Regulators Give Lenders Green Light to Offer Fewer Options

In the post-meltdown era of hyper-regulation, lenders are understandablyrn not eager to stick their necks out any further than necessary.  Many in the mortgage industry would prefer to avoid the risks associated with originating loans that don’t qualify as “Qualified Mortgages” (QM), but have expressed concernrnas to whether Regulation B’s disparate impact doctrine (part of the Equal CreditrnOpportunity Act or “ECOA”) allows them to stick to offering the safest loans. </p

The ECOA makes it illegal for a creditor torndiscriminate in any aspect of a credit transaction based on characteristicsrnincluding race, religion, marital status, color, national origin, sex, and age.rn QM regulations require lenders to make arngood faith determination as to whether a consumer has the ability to repay arnmortgage loan before extending credit to the consumer.  Lenders are presumed to have complied withrnthe ability to repay requirement if they issue QMs.</p

In other words, lenders don’t want to originate the non-QM loans that pose more risk to their balance sheets, but neither do they want to violate fair lending policies if such a choice is construed as discriminating against borrowers who don’t fit the QM mold.  Federal regulators today clarified today responded to these concerns, essentially granting lenders permission to only offer QM loans.</p

The five regulatory agencies issuingrntoday’s statement say they do not anticipate that a creditor’s decision tornoffer only qualified mortgages would, absent other factors, elevate a creditor’srnfair lending risk. The decisions creditors make about product offerings underrnthe new rules should be similar to decisions made regarding other significantrnregulatory changes affecting particular types of loans.  Creditors, the regulators say, shouldrncontinue to evaluate fair lending risk as they would for other types ofrnproducts, monitoring policies and practices and implementing effectiverncompliance management.</p

The statement was being issued byrnthe Board of Governors of the Federal Reserve System, the Consumer FinancialrnProtection Bureau, the Federal Deposit Insurance Corporation, the NationalrnCredit Union Administration, and the Office of the Comptroller of the Currency.rn

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