Baltimore, MD: Field Hearing on Ability to Repay


Welcome to the Consumer Financial Protection
Bureau’s field hearing on the Ability-to-Repay and Qualified Mortgage rule. The Consumer
Financial Protection Bureau is an independent federal agency whose mission is to help consumer
finance market work by making rules more effective, by consistently and fairly enforcing those
rules, and by empowering consumers to take more control over their economic lives. My name is Zixta Martinez. I am the Acting
Associate Director for External Affairs. Welcome. Today’s field hearing is being Livestreamed
at ConsumerFinance.gov, and you can follow CFPB on Facebook and on Twitter at @CFPB. We will begin today’s field hearing with remarks
from some well-known Maryland luminaries. Then you will hear from CFPB’s Director, Richard
Cordray. This will be followed by a panel discussion on the ATR and QM rule. That will
be led by the CFPB’s Deputy Director, Raj Date. After the panel discussion, audience
members will have an opportunity to share their stories and observations with the CFPB. So let’s get started. Senator Ben Cardin is
a native of Baltimore, a former State legislator and a Member of the House. In 2001, he was
named by Worth magazine as among the top 100 people who have influenced the way Americans
think about money. The Senator was a strong supporter of the legislation that created
the CFPB. We thank Senator Cardin for being with us today. [Applause.] SENATOR BEN CARDIN: Zixta Martinez, thank
you very much for the introduction, for being here. Director Cordray, we thank you for your
service to our country and bringing this hearing to Baltimore, and on behalf of my colleagues,
we thank you for being here in Baltimore. Congressman Cummings and Mayor Stephanie Rawlings-Blake
and I have seen firsthand the pain that was caused by people who have lost their homes.
We have seen what it’s meant to their dignity. We’ve seen neighborhoods that have been very
much negatively impacted because of mortgage foreclosures, and the tragedy of this, that
in many of these cases, it didn’t have to happen. Individuals in our community were
steered into subprime products that they shouldn’t have been. They qualified for conventional
mortgages, but yet they were steered into a financial arrangement that they didn’t understand,
they didn’t realize the consequences, and as a result, many people lost their homes,
and communities were devastated. Today we have too many abandoned properties,
too many homes still in foreclosure, people who are homeless, and still homeowners are
uncertain about their future. So we thank you for having this hearing here in Baltimore,
because we do believe that the people who will be presenting can give you some good
information to help form the policies that we expect from the Consumer Financial Protection
Bureau. I want to first compliment Governor O’Malley,
Secretary Skinner, our Secretary of Housing, for the steps that our State took to help
people. They set up counseling and ways in which the homeowner, the person who borrowed
the money, could have direct contact with the person who lent the money, and in some
cases, we were able to adjust mortgages and keep people in their homes. I’m proud of the
work that our Mayor did in helping the people of Baltimore City better understand their
options, because the way those financial arrangements were set up, people couldn’t talk to the right
people, and it was in everyone’s interest to avoid foreclosure, and yet too many properties
were being foreclosed. Congressman Cummings had many foreclosure
prevention forums. It was amazing. I have seen some of the people who have benefitted
from Congressman Cummings work. I held several foreclosure prevention forums, and I was amazed.
I expected that I would find maybe 50 or 100 people show up. Hundreds showed up because
they were thirsty for information. They had the financial ability they thought to save
their house, but they didn’t know how to do it, and that’s the lesson I think we have
learned over the last 5 years. We have to do a much better job. I must tell you, we can put a face on it.
All of us have the individual stories of people that have come up and homes that we have saved
as a result of it. There is one person, Fannie, who lives in Bowie, Maryland, would have lost
her home, would have lost her home. She was at one of those forums, Elijah, and she was
able through a counselor to find out who actually had the mortgage and through a pro bono attorney
sat down and able to adjust their mortgage through the tools that were made available
as a result of legislation passed by the United States Congress, with the leadership, strong
leadership of the Obama administration. We were able to use to tools and save this individual,
Fannie, her home. There are many other stories like that. We have got to personalize this. To me, the key to preserving homeownership
in this country, the key to financial success, and I hope the major objective of the Consumer
Financial Protection Bureau is to provide financial literacy. Let people understand
what’s out there. Let them understand their own capacity. Let them understand the options
that are there. Financial literacy is critically important, and then access to financial products
and services that are fair, affordable, and understandable. If we can take those steps,
we can help empower people to not only own a home or to make the right financial decision,
but to help build our economy. So I just urge you to be bold. When Congress
passed Dodd-Frank, when Congress passed the establishment of this Bureau, we wanted you
to be bold, because we don’t want to repeat what we have seen over the last 5 years again.
We want you to be bold in protecting families from abusive financial products. Get rid of
them. Empower families with financial knowledge, skills, and resources. We need resources to
help guide them particularly when the choices are complex or when the terms are unclear
or when the products themselves are misleading, and I think through proper regulation, best
practices, and leadership, we can provide that financial information, and we can help
people during those critical periods in their lives when they have to make those types of
decisions. I think we can guide them. I want to compliment you on the regulations
that you just recently issued. They are absolutely the right things to do, and I can tell you,
you have friends in the Congress of the United States who will support your bold actions.
Let us work together and avoid what has happened over the last 5 years, so we don’t have to
repeat that, and Americans can indeed have the American dream of home ownership with
the right financial arrangements at the right time in their life. Again, thank you for being here in Baltimore,
and I can assure you that our congressional delegation, Senator Mikulski, and our entire
team are there to work with you to make sure that we accomplish these goals together. Thank
you. [Applause.] ZIXTA Q. MARTINEZ: Thank you, Senator Cardin. Our next speaker is Congressman Elijah Cummings.
Congressman Cummings represents Maryland’s 7th Congressional District, which includes
our beautiful venue today, Westminster Hall. Representative Cummings is the Ranking Member
on the Oversight Committee where he has strongly defended the Bureau’s independence. We thank
him for hosting us today. [Applause.] REPRESENTATIVE ELIJAH CUMMINGS: Good morning,
everyone. ATTENDEES: Good morning. REPRESENTATIVE ELIJAH CUMMINGS: Come on. We
can do better than that. Good morning, everyone. ATTENDEES: Good morning. REPRESENTATIVE ELIJAH CUMMINGS: It is certainly
my honor and my privilege to be here, and I am so glad that the Consumer Financial Protection
Bureau has chosen the 7th Congressional District, which I just so happen to represent, to hold
this forum. As I was sitting there listening to Ben Cardin,
I could not help but think about the last time Elizabeth Warren appeared before my committee,
and how some folks tried to tear her apart because she simply wanted an organization
which was meant to protect our constituents. She wanted to make it work, and I can tell
you—I was telling Director Cordray a little bit earlier—it’s amazing. The very people
who tried to put her down in their actions elevated her, and now she is a United States
Senator. You don’t have to clap. You should, because
she is very—she is in a very significant position. Go on. Clap. [Applause.] REPRESENTATIVE ELIJAH CUMMINGS: I want to
thank you. I want to thank Senator Cardin, certainly our Mayor who has just done an outstanding
job, and you, Director Cordray, for being here. The Consumer Financial Protection Bureau is
dedicated to protecting consumers, including homebuyers from abusive financial practices.
Under Director Cordray’s leadership, the Bureau conducted enforcement actions last year that
returned about $425 million to consumers who were the victims of deceptive practices. This
is about $80 million more than the Bureau’s entire budget for 2012. So the American taxpayer
is already getting significant bang for their buck. Here in Baltimore, we have been hard hit by
the national foreclosure crisis, in which nearly 4 million American families have already
lost their homes. During this crisis, I have organized some seven foreclosure prevention
workshops, and we are about to have another one on June 15th. In these workshops, as Ben
said a few minutes ago, we have heard firsthand about the abuses committed by mortgage servicers. In addition, in my position as the Ranking
Member of the House Oversight Government Reform Committee, I have conducted investigations
and introduced the legislation to expand protections from homeowners, including those serving in
the military. Given the enormity of the challenges we currently face, we are looking to you,
Director Cordray, and the Bureau to lead the way forward, and America is counting on you
to ensure that credit is provided on the terms that are clear, fair, and affordable. Today’s hearing will primarily address the
Bureau’s new rule on qualified mortgages, and I am pleased that the Bureau sought input
from stakeholders on earlier drafts of the rule. We are also awaiting a new rule on mortgage
servicing standards. We will evaluate all of the new rules based on whether they protect
consumers from the kinds of abuses they faced in the past, as well as whether they prevent
those seeking financial gain from exploiting consumers through unintended loopholes. And as I said to you a little bit earlier,
Director Cordray, there are a group of people who are not usually mentioned in these discussions,
and that is the children, the children who become displaced because their parents cannot
afford the home or they have been put out of a house. And heaven knows what effect that
has on generations yet unborn. Does it say to that child that I’ll never be able to buy
a house? Does it say to that child I shouldn’t even try because I will probably fail? These
are questions that never seem to rise up, but I know that you are very sensitive to,
based on the discussions that we have had, and so I know, Director, that you will remain
vigilant in monitoring the effects of these new rules on homeowners and on credit, and
we urge you to take action whenever never trends threaten the safety or soundness of
our mortgage market. I reiterate what Ben Cardin said: We got your
back. I will do everything in my power to back up this organization. It is so very,
very, very important. That’s why people like the Mayor and I are in government. We want
to make sure that people have an opportunity to live the very best life that they can. So, with that, again, welcome to our city,
and we look forward to hearing from you. [Applause.] ZIXTA Q. MARTINEZ: Thank you, Congressman
Cummings. Our next speaker is Mayor Stephanie Rawlings-Blake.
Mayor Blake is Baltimore’s 49th Mayor. She serves on the Board of Trustees for the U.S.
