Ability-to-Repay Rule for Mortgages Nears CFPB Approval

Richard Cordray wants lenders to adhere to the most basic tenet of banking: making sure borrowers can repay. Getting them to agree on how is proving tougher.

The director of the Consumer Financial Protection Bureau is aiming to discourage lenders from making home loans with risky features and outlining steps they must take to verify borrowers’ finances, as part of the “qualified mortgage” or QM regulation. Banks that follow the guidelines will gain legal protection against borrower defaults.

“Here’s what should be the least surprising lending advice you’ve ever heard: If you are going to lend money, you should probably care about getting paid back,” Raj Date, the agency’s deputy director, said in a speech April 20 in Los Angeles.

The rule, which may be released as soon as next month, is dividing the banking industry with the largest mortgage firms such as Wells Fargo & Co. and Bank of America Corp. siding with some consumer groups that the provision should allow certain lawsuits. Trade groups whose members include smaller lenders are holding out for a version that would protect bankers entirely from being sued, arguing that without the provision, home loans will be costlier and harder to obtain.
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