Dog bites man; bankers oppose regulation

Maybe bankers are coming to appreciate the stability that has come with mortgage lending reform since the housing crash and Great Recession.

But maybe not. “Seventy-seven percent of respondents to the American Bankers Association’s 25th annual Real Estate Lending Survey described mortgage regulation as having a negative impact on business production and consumer credit availability,” the news release says.

The maybe: That’s down from the 95 percent who complained in last year’s survey. The maybe not: “The survey shows how the current rules are making it difficult for banks to fully serve their communities,” said Robert Davis, ABA executive vice president in charge of mortgage markets. “The good news is Congress is currently considering legislative changes that would allow a greater portion of creditworthy borrowers access to mortgages.”

The ABA reported that nearly three out of four bankers said specifically that Qualified Mortgage regulations, “which impose stringent rules that exceed ‘ability to repay’ standards for borrowers,” have reduced credit availability.

Unless I’ve missed something for 10 years, that’s what creating the Qualified Mortgage rules was supposed to do:

Reduce the availability of credit to people based on more than their technical ability to pay — because ability to pay is the start, not the end-all-be-all, of what makes a loan healthy for a borrower and the marketplace.

It depends on what you think “creditworthy” means.

Most bankers don’t like the Qualified Mortgage rule one bit, according to the ABA survey — although the reduction from 95 percent to 77 percent suggests that lots of them, perhaps because some housing markets are getting frothy again, are glad for it.

That’s even though “banks have managed to show positive trends in loan production despite regulatory challenges,” the ABA says.

Bankers want to lend, and they want to take bigger chances while doing so.

They want rid of the Qualified Mortgage standards so they can lend to borrowers on shakier ground because of higher-than-allowed debt-to-income ratios, and to people with less documentation than that required for a Qualified Mortgage.

Just so everybody knows what all a Qualified Mortgage is, as I presented in commenting on the annual survey last year, here’s the regulatory definition from the Consumer Financial Protection Bureau:

“A Qualified Mortgage is a category of loans that have certain, more stable features that help make it more likely that you’ll be able to afford your loan. A lender must make a good-faith effort to determine that you have the ability to repay your mortgage before you take it out. This is known as the ‘ability-to-repay’ rule. If a lender loans you a Qualified Mortgage it means the lender met certain requirements and it’s assumed that the lender followed the ability-to-repay rule.”

Certain risky — risky — loan features are not allowed, such as:

• An “interest-only” period, when you pay only interest and nothing on the principal, the amount of money you borrowed.

• “Negative amortization,” where the amount you owe increases over time, even though you’re making payments.

• “Balloon payments,” larger-than-usual payments at the end of a loan term, although balloons are allowed under certain conditions for loans by small lenders.

• Loan terms longer than 30 years.

A Qualified Mortgage also requires:

• “A limit on how much of your income can go toward your debt, including your mortgage and all other monthly debt payments. This is also known as the debtto-income ratio.”

• “No excess upfront points and fees. If you get a Qualified Mortgage, there are limits on the amount of certain up-front points and fees your lender can charge. These limits will depend on the size of your loan. Not all charges, like the cost of (Federal Housing Administration) insurance premiums, for example, are included in this limit. If the points and fees exceed the threshold, then the loan can’t be a Qualified Mortgage.”

• “Certain legal protections for lenders. Your lender gets certain legal protections when showing that it made sure you had the ability to repay your loan. Even with these protections, you may still be able to challenge your lender in court if you believe it did not make sure you had the ability to repay your loan.”

The American Bankers Association says most bankers are against all that, all those regulatory barriers, which others call consumer protections.