Conference of Mayors and was the youngest person ever elected to the Baltimore City
Council. We would like to thank the Mayor for graciously hosting us in her growing city. [Applause.] MAYOR STEPHANIE RAWLINGS-BLAKE: Good morning. ATTENDEES: Good morning. MAYOR STEPHANIE RAWLINGS-BLAKE: I am hosting
you in my city and in my law school. You forgot to mention that, Congressman. I want to thank Director Cordray for holding
this hearing here today, and I want to welcome the CFBP [sic] to Baltimore City. I want to
thank the Senator and the Congressman for being here. Baltimore and Maryland is blessed
to have a tremendous delegation in D.C. that is working so hard on our behalf, and today
is just a small example of the work that they do together. We are always grateful when congressional
committees and federal agencies visit Baltimore, and to that end, Director, you are welcome
here any time you’d like to come. We believe that field hearings and visits are an invaluable
part of the decision-making process. Policy is far too often made within the confines
of Washington, D.C., but a forum such as this allows decision-makers to see and to hear
what’s happening on the ground and how it affects real people, and that can only lead
to better policies. What is happening in Baltimore is typical
of what’s happening in much of America. We have higher than average unemployment and
underemployment rates in Baltimore City. This affects people’s credit scores and, thus,
their eligibility for mortgages. Foreclosures also destroy a person’s credit score, and
Baltimore has suffered disproportionately high foreclosure rates throughout the real
estate market collapse. And even though interest rates are at record lows right now, there
have been significant increases in loan fees and banks requiring higher credit scores to
qualify for a mortgage. This creates additional obstacles to obtaining a mortgage, and this
is not even to mention the government regulations with respect to qualified mortgages, which
if defined too rigidly will only make a mortgage more difficult for minority borrowers to obtain. These obstacles have diminished the pool of
minority, low-income, and first-time buyers who are entering the housing market, which
in turn has an effect on existing homeowners who are looking to move up, to move into a
larger home. Existing homeowners are seeking to improve their homes, and they are being
prevented from refinancing or obtaining home equity loans. Additionally, here in Baltimore, we have been
suffering from high foreclosure rates throughout the subprime meltdown, and this is continuing.
Foreclosure rates in the greater Baltimore area rose this year, well beyond the national
average, and even increased from the year before. The foreclosure pipeline, late mortgage
payments of 90 days or more, is also on the rise in the greater Baltimore area, increasing
from a year before. These are alarming trends and should cause all of us concern. All combined, this creates a very difficult
challenge for Baltimore City as we work to create new opportunities for our families
and our neighborhoods. We have set out an ambitious goal of growing Baltimore by 10,000
families over the next 10 years, and in order to do so, we must improve our school system,
reduce crime, create economic opportunities for our residents, but a vital part of this
effort has been making homeownership a priority. In fact, on Monday we announced a new public-private
partnership with Wells Fargo to provide $4.5 million worth of $15,000 grants to provide
homeownership assistance. These forgivable grants to new homeowners will help families
move into the home that they want. What’s more, the new program supports our ongoing
efforts, like Vacants to Values, our blight elimination program, by providing people with
the opportunity to combine various and a variety of incentive programs and by doing so being
able to bring tens of thousands of dollars to the settlement table. Still, without access
to mortgages, our efforts, all of these efforts will be for naught and will make the job of
growing this city and by extension our nation’s economy that much more difficult. That’s why today’s discussion is so important.
We need to find ways to increase opportunities for families here and throughout the country.
Thank you again for my invitation to speak to you today. Thank you for being in Baltimore.
I hope you have a fruitful discussion in my hometown, and you are always welcome back.
Thank you. [Applause.] ZIXTA Q. MARTINEZ: Thank you, Mayor Blake. On behalf of the Bureau, I’d also like to
extend wishes for a speedy recovery to Congresswoman Donna Edwards. She was to have joined us today
but unfortunately sprained her ankle. We hope it heals quickly. Next is the Bureau’s Richard Cordray. Richard
Cordray became the CFPB’s first Director, a little over a year ago on January 4th, 2012.
Director Cordray? [Applause.] RICHARD CORDRAY: Thank you, Zixta, and let
me say thank you to everyone, including our elected leaders, Mayor Rawlings-Blake, Senator
Cardin, Representative Cummings, who’s been such a strong supporter of the Consumer Bureau
and its work. I also want to acknowledge public officials, leading public officials who sent
staff to represent them here today, key staff who will report back, Senator Mikulski, Representative
Ruppersberger, Representative Van Hollen, and Representative Harris. Thank you so much
for your interest in our work. We appreciate it. We take our responsibilities to fulfill
the will of Congress very seriously, as with the mortgage rules we are announcing today. So thank you for joining us today as we announce
our Ability-to-Repay rule, a rule designed to ensure that lenders are offering mortgages
that consumers can actually afford to pay back. This is a simple, obvious principle
that needs to be reestablished in the American housing market. It is nothing more than the
true essence of responsible lending. The Ability-to-Repay rule gets at the heart
of the lending standards used in this country to sell mortgages to consumers. It comes against
the backdrop of two distinctly different mortgage markets that we have experienced over the
past decade. In the run-up to the financial crisis, we had a housing market that was reckless
about lending money. It was driven by assumptions about property values that turned out to be
badly wrong. It had dysfunctional incentives, with lenders being able to offload virtually
any mortgage into the secondary market, regardless of the quality of the underwriting. There
was broad indifference to the ability of many consumers to be able to repay their loans. As a result, we experienced the worst financial
crisis since the Great Depression. The collapse of the housing market destroyed businesses
and jobs across every economic sector and in communities across this country. The American
dream of homeownership was shaken to its foundations. Household wealth shrank by trillions of dollars.
The stock market plummeted. People’s life savings were devastated. People lost their
jobs. People lost their homes. People lost their hope and confidence in the future. Now in the wake of the financial crash, we
have been experiencing a housing market that is tough on people in just the opposite way.
Credit is achingly tight. Since 2008, most mortgages are being priced on very attractive
terms, but access to credit has become so highly constrained that many consumers cannot
borrow to buy a house, even with strong credit. Both periods have hurt individuals and families
who simply seek to fulfill the promise of the American dream of homeownership. Our goal
with the Ability-to-Repay rule is to make sure that people who work hard to buy their
own home can be assured of not only greater consumer protections, but also reasonable
access to credit, so they can get a sustainable mortgage. Let me tell you two sets of stories that reflect
the problems I am talking about. Earlier this year, a California man named Henry wrote to
the Consumer Bureau. His home was in the process of being foreclosed on, and he was desperate.
During the overheated years, a lender had sold him a mortgage for more half-a-million
dollars, far more than he could afford on his annual salary of less than $50,000. And
despite various provisions in the original loan, he was now arriving at the point of
financial ruin. Henry said that when he got his mortgage, he assumed that the lender knew
what it was doing by qualifying him for such a large loan. When he wrote to us, he was
worried not only about losing his home, but about losing his family’s entire future. As we all know, Henry was not alone. People
across the country were sold mortgages that were not sustainable. Some had their eyes
open, seeking to ride the wave of rising housing prices. Others, like Henry, were led astray.
For many borrowers, the numbers were ignored or fudged to get the loan approved. This kind
of reckless lending was an endemic problem. I firmly believe that if the Ability-to-Repay
rule we’re announcing today had existed a decade ago, many people like Henry could have
been spared the anguish of losing their homes and having their credit destroyed. The events
that caused the financial crisis might well have been averted. The tragic reverberations
that continue to affect so many Americans today would never have occurred. In contrast, consider these more recent situations.
Anthony from New York contacted us earlier this year to describe how after years of building
a strong credit report, he now finds that even with a solid credit score and money saved
for a substantial down payment, he cannot get approved for a mortgage. After all those
years of carefully managing his money, he found that the current market has become so
tight, he cannot get the approval he needs. And the slowdown in the mortgage market is
holding back consumers in other ways too. We heard from a couple in Michigan who have
credit scores in the 800s and simply want to refinance their home, which is now worth
much more than the original mortgage loan, at the current lower rates, yet they cannot
get approved because there were no comparable sales in their neighborhood over the last
12 months. Having the important Ability-to-Repay rule
in place, indeed having all the mortgage rules in place and on sound footing, is an essential
foundation for a much-needed recovery in mortgage lending. We believe this rule does exactly
what it is supposed to do. It protects consumers and helps strengthen the housing market by
rooting out reckless and unsustainable lending, while enabling safer lending. In the end,
the Ability-to-Repay rule will help ensure that lenders and consumers share the same
basic financial incentives. Both of them win when borrowers can afford their loans. It also recognizes the importance of restoring
reliability to the marketplace. When consumers sit down at the closing table, they should
be able to have confidence they are not being set up to fail. With this confidence, consumers
can be more active participants in the market once again. They can choose the product they
believe is best for them from among a wide variety of products, and they can decide what
they are willing to pay to finance the home they seek to own. The core of the Ability-to-Repay rule rests
on two basic common-sense precepts. Lenders have to check on the numbers and have to make
sure that the numbers check out. Why is this so important? Again, consider where we were
just a few years ago in the mortgage market. Leading up to the crisis, many lenders sold
no-doc and low-doc loans, where consumers were qualifying for loans that were well beyond
their means. A no-doc loan is one where the borrower did not have to show any financial
background or resources, such as tax forms or paychecks or bank statements, none of the
critical information needed to evaluate what size mortgage he or she could reasonable afford.
Some of these loans were derided as NINJA loans, no income, no job, no assets, yet far
too many borrowers found that they had no problem getting these loans approved. Taking the actual financial background of
the consumer out of the equation was problematic. The rapid spread of introductory teaser rates
made a bad situation worse. Low initial teaser rates led many consumers to believe they could
afford to take out loans, but the payments proved too much for many consumers and caused
a dramatic increase in mortgage delinquencies. This led inevitably to home foreclosures. Under our new rule, lenders will have to determine
a borrower’s ability to repay. They will have to evaluate the borrower’s income, assets,
savings, and debts, and this determination will be based on both the principal and the
interest on the mortgage over the long term, not just during an introductory period. Under
our new rule, low- and no-doc loans will be effectively prohibited in the American mortgage
market, and affordability will be determined based on the interest rate that would prevail
in the absence of any teaser rates. In these key respects, borrowers no longer will be
sold mortgages that are predestined to fail. Now, while Congress directed the Bureau to
implement the Ability-to-Repay rule, it also directed us to define a category of loans
where borrowers would be the most protected, so as part of the rule, we are releasing the
criteria for what are called “qualified mortgages.” If you are a borrower getting a qualified
mortgage, your loan is required to meet these additional criteria and, thus, barring some
unexpected turn of events, you should be able to make your house payments. Under our new rules, qualified mortgages cannot
contain certain features that often have harmed consumers. They cannot have excessive points
and fees, which are the up-front costs that the lender imposes on the borrower at the
outset of a loan. They cannot be risky loans where the principal amount actually increases
rather than paying down the loan, and they cannot be loans that place a particularly
large financial burden on the borrower. The consumer’s total monthly debts, including
the mortgage payment and related housing expenses such as taxes and insurance, generally cannot
add up to more than 43 percent of a consumer’s monthly gross income. No standard is perfect,
but the standard here draws a clear line that will provide a real measure of protection
to borrowers and increased certainty to the mortgage market. Taken together, all of the Ability-to-Repay
provisions will help establish the principles of responsible lending for the mortgage market
as it recovers from the financial crisis, but you cannot have responsible lending unless
you have lending in the first place, and the mortgage market as it stands today has tightened
so much that many consumers cannot borrow to buy a home, even with a strong credit history.
