Rulemaking Dictating Loan Terms Is Coalescing Around the CFPB’s Qualified Mortgage Standard, but the Future of Loans Outside of This Standard Remains in Question

By: Laurence E. Platt, Stanley V. Ragalevsky, Sean P. Mahoney

Since the enactment of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) government regulation has been pushing the mortgage banking industry toward homogenized residential mortgage loans with characteristics that the government considers “safe.” While this sounds simple enough, it has become complicated with at least three rulemaking processes dictating potentially different standards for residential mortgage loans:

• the “qualified mortgage” or “QM” definition in the Ability-to-Repay and Qualified Mortgage Standards rule (the “ATR Rule”) promulgated by the Consumer Financial Protection Bureau (“CFPB”) under Section 129C of the Truth in Lending Act;

• the “qualified residential mortgage” or “QRM” definition under the securitization risk retention rules (the “Risk Retention Reproposal”) reproposed by a consortium of regulatory and housing agencies under Section 941 of the Dodd-Frank Act; and

• the revised bank capital rules promulgated by bank regulators in accordance with Basel III (the “Basel III Rules”).

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