “epitomizes the heady years preceding the financial crisis of 2008,” the bureau’s director stressed that the new rules are a “‘back to basics’ approach” for the mortgage market.
Under the ATR rule, lenders must do their due diligence in ensuring a borrower has the financial wherewithal to repay the loan over time. A new compensation structure for loan originators also eliminates any incentives that might encourage lenders to push people into loans with higher interest rates than they qualify, Cordray said.
New rules for servicers specifically address dual tracking and transparency. A servicer may not begin foreclosure until a borrower is at least 120 days delinquent and may not conduct a foreclosure sale “until all other available options have been considered” if a borrower applies for loss mitigation, Cordray explained.
Additionally, each month, servicers must send borrowers comprehensive statements that detail loan balance, escrow account balance, interest rate, and information on how payments are attributed.
Addressing the new mortgage servicing rules, Cordray said, “In short our rules mean simply that mortgage servicers must now do their jobs.”
He continued, “It may seem silly that we need rules to tell servicers to answer the phone; not to lose people’s paperwork; to tell borrowers how much they owe. It might also seem silly that we need a rule telling lenders they must pay attention to whether borrowers will be able to repay the money that is lent to them. But we have lived through the financial crisis. We have seen with our own eyes the grave dysfunctions in the mortgage market. There was an embarrassingly long list of things that should have happened but never seemed to happen. Our new rules are aimed at setting things right again.”
Cordray also addressed concerns that the new industry rules will be cumbersome or serve as an impediment to the market. “On the contrary,” he said, “these measures are not new at all. They are exactly what good community banks and credit unions have been doing for many, many years.”