We can draw up the greatest consumer protections ever devised, but if consumers cannot get
credit, then there is nothing to protect. Our goal here is not only to stop reckless
lending, but to enable consumers to access affordable credit. Our Ability-to-Repay rule will restore more
certainty to a market that was deeply destabilized by the financial crisis. By providing common-sense
discipline in the housing market, this rule creates a level of assurance for all participants
that will open up more access to credit for consumers, and we are helping this process
along in two ways. First, we have included provisions in the rule that temporarily broaden
its coverage of qualified mortgages to allow a transitional period, while other parts of
the government, including the Congress, map a path forward toward reform of the secondary
market for mortgage financing. Second, we have addressed the legal consequences of a
qualified mortgage by conferring the strongest legal protection on safer prime loans, while
permitting borrowers to rebut the presumption of ability to repay for subprime loans. We
have limited the opportunities for a necessarily litigation, however, in three ways: one, by
drawing bright-line criteria to define a qualified mortgage; two, by specifying that sustained
payment over a reasonable period is strong evidence that the borrower had the ability
to repay the loan when it was made; and three, by specifying the circumstances under which
a borrower can rebut the presumption for subprime loans. There has been some confusion about what these
legal protections actually mean. They do not afford lenders complete immunity when it comes
to foreclosures. For example, if a lender does not follow the qualified mortgage criteria,
then the lender does not enjoy the legal protection of a qualified mortgage, and the protections
conferred on borrowers under other federal consumer financial protection laws still apply.
Thus, the Ability-to-Repay rule does not take away any consumer rights. It adds to them.
And for lenders who make qualified mortgages or determine the consumer’s ability to repay
over the life of the loan, this rule will foster consumer confidence and improve conditions
in the marketplace. While working on the Ability-to-Repay rule,
we came to another important recognition. Many have said, including myself, that community
banks and credit unions did not cause the financial crisis. Their traditional model
of relationship or character lending has been beneficial for many people in rural areas
and small towns across this country, including the small town in Ohio where I was born and
raised. They find ways to make loans that respond to personal situations and cannot
be captured by any generic metrics. They depend on keeping a good reputation in the community,
and they often hold these loans in their own portfolio. Accordingly, they have strong incentives
to pay close attention to the borrower’s ability to repay. So, today, we will also be proposing a further
adjustment to the Ability-to-Repay rule to create a special category of qualified mortgage
loans made by smaller lenders, such as community banks and credit unions. This proposal also
contains measures to ensure that non-profit groups and State housing agencies that lend
to low- and moderate-income families can continue to play a vital role in the housing market.
These groups offer a valuable range of financing and support, from down payment assistance
to first-time homebuyer programs to construction programs that build up communities one beam
at a time. We look forward to considering your feedback, which has been so helpful to
us in resolving the many difficult challenges posed by the Ability-to-Repay rule. We have adopted today’s rule after analyzing
extensive comments and considerable data. We have listened to people with many different
perspectives and stakes in the housing and mortgage markets. We have met with large providers,
small providers, community groups, consumer organizations, and public officials from every
branch and level of government. The work done by our team on this rule has been marked by
their tremendous talent and dedication, and yet their work is not done. We have a responsibility
not just to write a rule, but to see that lenders put it in place effectively, so that
its promise for consumers becomes reality, and we also want to help lenders implement
the rule smoothly and minimize unnecessary burdens, so we’ve hired a mortgage industry
veteran to coordinate these efforts. We will also be working closely with industry
over the next year to aid and support implementation of the Ability-to-Repay rule and all of our
other mortgage rules. We will publish plain-language translations of the rules in booklet and video
form for lenders and other key players in the real estate market. We will field questions
and offer suggestions to help lenders determine how to implement the rules, and in coordination
with our fellow agencies, we will publish materials that help lenders understand our
supervisory expectations. As the effective date approaches, we will also give consumers
extensive information about their new rights under these rules. On a final note, I believe it is entirely
fitting that this rule, one of our most important to date, would focus on making sure that lenders
pay close attention to whether borrowers are able to repay their loans. It is fitting because
it brings us back to the very origins of our mission. Five years ago, then-Professor Elizabeth
Warren wrote a groundbreaking article entitled “Unsafe at Any Rate.” In it, she asked why
we as a country had made it impossible to buy a toaster with a one-in-five chance of
bursting into flames and burning down your house, yet it was still possible to finance
a home purchase with an exploding mortgage that has the same one-in-five chance of causing
your family to be put out on the street. She advocated that financial products should be
subject to regulatory oversight because the pain imposed by a dangerous credit product
is even more insidious than that inflicted by a malfunctioning kitchen appliance. Spurred
by the tragedy of an intervening construction crisis, Congress and the President took action,
and her vision became the Consumer Financial Protection Bureau. As the American mortgage market ebbs and flows,
the new Consumer Bureau has been charged with a duty to protect responsible lending in the
housing market for borrowers, lenders, and everyone else who is engaged in our economic
life. We have been working hard, and we will continue to work hard, to do just that. Thank you. [Applause.] ZIXTA Q. MARTINEZ: At this time, I would like
to invite all the panelists to join the stage, and while they are taking their seats, I want
to also thank those who are joining the field hearing by Livestream. You can follow CFPB
on Facebook and on Twitter at @CFPB. The CFPB’s Deputy Director, Raj Date, will
lead the panel of experts through brief statements and Q&A. Raj Date has had a long and varied
career in and around U.S. financial institutions as a strategy consultant, a bank executive,
and on Wall Street. Previously, he served as special advisor to the Secretary of the
Treasury for the CFPB and as the Bureau’s Associate Director for Research, Markets,
and Regulations. In 2009, Deputy Director Date founded and served as Chairman and Executive
Director of the Cambridge Winter Center for Financial Institutions Policy, a private non-profit
research and policy organization that supported reform of the U.S. financial system. Deputy Director Date, you have the floor. RAJ DATE: Thank you, Zixta. Thank you all for being here. I would like
to start just by reiterating something that was said by Senator Cardin and then again
by Director Cordray, just to remind everyone that the CFPB is a start-up agency. We were
established some 2-1/2 years ago. We opened for business a year and a half ago, and I
am quite proud about what it is that we have been able to accomplish, but just as important
as what we do is how we try to do it. We try to be disciplined and data driven and tough-minded,
but at the same time, we try to make sure that we are open and transparent and collaborative
with stakeholders around the very important work that we are doing. We try to make sure
that we hit every deadline and we never forget who it is that we work for, which is the American
consumer. Doing all of that is hard work, and it takes
a certain human cost, a human toll on people, and I just wanted to pause and thank the astonishing
work of the staff at the Bureau led by David Silberman, who is our head of Research and
Markets and Regulations, but I would like to, mostly because I can, just run through
some of the people who have really done astonishing work. So Kelly Cochran, who runs our regulations
team, which includes Ben Olson and Steven Chen, Paul Mondor, Tom Kearney, Priscilla
Walton-Fein, Courtney Jean, Eamonn Moran, Jennifer Kasman, and Joe Devlin, our research
economists who do such terrific, empirical work that grounds this effort, as well as
others led by Jesse Leary, Ron Borzekowski, Alexei Alexandrov, Tim Critchfield. Our mortgage
markets team is led by Pete Carroll, over here to the Director’s left, and including
such terrific Ren Essene, and of course, our legal division with Roberto Gonzalez and Stephen
Van Meter and Anne Zorc and Connor Raso. All have put in terrific work on this rulemaking,
and, you know, I personally could not be more proud or more grateful for the work that’s
been done. [Applause.] RAJ DATE: There’s always a danger when you
try to come up with everyone that has worked with you. You inevitably miss someone, and
then they are angry at you. I have always been very comfortable with people being angry
at me, so I don’t mind. Let me just talk a little bit about what it
is we’d like to accomplish during this component of our public hearing. As Director Cordray
talked about, the Ability-to-Repay rule is focused on solving real problems, real problems
that when they manifested themselves had a devastating impact on the mortgage market,
on the housing market, and on the real economy. To help us calibrate within that context the
impact of this new rule and importantly to help us with gleaning a perspective on where
the marketplace and consumers interaction with it might move from here, we have assembled
two terrific panels, which together have deep insight and a perspective on the experience
of consumers and the experience of lenders and indeed the experience of the mortgage
finance market broadly. I would like to introduce that panel and then
ask each of our panelists to provide a brief opening statement. These are really terrific
people who have joined us, and notwithstanding the fact that they are so terrific, we will
ask them to be quite brief in their opening remarks, but let me first introduce you to
all of them. Over on my far left-hand side is Mike Calhoun,
who is the President of the Center for Responsible Lending. Next to him is Lisa Rice, Vice President
for the National Fair Housing Alliance. Then Alys Cohen, Staff Attorney for the National
Consumer Law Center, and then if I move all the way to my right-hand side, Susan Wachter,
who is a professor of Real Estate and Finance at The Wharton School at the University of
Pennsylvania; David Moskowitz, who is Deputy General Counsel with Wells Fargo; and Karen
Thomas, the Senior Executive Vice President for Government Relations at the Independent
Community Bankers Association of America. Thank you all for being here, and perhaps
we might start with you, Mr. Calhoun. MICHAEL CALHOUN: Thank you. Today the CFPB
announces one of its most important rules, the Qualified Mortgage/Ability-to-Repay rule,
along with the upcoming mortgage servicing rules that will come out next week, address
failures in the mortgage market that devastated millions of families and our overall community.
