Big Banks Urge Removal of DTI Requirement
September 11, 2019
Four bank giants have united to form a coalition to urge the Consumer Financial Protection Bureau to change its Ability to Repay/Qualified Mortgage rule and eliminate the debt-to-income ratio requirement. Bank of America, Quicken Loans, Wells Fargo, and Caliber Home Loans are leading the calls for a change.
The Ability to Repay or Qualified Mortgage rule was created by the CFPB following the financial crisis. It sets requirements for lenders to verify that a borrower has the ability to repay a mortgage before lending them money. As part of that process, a borrower’s monthly debt-to-income ratio must be determined not to exceed 43%.
NAR's Point of View
Underwriting is the foundation the housing finance system is built upon. The CFPB should take the necessary time to thoroughly vet and adopt a new, marketwide QM rule that provides just as wide and robust of a footprint as the current QM patch has.
A debt-to-income ratio by itself cannot accurately determine a credit borrower’s worthiness; rather, a more holistic measure is needed. Several groups have proposed alternative measures, but more research is needed on all of them. NAR will work with the CFPB toward this goal.
The DTI requirement does not apply to loans that are backed by the government, such as through the Federal Housing Administration, Department of Veterans Affairs, Fannie Mae, or Freddie Mac. Some critics argue that gives the GSEs an unfair advantage over private loans, which must meet the DTI mandate.
However, the CFPB has said it would allow the QM Patch—the stipulation that allows Fannie and Freddie to bypass that DTI requirement—to expire as scheduled on 2021. The GSEs will then be required to follow the same DTI rule as private lenders.
The banks’ coalition efforts have recently been joined by other housing groups—such as the Mortgage Bankers Association, American Bankers Association, and the National Fair Housing Alliance. They’ve sent a letter to the CFPB asking for it to eliminate the 43% DTI cap on prime and near-prime loans. They argue that it’s limiting lending outside of a GSE-backed loan. They also are arguing that a DTI ratio on its own merit is not a reliable indictor of a borrower’s ability to repay.
“Elimination of the DTI requirement for prime and near-prime loans would preserve access to sustainable credit for the new generation of first-time homebuyers in a safe and sustainable way and in accordance with the fundamental ATR requirements,” the group notes in its letter to the CFPB. “This change is especially important for reaching historically underserved borrowers, including low- to moderate-income households, and communities of color.”
“Wells Fargo, Bank of America, Quicken Loans, Others Want DTI Requirement Eliminated From QM Lending Rules,” HousingWire (Sept. 10, 2019)
Updated: May 28, 2020