The twin drivers of this were widespread unaffordable loans and a broken mortgage servicing system
that severely aggravated the ensuing wave of foreclosures. The goal of the Dodd-Frank legislation and
the rule today are to redirect incentives, so that lenders are encouraged to make loans
that are long-term, sustainable, not just generators of short-term fees, and to also
deter and prohibit abusive practices, such as the infamous 228 exploding loans, and broker
incentives to steer borrowers to more expensive, less sustainable loans. At the same time,
as noted, we need to provide more access to these sustainable loans. The rule being announced implements and reinforces
the key protections mandated by Dodd-Frank and appropriately targets the strongest protections
at the riskiest loans. It will provide substantial certainty and protection for lenders in order
to encourage ample access to credit. There remains several key provisions, as discussed
in comments earlier, left for decision, including how some additional provisions will be resolved,
including broker incentives that played a key role in the housing crisis. As this rule and the servicing rule are adopted
and implemented, it is critical that we not fall into the false argument that enforceable
consumer protections mean less access to sustainable loans. This experience in the mortgage market
and other consumer credit markets show basic rules of fairness that encourage sustainable
lending further both consumer protection and access to credit. The currently constrained
mortgage market is not due to borrowers bringing a wave of claims and that discouraging lenders.
Indeed, there has been a dearth of consumer claims, notwithstanding the historic recent
abusive lending practices. Rather, the market, rightfully, lost faith in the quality and
safety of mortgages because of the absence of basic protections, which generated a race
to the bottom, where tricked-up loans dominated, harming consumers and investors alike. We have seen this in other markets as well,
such as with credit cards, where the adoption of common-sense reforms in the last few years
has produced a more transparent and competitive market that better serves consumers and lenders
alike. So, in summary, the CFPB fully implementing
the Dodd-Frank mortgage protections and enacting substantial reform to mortgage servicing are
essential to achieving a mortgage market that works well for families, for lenders, and
for our whole economy . Thank you. RAJ DATE: Thank you, Mr. Calhoun. Ms. Rice. LISA RICE: Thank you so much for inviting
me to participate in this very important hearing. The National Fair Housing Alliance, like Mayor
Rawlings-Blake, shared that same concern that the QM market would be very narrowly prescribed,
and so we are very happy to see that QM is broadly defined and that there are also no
down payment or credit scoring requirements for QM loans. [Technical difficulty.] LISA RICE: We are also pleased that the CFPB’s
intentions in drafting these rules are to protect consumers from irresponsible mortgage
lending. There still remains a concern about the possibilities for reinforcing America’s
dual credit market in which communities of color have been relegated to nonprime markets
and higher-cost loans. A dual credit market, as we all know, helped to create our nation’s
worst housing crisis. The rules established a tiered system, one where there are some
loans who have the rebuttable presumption and other loans that have the safe harbor. The National Fair Housing Alliance strongly
advocated for a scenario where all loans would have a very strong rebuttable presumption
because we felt that that would lend the greatest protections to consumers. Remember that in
that mortgage transaction, it is always the lender that has superior knowledge over the
consumer in the transaction. So we have to be very diligent and ever-mindful and watchful
with this system to make sure that the tiering of the mortgages does not perpetuate a situation
where we have furtherance of a dual credit market. We, of course, don’t have to look any further
than right here in the City of Baltimore for evidence of the effect of a dual mortgage
market. One of the nation’s largest cases of discrimination was brought by the City
of Baltimore on behalf of its African-American and Latino residents who had received subprime
and higher-cost unsustainable mortgage, mortgages when they actually qualified for lower-cost
and sustainable mortgages. HUD, DOJ, and other agencies have brought
a record number of fair lending claims revealing that hundreds of thousands of borrowers were
discriminated against when they obtained their mortgage loans, and many of these discriminatory
actions, of course, have led to borrowers being underwater or even losing their homes. One of the things we are heartened by is the
prominence of the Office of Fair Lending and Equal Opportunity, which of course is housed
at the CFPB. This office is charged with ensuring that rules like the QM rule and the Ability-to-Repay
rule will be implemented in a fair manner, and that the CFPB’s supervision and enforcement
efforts are comprehensive and diligent. It’s also important to note that the safe
harbor provision does not exempt lenders from discrimination or fair lending claims. Even
borrowers who receive a safe harbor mortgage or a qualified mortgage can experience discrimination,
so that’s a very important point to keep in mind. It would also be important to ensure
that compensation schemes did not contribute to consumers receiving higher-cost mortgages
when they really qualify for lower-cost products. We know that certain compensation schemes
helped to spur the crisis. The CFPB will, therefore, need to be very careful to not
interpret this rule or the promulgate any other rules that would allow for a perverse
compensation scheme. We commend the CFPB for releasing this rule
and of course will do all that we can to ensure that the rules provide fair and equal access
for all consumers. RAJ DATE: Thank you very much, Ms. Rice. There
is obviously some audio feedback, which at first I thought was either a practical joke
that someone was running: Every time you say “QM,” the audio system will go on the fritz.
Hopefully, that will get worked out. I am going to use my engineering knowledge now.
If you were to separate those microphones, I wonder if that will help us a tiny little
bit. In any case, Ms. Cohen. ALYS COHEN: Thank you for the opportunity
to testify today. I testified today on behalf of the National Consumer Law Center’s low-income
clients and the National Association of Consumer Advocates. We appreciate the vigorous and
thorough work of the Bureau on this rule. Regulation of the mortgage market under Dodd-Frank
is essential to our economic security. In the years leading up to the economic crisis,
pricing replaced underwriting as a risk control mechanism in the subprime market. Lenders
relied on securitization to spread the cost of the inevitable foreclosures. Foreclosures
devastated communities across the country, particularly communities of color. Congress’ mandate in Dodd-Frank is clear.
Lenders must take reasonable steps to ensure that every mortgage loan is affordable when
made, and homeowners whose lenders overreach have recourse. The Consumer Financial Protection
Bureau’s new regulations implement important new protections for sustainable lending, but
they fail to fully deliver those protections. The Bureau laudably offers a rebuttable presumption
for subprime borrowers, a chance for homeowners in this soon-to-be-reemerging market to seek
redress if they receive a qualified mortgage that the lender should have known was nevertheless
unaffordable. This important backstop against abusive lending will not be available in the
prime market. The safe harbor the Bureau has afforded for
prime loans provides shelter to lenders who knowingly make unaffordable loans, in direct
violation of congressional intent. While the “qualified mortgage” definition guards against
many abuses of the recent crisis, without a rebuttable presumption, new abuses will
flourish. For example, a 43 percent debt-to-income ratio in the rule is a helpful starting point
and may be a reasonable standard for a homeowner earning $10,000 per month, but for a homeowner
earning only $1,000 per month, 43 percent does not leave enough to pay the utility bills
and other essentials. A residual income analysis that looks at the actual cash available is
essential in assessing loan affordability for low-income homeowners, and adjustable-rate
mortgages with exploding payments can meet the “qualified mortgage” definition, so long
as the payments increase after the initial period covered by the rule. The Bureau intends to seek further comment
on the treatment of yield spread premiums, payments by lenders to brokers to upsell homeowners
into needlessly expensive loans. These payments must be clearly and fully included in the
cap, as they are in the statute, to avoid the resurgence of abuse by brokers. Limits
on compensation are not enough to constrain this abuse. A rebuttable presumption does not create significant
litigation risk to the market. Few homeowners find an attorney. Fewer prevail. Individual
homeowners face a heavy factual burden to overcome and due to the fact-intensive nature
of the inquiry class actions are not viable. The Bureau’s qualified mortgage rule invites
abusive lending in the prime market and erodes the extent of the progress made by Dodd-Frank.
Combined with the lack of a rigorous market-wide loan modification mandate, this rule makes
progress but still leaves homeowners and the market vulnerable to a future crisis. Thank you. RAJ DATE: Ms. Cohen, thank you. Professor Wachter, thank you for being here.
May we have your statement? PROFESSOR SUSAN M. WACHTER: Thank you, Raj. While there is much work to be done to repair
our nation’s housing markets, the step that has been taken today is an important—even
a landmark one for the future of the nation’s housing finance system. A safe and sound mortgage system must be built
on trust, trust that processes of mortgage underwriting have integrity and are known
and controlled. Today’s step goes a long way to bringing trust back to the mortgage finance
system. It does so not by prohibiting mortgage products, but rather by establishing standards
to ensure that underwriting risks in the origination of mortgage loans are controlled and known. We have come through a crisis of historic
dimensions. Elsewhere, I and coauthors have noted that at the root of the failure of the
mortgage system were informational problems that prevented mortgage participants from
knowing and accurately pricing the risk of mortgage products. At the heart of these problems was the failure
to properly assess borrowers’ ability to repay their mortgages. Only in retrospect can we
see how severe this failure was. In real time, market participants could not have known how
many mortgages were issued to borrowers who did not have the income to repay principal,
interest payments, fees, et cetera. As a result, consumers and market participants underestimated
the likelihood of both borrower default and indeed the system failure that resulted. The housing finance system is more than a
market for profit. It is a social contract that can enable safe and sustainable home
ownership. When we abuse that contract, we do not simply harm the economy. We rob our
citizens of their trust in this American institution. Ensuring borrower ability to repay is more
than a precaution. It is an essential ingredient in the fair treatment that citizens deserve
as borrowers, as consumers, and as Americans. The new rule announced today will put us on
the path to restoring the integrity of the system. Thank you. RAJ DATE: Thank you, Professor Wachter. Mr.
Moskowitz. DAVID L. MOSKOWITZ: Thank you, Deputy Director
Date, and thank you, Director Cordray, and the entire talented and obviously exhausted
Bureau staff for reaching this momentous day. The publication of the Ability-to-Repay rule
really is of tremendous importance to American consumers and to help achieve stability in
the mortgage market and to solidify sustainable homeownership. We have long believed that
a broad and clear “qualified mortgage” definition under the rule is the best way to support
robust originations in the primary mortgage market and to enhance liquidity in the secondary
market. The qualified mortgage rule codifies a strong
nationwide ability-to-repay standard that when consistently applied will protect consumers
and assure the availability of credit. It will also help assure that qualified loans
are available across the entire credit spectrum. The release of this rule is an important milestone.
The true impact to consumers will not be known until the rule is implemented and made operational
by lenders over the course of the year ahead, and we applaud the Bureau’s commitment to
the implementation process that will be transparent and flexible and will result in the best outcome. We appreciate the thorough and inclusive approach
the CFPB has taken in developing the rule, and we compliment the Bureau’s willingness
to engage stakeholders to consider new information and perspectives and to develop a balanced
rule that protects consumers while ensuring that home loans remain broadly accessible.
The Bureau’s decision last year to reopen the comment process fostered deeper dialog
about the role of consumer’s debt-to-income ratios in defining qualified mortgages, identified
issues with litigation risks and related consumer costs. In addition, the Bureau has rightly placed
significant emphasis on collaborating with other regulators, including the Federal Reserve
Board and the Federal Housing Finance Agency. We urge the Bureau to continue this important
partnership as other important regulations are finalized, particularly the qualified
residential mortgage rule. The rule issued today represents a framework
for the implementation of ability-to-pay requirements, but it won’t answer all of the questions that
will arise during implementation. Other factors that are still outstanding that are important
to resolve over the months ahead are the importance of FHA reform, credible movement towards GSE
reform, and a prompt resolution of those QRM issues. These will help assure stability and
certainty in the market. We are looking forward to working with the
Bureau in the months ahead on the implementation of this rule and commend the Bureau and its
staff again for its expertise and its commitment to stabilizing the market and assuring the
availability of credit across the spectrum. RAJ DATE: Thank you, Mr. Moskowitz. Ms. Thomas,
your statement. And I think we will probably have better luck with the microphones, I am
told, if you just pull it quite a bit closer to you. KAREN THOMAS: Thank you, Raj. Director Cordray,
thank you for convening today’s field hearing on mortgage policy. I am very pleased to be
here to represent the views of our nation’s 7,000 community banks. Community banks play an important role in
our nation’s economy and in mortgage finance. They are locally-owned and -operated institutions,
and they have very strong ties to their communities and their customers. In many small towns and
rural communities across the country, the local community bank is the only reliable
source of credit for home purchases. Community banks have a vested interest in the economic
well-being of their customers and communities. Their business model is relationship-based,
not transaction-based. They did not engage in the lending and servicing practices that
contributed to the recent financial and foreclosure crises. They are responsible common-sense
lenders, and the low default rates for mortgage loans that were originated by community banks
bear this out. ICBA understands the intent of Congress and
the CFPB to prevent mortgage abuses from occurring in the future and to stabilize the housing
market. Nevertheless, we’re concerned that the plethora of regulatory changes in the
consumer market policy could further stymy the housing market and community banks’ ability
to provide mortgage loans to their customers, and for this reason, we have urged the CFPB
and other regulators to tailor the rules, so they don’t inhibit community banks’ ability
to provide mortgages. Many community bank mortgage loans are held
in portfolio, and they are not sold on the secondary market, so the banks have a vested
interest in how the loans perform. And accordingly, their underwriting for these loans has historically
been more conservative. Many of these loans are not cookie-cutter loans found in the suburban
and urban markets. They are made to borrowers who cannot qualify for a secondary market
loan and not because they don’t have the ability to repay but because their properties may
be unique. It may be a large parcel or have out buildings that don’t qualify for the secondary
market, and like the example that the Director mentioned earlier, there may not be comparable
sales in the requisite geographic area or time frame to qualify for secondary market
loans. But community banks are especially adept at
making the loans, because the bankers know their customers and have extensive knowledge
of the housing market in their local community. The standards and definitions set in the Qualified
Mortgage and Ability-to-Repay rule will have far-reaching impact in the mortgage market.
Borrowers on the wrong side of the QM will not be able to get the mortgage they want,
or they will pay considerably more for it. Many community banks would cease or significantly
curtain mortgage lending if there were only a rebuttable presumption of compliance for
qualified mortgages. This is because they simply would not be able to absorb the compliance
and litigation risk. Therefore, ICBA has strongly advocated that the rule provide a safe harbor
for loans deemed to be qualified mortgages. We have also urged that community bank mortgage
loans held in portfolio and serviced for the life of the loan receive this legal safe harbor. We are pleased that the Bureau recognized
these concerns in crafting the Final Rule and the proposed amendments. We believe that
the safe harbor for qualified mortgages, which includes rural balloon payment mortgages,
will enable the nation’s community banks to continue to serve their clients and communities
while providing safe, sound, and affordable mortgage credit. We look forward to working
with the Bureau as the rulemaking process moves forward. Community banks recognize that mortgage finance
is now at a crossroads, and we urge policymakers to continue to take the path that will enable
community banks to provide mortgage loans to their customers, so that these consumers,
too, can achieve homeownership. Thank you. RAJ DATE: Thank you very much. What we’d like
to do is take a few minutes for myself and my colleagues from the Bureau to follow up
on some issues that were raised in the statements, and I will take the liberty of beginning,
perhaps by asking our consumer panel just to maybe elaborate on one theme. The Ability-to-Repay
rule and the “qualified mortgage” definition are meant to solve important problems. They
are not intended nor can one imagine it being some kind of global panacea, but within the
context of other protections that already exist or were created by Dodd-Frank, how is
it that you view the impact of this rule moving forward? Ms. Cohen, perhaps this time we can begin
with you. ALYS COHEN: Thank you. The ability-to-pay
requirement is part of the Truth in Lending Act, which has been around for several decades,
and it was built on the notion of disclosure being the answer to market issues, something
that Professor Wachter alluded to earlier. This provision is really a step in a new direction,
which is to say disclosure matters. We need better information in the market, but in addition,
substantive fairness is a key part of having a functioning market. Having a clear standard like the Bureau has
issued will enable that to occur, and having it issued by an agency that for the first
time has its main goal and focus the benefit of consumers is also a novel set of regulations
and a novel paradigm. This is your first significant mortgage rule,
and we congratulate you. RAJ DATE: Ms. Rice? LISA RICE: Let’s hope the mic works this time. Raj, thanks for the question, and it’s a very
important one. One of the things that we advocated for in the lead-up to the crisis were for
regulators to adopt a set of rules that would apply across the market very broadly, because
we were seeing very grave differences between loans that were being originated in the subprime
market or the Alt-A market versus the prime market, the conforming marking versus the
nonconforming market. And what we wanted were uniform standards that would be applicable
across the board to all mortgages, so that we could help standardize the mortgage experience
for consumer but also ensure basic protections for consumers. And as you’ve already said,
Raj, the ability-to-repay standard is not a panacea. Just because we have this, it doesn’t
mean that we will no longer see abuses in the marketplace, but what it does do is it
takes us in that direction of establishing uniform, sort of base standards, safety standards
for all mortgage loans in America. RAJ DATE: Thank you. Mr. Calhoun. MICHAEL CALHOUN: One of the reasons this rule
will be so important is it sets standards that not only apply for this rule, but are
widely anticipated to be adopted in other important ways. For example, there already
have been legislative proposals that the government agencies that insure loans can only insure
qualified mortgages. This rule relates—legally, it’s tied to another rule that addresses whether
those who securitize mortgages have to set aside extra capital, and they will have to
set aside extra capital for those loans that are not QM. So it not only provides a definition
for this particular rule, it is seem widely as adopting standards that will largely define
the market. And it does so, I think, appropriately in
three categories. There hasn’t been a lot of discussion, but there are actually three
categories coming out of today’s rule. It is what are prime QM loans, and the idea is
that the rule sets up incentives to align those of lenders and borrowers, so that if
you make a prime QM loan, the borrower should have a strong likelihood of success in that
loan. In the subprime space, I think it’s important
that even before the housing crisis, those loans carried very significant risk for borrowers.
Our organization’s data showed that before the crisis, back in the late 1990s, 2000,
if you took out a subprime loan such as in Charlotte, your chances were one out of three
that you would end up losing that home, and so, appropriately, those loans should be available
but with great care. And then finally, there’s a third category
not addressed today. These rules also affect the so-called HOEPA, or very high-cost loans.
So, in today’s market, that would be a loan with more than 10 percent interest, for example,
as compared to the 3.5 percent interest that most people get today. And again, even more
so than subprime, those loans should be prohibited, but they should be limited to very extraordinary
circumstances, and there should be very, very strict protections there, and I think this
is a movement in that direction and comes close to hitting that mark right. RAJ DATE: Thank you. Why don’t I invite one
of my colleagues. Pete Carroll is our Assistant Director for Mortgage Markets. Pete, would
you like to inquire of the panelists? PETE CARROLL: Thanks, Raj. This next question is for Professor Wachter.
If the Ability-to-Repay rule had been in place in the lead-up to the financial crisis, what
might this rule have meant for consumers? PROFESSOR SUSAN M. WACHTER: Thank you for
the question. In the run-up to the crisis, borrowers may
have assumed that lenders were in the business of offering repayable loans, but in the event
too many loans were made which could not be repaid, I believe that this rule would have
prevented such loans from being made without appropriate warning to consumers and, thus,
would have prevented much suffering to borrowers and harm to America’s communities and indeed
the broader community. Thus, it’s an important step forward. RAJ DATE: Zixta. ZIXTA Q. MARTINEZ: Thank you. This next question
is for Lisa Rice of the National Fair Housing Alliance. Lisa, most folks would generally
agree that underwriting standards were far too loose in the lead-up to the crisis and
that they’re currently too restrictive. What does this rule mean for extending access into
the nonprime mortgage base going forward? LISA RICE: Zixta, thank you for the question. I am reminded of the first predatory lending
case that I worked on. This is in the early 1990s. It involved a senior citizen, a single
female head of household, who had owned her home in Toledo, Ohio, for years, for decades.
She had a prime mortgage that she had been paying faithfully. She had stellar credit.
She was convinced to refinance out of that prime sustainable mortgage, fixed-rate mortgage,
with Charter One Bank into a subprime loan to get a debt consolidation loan, and she
was convinced to do this because the lender told her, “You’re going to have just one payment,”
and that really appealed to her because she was on a fixed income. The lender was going
to pay off all her other debt. Well, of course, you know the story. At the closing table,
all of the terms and conditions were completely changed on their head. She got a subprime
loan that the interest rate was more than double the prime rate that she had been paying,
and of course, the lender did not pay off all of her debt. So her debt-to-income, her
total debt-to-income ratio, of course, skyrocketed, and she didn’t realize what had happened to
her until after the loan had closed. So I relay that story because it typifies
for me in terms of my experience what I have seen with consumers over and over and over
again, and that is that consumers who qualified for prime credit got steered into the subprime
market, as you heard Senator Cardin say. The Wall Street Journal commissioned a study
not too long ago, several years ago, in which they looked at certain vintages of subprime
loans, and one of the vintages they found, that over 61 percent of the folks who had
gotten subprime loans qualified for prime loans. So it’s our hope that this rule will
help. It’s just one peg. When I think of access to safe, sound, quality credit, I think of
it sort of as a wheel with all of these spokes, and the ability-to-pay standard and the qualified
mortgage standards are two of the spokes in that wheel that are necessary to make sure
that we have access to sustainable and affordable quality credit. So I think the rule is a very important one
for us going forward, and I think that not only is the rule important for making sure
that we are extending safe credit in the nonprime sector, but also it’s an important component.
It’s one of the important components to making sure that consumers who really do qualify
for lower-cost mortgages can get those loans. ZIXTA Q. MARTINEZ: Thanks, Lisa. This next question is for Alys Cohen, Staff
Attorney with the National Consumer Law Center. Alys, within the context of the “qualified
mortgage” definition, in your opinion what does a rebuttable presumption of compliance
meant for consumers? ALYS COHEN: Thank you, Zixta. First, let me applaud the Bureau for the detailed
articulation of the rebuttable presumption for subprime borrowers that appears to be
included in the rule. We look forward to reading it, including the use of residual income as
an articulated reason for rebutting that presumption. So the rebuttable presumption, what is it?
It is the opportunity to show that your loan was foreseeable unaffordable when it was made,
even if it meets the definition of a “qualified mortgage.” It is the chance to save your home
if you can prove your case. While the “qualified mortgage” definition promotes more sustainable
lending, there are always gaps, like there were after HOEPA, and new products develop.
The rebuttable presumption helps address those instances. But beyond consumers, the issue also relates
to how the market functions. The main goal of the rule is to incent sustainable lending
and good behavior. The limited liability in the rebuttable presumption steers lenders
away from unaffordable loans. The structure of having a safe harbor for prime loans and
a rebuttable presumption for subprime loans may also promote more lending in the prime
space, but with that full legal insulation of the safe harbor, lenders will also push
the envelope on abuses, and abuses migrate to unregulated portions of the market, because
the homeowner has no chance to show that the loan was unaffordable at inception. The rebuttable presumption will provide a
more robust set of protections for the most vulnerable borrowers, those with subprime
loans. Credit is tight now. It is tight now because of lender overreaching that caused
the crisis, not because of any litigation risk caused by consumer claims. A rebuttable presumption leaves room for market
recovery while also creating incentives for fair lending that’s missing from a safe harbor. RAJ DATE: Pete? PETE CARROLL: This next question is for David
Moskowitz. With regards to ability-to-repay requirements, how do these requirements fit
into how you think about basic underwriting practices? DAVID L. MOSKOWTIZ: Thanks for the question,
Pete. It is entirely consistent with how we think about basic underwriting. We support
the Bureau’s establishment of consistent industry ability-to-repay standards. In the past, lenders
were subject to different ability-to-repay standards or no standards at all or standards
that applied only to portions of the market. Too many smaller players who were not invested
in the long-term success of their customers, who either didn’t retain the servicing rights
or who didn’t keep the loan on their books, are able to utilize underwriting standards
that were not sufficiently focused on the ability to repay. The market would have been
better off if basic and consistent underwriting standards were in effect across the industry
that were clear and that there was no departure from them. So we think of ability-to-repay
in a way that’s entirely consistent with the Bureau’s approach and fundamental to sustainable
homeownership. As Director Cordray said at the beginning,
it’s a simple and obvious principle that an ability to repay would result in the approval
of a loan application only when the lender believes that a consumer has the ability to
repay a loan in accordance with its terms. It is basic Underwriting 101. Ability-to-repay
standards in the Final Rule that embrace that concept and are applied universally will help
assure sustainable homeownership and fulfill the Dodd-Frank requirements for enhanced underwriting. PETER CARROLL: Next question is for Karen
Thomas. How are smaller community depository institutions viewing the Ability-to-Repay
rule? KAREN THOMAS: Thank you, Pete. Well, at the outset, looking at the Proposed
Rule, the community bankers met it frankly with trepidation and anxiety. Like most or
a lot of regulations, the regulations and the regulatory burden is kind of borne of
practices that community banks didn’t engage in, but then they kind of get the fallout,
and they “enjoy”—using that word sarcastically—the regulatory burden that goes along with it.
So they were very concerned not about the ability to repay as a concept, because after
all, as I described, community banks make solid loans, and they certainly—that’s what
they do, take into account the ability of their customers to repay. They are more concerned
about rigidity in a responsibility and their ability to be flexible and provide loans to
their customers that, like I said, don’t necessarily fit that cookie-cutter mold. But at the same time, in the run-up to the
financial crisis, they watched customers who would come into their banks and who wouldn’t
qualify for a loan that that community bank would make. They watched those customers walk
down the street and get a loan from somebody else, and those are the kinds of loans that
later on blew up and caused damage to the customer, so they certainly understand the
impetus for the rule. CFPB’s door has been wide open to community
banks during the course of this process, and we have been very grateful for that. You can
see that some of the details in the rule take into account the concerns of community banks.
The full rule itself will come out later today, and we look forward to reading about those
details, but on the first look, you know, we are encouraged by it that the concerns
of community banks will be taken into account. As we move through implementation and understanding
of the rule, community bankers will let us know sort of where the sticking points are.
The definition of—there’s some special rules for rural lenders. We will be looking closely
at that definition, and our bankers will be looking, as well, to see if their operations
fit into those definitions. So thinks will unfold over time. The other point I want to make is it’s important
to know that this rule, the QM rule, is just one piece, although arguably the most important
piece, of the mortgage reforms that the CFPB is working on. So the other mortgage rules,
the servicing rules, loan officer compensation, RESPA-TILA and so forth are also going to
impact community bank mortgage operations, and we have to be careful that the cumulative
burden of all this doesn’t push some customer banks out of the mortgage market. I want to give you an example. A while back,
this Federal Reserve adopted an escrow requirement rule for certain mortgages. There are many
community banks that have very low mortgage volumes, and so they did not have an escrow
operation. Now they were required to have escrow, they couldn’t provide that to their
customers, and so they had to cut off the mortgage lending that they do. That is the
result that we want to avoid, because we want community banks to stay in this marketplace
and be able to serve their customers. RAJ DATE: Thank you. I’d like to take a couple of minutes to follow
up on some threads that were raised by a number of the panelists about the multiplicity of
policy initiatives underway with respect to the mortgage business but more broadly. Presumably,
to live through a credit crisis and a financial crisis, the magnitude of which we have all
suffered through, a great many things have to go wrong—abusive practices, disastrous
credit decisions, undercapitalized firms and vehicles, fragile funding structures—a great
deal to fix, so naturally there are a number of reform efforts underway. This rule clearly
does not do everything, but within that context, perhaps you, Mike, what—within that context,
how do you view the role or importance of this rule about a recovery in the mortgage
markets? MICHAEL CALHOUN: The announcement and implementation
of this rule will, I think, profoundly advance the recovery in the housing market for at
least three ways. First, it sets this important baseline of standards for mortgages. One of
the things in this housing crisis is, while many other countries had housing bubbles,
the United States really stood out as having the worst-quality mortgages. People were not
only struck with declining house prices in the United States; they couldn’t afford the
basic mortgage itself, except for by refinancing in what was hopefully a never-ending appreciating
market. So it addresses that which was the core flaw in the housing market in the United
States. Second, it provides clarity for the secondary
market. Those who provide capital for mortgages have a profound effect on which mortgages
are offered. It is not just a decision of the lender or even a substantial bank itself.
It is whether they can sell that loan into the secondary market, and most important,
what are the risks of that. And in contrast, virtually no borrower litigation coming out
of this housing crisis, there had been a tremendous number of investor claims from both private
investors and government claims, so-called “buyback claims,” where they are able to force
lenders to buy back defaulting mortgages and absorb all the cost of them. It is anticipated
widely that those purchasers in the secondary market will require lenders to certify that
their loans meet QM standards. That’s one of the places where this standard will have
a big impact, and by having the brighter-line standards that are announced today that cover
a wide part of the market, it gives lenders the confidence when they originate a loan
that it meets that standard, and that means that when they sell it into the secondary
market, they are not at undue risk that they will have to buy it back one day. And finally, I think it validates the good
work of the CFPB. I mean, the creation of the CFPB was a sea-change in the regulatory
world, and there was a good bit of angst and fear in the industry that it would impose
unreasonable proposals and not dig into the data and to the operational concerns of consumer
markets. And I think by this rule and by the comments you’ve heard today, it is clear that
they fully did so and produced a rule that is both designed to help consumers but also
to work for industry, so that there will be credit available. RAJ DATE: Thank you. Perhaps, Professor Wachter,
I could ask a variant of the same question to you. If you imagine the Ability-to-Repay
rule as a necessary but presumably not-sufficient condition for the return to a sensible and
more vibrant mortgage lending market, what else has to happen? What are the markers that
we as market participants and consumers and regulators should be looking for on the road
to that return? PROFESSOR SUSAN M. WACHTER: Of course, there
is more work to be done in the implementation of this rule. There is also important issues
surrounding mortgage servicing rules and of course the QRM. Further, we as a nation today remain fully
reliant on a federalized mortgage system, and we need to bring private capital back.
We need to arrive at a consensus on new structures to do so. Nonetheless, the CFPB is to be congratulated.
This is a major step forward. Today’s step, today’s rule is a major achievement. RAJ DATE: Thank you. In the spirit of doing
hard work and doing it well and doing it on time, I think we should probably thank our
panelists at this point for joining us and for the valuable perspectives both today as
well as throughout the rulemaking process. Thank you, and we will move to the next phase
of our public hearing. [Applause.] ZIXTA Q. MARTINEZ: Now it’s time to hear from
audience participants here today. I am told that our audience includes community leaders,
advocates, industry representatives, and of course consumers. The open mic portion of
today’s field hearing is an opportunity for the CFPB to hear about your experiences with
mortgages and to share your observations. Each person will have 1 to 2 minutes to tell
the Bureau their story and to share their observations, and what we hear from you is
invaluable. We want to hear from as many of you as possible, so I strongly encourage you
to please observe the 2-minute limit, so that as many folks as signed up to share their
observations have the opportunity to do so. With that, I’d like to call up our first audience
participant, Marceline White. One of our staff will bring a microphone to you. ATTENDEE (Maryland Consumer Rights Coalition):
Thank you. Thank you for the opportunity to speak today. Director Cordray, members of
the Bureau, we appreciate you coming to Baltimore. My name is Marceline White. I am the Executive
Director of the Maryland Consumer Rights Coalition, MCRC. MCRC works to advance fairness and justice
for Maryland consumers through research, education, and advocacy. I’m also a proud homeowner in
Baltimore City. Thank you today. I appreciate all the work
that the Bureau has done on these rules. Homeownership, as we know, is a vital avenue for wealth-building,
especially for low- and moderate-income families. We know that these families use home equity
to increase their assets and to borrow against home equity to support human capital investments
in their families, such as higher education. We know this is particularly true in communities
of color. So we know that the work you are doing is incredibly important for all of our
families, but especially low- and moderate-income families. It’s imperative, as you said that the mortgage
lending rules adequately balance the needs of financial institutions and consumers, and
it’s important that it opens up and provides more access to credit as well as clear and
transparent standards for borrowers and for lenders. However, our concern right now is
that as written, the rule does too much to protect banks at the expense of working families.
Our concerns are that the safe harbor in the Qualified Mortgage rule provides too much
of a legal field for financial institutions, and it absolves them of most of the liability
around the ability to repay. Our concern is that, as defined, as the rule
is defined, most mortgages will qualify as QMs and will be shielded from lawsuits. This
kind of safe harbor provision serves to protect financial servicers while casting homeowners
out to sea. We believe there should be a rebuttable presumption for all loans. We also believe that the proposed QM rule
assumes the financial institutions have engaged in sound underwriting, despite clear evidence
to the contrary over the past 10 years. We understand the impetus of the rule and the
motivation; however, we know that banks and financial institutions should have always
been engaged in sound underwriting policies, and that has not been the case. We hope the
rule will go further to redress that, and we think the standards are important for consumers
but have very strong concerns about the safe harbor provisions. We are also concerned that the inclusion of
the 43 percent debt-to-income ratio may price out low- and moderate-income families who
would like to purchase a loan, and would like you to continue to look at that issue, and
then— ZIXTA Q. MARTINEZ: Thank you, Ms. White. ATTENDEE (Maryland Consumer Rights Coalition):
And I am just going to say, I am going to end that we simply appreciate the work you
have been doing and would like to make sure that you continue to engage people on the
ground on these issues. ZIXTA Q. MARTINEZ: Thank you for your comments,
and thank you for the work you do in Baltimore. Our next audience participant is Yaneth Millan. ATTENDEE (Yaneth Millan): Hi. My name is Yaneth
Millan, and actually, I’m an occupational therapist, and I work for the Baltimore Public
School system. And I am here to represent not only the Latino community, but all Americans
that have been struggling to maintain the American dream to own a house. Actually, in your system, like if you had
a paper brought it, you can write it down, I am No. 120213003, and I want by today in
a real story, and that is why everybody is here. I had actually a complaint with the agency,
because I have a subprime loan with an interest rate of 6.87 percent, and in about like 3
years, it is going to go up to $700. I have—I tried to obtain a loan modification, but I
never was able to get that modification, and I am really happy now that you have new rules
to prevent fraud and abuses. But now I am wondering what actually your agency is going
to be doing for people like me that are still struggling to make their home payments with
subprime loans. I think that we live in a great country, and
definitely we are here because we can make all dreams come true if you really work hard.
We are all accountable for what we do, and I would like to know also how your agency
is reviewing and tracking all the complaints that you have and how you are making sure
that you are offering a timely, timely response to your people. ZIXTA Q. MARTINEZ: Thank you, Ms. Millan.
I’m sure you have our staff in Washington, D.C., furiously looking up your complaint.
We have your contact information, and we will make sure that staff follows up with you.
Thank you for your work with the Baltimore Public School System. Our next audience participant is Mike Morren. [No response.] ZIXTA Q. MARTINEZ: Do we have Rod Staatz? ATTENDEE (SECU and CUNA): Thank you. I am
President and CEO of SECU here in Maryland, and I am also here in behalf of CUNA, Credit
Union National Association. First of all, we feel the agency has generally
developed an approach regarding safe harbor for lower-priced mortgage loans and a rebuttable
presumption for higher-priced ones that should be workable for consumers, while avoiding
disruptions in the mortgage market based on lenders’ fears of increased liability and
so on. We commend your efforts on this particular issue. We also appreciate that the Bureau is allowing
a temporary exemption from the qualified mortgage, a general 43 percent debt-to-income ratio
requirement for loans that will meet the eligibility requirements of the GSE, so we really appreciate
that, as well. However, we remain concerned that there may be instances where higher debt-to-income
ratio may be appropriate for certain borrowers, especially with us as we deal with our own
members, and you know what the credit unions and what they do for their members, and so
we will be closely reviewing this aspect of the Final Rule. Given the scope of the rulemakings that are
pending at the agency, we wanted to reinforce our members’ concerns and again urge the agency
to do all it can to contain new regulatory requirements for credit unions. Some of the
issues expressed by the community bankers, as you well know, as the same issues that
we have, especially for some of our smaller credit unions and being able to adapt for
the myriad of regulations that are going to be thrown their way. CUNA commends the efforts of the Bureau and
the general appreciation of the work of the credit unions that you, Director Cordray,
and your staff continue to express. We greatly appreciate the time that you have spent with
us and your willingness to listen to how we do business and how we can help our members.
Nonetheless, credit unions remain very concerned about the barrage of regulatory actions that
could come their way, and we’ve had discussions with those, and you’re very well aware of
those. Now, that’s the CUNA’s part. On the part of SECU, a quick little mention
that, you know, when you talk about no-doc, low-doc, interest-only, negative amortization,
hybrids, option adjustable, we didn’t do any of those. We never did, and we never plan
to do any of those, so as we move forward, a lot of what you are suggesting here, we
have been doing over time, anyway. We just want to make sure that there is ample time
to make sure that we have got it all in place and that it works effectively for our members
and for us. And if Congressman Cummings were here and
Senator Cardin were here, they mentioned about the hearings that they have held—or not
the hearings, but the outreach sessions to help. You know what our members needed during
this financial crisis? A phone, because all they had to do was pick up the phone and call
us, and we would work through the situations with them, and we didn’t need to be told what
to do in those cases. As a matter of fact, we had an outreach program in our newsletter
that said talk to us if you are having issues because we will work with you. That’s how
much we care about our members. Lastly, Director Cordray, I want to thank
you. Last night you made a call to Bill Cheney to talk to him about this rile, and we really
appreciate again that call and the cooperation that you have shown with us as we try and
work through all of this. Last thing is, will the rule be published
this afternoon, the Final Rule? [Laughter.] ZIXTA Q. MARTINEZ: We’re very hopeful that
the rule will be published this afternoon. I’m getting a thumbs-up from— RAJ DATE: The prompting we’re getting is heads
nodding, so… ATTENDEE (SECU and CUNA): Okay, all right.
Thank you very much. ZIXTA Q. MARTINEZ: Thank you, Mr. Staatz. Mary Hunter. [No response.] ZIXTA Q. MARTINEZ: Joe Rogers? ATTENDEE: No comment. ZIXTA Q. MARTINEZ: Edsel Brown? ATTENDEE (Maryland State NAACP): Good afternoon.
It is indeed a pleasure to be here. My name is Edsel Brown, and I am representing the
Maryland State NAACP, and I would like to say on behalf of our membership that the mortgage
issue very adversely impacted our community. Similar to Congressman Cummings, we had a
number of workshops and hearings around the State, and I can’t tell you how many stories
I could relay to you about horror stories that people experienced. So we appreciate this first step that you
are taking to make improvements in the status quo, but while the bright lights are shining
and everybody is here, everything is well and good, but let’s not—this is a first
step. It’s not a last step, and we are looking to improve the process as we move forward. I have been involved in other regulatory processes,
and again, there’s always holes in the fence. Now, there’s always attorneys, associations,
et cetera, that are going to find the holes in the fence, and let’s make sure that this
isn’t like a one-time thing over the next 2 or 3 years. I’d like to mention a couple of other things.
One is information. Information is power, and organizations like the NAACP and other
community organizations need to get his information on the front end, not the back end. Also, partnerships. My colleague, who just
spoke a little bit earlier, made a few comments, and one thing that I’d like to say, there
has been a very severe breach of trust, so you have a number of consumers that even if
you call them up or reach out to them, they don’t trust you, so we have to rehabilitate
and build that trust back up, but again, I just want to thank you for this opportunity
to speak, but again, beginning, not an end. ZIXTA Q. MARTINEZ: Thank you, Mr. Brown. We
agree with that. Robert Curwin. ATTENDEE: No comment. ZIXTA Q. MARTINEZ: Reverend Gloria—pardon
my mispronunciation—oh, great. ATTENDEE (Communities United of Greater Washington):
Thank you very much. My name is Pastor Gloria Jones-Swieringa. I am co-chair of Communities
United of Greater Washington. I am also a sitting commissioner on the Commission for
Persons with Disabilities for the County of Prince George, Maryland, and I also want to
commend you for your very important first steps towards resolving a very egregious problem
with regard to predatory lending. I myself am a predatory lending survivor;
however, I am very concerned as to whether or not the protections built into your efforts
are adequate enough for people who are particularly vulnerable, such as folks like myself who
are totally print-disabled. One of the things I would really like to happen is to get a
copy of your proposal in some audio form. I do not have immediate computer access, and
unless God changes his mind, I’m not going to be able to read the printed page. But one concern that I do have is a safe harbor
for borrowers, and I will use myself as an example. My predatory lender has been in enthusiastic
violation of a modification contract solved—signed in October ’07 for quite a few years. I’m
paying almost $200 outside the agreed-upon sum. I have just learned a couple of months
ago that my predatory lender is in India, and that they don’t even have a standing office
in America, that they have abandoned this country, taking my insurance coverage with
it. I use that as an example, because if I were
a lone ranger, that would be beyond egregious, but as a member of the National Home Defenders
League, I can tell you that there are no lone rangers. There are people whose disability
is age. I’m 75. There are people whose disability is lack of information. So my point of encouragement,
the banks already have more protection than we do. In every single hopeful sign, when
it finally blossoms into reality, the bank is better protected than the borrower. At
some point, we have to arrive at a situation where somebody who is going through the types
of experience I am having—and I am in a discussion with your organization—has somewhere
to go with totally egregious, predatory, criminal, literally extortionist activity when you’re
talking about the roof over year head, can be adequately addressed. So in the safe harbor concept, we need to
see a safe harbor that adequately extends access to sufficient protection over the borrower,
or down the road, we are going to find the fox is back in the henhouse. We will be hemorrhaging
houses again, and neighborhoods, families, and society will again be experiencing the
trauma of a housing shortage. Thank you. ZIXTA Q. MARTINEZ: Thank you, Reverend Swieringa. Chris, can you please gather her contact information,
so that we can be responsive to her request? Thank you, Reverend, for the work that you
do in Baltimore. It’s important work, and we hope that you continue to be able to carry
it out for many, many, many years to come. Douglas Krause. [No response.] ZIXTA Q. MARTINEZ: Robin Ayele. [No response.] ZIXTA Q. MARTINEZ: Brian—oh, there we are.
Robin Ayele. ATTENDEE (Baltimore Neighborhoods): Hi. I
am Robin Ayele with Baltimore Neighborhoods, and I want to know what will be done or how
will you ensure that borrowers will not be—will be able to get loans in the future and low-interest
loans, those that deserve to get low-interest loans. ZIXTA Q. MARTINEZ: Would CFPB staff want to
take that? ATTENDEE (Baltimore Neighborhoods): For the
underserved borrowers. ZIXTA Q. MARTINEZ: Sure. RICHARD CORDRAY: So today’s rule should both
increase confidence in the mortgage markets so that lends feel more ability to lend and
consumers can feel more ability to look for loans and go to the closing table without
being set up to fail. In both of those respects, having a stronger market that has better consumer
protections really, as Mike said on the panel, is good for lenders and for borrowers and
should be good for the market. In terms of how the market will evolve over
time, we are just going to have to see. We don’t control all those details. We cannot
mandate that a lender lend to any particular consumer. We can just set up the right framework,
so that we think we can root out the kind of reckless lending abuses that were so endemic
before the crisis, and we think that having done so, we are going to open space for the
kind of responsible community banks and credit union lenders that we talked about, some of
the other programs we’re talking about, some of the non-profit groups and others, and the
main lending community to be more confident about their ability to lend to homeowners,
and that the market will support that and that they won’t have to compete against some
of the bottom-of-the-barrel deceptive abusive misleading types of loans that they were competing
against. And then we’re just going to have to see how the market evolves from here. ZIXTA Q. MARTINEZ: Thank you. Brian Cusic. ATTENDEE: [Speaking off mic.] ZIXTA Q. MARTINEZ: Carrie Hunt? ATTENDEE (National Association of Federal
Credit Unions): Good afternoon. My name is Carrie Hunt, and I am the Vice President of
Regulatory Affairs for the National Association of Federal Credit Unions. I hope we have some
Federal Credit Union members here today. Yes? No? Excellent. As you know, credit unions are charged with
providing credit to this country. It’s something that Congress has specifically told us that
we need to do, and I think that is a shared goal that we have with the CFPB. I want to
thank Director Cordray and all the CFPB staff for all of the hard work that you all have
done on this rule. Specifically at NAFCU, my job is to make sure
that our credit union members have rules that they can live with, that they can work with,
that really helps them do their job in lending to consumers, and as I have worked with your
staff, we have expressed concerns, and we have tried to really express why we need a
rulemaking that is effective. I hope that as we move forward, we really can take a hard
look at the regime that’s been created, and if it looks like that credit unions can’t
lend, that rules are too restrictive, that really consumers who qualify, who have the
ability to repay loans aren’t getting them, that we take a second look at what this country
is doing. And I would certainly hope that he CFPB would partner with us in working to
make sure that that doesn’t happen. We really appreciate that you have asked for
comments on credit unions and small banks to make sure that we can lend, and hopefully,
we will continue to do what we do best moving forward, which is what credit unions really
want to do. Thank you. ZIXTA Q. MARTINEZ: Thank you, Ms. Hunt. Kathleen Skullney. ATTENDEE (Kathleen S. Skullney): Thank you
for taking my comments. Those of you who know me know that I usually don’t need a microphone,
but I’m very glad to CFPB here in the Baltimore community. I am a practicing attorney in Maryland.
I have represented homeowners in foreclosure defense and mortgage-related claims for a
dozen years and have recently retired from Legal Aid. I was also privileged to be part
of the Governor’s Task Force that resulted in significant homeowner protections in the
statutory foreclosure process. I also was privileged to sit on the committee that revised
the court rules. I’d really like to comment on my concerns
over the safe harbor and specifically join the Reverend in her concerns. We are told
here today that the safe harbor is necessary as an incentive to sort of kick-start or break
open, if you will, the credit access that’s so bottled up. We also heard that this is
a result—that the whole meltdown was the result of some reckless assumptions and so
on. It was really the result of fraud and mind-boggling manipulation of the global financial
markets. It really was, and we all know this. What borrowers did had very little to do with
where we ended up. We’ve very glad to see that we are finally getting some regulation
related to this. Back when the earth was cooling, I was a securities broker, back when 60 million
shares was a big day and securitization actually made sense. What I would like to express is my concern
and the concern of my colleagues who practice in this area that if there is a safe harbor
such as being detailed in this rule that it be subject to simple rebut. The rebuttable
presumption limited to the subprime borrowers really makes no sense, and all borrowers are
entitled to affordable mortgages. And that a mortgage being affordable should be subject
simply to a broad rebuttable presumption, not a nearly absolute presumption. By the way, Maryland has an affordability
statute, and consumers did not have to—and borrowers did not have to relinquish their
right for total unfettered access to the courts in order to get that affordability requirement.
So we would like to see that broadened, the rebuttable presumption broadened to all borrowers.
Thank you. ZIXTA Q. MARTINEZ: Thank you for your comments,
Ms. Skullney. John Sullivan. ATTENDEE (Buyer’s Edge): Good afternoon, and
thank you very much for the opportunity. I’m John Sullivan from the Buyer’s Edge and former
President of the National Association of Exclusive Buyer Agents. My question to Mr. Cordray is, in your prepared
remarks, you referred to the true essence of responsible lending, and I applaud you
for your efforts on instituting reasonable regulation. You also refer to reckless lending
practices that caused the housing foreclosure crisis, but the vast majority of those cases,
it was a real estate agent who knew or should have known that the homebuyer didn’t have
the ability to meet his or her financial commitments. The real estate agent or broker, like the
lender, like the lender’s loan officer, got a commission and hasn’t been seen since. Unfortunately, the Dodd-Frank bill, which
created your Bureau, contained language that prohibits you from any enforcement action
against any real estate agents or brokers. My question to you, sir, is there anybody
at your Bureau who has enough wherewithal to stand up to the lobbying efforts of NAR
to ask Congress to eliminate those provisions from the Dodd-Frank bill and require the real
estate community to make the consumer aware of their agency choices when selecting the
agent to guide the consumer through the maze of home buying? At the present time, there
are 50 State regulations, none of them alike, some of them calling the same type of agency
a different name. We need some regulation at a national level on agency disclosure to
make sure that the consumer is protected when they are buying or making the biggest purchase
of their life. ZIXTA Q. MARTINEZ: Thank you, Mr. Sullivan. Allison Wang? ATTENDEE (Allison Wang): Hi. My name is Alison
Wang, and I am an interested consumer. I’d like to know—a trend in the employment market
is the increasing percentage of the population whose income mimics the self-employed, whether
they are hourly workers or independent contractors or freelancers. What protections does the
rule offer to ensure full access to the credit markets in light of the burden of proof of
ability to repay, so for those workers who may not fit the traditional model of a 40-hour
work week, salaried employee, or tenured employee? ZIXTA Q. MARTINEZ: Pete, do you want to take
a crack at that? PETE CARROLL: So the new Ability-to-Repay
rule does include provisions for creditors to verify and consider income, so verifying
income documentation is a very critical part of this rule, making sure that verified information
is used in any debt-to-income ratio determination. As you point out, self-employed borrowers
are a big segment in the market, and the rules we are putting forth do provide guidance for
how self-employed borrowers should be considered. They should not be locked out of the markets
as a result of this rule. They are factored into the guidance we provide, both within
the ability-to-repay standard as well as within the qualified mortgage standard. ZIXTA Q. MARTINEZ: Thank you, Ms. Wang. Vicky Titano? RICHARD CORDRAY: I’d actually like to just
say something to the previous question, which is I was not in Washington when Dodd-Frank
was fiercely lobbied over. I know it was. There were a number of exemptions written
into that law, although to the extent entities are providing financial products or services
to consumers, those exemptions are somewhat complex. I’m sure down the road, there will
be further consideration in Congress of how all the act is playing out. But I want to point out that one important
feature that is new is that the Consumer Bureau is now in place to oversee not only financial
institutions that have a charter, banks and thrifts and savings & loans, as was true before
Dodd-Frank, but also nonbank mortgage lenders and others who participate in this market.
And that’s very important, because you can’t have a satisfactory or successful regulatory
scheme that covers part of a market and leaves the rest uncovered. What you find is what
ICBA noted on the panel, Karen noted, of people going down the street and getting irresponsible
loans from people who are not subject to any standards and that cutting into the market
for more responsible lending. The fact that this rule is now in place and that it covers
the entirety for the most part of the mortgage lending market, I think is a very notable
step forward. ZIXTA Q. MARTINEZ: Thank you for the comments,
Director Cordray. Our last audience participant is Vicky Titano. [No response.] ZIXTA Q. MARTINEZ: Thank you all for joining
us today in Baltimore on the CFPB’s field hearing on the Ability-to-Repay and Qualified
Mortgage rule. What we hear from you all, the wide array of interests represented here,
is very important. We listen very carefully. So we thank you for taking time from your
day to talk to us. [Applause.]

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